No Compliance Summary

In line with the European Commission Regulation No. 1606/2002, listed companies in Luxembourg are required to use International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) in their consolidated accounts. Apart from the mandatory application of IFRSs, Luxembourg already permits IFRSs as a legal option for banks and insurance companies in their annual and consolidated accounts, according to a 2008 European Commission report. Other companies are permitted to use IFRSs albeit with the approval of the Ministry of Justice. Companies that choose not to apply IFRSs follow Luxembourg's Generally Accepted Accounting Principles (GAAP) which, per a 2007 Deloitte publication, differ from the international standards. However, Luxembourg's legal environment is undergoing changes regarding accounting requirements. As explained in a 2009 Ernst & Young report, the national commercial law will be amended to introduce IFRSs into Luxembourg law as a legal alternative to the current local accounting principles. The Luxembourg authorities have developed a draft law (bill No. 5976) which will give all commercial companies registered in Luxembourg the option to use IFRSs both for annual and consolidated accounts. As of December 2009 there is no information on the conversion of Luxembourg’s GAAP with IFRSs.

General Overview

According to the May 2001 Deloitte IAS Plus update, Luxembourg continued to work toward harmonization of its accounting practices with international requirements through legislative changes. In 1999, Luxembourg introduced the "project de loi" to reform its accounting and filing requirements. This project included a proposal to "allow large companies listed on foreign stock exchanges to individually apply for the ability to report under IAS [International Accounting Standards] (or other recognized national GAAP [Generally Accepted Accounting Principles] such as US GAAP)." In 2002, an European Commission (EC) Regulation No. 1606/2002 was passed by the European Parliament and the European Council of Ministers, which requires all European Union (EU) member states to adopt International Financial Reporting Standards (IFRSs), formerly known as IAS, issued by the International Accounting Standards Board as adopted by the EU. As a result, all EU-listed companies are required to prepare their consolidated financial statements following IFRSs, beginning on January 1, 2005. Listed companies in Luxembourg therefore follow IFRSs in preparation of their consolidated accounts. Luxembourg already permits IFRSs as a legal option for banks and insurance companies in their annual and consolidated accounts, according to a 2008 European Commission report. Other companies are permitted to use IFRSs albeit with the approval of the Ministry of Justice. Companies that choose not to adopt IFRSs follow Luxembourg GAAP, which according to the Deloitte 2007 report, differ from the international standards. Further changes in accounting requirements are underway in Luxembourg's legal environment. As explained in an Ernst & Young 2009 report, IFRSs will be introduced into Luxembourg commercial law as a legal alternative to the current Luxembourg accounting principles. The Luxembourg authorities have developed a draft law (bill No. 5976) which will give all commercial companies registered in Luxembourg the option to use IFRSs both for annual and consolidated accounts.

Luxembourg reporting requirements are contained in the commercial laws, which incorporate the EU's 4th and 7th directives, namely, by the law of December 19, 2002 and the Law of August 10, 1915. According to the description of the legal framework provided in the 2005 self-assessment by the Institute of Companies' Auditors (IRE), listed companies must additionally comply with the 1998 Law Creating the Commission for the Supervision of the Financial Sector and the Rules and Regulations of the Luxembourg Stock Exchange (LSEX). The LSEX sets additional requirements with regard to quotations, and listed companies are required to publish a half-yearly report of their activities and profits and losses for the first six months of each financial year. Per the IRE's 2005 self-assessment, the financial sector is governed by the 1993 Law Regarding the Financial Sector, the 1988 Law Regarding Undertakings for the Collective Investment for Transferable Securities, and the 1999 Law Regarding Pension-Funds. Further, the insurance sector must comply with requirements laid out in the 1991 Law Regarding the Insurance Sector, and the 1994 Law Regarding the Annual Accounts and Consolidated Annual Accounts of Insurance Companies. Insurance companies are supervised by the Insurance Commission (CAA). The Commission for the Supervision of the Financial Sector (CSSF) is the financial market regulator that supervises banks and listed companies, including listed financial institutions and insurance companies. The CSSF reports to the Ministry of Finance. Experts from the legal, auditing, and accounting professions and representatives of the business sector are invited to attend the CSSF committee meetings to discuss developments. The CSSF committees have an advisory role to the government agency.

According to the 2005 IRE self-assessment, the Ministry of Justice plays the standard-setting role in Luxembourg. The 2006 IRE self-assessment adds that the IRE plays an advisory role with regard to accounting standards. With regard to the national ethics requirements, the 2006 self-assessment noted that the IRE has adopted the International Federation of Accountants’ (IFAC) code of ethics, but with modifications. As explained in the 2006 self-assessment, "the Institute has enacted into its national standards the IFAC Code of Ethics, complete with: (1) some specific aspects of national legislation; (2) some provisions of the EU Recommendation on the Independence of the Statutory Auditors when more stringent" (p. 47). The IRE is listed as a member on the IFAC website.

