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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.
The requirement to produce consolidated accounts applies to the following types of capital companies:
Companies bound by the consolidation requirement must produce consolidated accounts if the parent company meets any one of the following control criteria:
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.
Small groups are exempt from the requirement to produce consolidated accounts if, on the balance sheet date, 2 of the below criteria are satisfied:
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:
The consolidated accounts must contain:
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.
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.
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.
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.
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.
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.
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:
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:
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:
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:
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 management and consolidated management reports may be combined in a single report.
The parent companies of large public-interest companies must include a consolidated non-financial statement in their consolidated management report, if:
The statement should include:
The requirement to produce this report applies only to large companies involved in:
For payments to governments exceeding EUR 100,000, the report should contain a breakdown of payments by nature and country.
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.
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.
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: