Accounting is not taking any holiday!

On 28 July 2023, the Bill of Law no. 8286 (hereafter “New Law”) was introduced, addressing topics related to accounting, annual financial statements, consolidated financial statements (and related reports of undertakings), and the abolition of the “commissaire” function.

The purpose of the New Law is to modernize the current Luxembourg Accounting Law (hereafter “Accounting Law”) by regrouping accounting provisions that are currently spread over different texts into one single law; revising certain definitions; providing new accounting and audit requirements; and extending the undertakings in scope of this New Law. The New Law is expected to come into effect within the next 2 years (in 2024 or 2025).

The main proposed changes to our accounting environment include:

1. Scope extension of the Accounting Law to new undertakings

Previously, the Accounting Law was limited to commercial companies as listed in the Commercial Code. It is foreseen that the New Law will also cover entities not having a commercial form, such as:

• Common funds or “fonds communs de placement” (FCPs);
• Civil companies;
• Mutual insurance associations;
• Pension-savings associations;
• Agricultural associations;
• Temporary commercial companies; and
• Commercial companies by participation.

Nevertheless, it’s important to mention that companies under the regulated financial sector will continue to be exempt from having to use the Luxembourg Standard Chart of Accounts, or “plan comptable normalisé” (PCN). The sectoral accounting provisions will also continue to apply to them by way of derogation from the New Law’s provisions. Therefore, even if some companies might be subject to these new obligations, it is expected that—in practice—their inclusion into the New Law would not significantly increase the administrative burden of those entities, as most of them were already required to prepare annual accounting records for other purposes.

2. Introduction of the “bottom up approach”

To better address the vast majority of entities in Luxembourg, the New Law aims to shift the focus from large companies to small undertakings. As a result, the small-sized companies regime will become the norm, while additional requirements will be added for medium and large undertakings and public interest entities (PIEs).
 

3. New audit requirement for large holding companies (with a total balance sheet exceeding €500 million)

Holding companies are often classified as a “small-sized entity.” Indeed, the thresholds for net turnover and number of employees were almost never fulfilled, and hence holding companies were not subject to audit requirement. To address this, holding companies with a total balance sheet exceeding €500 million will now need to have their annual accounts certified by a réviseur d’entreprises agréé in an effort to cover public interest and risk dimensions.

4. Increased thresholds for small-sized entities and groups and introduction of a “micro entities” category

The “small-sized entity” thresholds will be raised, and a new “micro entities” category will be introduced as an optional regime with simpler requirements. This would include, for example, exemption from needing annual accounts audited by a réviseur d’entreprises agréé or to have notes prepared for annual accounts and a management report.

The proposed thresholds are set as below:

The New Law proposes that the following entities are excluded from the “micro entities” regime:

• Holding companies (the vast majority of undertakings in Luxembourg),
• Credit institutions,
• Insurance and reinsurance companies, and
• Other undertakings subject to the prudential supervision of the CSSF.

5. A filing requirement for special limited partnership (SCSp)

Currently exempt from filing requirements, the New Law proposes to introduce filing requirements for certain SCSp through the Luxembourg Trade and Companies Register, or Registre de commerce et des sociétés (RCS). Thus, an SCSp that is currently exempt from having to prepare annual accounts would now need to file their trial balance in accordance with the Luxembourg Standard Chart of Accounts. There is no change anticipated in the authorized GAAPs, as they relate to the type of SCSp and its current regulatory requirements.

6. New measurement option for intangible assets with indefinite useful life and clarification related to fair-value option in accounting

The New Law would exempt a company with intangible assets with indefinite useful life from having to proceed with a systematic amortization, but would instead require testing for impairment (e.g., as under IAS 36).

For financial instruments, companies have the choice between applying a summary of IAS 39 (current version of the Accounting Law) and applying the accounting requirements of IFRS 9 (including related disclosures). In that respect, the New Law introduces a direct reference to IFRS 9, IFRS 13, IFRS 7 and IAS 32.

7. The abolition of the function of “Commissaire”

In the New Law, the function of “Commissaire” is proposed for abolition.

8. The introduction of new requirements for entities dissolved and under liquidation

The New Law will introduce clarifications to apply to dissolved entities and those under liquidation, making clear that the general accounting principles continue to apply before and after the decision to liquidate. Therefore, although shareholders would not be required to approve the interim annual accounts, companies will need to:

• Prepare and file a full set of annual accounts, including a balance sheet, income statement and the accompanying notes to the RCS; and
• Publish on the Electronic Compendium of Companies and Associations, or Recueil électronique des sociétés et associations (RESA), when applicable (e.g., for S.A., S.C.A., Sà r.l., S.A.S.). The same publication requirements will apply for the all liquidation accounts.
  
  

Additionally, and stated under point 9 below, the accounting doctrine of the Commission des Normes Comptables (CNC), specifically Q&A CNC 21/022, which states “Discontinued operation/non-going concern and liquidation basis accounting in LuxGAAP & LuxGAAP FV,” is also adopted into the New Law.

9. The incorporation of certain Q&As released by the CNC into the Accounting Law

Certain Q&As released by the CNC will be embedded in the New Law, making it more comprehensive. The main changes would incorporate:

• Q&A CNC 19/019 on categorization of companies and the interpretation of the repetition criteria;
• Q&A CNC 20/021 on substance over form principle (optional);
• Q&A CNC 21/022 on non-going concern and liquidation accounting;
• Q&A CNC 21/024 (R) on change of accounting principles, valuation methods and accounting estimates;
• Q&A CNC 21/025 on correction of errors; and
• Q&A CNC 22/026 on the choice of currency for accounting records.

10. Further clarifications induced by the New Law

The New Law also clarifies and defines several other topics:

• “Control” in the context of a group, especially in the presence of structures with general partner vs. limited partners (agent vs. principal);
• “Joint control” and “significant influence”;
• The length of the accounting year and use of a “floating” accounting year, as is often used in IFRS;
• Recognition of deferred tax assets; and
• New accounting terminology introduced.

How Deloitte can help

We can assist you in understanding, assessing and implementing the changes related to your accounting, financial reporting and valuation requirements. Our services include:

• Facilitating awareness training sessions and interactive workshops to explore these new implications and support your roadmap for implementation
• Performing gap analysis in terms of accounting, reporting and data / system requirements, considering the best options to analyze in the context of your company
• Supporting with implementation of the Standard Chart of Accounts in your system and all other required changes in your financial reporting, including new processes and controls
• Supporting with your threshold assessment and compliance with the new liquidation/dissolution requirements
  
• Providing accounting guidance and/or assistance with the preparation of the financial statements
• Preparing your recurring accounting journal entries and financial statements in an efficient and standardized manner.
• Supporting with your audit in two phases: (1) Audit readiness to ensure you are prepared to be audited and (2) Audit service to have your annual accounts certified by a “réviseur d’entreprises agréé”