Overview of Accounting and Auditing in Luxembourg 

Luxembourg is often considered for the location of Group head offices, thereby increasing the need for preparing consolidated financial statements either due to it being a part of the legal compliance or by the demand of the stakeholders.The legal accounting framework in Luxembourg mandates the companies for the preparation of consolidated financial statements either under Lux GAAP or IFRS as adopted by the EU and implemented in Luxembourg regulations.

The branches of foreign companies in Luxembourg come under the ambit of the definition of “undertaking” as prescribed in the Commercial Code, and thus, the accounting and auditing requirements in Luxembourg apply to the non-resident companies having branches in this destination Consolidation increases the quality and transparency of financial reporting in an ever-changing financial reporting regulation. As the consolidation process is complex and specific, it requires expertise and knowledge.

Our professionals deliver bespoke solutions and capitalise on their technical know-how and experience to develop effective and scalable financial reporting solutions to meet these requirements.

Accounting Obligations in Luxembourg

All the entrepreneurs in Luxembourg are obligated to do the following -

• Maintenance of accounts covering their business activities
• Preparation of a complete annual inventory of assets, debts,rights obligations and commitments
• Adoption of an abbreviated outline of accounts (certain businesses)
• Preparation of a management report presenting the accounts
• Submission of annual accounts to the Trade and Companies Register
• Retention of accounting necessary papers for 10 years.

Accounts

Statutory Accounts

• The directors/managers of a company mustprepare theannual accounts as per the regulatory framework of accounting.
• The currency for the preparation of annual accounts is, in general, the currency of the share capital.
• Companies having the sole purpose of the investment in other companies for the development of the same may disclose a profit and loss account and a balance sheet in a format deviating from the general provisions of the law.
• Given that these companies generally have less staff and no turnover, thereby qualifing as small companies.  Therefore, they can disclose abridged notes to the accounts and aren't obligated for the disclosure of their management report and investments.
• The Grand-Ducal regulation dated 10.06.09 has provided the content and the presentation of an SCA, i.e. standardised chart of accounts – the plan compatible normalisé (PCN).
• The effective date of the SCA is applicable for the 1^st accounting year commencing after 31 December 2010. For companies having a calendar year-end, the first set of accounts shall be relating to the yr ending 2013, and the filings shall be due by 31. 07. 14.
• The SCA makes sure that all businesses apply the same accounting structure with the below-mentioned consequences:

• Reduction of the reporting requirements of businesses vis-à-vis the authorities
• Simplification of the analysis of their financial position by partners ( banks, auditors, suppliers etc.).

 Consolidated Accounts

• Companies in Luxembourg must prepare consolidated financial statements if
• The majority of the shareholders or members have voting rights in another undertaking, or
• They have a right of appointment or removal of a majority of the members of the management, administrative, or supervisory body of another undertaking and are at the same time a shareholder in or member of that undertaking, or
• They have a shareholder in or member of a subsidiary, and alone controls, an agreement with any other shareholders in or members of that undertaking, a majority of members or shareholders ' voting rights in that undertaking.
• The consolidated accounts must include the Luxembourg parent company and all of its subsidiary undertakings, irrespective of the registered office's location of such entities.
• The consolidated accounts must comprise of the consolidated profit and loss account and the consolidated balance sheet, notes to the accounts prepared in accordance with a regulatory accounting framework.
• The directors/managers of the Luxembourg parent company also have am obligation for  the preparation of a consolidated annual report, including a fair review of the business development, principal risks, key performance indicators, financial risk management and exposures to financial risks.
• Consolidated accounts are needed to be audited by a Luxembourg-licensed independent auditor who shall verify that the consolidated annual report conforms to these accounts.
• Luxembourg companies are permitted to derogate from this consolidation principle and are exempt from consolidation in the following cases:
• Small group exemption
• Upper-level exemption
• Temporary holding exemption

Financial Reporting Framework in Luxembourg

In July 2002, the EU adopted a Regulationof the European Parliament and of the Council of 19 07 2002 on the application of international accounting standards)

The IAS Regulation obligates the European companies listed in an EU securities market, including insurance companies and banks, the preparation of their consolidated financial statements according to the international financial reporting standards (IFRSs) commencing with financial statements for the financial year 2005 onwards.

