The role of accountants in Luxembourg and accounting law fundamentals
by Arina Smith Banking 08 May 2018
According to Luxembourg’s accounting regulatory framework, listed companies have the obligation to prepare consolidated accounts, while annual accounts are optional. In the case of other companies, both types of accounts are optional, but there are certain accounting procedures that need to be followed, which emphasize the need for any type of business structure to work with reliable accountants in Luxembourg.
The company’s directors or managers are required to prepare annual accounts in accordance with the regulatory framework established in Luxembourg. The currency used to prepare the annual accounts is usually the currency of the share capital.
Companies that have a business object investments and development of other companies can disclose a balance sheet and a profit and loss account in a format that deviates from the general legislative requirements. Most companies of this type have a low number of employees and no turnover, so they can qualify as small companies. Thus, they can disclose only abridged notes to the annual accounts and prepare management reports.
Regardless of the situation, companies need either to have a dedicated accounting department which handles the preparation of annual accounts, or to outsource their accounting matters to certified accountants in Luxembourg.
Luxembourg companies are required to prepare consolidated financial statements if they meet certain criteria:
- The majority of the shareholders or members of the board of directors with voting rights in other companies;
- They have the right to remove or appoint the majority of members from the supervisory, administrative, or management body of another company and are at the same time shareholders in other companies;
- Are the shareholders of other companies and control the respective companies following an agreement with other shareholders.
The consolidated accounts should contain the financial situation of the Luxembourg parent companies and its subsidiaries, if they exist, regardless of where the subsidiaries or registered offices are situated. For companies operating in various jurisdictions, it’s important to have a clear overview of the accounting data, which further explains the need to work with expert accountants in Luxembourg. Consolidated accounts comprise consolidated balance sheets, consolidated profit and loss accounts, and notes to accounts prepared in accordance with the regulatory accounting framework.
Directors or managers of Luxembourg companies are required to prepare a consolidated management report with a review of the company’s performance and development, main risks, financial risk management objectives and policies, as well as future objectives.
Under certain conditions, consolidated accounts must be audited by a licensed and independent auditor from Luxembourg who has the responsibility to verify if the consolidated management report is in accordance with the consolidated accounts.
Luxembourg parent companies are exempt from consolidated reports if the undertakings that would have been consolidated don’t exceed two of these three criteria for two years in a row:
- The total balance sheet exceeds 17,500,000 euros;
- The total turnover exceeds 35,000,000 euros;
- Have more than 250 employees.
The exemption doesn’t apply if the parent company or any of its subsidiaries have securities traded on the EU-regulated market.
Regardless of the type of business structure used, compliance with the accounting regulatory framework can be achieved only by working with reliable accountants in Luxembourg.
Depending on their size and their accounting needs, the best option for many companies is to outsource their accounting processes to accountants in Luxembourg, specialists in this field who are up to date with all the legislative changes and have experience in working with companies from various industry sectors.