The Principles

NCIFRS 1: First-time Adoption of International Financial Reporting Standards (revised 2009)

According to the 2007 Deloitte report, Luxembourg’s GAAP do not address the requirements of this principle.

NCIFRS 2: Share-based Payment (revised 2009)

According to the 2007 Deloitte report, Luxembourg’s GAAP do not address the requirements of this principle.

NCIFRS 3: Business Combinations (revised 2009)

According to the 2007 Deloitte report, there are differences in date on which contingent consideration is recorded and recognition of liability for planned post-acquisition restructuring. Differences were also observed in the accounting for minority interest, purchased-in-process R&D, acquired net assets, and combinations of entities under common control.

IIIFRS 4: Insurance Contracts (effective 2006)

According to the 2007 Deloitte report, requirements of IFRS 4 are addressed in the Law on Accounts of Insurance and Reinsurance Undertakings enacted in December 1994. However, there is no further information on whether the national requirements deviate from or conform to the international requirements.

NCIFRS 5: Non-current Assets Held for Sale and Discontinued Operations (revised 2009)

According to the 2007 Deloitte report, Luxembourg’s GAAP do not address the requirements of this principle.

IIIFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

There is insufficient publicly available information that directly addresses this principle.

IIIFRS 7: Financial Instruments: Disclosures (effective 2007)

There is insufficient publicly available information that directly addresses this principle.

NCIFRS 8: Operating Segments (effective 2009)

According to the 2007 Deloitte report, there are differences in the basis for segment reporting. Also, disclosures for different types of segments, the accounting basis for segment reporting, and segment results are not required under national GAAP.

NCIAS 1: Presentation of Financial Statements (revised 2009)

According to the 2007 Deloitte report, there are differences between the national GAAP and the international requirements. For instance, the report observed differences in elements of financial statements and noted that reporting comprehensive income was not defined under Luxembourg’s GAAP. There are differences in classification of liabilities on refinancing and, unlike IFRSs, extraordinary items are not prohibited under national GAAP.

NCIAS 2: Inventories (effective 2005)

According to the 2007 Deloitte report, certain differences exist between the international requirements and the national practice. For instance, the last-in/first-out (LIFO) method for determining inventory cost is prohibited under IFRSs. However, national GAAP permit the use of LIFO method.

NCIAS 7: Cash Flow Statements (effective 1994)

According to the 2007 Deloitte report, under Luxembourg’s GAAP, presentation of a cash flow statement is not required.

NCIAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

According to the 2004 PWC report, changes in accounting estimates and correction of errors are not specified under Luxembourg’s GAAP. Some differences in changes in accounting policies were also observed under the national GAAP.

IIIAS 10: Events after the Reporting Period (effective 2005)

According to the 2004 PWC report, treatment of the post balance-sheet events is similar to IFRSs. However, there is no further information publicly available that directly addresses this principle.

NCIAS 11: Construction Contracts (effective 1995)

According to the 2007 Deloitte report, unlike IFRSs, the method of accounting for construction contracts when the percentage of completion cannot be determined is not specified under Luxembourg’s GAAP. While international requirements specify the cost-recovery method, national GAAP allow the use of cost recovery or the completed contracts method.

NCIAS 12: Income Taxes (effective 2001)

According to the 2007 Deloitte report, unlike IFRSs, classification of deferred tax assets and liabilities is not specified. Luxembourg’s GAAP do not specify accounting treatment for several other international requirements. Further, contrary to IFRSs, reconciliation of actual and expected tax expense is not required under national GAAP.

NCIAS 16: Property, Plant and Equipment (revised 2009)

According to the 2007 Deloitte report, there are differences in the basis for property, plant, and equipment. Unlike IFRSs, revalued amount is prohibited. Additionally, there are differences in accounting for major inspection or overhaul costs and the measurement of the residual value of property, plant, and equipment.

NCIAS 17: Leases (effective 2005)

According to the 2007 Deloitte report, under Luxembourg’s GAAP, "leases are generally considered as operational leases. For tax purposes, financial leases might be recognized on the tax balance sheet based on rules mainly similar to IAS 17" (p. 17). However, unlike IFRSs, disclosure of lease maturities and recognition of a gain on a sale and leaseback transaction (where the leaseback is an operating lease) is not specified under national GAAP.

NCIAS 18: Revenue (effective 1995)

As explained in a 2004 PWC report, under Luxembourg’s GAAP there are "no specific provisions in the Law on revenue recognition. The prudence principle requires recognizing only realized gains" (p.27).

NCIAS 19: Employee Benefits (revised 2009)

According to the 2007 Deloitte report, unlike IFRSs, under Luxembourg’s GAAP, measurement of gain or loss on curtailment of a benefit plan is not specified. Also, timing and recognition of gain/losses on curtailment of a benefit plan, accounting for a multi-employer plan (to be accounted for as a benefit plan under IFRSs) and minimum liability recognition under such a plan is not specified. The report also noted that, unlike IFRSs, there is no limitation on the amount that can be recognized as pension assets.

