Consolidated accounts provide an overview of the financial health of a group of companies.

Consolidation applies to a set of companies with separate legal personalities but depending on a common decision-making centre (the parent company).

Consolidation is the process whereby all of the accounts of the companies within a group are bundled together, to present a more objective view of the group's financial position, its activities from an economic standpoint, and its assets, liabilities and results.

Consolidated accounts present the assets and liabilities, financial position and results of the companies included in the consolidation as those of a single business entity.

As a general rule, all companies that control one or more subsidiary companies, either solely or jointly, are required to draw up consolidated accounts, have them audited and publish them along with a consolidated management report. However, many exceptions and special conditions apply.

Who is concerned

The requirement to produce consolidated accounts applies to the following types of capital companies:

• public limited companies (sociétés anonymes);
• European companies (sociétés européennes);
• partnerships limited by shares (sociétés en commandite par actions);
• simplified shareholder companies (sociétés par actions simplifiées);
• limited liability companies (sociétés à responsabilité limitée);
• in some special cases:
  • partnerships (sociétés en nom collectif);
  • limited partnerships (sociétés en commandite simple).

How to proceed

Control criteria

Companies bound by the consolidation requirement must produce consolidated accounts if the parent company meets any one of the following control criteria:

• it holds the majority of the shareholders' or unit-holders' voting rights in a company;
• it has the right to appoint or remove the majority of members of the administrative, management or supervisory body of a company in which it is a shareholder or unit-holder;
• it is the shareholder or unit-holder of a company in which, by virtue of an agreement entered into with other shareholders or unit-holders of the company in question, it single-handedly controls the majority of the company's shareholders' or unit-holders' voting rights.

The company that holds the power of control is considered to be the parent company. The company over which control is exercised is referred to as the subsidiary.

Main exemptions from the consolidation requirement

Small groups are exempt from the requirement to produce consolidated accounts if, on the balance sheet date, 2 of the below criteria are satisfied:

• balance sheet total: EUR 20 million;
• net turnover: EUR 40 million;
• number of employees during the financial year: 250.

A parent company may not avail itself of this exemption if the securities of a subsidiary of the group are admitted to trading on a regulated market.

Under certain conditions, companies that would normally be required to produce consolidated accounts are exempt from doing so if they themselves are controlled by a company that produces consolidated accounts.

Consolidated accounts are expected to give a true and fair view of the assets and liabilities, financial position and results of all companies included in the consolidation.

However, a company may be excluded from the consolidation if its impact on the consolidation requirement to give a true and fair view is insignificant.

A company facing specific restrictions may be excluded from the consolidation if:

• severe and lasting restrictions considerably limit the control of its assets and liabilities, or its management;
• the information required to produce the consolidated accounts cannot be obtained without disproportionate expense or undue delay;
• the shares/units in the company are held solely for subsequent resale.

Scope of consolidation information

The consolidated accounts must contain:

• the consolidated balance sheet;
• the consolidated profit-and-loss account;
• the notes to consolidated accounts.

Together, these documents form an integrated whole.

The form and content requirements for consolidated accounts are similar to those for individual companies' accounts.

The consolidated accounts and consolidated management report must be produced in the same language. As such, the parent company may opt to use German or English instead of French.

Consolidation methods

Full consolidation

All of the assets and liabilities of the companies included in the consolidation are incorporated in the consolidated balance sheet. This is the most common scenario.

As a general rule, the consolidation rules cannot be changed from one financial year to the next.

The consolidated accounts are drawn up on the same date as the parent company's annual accounts.

Proportional consolidation

When a company controls another company, either alone or together with other companies, the controlled company's accounts may be included in the consolidated accounts in proportion to the controlling company's holding in the controlled company's share capital.

As a general rule, the consolidation rules cannot be changed from one financial year to the next.

The consolidated accounts are drawn up on the same date as the parent company's annual accounts.

Equity method

This method may be used when a company exercises significant influence over the management and financial policy of another company in which it holds a minority interest (20-50%). In that case, the interest is included in the consolidated balance sheet as a separate item under the appropriate heading.

Unlike the other 2 methods, the accounts are not aggregated. Instead, securities are revalued.

Accounting standards options

Luxembourg companies that wish to use IFRS for the preparation of their consolidated accounts may opt to apply certain provisions of the regime known as "LUX GAAP", which are still applicable.

Currency and language

The reporting entity is free to use the currency of its choice in presenting its consolidated accounts.

However, the exchange rates applicable between different currencies must be mentioned in the notes.

The consolidated accounts and the consolidated management report must be presented in the same language.

German, English and French are permitted.

