The DASB found that there was a need in practice for further guidance regarding accounting for revenue under Dutch GAAP. Specifically, it was considered by the DASB whether to fully adopt the principles of IFRS 15. Due to the significant implementation costs and the target group consisting of non-listed companies (among many of medium size), the DASB decided to make only specific amendments to the existing standards 221 and 270 and supplement the standards with further guidance and illustrative examples.

An important underlying conceptual basis for revenue recognition under DAS is the transfer of risks and rewards, in contrast to IFRS 15 which is based on the concept of the transfer of control. Under DAS the underlying concept of risks and rewards remains unchanged by the amendments and hence remains an important difference between IFRS and DAS. Furthermore, the DASB decided to retain two separate standards for accounting for revenue. DAS 221 provides guidance for construction contracts with customers (DAS 221) and more generic guidance on revenue recognition can be found in DAS 270 (The Income Statement), especially section 1.

As a result, the DASB added guidance based on IFRS 15 to the current chapter structure in DAS (RJ 221/270). Examples of these additions to DAS 221 and 270 are:

• the identification of distinct performance obligations and the allocation of the transaction price among those obligations;
• accounting for variable consideration and significant financing components;
• recognition of revenue arising from licenses;
• guarantees;
• agent/principal considerations;
• payments to customers;
• customer options for additional services.

Despite this extension of guidance, IFRS 15 still contains more specific guidance in certain areas like significant judgements, performance obligations, contract balances and assets recognized from the costs to obtain or fulfill contracts with customers.

It is also important to note that the DASB empha­sizes that IFRS 15 is not leading in interpretation in case DAS 221/270 lacks specific guidance. In other words, it is not mandatory to fall back on IFRS 15 in case DASs contain no specific guidance. In that specific case the general ‘catch all stipulation’ of DAS 110.110 applies. This means specifically that the management board of the legal entity has to select a policy that provides relevant and reliable information for decisions made by the users of the financial statements.

The revised standard 270 includes additional disclosure requirements² regarding key concepts introduced such as disclosures on major performance obligations, method of attribution of revenue to reporting periods – including the methodology applied to determine the degree of completion – and disaggregation of revenue to major categories.

Few additional disclosure requirements have been introduced by DAS 221. The following disclosures were added³:

• Disclosure of capitalized costs of obtaining a construction contract;
• Disclosure of contingent income and expenses related to contracts with customers, whereby DAS 221 refers to the disclosure requirements in DAS 252 Provisions.

As we pointed out in our earlier study (Van Duuren and Ter Hoeven 2022) it is remarkable that the revised standard 221 does not mandate disclosures on the newly introduced concepts as set forth above. Particularly, this is remarkable because construction companies frequently enter into long duration contracts, which may involve multiple performance obligations (such as construction and maintenance) and, hence, are definitely affected by the key concepts introduced. We further reiterate and elaborate on this observation as part of our concluding remarks and recommendations.

In our empirical research in section 4 of this study we will elaborate on how companies implemented the newly introduced disclosures in their 2022 financial statements. With respect to the construction companies included in the sample – which have to apply DAS 221 including its disclosure requirements – we assess to what extent information is provided in accordance with the DAS 270 disclosure requirements as well. Despite the fact that DAS 221 does not mandate specific disclosure requirements of key concepts introduced by the revised standard (as is required in DAS 270), we do believe it would be best practice if such information is provided.

We further note that generally the disclosure requirements of IFRS 15 are more extensive compared with DAS 270. Particularly, IFRS requires more disclosures on significant judgements applied in the application of IFRS 15. No such disclosure requirements were added to the revised DAS standard which means that the overarching general disclosure requirements of DAS 110.129 on estimates and judgements are still applicable. However, these disclosure requirements are perhaps less emphasized or too generic (Van Duuren and Ter Hoeven 2022).

