The Order of Chartered Accountants (L’ORDRE DES EXPERTS-COMPTABLES) (OEC) has recently given its opinion on the Bill of Law N° 8286, concerning the accounting, annual financial statements and consolidated financial statements of companies and related reports and abolishing the office of a commissaire aux comptes (the “Bill of Law”). The key criticism highlighted by the OEC include:
1. Mandatory Auditors’ Report for Interim Dividend Payment for all SARLs
The OEC questioned the necessity of requiring an auditors’ report on interim dividend payments for all companies established under the legal form of a SARL. They argued that this requirement, regardless of the size criteria of SARLs, may not be appropriate and put unnecessary burden on companies.
2. Abolition of Commissaire aux Comptes Office
The proposed abolition of the office of commissaire aux comptes is also questioned by the OEC. They argued that this change would undermine the objective of providing quality financial information, which is crucial for ensuring the users’ security dealing with financial statements. Additionally, the OEC pointed out the potential negative impact on the revenues of companies offering this kind of service, which could be considerable and should not be underestimated.
3. Qualification Criteria for Large Holding Companies
The OEC examined the criterion for defining “large holding companies,” which includes both (i) a size criterion based on a balance sheet total exceeding €500 million, and (ii) a criterion related to the nature of the company’s business. The activity of a holding company is defined in Article 100-1 point 20 of the Bill of Law, as follows: “companies whose main activity is the holding, financing or management of financial holdings or similar securities held on a long-term basis or with a view to their subsequent sale“.
However, the OEC funded the Bill of Law lacks precision in determining what is a principal activity of said companies, latter may lead in practice to potential inconsistencies and uncertainties. Another question which may arise is what is the threshold at which an activity becomes a principal one.
In this context, the OEC suggested strictly defining the nature of the elements to be taken into consideration in the definition of Article 100-1 point 20 of the Bill of Law.
The OEC suggested that the Bill of Law should specify that the €500 million threshold for the balance sheet total should be assessed in accordance with the accounting standard used by the company, without any restatement or adjustment.
These criticisms point to potential challenges and ambiguities within the proposed Bill of Law, highlighting areas that may further require clarification or revision to ensure effective implementation and compliance.
4. Audit of large cascading holding companies (E.G. TOPCO, HOLDCO, MIDCO, BIDCO, ETC.)
The OEC questioned the rationale behind mandating audits for the intermediate holding companies, arguing that such a requirement contradicts the Bill of Law’s objectives i.e. reducing the administrative burden and enhancing financial data reliability.
5. Obligations relating to companies in liquidation
The OEC proposed simplifying the liquidation procedure by abolishing the second AGM dedicated to the appointment of a commissaire à la liquidation.
Additionally, the OEC also suggested clarifying the formalities to be fulfilled for opening liquidation accounts.
Furthermore, the OEC suggested incorporating an obligation for a management body of a company to draw up the company’s accounts, adhering to Luxembourg’s accounting principles, on the date of the opening of a liquidation.
6. Introduction of an exemption relating to information on holdings in the notes to the financial statements for intermediate holding companies of groups domiciled in the EU
The OEC raised ed concerns regarding the disclosure of information related to holdings by the holding companies under Article 324-3(2) of the Bill of Law (%, shareholders’ equity, profit, etc.). While current law allows companies to limit disclosure under certain conditions, particularly in the context of the “EU exemption,” the OEC believes that the current version of the Bill of Law lacks clarity in this regard.
7. Special limited partnerships (SCSp)
The OEC noted a general lack of clarity in the Bill of Law concerning the accounting obligations of SCSps, including (i) the accounting framework they may adopt, (ii) the obligation to complete and file current account balances in accordance with the standard chart of accounts (PCN) filing procedure and (iii) the obligations to file and publish their annual financial statements. The OEC also contended that the increase of the reporting obligations introduced for SCSps contradicts the objective of flexibility and simplification sought by the creation of said SCSps in the current legislation. Additionally, the OEC highlighted the dissatisfaction which has been already expressed by many corporate clients operating under the form of SCSp regarding these issues.
8. Consolidated financial statements
The OEC opined that the wording of article 410-3 of the Bill of Law defining the entities which are required to prepare consolidated accounts does not provide more precision than the law currently in force, particularly as regards the determination of control in structures involving limited and general partners. The OEC stressed that the Bill of Law should therefore provide further details clarifying strictly who holds control of these structures.
9. Missing definitions
The OEC praised the legislator’s desire to clarify certain frequently used terms by introducing definitions in the Bill of Law. However, the OEC has stressed out that there are certain important definitions missing, such as “assets”, “liabilities”, “intangible assets” and “tangible assets“, “development costs”, etc.
10. Micro-businesses
The OEC observed that micro-enterprises will be exempted from preparing notes if specific information is included in the part following the balance sheet. However, there is ambiguity regarding whether this information should be appended on plain paper during the filing of the annual financial statements or if it will be integrated into new fields within the eCDF forms tailored for the micro-enterprises. Additionally, the OEC questioned whether micro-enterprises will have the option to apply the “substance over form” principle or to adopt hedge accounting.
While the OEC praised the legislator’s desire to reform and clarify the accounting rules applying to companies, it regrets, as stated above, that the current version of the Bill of Law is not sufficiently complete and does not fulfil the dual objective of simplification and improvement of the quality of financial information.
For more information or assistance on this topic, you may reach out to Miroslava Dudas.
To access our original article on the Bill, please click on the following link: New-Bill-of-Law-reforming-and-modernising-Luxembourg-accounting-legal-framework
To access the Bill of Law, please click here.
To access the opinion of the Order of Chartered Accountants (Ordre des Experts-Comptables), please click here.
For further information and to discuss what this development might mean for you, please do not hesitate to contact our corporate team at the following address: welcome@brouxelrabia.lu.
The imminent arrival of a new regulation in Luxembourg will impact third-country undertakings (TCUs) providing core banking services, signaling an upcoming shift in the regulatory landscape for these entities…