EU countries have the option to:

• Ask for or permit IFRSs for unlisted companies
• Ask for or permit IFRSs in parent company (unconsolidated) financial statements
• Allow companies whose only listed securities are debt securities to delay IFRS adoption until 2007
• Allow companies being listed on exchanges outside of the EU and that currently prepare their primary financial statements using a non-EU GAAP (in most cases, this would be US GAAP) to delay IFRS adoption until 2007.

Luxembourg companies listed in an EU/EEA securities market have followed IFRSs since 2005.

Luxembourg is included in the IFAD GAAP Convergence Studies. National professional organisation websites can be found at the following:

• Institut des Réviseurs d'Entreprises
• Ordre des Experts-Comptables du Luxembourg.

Luxembourg companies must report to the International Federation of Accountants (IFAC) on Standard Setting and Regulation

Audit & Submission Annual Audit of Accounts

The compliance requirements regarding audits and submission of annual records are discussed below -

Audits

There are different types of audits in Luxembourg which are discussed below –

Statutory Audit

Article 69 of the amended law of 19,12.2002  on the register of commerce and companies and the accounting and annual accounts of undertakings provides  that :

Companies registered under the Luxembourg law referred to in Article 1 of Council Directive 78/660/EEC of 25th July 1978 (société anonyme, société en commandite par action, sociéte à responsabilité limitée and société à commandite simple where all the unlimited liability partners are one of the here before mentioned companies, should get the auditing of their annual accounts done by one or more Réviseurs d’Entreprises Agréés unless they meet the exemption criteria in Article 35 of the above-mentioned law.

In addition, the following companies must always have their accounts audited regardless of their size:

• Companies whose securities are admitted to trading on a regulated market of any Member states
• Banks
• Professionals of the Financial Sector
• UCITS
• FIS
• SICAR
• Securitisation vehicles
• Insurance companies
• Reinsurance companies

Article 27 of the amended law of 18 December 2009 on the audit profession requires a statutory audit to be performed using the international standards on auditing (ISA). Those international standards on auditing have been endorsed by the CSSF in its regulation n°11-01.

Article 70 of the amended law of 18 December 2009 on the audit profession levies a restriction on the use of international standards on auditing to the Réviseurs d’Entreprises Agréés.

Voluntary Audit

Any companies which are not eligible for a statutory audit can opt for a voluntary audit to raise confidence in the quality of the financial information provided in the annual accounts.

Article 70 of the amended law of 18 December 2009 on the audit profession puts a restriction on the use of the International Standards on Auditing to the Réviseurs d’Entreprises Agréés.

Forensic Audit

A forensic audit refers to the evaluation and examination of a firm's or individual's financial records with the purpose of deriving evidence which can be used in a court or legal proceeding. Forensic auditing is one of the specializations within accounting, and most large accounting firms have a forensic auditing department. Forensic audits need auditing and accounting procedures and expert knowledge of the legal framework of such an audit.

Liquidation Audit

 As per the Article 151 of the company law, the liquidators must appoint a "Commissaire à la liquidation"  for the examination of the supporting necessary papers and accounts prepared by the liquidators.

The "Commissaire à la liquidation" is only required to be a Réviseur d’Entreprises Agréé in the case of companies exceeding 2  of the 3 criteria provided by Article 35 of the amended law of 19 December 2002 during the 3 years preceding the day of the beginning of their liquidation.

The due diligence to be performed by the Réviseur d’Entreprises Agréés is defined in the CSSF regulation.

Audit of Annual Accounts

The annual accountsof Medium and large companies in the form of a société anonyme, société à responsabilité limitée or société en commandite par actions should be audited by a licensed independent auditor. In such cases, the appointment of a statutory auditor isn’t required.

A medium or large company is ascertained to be one exceeding 2  of the following three conditions during 2 consecutive years:

• Total balance sheet – EUR 4,400,000
• Total turnover – EUR 8,800,000
• Total employees – 50.