As explained in section 2.1, the implementation costs and the target group have been drivers of the DASB to not fully adopt the principles of IFRS 15. In order to further simplify implementation and minimize implementation costs a wide variety of transitional provisions were permitted. The transitional provisions of DAS 221 and DAS 270 allowed for the following three options⁴:

• Prospective application. This means that the revisions only apply to contracts entered into or modified after the beginning of the financial period in which the revised standard was first applied ⁵;
• Partially retrospective. This means that the revisions only apply to contracts entered into or modified as from a date specified by the company itself preceding January 1, 2022. This effectively provides companies the practical ability to re-assess contractual arrangements for a limited previous period but not having to re-assess contracts from an infinite past ⁶;
• Fully retrospective. This means companies will have to determine the cumulative effect of applying the revisions as of the beginning of the first comparative period presented and restate the comparative figures in the year of adoption of the revised standard. Long term contracts should be re-assessed as if the new guidance had always been applicable. This method is the most burdensome in terms of transition efforts to be made by the company, especially in the case of contracts closed long time before the start of the comparative period.

It is interesting to note that based on the stipulations of DAS 140 a change in accounting policies should generally be adopted fully retrospectively. Regarding DAS 221/270, the DASB has specifically chosen to also allow for a prospective or partially retrospective application option, albeit a fully retrospective application remains preferable. Our initial expectation would be that most of the companies have opted for the more ‘simplified’ prospective application option. This will be further analyzed in our empirical research.

With regard to the revisions in presentation and disclosure requirements, these may not be applied prospectively (or partially retrospective). This means that companies should apply these revisions (fully) retrospectively in the 2022 financial statements. Furthermore, several specific disclosure requirements apply to the transitional provisions adopted. Next to the disclosure of the transitional option applied, companies should provide additional disclosures (in accordance with DAS 140) in case of a retrospective application of the revised standards. These disclosures mainly relate to understanding the effects of the revisions on the comparative figures including the cumulative effects at the start of the comparative period.

Furthermore, since IFRS 15 became effective in 2018 the DAS allowed the application of the IFRS 15 principles for companies applying DAS by means of a so-called carve-in option. The carve-in option remains applicable under the revised standards 221 and 270. Noteworthy, in the sample selection process as described in section 3, we identified five companies which applied this carve-in option of IFRS 15.

In this section we discuss the disclosures of the changes in accounting policy for DAS 221 and DAS 270 in the 2022 financial statements. First of all, we analyzed whether companies disclosed the change in accounting policies following the application of DAS 221/270 revised. Several specific disclosure requirements apply to changes in accounting policies. This includes the disclosure of the change in accounting policies and how policies differ from previous policies and which transitional provisions are adopted and the financial effects on equity, results and individual line items.

As evidenced in Table 3 most of the population (60%) disclosed the change in accounting policy in their financial statements. Only one company (Nijs & Zonen Holding B.V.) in the population early adopted the revisions in the 2021 financial statements. In our earlier contribution (Van Duuren and Ter Hoeven 2022) we identified the early adoption by Nijs & Zonen Holding B.V. as a best practice. In this study a more extensive sample (n = 63) was selected and it is notable that no other early adopters were identified. One other company within the information and technology industry (by reference to the revised presentation requirements) updated its balance sheet presentation in its 2021 financial statements. This company did not early adopt the revised standards in its 2021 financial statements but did anticipate on the revised presentations by already presenting the work in progress position on a gross basis in its 2021 financial statement. In fact, the presentation of work in progress position on a gross basis is the recommended presentation under the superseded standard 221. However, most of the companies opted for the presentation of net contract asset and contract liability at the portfolio level, which was a presentation alternative also allowed by the superseded standards. This is further discussed in section 4.4.1.

Surprisingly, for 25 companies no information was found in the financial statements regarding the change in accounting policies of DAS 221 and/or DAS 270. From these companies, 10 companies specifically stated that the accounting policies did not change compared to the preceding year. We find this a remarkable observation because although the impact of the revisions may not be material, we would expect companies to make (at least) reference to the revised standards in their financial statements.

As a general observation, we noted that companies tend to focus on presentation differences in explaining the changes in accounting policies regarding DAS 221 and 270. Also, companies frequently refer to changes in DAS 221 and 270 as ‘presentation changes’ solely. This general observation is supported by the impact of the change in accounting policy disclosed by the companies in our sample. Table 4 depicts the impact disclosed on equity and/or results. The majority of the population either did not provide information on the impact on equity and/or results (59%) or disclosed there has been no impact on equity and/or results (40%). None of the companies disclosed such an impact. Furthermore, we determined that from the 38 companies which did disclose the change in accounting policy (Table 3), 21 companies also provided quantitative information on the impact of the retrospective application of the changes in presentation (Table 4).

In line with the finding that none of the companies disclosed an impact on equity and/or results, we observed that in none of the independent auditors’ reports the change in accounting policy is addressed.⁹ The significant majority of the auditors (86%) did identify a fraud risk regarding the revenue recognition (and/or valuation of work in progress) in line with a presumptive fraud risk on revenue recognition in accordance with Dutch and International Standards on Auditing.¹⁰

A best practice disclosure is identified for TBI Holdings B.V. which provided detailed and elaborate disclosure on the changes in accounting policies and how this affected the 2022 (and 2021) financial figures (Figure 1). Furthermore, the effects of the revised presentation requirements for the comparing period are disclosed in a clear manner (quantitatively and in tabular form). In respect of this best practice example, it should be noted that TBI holdings B.V. is the largest company (in terms of revenue) included in the sample within the construction industry. This adds to the general observation that larger companies tend to provide (much) more elaborate and detailed disclosures on the change in accounting policies. It may be argued that with increased size also complexity and societal relevance increases which may drive improved disclosures. Furthermore, literature generally supports the relationship between size and disclosure quality (e.g. Archambault and Archambault 2003). Alternatively, it should be noted that all companies within the population are large entities (‘grote rechtspersonen’) and therewith undeniable of (societal) relevance. Hence it remains remarkable to observe significant differentiation in the quality and extent of disclosure information provided.

Figure 1.

Best practice TBI (2022), p 109–110.

Another example which positively stood out was found in the financial statements of JOH.MOURIK&COHOLDING (Figure 2) which provided clear structure in their disclosure of the changes in accounting policy. The company clearly distinguished between the prospective application of the revised standards and the impact of the revised presentations which should be applied retrospectively. Furthermore, the company, consistent with TBI Holdings B.V., provided further information on how the retrospective application of the revised balance sheet presentation affected solvency. This topic is further addressed in section 4.4.1.

Figure 2.

Best practice JOH. MOURIK&COHOLDING (2022), p 17–18 (for translation: see Appendix 3).

In this section we discuss the transitional provisions adopted by companies. As set forth in section 2 of this research, three transitional options for application can be applied (prospective, partially retrospective and fully retrospective). Interestingly, the majority (40) of the companies did not (clearly) disclose the transitional provisions adopted. An explanation may be that – besides any impact of the revisions in presentation and disclosure requirements which should be applied retrospectively – the revised standard did not have a significant impact and hence the transitional provisions are not (clearly) disclosed.

The results (Table 5) show that the majority of the companies which did disclose the transitional provisions, applied the prospective application of the revised standards. This means that the revisions only apply to contracts entered into or modified after the beginning of the financial period in which the revised standard was first applied. This may also be an explanation of the lack of impact on equity and/or results accounts as outlined in Table 4. In this respect we note that only by applying a retrospective application of the revised standard, companies are required to provide information on the effects on equity, results and individual line items of the change in accounting policies. In case the prospective application of the revised standards is applied, companies are not required to provide information on the effects on equity, results and individual line items for the financial year 2022.

Furthermore, no companies were identified which applied the partial retrospective transitional provisions. We note that several companies specifically disclosed that the effects of the revised standards were applied retrospectively with (specific) reference to the changes in presentation. For the purpose of the empirical research these companies were denoted as ‘transitional provisions not (clearly) disclosed’ if no information was provided on the transitional provisions adopted other than those regarding the changes in presentation. Four companies were identified making reference to a retrospective application. None of these companies disclosed an impact on equity and/or results.

Figure 3.

Best practice SHV Holdings B.V. (2022), p 61.

As indicated before, only one company (Nijs & Zonen Holding B.V.) early adopted DAS 221/270.

In this section we discuss how the revisions of DAS 221/270 have been reflected in the accounting policies and how disclosures were affected in the first year of application. First of all, we examine to what extent companies updated their accounting policies to reflect the revised concepts and additional guidance introduced by the revised standards. Next, we test the compliance with the additional disclosure requirements introduced by DAS 221/270.

In our empirical analysis we specifically analyzed whether companies updated their accounting policies and disclosure notes by comparing the information against the same accounting policies and disclosure notes in the financial statements of the previous year. Less than half of the companies (38%) updated their accounting policies in their 2022 financial statements to reflect the key concepts introduced by the revised standards. Furthermore, only a small portion of the population (20%) updated their disclosure notes. An explanation may be that companies already provided relevant disclosure information in their 2021 financial statements in line with the revised disclosure requirement for the 2022 financial statements and hence did not had to update their disclosure notes. As set forth in Table 7, this may be true for the disclosure of the amount of revenue recognized for each major category or revenue which is disclosed by 81% of the population. However, for other disclosures mandated by the revised standard many companies have not (properly) updated their accounting policies and disclosure notes.

The disclosure of Nutreco B.V. provides a good practice disclosure of the revised accounting policies adopted (Figure 4). Nutreco B.V. described the accounting policies along the five-step model of DAS 270. Furthermore, the information included in the accounting policy is relatively (compared to other companies in our sample) tailored to the specific company.

Figure 4.

Best practice Nutreco B.V. (2022), p 27.

DAS 270 requires additional disclosures on key concepts introduced by the revised standard. However, no similar disclosure requirements were introduced for construction contracts (DAS 221). As mentioned earlier, we consider the additional disclosure requirements of DAS 270 (regarding key concepts introduced) to be equally relevant for construction companies. Hence, as part of our empirical research we tested the compliance with the DAS 270 disclosure requirements for the full population (including construction companies). In Table 7 we subsequently disaggregated the results to a population with and without construction companies.

The empirical analysis reveals that most of the companies in our sample did not provide specific information on which performance obligations are typically identified. As benchmark for our empirical analysis, we distinguished between companies which specifically disclosed the identification of performance obligations, and companies which provided only generic description of accounting policies related to goods and/or services provided. Approximately 33% of the companies specifically addressed the identification of performance obligations (including specific considerations) in their financial statements. 32% of the companies provided information per type of performance obligation on the method of attribution of revenue to the reporting period, including the method for determining the degree of completion of (service) contracts. In particular companies within the industries extraction of materials and technology positively stood out, though it should be noted that the population size for these industries is limited.

An explanation for the disappointing results for companies within the industry sector may be that companies do not identify more than one performance obligation in their contracts. Possibly this is also affected by a wide variety of companies which fall within this industry sector. We noted also that companies provide information on different type of goods sold and/or services rendered while not specifically addressing the separate performance obligations. The results for companies within the construction industry are disappointing with only 23% providing detailed information on the nature of major performance indications. Especially because we expect particularly for this industry the identification of performance obligations to be relevant. As set forth above, no specific disclosure requirements on key concepts introduced by the revised standards were added for DAS 221. Consistent with our expectations, relatively fewer observations were identified for construction companies compared to companies within other industries. On a more positive note, various construction companies were identified which did provide relevant disclosures on key concepts introduced by the standards. In our view, the observation that (some) construction companies effectively did provide relevant disclosures in line with DAS 270 adds to the ambiguity on which information should be disclosed for construction companies within the scope of DAS 221.

The vast majority of the companies (81%) provides (detailed) information on each major category of revenue recognized. No exchange transactions were identified, and the disclosure of capitalized contract costs is rare (5%). Furthermore, no specific disclosures on contingent income and expenses related to contracts with customers were identified.

The financial statements of Conclusion B.V. (Figure 5) provides a best practice disclosure.¹¹ As part of the accounting policy the company clearly described the different performance obligations identified including considerations in this respect. The revenue disclosure note provides further details on the revenues recognized per performance obligations including further disaggregation to different type of categories.

Figure 5.

Best practice Conclusion B.V. (2022), p 59–60; p 78–80 (for translation: see Appendix 4).