Contents of documents

Consolidated accounts

The consolidated balance sheet, the profit-and-loss account and the notes to the accounts form an integrated whole. In terms of layout and contents, they are more or less the same as a business's annual accounts, except for certain specific features. For instance, the following items are not included in consolidated accounts:

• debts and credit instruments between companies included in the consolidation;
• income and expenditure relating to transactions between companies included in the consolidation;
• profits and losses from transactions between companies included in the consolidation, where such profits/losses are included in the book value of assets.

Where assets and liabilities included in the consolidated accounts have been valued by companies included in the consolidation using different rules to those used for the consolidation, those assets and liabilities must be revalued using the same rules as used for the consolidation. Exemptions may be applicable, but must be mentioned in the notes to the consolidated accounts.

The consolidated balance sheet and profit-and-loss account must, subject to certain conditions, reflect the difference arising, on consolidation, between:

• the tax charged to the financial year in question and earlier financial years;
• taxes already paid or payable in respect of those years.

Indeed, it must be likely that the difference would give rise to an effective charge in the foreseeable future for one of the consolidated companies.

Assets whose value has been adjusted for the sole purpose of compliance with tax law may be included in the consolidated accounts only after the adjustments have been eliminated.

The notes must include the following information:

• the accounting and valuation methods used;
• the names and registered offices of the companies included in and excluded from the consolidation;
• the fraction of the share capital held in the companies included in the consolidation, other than the parent company;
• the names and registered offices of the companies associated with a company included in the consolidation;
• the total amount of the various forms of debt included in the consolidated balance sheet;
• the total amount of any financial commitments that are not included in the consolidated balance sheet;
• the nature and commercial purpose of any transactions not included in the balance sheet, as well as the financial impact of such transactions;
• transactions with related parties, including:
  • the amount of said transactions;
  • the nature of the relationship with the related party;
  • any other information on the transactions required to give a true and fair view of the financial position of the companies included in the consolidation;
• the breakdown of the net consolidated turnover;
• the number of employees;
• miscellaneous information on tax charges for the different financial years;
• information on emoluments, loans or pensions granted to members of the company's management/supervisory bodies;
• consultants' fees.

Consolidated management report

This report is comparable to the management report drawn up for the annual accounts. It is intended as a means of ensuring greater transparency and more relevant analyses.

At the very least, the consolidated management report must contain:

• a fair review of the development of the business;
• the results and financial positions of all companies included in the consolidation;
• a description of the main risks and uncertainties with which those companies are faced.

The review should provide a balanced and comprehensive analysis of the development of the business, results and financial positions of all companies included in the consolidation, with regard to the size and complexity of their business.

To this end, the analysis should include financial and, where appropriate, non-financial key performance indicators on the companies' activities, including information on environmental and staff-related issues.

The consolidated report should also include information on:

• the companies' foreseeable development;
• their research and development activities;
• the value of shares held;
• the use of financial instruments, and related objectives and risks;
• control systems in place.

The management and consolidated management reports may be combined in a single report.

Consolidated Non-Financial Statement

The parent companies of large public-interest companies must include a consolidated non-financial statement in their consolidated management report, if:

• they have more than 500 employees;
• their balance sheet total exceeds EUR 20 million; or
• they have a net turnover of at least EUR 40 million.

The statement should include:

• information:
  • required to gain an understanding of the development of the group's business;
  • on the group's performance and financial position;
  • on the impact of its operations in terms of environment, social and employee welfare, human rights and anti-corruption measures;
• a short description of the group's business model;
• a description of the policies implemented by the group with regard to these issues;
• the outcome of those policies;
• the main risks associated with these issues as they relate to the group's activities;
• key performance indicators for the activities in question.

Consolidated report on payments to governments

The requirement to produce this report applies only to large companies involved in:

• the extractive industry;
• the exploitation of primary forests.

For payments to governments exceeding EUR 100,000, the report should contain a breakdown of payments by nature and country.

Liability

The members of a company's administrative, management and supervisory bodies have a collective obligation to ensure that the consolidated accounts are prepared and published in accordance with the law.

Obligations

Audit of consolidated accounts

The company preparing the consolidated accounts must have them audited by one or more approved statutory auditors.

The auditors must present their findings in an audit report compliant with international auditing standards.

Publication of consolidated accounts

The consolidated accounts, consolidated management report and auditors' report must be filed with the Trade and Companies Register (Registre de commerce et des sociétés – RCS) for publication in the RESA.

The consolidated management report need not be filed if:

• it is readily available to the general public at the company's registered office; or
• a copy can be provided free of charge.

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