NCIAS 20: Accounting for Government Grants and Disclosure of Government Assistance (revised 2009)

According to a 2004 PWC report, under Luxembourg’s GAAP, there are no guidelines on accounting for government grants. IFRSs might be used as a benchmark.

NCIAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

According to a 2004 PWC report, "there is no rule defined in the Luxembourg Commercial Company Law for the translation of items denominated in foreign currencies" (p. 55).

NCIAS 23: Borrowing Costs (revised 2009)

According to the 2007 Deloitte report, there are differences between IFRSs and the national GAAP with regard to types of borrowing costs eligible for capitalization. Also, under Luxembourg GAAP, guidance on income on temporary investment of funds borrowed for construction of an asset is not specified.

NCIAS 24: Related Party Disclosures (effective 2005)

According to the 2004 PWC report, under Luxembourg’s GAAP certain related party relationships defined under IFRSs are not specifically considered as related parties.

IIIAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

There is insufficient information publicly available that directly addresses this principle.

NCIAS 27: Consolidated and Separate Financial Statements (revised 2009)

According to a 2007 Deloitte report, there are differences between IFRSs and Luxembourg’s GAAP with regard to basis of consolidation. Also, unlike IFRSs, there exists no specific guidance for special purpose entities. Luxembourg’s GAAP allow for the use of equity accounting in accounting for investments in subsidiaries in parent's separate financial statements. However, this is not permitted under IFRSs.

NCIAS 28: Investments in Associates (revised 2009)

According to the 2007 Deloitte report, there are differences between IFRSs and Luxembourg’s GAAP with regard to differences in reporting dates of investor and associate and accounting policies of investor and associate. Also, Luxembourg’s GAAP allow for the use of equity accounting in accounting for investments in subsidiaries in parent's separate financial statements however, this is not permitted under IFRSs.

NCIAS 29: Financial Reporting in Hyperinflationary Economies (revised 2009)

According to the 2007 Deloitte report, unlike IFRSs, under Luxembourg’s GAAP, guidance on adjusting financial statements of an entity that operates in a hyperinflationary economy is not specified.

NCIAS 31: Interests in Joint Ventures (revised 2009)

According to the 2004 PWC report, under Luxembourg’s GAAP, joint ventures are not defined by the Law. Further, the report noted that while IFRSs distinguish between three types of joint ventures/arrangements, national GAAP only refer to jointly controlled entities.

NCIAS 32: Financial Instruments: Disclosure and Presentation (revised 2009)

According to the 2007 Deloitte report, there are differences in classification of convertible debt instruments under IFRSs and national GAAP.

NCIAS 33: Earnings per Share (effective 2005)

According to the 2007 Deloitte report, unlike IFRSs, under Luxembourg’s GAAP, disclosures of earning per share and calculation of year-to-date diluted earnings per share is not required. Also, guidance on contracts to be settled is not specified.

NCIAS 34: Interim Financial Reporting (effective 1999)

According to the 2007 Deloitte report, unlike IFRSs, Luxembourg’s GAAP do not specify guidance on interim reporting - revenue and expense recognition.

NCIAS 36: Impairment of Assets (revised 2009)

According to the 2007 Deloitte report, there are differences in treatment of level-of-impairment testing for goodwill and other indefinite-life assets under IFRSs and national GAAP. Differences were also observed in the calculation of impairment of goodwill and impairment of indefinite-life intangible assets other than goodwill. The report noted that subsequent reversal of an impairment loss is also treated differently under Luxembourg’s GAAP.

NCIAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

According to the 2007 Deloitte report, there are differences in measurement of provisions under IFRSs and Luxembourg’s GAAP. Also, unlike IFRSs, national GAAP do not have specific guidance on measurement of decommissioning provisions, recognition of restructuring provisions and disclosures that may prejudice the position of the entity in a dispute.

NCIAS 38: Intangible Assets (effective 2004)

According to the 2007 Deloitte report, there are differences in the accounting treatment of start-up costs, development costs, subsequent expenditure on purchased in process R&D, and revaluation of intangible assets under IFRSs and national GAAP.

NCIAS 39: Financial Instruments: Recognition and Measurement (revised 2009)

According to the 2007 Deloitte report, there are several differences between IAS 39 and Luxembourg’s GAAP. For instance, the option to designate any financial asset or financial liability to be measured at fair value through profit and loss is allowed through the application of the Fair Value Directive under national GAAP. Under IFRSs, this option is allowed only when certain criteria is met.

NCIAS 40: Investment Property (revised 2009)

According to the 2007 Deloitte report, the Luxembourg’s GAAP and IFRSs differ in the measurement basis for investment property and accounting treatment of property interests held under an operating lease.

NCIAS 41: Agriculture (revised 2009)

According to the 2007 Deloitte report, the Luxembourg’s GAAP and the IFRS differ in the measurement basis of agricultural crops, livestock, orchards, and forests.