On 19 December 2002, we saw the Law on the register of commerce and companies and the accounting and annual accounts of undertakings (LRCS) come into force. Fast forward to July 2023 more than two decades later (not forgetting several amendments along the way), and it is the dawn of draft bill 8286 by Luxembourg’s Minister of Justice. The law covers accounting, standalone annual financial statements and consolidated financial statements of companies, as well as related reports and the repeal of the role of the ‘commissaire’ in company law.
This draft bill brings some significant changes including terminology, scope extension, valuation methods and additional audit requirements, to name just a few.
In this two-part series, we’ll take you through the key changes and bring you up to speed on how they will impact the world of accounting and financial reporting.
One-stop law spells efficiency and simplicity
Up until now, references had to be made to the Luxembourg Commercial Code, the amended Law of 10 August 1915 on commercial companies, and Title II of the Law of 19 December 2002. Today, draft bill 8286 groups various accounting-related laws into just one single law. This means that we only need to refer to one law where standalone annual and consolidated financial statements and related reports are concerned.
Structure: from top-down to bottom-up
The draft bill presents the future accounting law (which will be referred to as “Law of XX/XX/20XX relating to accounting, standalone annual financial statements, consolidated financial statements of companies as well as related reports”) using a bottom-up approach and a “list approach”.
So, what does this mean? The LRCS is currently presented using a top-down approach which lays down the rules applicable to large undertakings and then provides, by exemption, what is not applicable to small and medium-sized undertakings.
In contrast, the draft bill specifies the requirements applicable to small-sized undertakings and then adds further requirements as an undertaking grows from small to medium to large and/or lists an instrument on a regulated market. Another advantage brought by this draft bill is that, at each chapter, the undertakings in scope of the chapter are listed. This brings much-needed clarification and reduces the need for interpretation which could lead to legal uncertainties.
Micro undertakings: the new category on the block
The draft bill brings with it a partial transposition of a new category of undertakings: micro undertakings.
A micro undertaking is proposed to be an undertaking which, at its balance sheet date, does not exceed the limits of at least two of the following three criteria:
|Balance sheet total||EUR350,000|
|Average number of staff employed during the financial year||10|
It should be noted that the repetition criteria apply to determine the categorization of an entity as a micro undertaking.
The introduction of this new category was mainly motivated by a willingness to reduce the administrative burden for undertakings in the commercial and industrial sector.
Micro undertakings are exempt from the preparation of management reports as well as statutory audits but must provide (i) an abridged balance sheet, (ii) an abridged profit and loss account and (iii) the below information to be provided by way of notes:
- The total amount of any financial commitments, guarantees or contingencies that are not included in the balance sheet and an indication of the nature and form of any valuable security which has been provided. Any commitments concerning pensions and affiliated or associated undertakings shall be disclosed separately.
- The amount of advances and credits granted to members of the administrative, managerial and supervisory bodies, with indications of the interest rates, main conditions and any amounts repaid or written off or waived, as well as commitments entered into on their behalf by way of guarantees of any kind, with an indication of the total for each category.
- Regarding the purchase of own shares, the reasons for acquisitions made during the financial year are to be provided; the number and the nominal value (or in the absence of nominal value, the accounting par value) of the shares acquired and disposed of during the financial year and the proportion of the subscribed capital which they represent; in the case of acquisition or disposal for value, the consideration paid; and the number and nominal value, or, in the absence of nominal value, the accounting par value, of all the own shares acquired and held in the undertaking's portfolio as well as the proportion of the subscribed capital which they represent.
It is important to highlight that the following entities cannot be classified as micro undertakings:
- a holding entity
- a credit institution or any other undertaking subject to the supervision of the CSSF
- an undertaking operating in the insurance sector
- a securitization vehicle in the scope of the law of 22 March 2004 not subject to the supervision of the CSSF
- a reserved alternative investment fund (RAIF) which, at the date of its balance sheet, does not exceed the limits of at least two of the following three criteria: