Reform of audit profession

On 14 July 2016, the Luxembourg Parliament adopted a bill to implement (i) Directive 2014/56/EU on statutory audits (audits of annual accounts or consolidated accounts) (the “Directive”) and (ii) certain provisions of EU Regulation 537/2014 on the specific requirements applicable to the statutory audit of public-interest entities (the “Regulation”).

The law will become effective after its publication in the Luxembourg official journal.

This bill will replace the Luxembourg law of 18 December 2009 on the audit profession.

There will not however be any significant change in the legal and regulatory framework of the audit profession except for the redefinition of the auditor’s role and the missions of the supervisory bodies (the Commission de surveillance du secteur financier(CSSF) and the Institut des réviseurs d’entreprises (IRE)).

Redefinition of the auditor’s role

The role of the approved auditor (réviseur d’entreprises agréé) has been clarified and strict rules will be introduced in order to strengthen its independence. In Luxembourg, two codes of theFédération internationale des experts-comptables (IFAC) and certain regulations of the CSSF have already implemented such clarification and stricter rules.

Finally, the missions that have so far been restricted to approved auditors may be carried out by auditors (réviseurs d’entreprises) except for a company’s statutory audit, which may only be carried out by an approved auditor.

Restriction to the audit mission period

In order to avoid any familiarity risk which may arise during an audit mandate, an audit mission may be renewed each year but only for a maximum aggregate duration of 10 years. This audit mission may even be renewed beyond 10 years if a public tendering process is launched.

Moreover, the key audit partners in charge of carrying out a statutory audit in a public-interest entity may only carry out this audit for a maximum period of 7 years.

List of additional information to be provided in the audit report

In order to improve the information value of the audit report, such report must contain certain mandatory information, such as, but not limited to:

  • a declaration that the prohibited non-audit services were not provided and that the auditor(s) or the audit firm(s) remained independent of the audited entity in conducting the audit; and
  • a statement of any services, in addition to the statutory audit, which were provided by the auditor or the audit firm to the audited entity and its controlled undertaking(s), and which have not been disclosed in the management report or financial statements.

Improvement of the supervision of auditors and of the cooperation between auditors’ supervisors within the European Union

The CSSF and the IRE remain the supervisory bodies for approved auditors and auditors.

The CSSF will be entitled to provide authorisation for statutory audits only but its role will be extended as follows:

  • The CSSF will be entitled to deal with claims from third parties regarding the statutory audit and to provide for sanctions. For instance, it may impose an administrative fine of a maximum amount of EUR 1,000,000 or 5% of the total annual turnover for a legal entity or of a maximum amount of EUR 500,000 for a natural person.
  • The CSSF will maintain a quality assurance system through quality assurance tests.
  • Finally, a member of the CSSF will represent the Grand Duchy of Luxembourg on a new European committee: the Committee of European Auditing Oversight Bodies.

European passport and use of international auditing standards

An audit firm from another Member State will be authorised to conduct a statutory audit in Luxembourg only if the key audit partner is licensed in Luxembourg as an approved auditor.

Auditors must respect international auditing standards which are commensurate with the size and complexity of each entity.