Smaller companies should be supervised by statutory auditors or a licensed independent auditor, except in case of a société à responsabilité limitée with less than 25 shareholders. In this situation, the control may be taken by the shareholders themselves.

Submission and Publication – Deposit Of Annual Financial Statements with the Trade and Companies Register

Companies must provide their annual accounts to the Trade and Companies Register (Registre de Commerce et des Sociétés - RCS)  due to transparency and the protection of third parties.

Businesses must be filing their annual accounts online and mentioning the filing of the accounts in the electronic compendium of companies and associations (Recueil électronique des sociétés et associations - RESA). The general public can thereafter check the filed accounts on the website of the RCS.

The annual accounts of the below-mentioned companies must be  submitted  to  the RCS:

• Capital companies (sociétés de capitaux), SÀRLs, SAs, SECAs, cooperative companies, SEs
• Partnerships (SENC and SECS) and traders being natural persons  having an annual turnover excluding VAT in excess of EUR 100,000
• The branch offices of foreign companies in Luxembourg (except insurance and reinsurance companies and  credit institutions )
• Groups (EIG, EEIG) or branch offices of groups. The annual financial statements, together with the appropriation of income, must be approved within 6 months after the calendar year ends (natural persons established as traders) or FY (legal persons). The submission of the annual accounts must be made within 1 month of their approval, i.e. at the latest, 7 months after the end of the calendar/financial year.

Services provided by Enterslice

Our experienced team of professionals can provide the below-mentioned service with regard to Accounting and Auditing services in Luxembourg.

Accounting Advisory

• Bookkeeping services under LUXGAAP and/or IFRS
• Preparation of the annual accounts and notes to the accounts as per the LUXGAAP and/or IFRS
• Filling of the annual package (the balance sheet, the statement of profit & loss and other relevant finances) on the eCDF platform – including out-of-pocket expenses
• Structuring of the accounting system
• Preparing customised reports
• Filing and publishing of annual accounts (including eCDF filings)
• Assisting in implementing regulatory changes in the fields of accounting
• Analytical bookkeeping
• Outsourcing of qualified accountants
• Cooperating with the company’s auditors
• Preparing Consolidated accounts and reporting under Lux GAAP, IFRS and other accounting principles

Financial Reporting

• Production of monthly, quarterly, or semi-annual accounting reporting for shareholders and other stakeholders
• Production of customized reports
• Financial reporting and regulatory reporting requested by the authorities (e.g. CSSF or the insurance supervisory authority (Commissariat aux Assurances)) for regulated structures: liaising with auditors and other relevant intermediaries
• Reconciliation work between statutory and group management reports
• Assistance and advisory services in relation to Luxembourg accounting legislation

Auditing Services  

• Audit of consolidated financial statements under Lux GAAP or IFRS (as adopted by the EU ) on a contractual or legal basis
• Standardisation of the accounting systems at the group level
• Converting to or from Lux GAAP and IFRS (as adopted by the European Union)
• Customising support and providing recommendations on consolidation processes and reporting requirements
• Independent review of consolidated financial statements
• Partial or full outsourcing of the consolidation process (preparation of consolidation schedules and/or financial statements)
• Our experts have extensive practical experience in consolidations. The methodology that we apply guarantees complete transparency of the consolidated data
• Contributions in kind, mergers and split Liquidation audits
• Due diligence assignments
• Company valuations
• Assurance engagements
• Agreed-upon procedures
• Transactions linked to the transfer or sale of businesses
• Support or outsourcing of the "Internal Audit" function (for PFS and other firms)
• Guidance in the application of IFRS norms
• Risk analysis and risk management
• Compliance Management
• Training courses on audit-related subjects
• Liquidator assignments

Assistance in Forensic Audits

• Investigation of fraud, theft, corruption, money laundering, and commercial or “white collar” criminal offences
• Investigation and analysis of financial evidence
• Investigation of labour-related misconduct and internal disciplinary enquiries
• Provision of detailed factual reports with supporting necessary paperary evidence or statements which evidence criminal, civil, and/or disciplinary liability
• Fraud and management risk assessments
• Pre-employment security, background checks, and CV verification
• Insolvency and liquidation support investigations
• Interrogation and/or extraction of computerised data