Compliant in principle! and in practice? Internal audit at listed companies in the Netherlands: beyond compliance with the Dutch Corporate Governance Code

Robert Bogtstra (), Inge Garretsen () and Remko Renes ()
Additional contact information
Robert Bogtstra: FSV Risk Advisory, Oegstgeest, Netherlands
Inge Garretsen: FSV Risk Advisory, Amsterdam, Netherlands
Remko Renes: Nyenrode Business Universiteit, Zeist, Netherlands

Maandblad Voor Accountancy en Bedrijfseconomie Articles, 2020, vol. 94, issue 3-4, 93-101

Abstract: The revised Dutch Corporate Governance Code of 2016 (hereafter "the Code") comprises provisions regarding the existence of an internal audit function. Following the comply or explain principle of the Code, Euronext Amsterdam listed companies with a registered office in the Netherlands either have established an internal audit function or have to explain why they did not. Our research shows that the number of listed companies with an internal audit function has since grown. In 2016 53% of Euronext Amsterdam listed companies with their registered office in the Netherlands have established an internal audit function; in 2018 this figure is 64%. More than half of these listed companies have an in-house independent internal audit function, whereas other companies have internal audit functions with different characteristics, such as a combined internal audit and risk management function or have outsourced the internal audit function. The majority of the companies without an internal audit function provide inadequate arguments for this absence. They thereby do not meet the standards as set forth in the Code. In most cases, the argument for not having an internal audit function is: "the organization is too small". This is not a valid argument, as the Code specifically addresses this situation stating that in case the size of a company is not suited for an internal audit function, outsourcing may be an appropriate alternative. We conclude that management boards should give this topic better thought and give better insight in their judgement by explaining the arguments. We therefore advocate that the principle of "comply or explain" should be "comply and explain". Such is the case in the South African corporate governance code (King IV). The effect will be that management boards mindfully have to elaborate on how they obtain independent assurance on the company's governance, risk management and control systems.

Keywords: Internal; Audit; Dutch; Corporate; Governance; Code; listed; companies; Euronext; Amsterdam (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mab-online.nl/article/50021/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arh:jmabec:v:94:y:2020:i:3-4:p:93-101

DOI: 10.5117/mab.94.50021

Access Statistics for this article

Maandblad Voor Accountancy en Bedrijfseconomie Articles is currently edited by Chris D. Knoops

More articles in Maandblad Voor Accountancy en Bedrijfseconomie Articles from Maandblad Voor Accountancy en Bedrijfseconomie
Bibliographic data for series maintained by Teodor Georgiev ().