Q&A CNC 26/038 – Large associations, associations recognised as being of public utility and foundations: targeted clarifications on the new accounting regime introduced by the law of 7 August 2023

First, it should be noted that, pursuant to article 18 paragraph 6, to article 36 paragraph 1 and to article 52 paragraph 3 of the Law of 7 August 2023, not-for-profit associations classified as “large associations,” associations recognised as being of public utility and foundations, are required to draw up annual accounting documents consisting at a minimum¹ of annual accounts prepared in accordance with the accounting regime applicable to undertakings referred to in article 47 LRCS. As a reminder, the accounting regime provided for in article 47 LRCS is commonly referred to as the “accounting regime of medium-sized undertakings.”

Pursuant to article 26 paragraph 1 LRCS, “[t]he annual accounts (…) comprise the balance sheet, the profit and loss account and the notes to the accounts: these documents shall constitute a composite whole”.

In summary, the accounting regime applicable to medium-sized undertakings specifically requires the presentation of a non-abridged balance sheet, the presentation of a profit and loss account in an abridged format (although a profit and loss account in a non-abridged format may be presented on a voluntary basis) and the presentation of notes to the accounts containing the disclosures required by article 65 LRCS, subject – where applicable – to the exemptions provided for in article 67 LRCS.

The answer must be negative.

In fact, no provision of the law of 7 August 2023 requires not-for-profit associations and foundations to comply with the Standard chart of accounts (PCN)¹ or to submit standard financial data via the eCDF platform. This intent of the authors of the draft bill of law No. 6054 on not-for-profit associations and foundations is further confirmed in parliamentary documents and, more specifically, in the governmental amendments of 26 July 2021², where it is stated in Chapter IV of Title I, entitled “Bookkeeping and annual accounting documents” applicable to not-for-profit associations (excluding associations recognised as being of public utility referred to in Title II and foundations referred to in Title III) that:

“[I]n order to avoid placing an excessive administrative burden on associations, particularly the smallest ones, it is proposed that the filing with the RCS should – initially, and regardless of the association’s size and status – be carried out in the classic format, that is to say, without going through the electronic financial data collection platform (eCDF).

Similarly, and for the sake of simplicity, it is proposed not to extend the application of the Standard chart of accounts (PCN) applicable to undertakings to associations at this stage”.

It should be noted that this exemption from PCN and from transit via the eCDF platform also applies to associations recognised as being of public utility under article 36 paragraph 1 (see: Title II), which provides that:

“For the purposes of determining the accounting regime applicable to it, an association recognised as being of public utility falls within the category of “large organisations” as defined in Article 18”.

Finally, foundations are also exempt from PCN and from the requirement to transit via the eCDF platform, as confirmed in the comments on the amendments relating to Title III, which deals with foundations⁴, where it is stated that:

“[I]n order to avoid placing an excessive administrative burden on foundations, particularly the smallest ones, it is proposed that filing with the RCS should – initially – be carried out in the classic format, that is to say, without going through the electronic financial data collection platform (eCDF).

Similarly, and for the sake of simplicity, it is proposed not to extend the application of the Standard chart of accounts (PCN) applicable to undertakings to foundations at this stage”.

It should be noted that whilst not-for-profit associations classified as “large associations”, associations recognised as being of public utility and foundations are exempt from the obligation to file the balance of accounts (the trial balance) listed in the PCN with the RCS via the eCDF platform; however, there is nothing to prevent them from using the PCN on a voluntary basis. It is indeed noted that using the PCN comes with several advantages, one of which is that it provides a mapping table that allows for the easy – or even automated⁵ – preparation of the balance sheet and profit and loss account. It should be noted that not-for-profit associations and foundations which voluntarily choose to use the PCN will nevertheless remain exempt from the standard collection of financial data via the eCDF platform and will therefore file their annual accounts in the classic manner (without the trial balance of accounts presented PCN format).

However, in the case of not-for-profit associations classified as “large associations”, associations recognised as being of public utility and foundations that choose not to use the PCN, preferring instead to use an internal chart of accounts, these organisations must ensure that they adequately document the correspondence between their internal chart of accounts and the balance sheet and profit and loss account (‘mapping’). This documentation will be kept at the association’s or foundation’s registered office and will, in particular, facilitate the audit work carried out by the “réviseur d’entreprises agréé” (approved statutory auditor).

With regard to the structure of the balance sheet and to the structure of the profit and loss account as provided for in the accounting regime applicable to “medium-sized undertakings”, these are the balance sheet layout set forth in article 34 LRCS and the abridged profit and loss account layout set forth in article 47 LRCS, both of which provide that the form and content of said layouts are determined by Grand Ducal Regulation adopted upon the opinion of the CNC.

Under current legislation, it is the Grand Ducal Regulation of 18 December 2015⁶ that determines the form and content of the layouts for the balance sheet and for the profit and loss account in their non-abridged and abridged formats, which are applicable. These standard layouts are available to the public on the electronic financial data collection platform (eCDF platform)⁷.

It should be noted that not-for-profit associations classified as “large associations”, as well as associations recognised as being of public utility and foundations, are free to use – on a voluntary basis – the non-abridged profit and loss account layout provided for in article 46 of the LRCS.

It must be noted that the form and content of the balance sheet and profit and loss account layouts established by the Grand Ducal Regulation of 18 December 2015, reflect a business model designed for commercial undertakings. Consequently, certain concepts are not tailored to the activities and operations of not-for-profit organisations, such as not-for-profit associations and foundations. By way of example, one can cite the concepts of “1. Net turnover” in the profit and loss account (non-abridged layout) or of “A.I. Subscribed capital” in the balance sheet (non-abridged layout).

This raises the question of whether not-for-profit associations classified as “large associations,” associations recognised as being of public utility and foundations can adapt the standard balance sheet and the standard profit and loss account layouts.

Once again, the parliamentary document No. 6054-8, in connection with the governmental amendments to the draft bill of law on not-for-profit associations and foundations, states – unequivocally – that:

“Large associations shall comply with the layouts of balance sheet and profit and loss account adopted pursuant to articles 34 and 47 of the amended law of 19 December 2002, whilst making the necessary adjustments (e.g. the nomenclature of line items / captions) to reflect the nature of their activities”⁸.

It should be noted that the same applies to foundations; the aforementioned governmental amendments⁹ state that:

“The foundations shall comply with the layouts of the balance sheet and profit and loss account adopted pursuant to articles 34 and 47 of the amended law of 19 December 2002, whilst making the necessary adjustments (e.g. the nomenclature of line items / captions) to reflect the nature of their activities”.

It is important to note that the reason why undertakings subject to the PCN and to the standard data collection via the eCDF platform have, since 2012, been prohibited from adapting their balance sheet and profit and loss account layouts is precisely because the standard data collection has required the implementation of electronic forms in a standard and fixed format¹⁰. However, for undertakings not subject to the PCN and to the standard data collection via the eCDF platform (e.g. undertakings subject to prudential supervision by the CSSF), adjustments to the layouts remain possible under the Grand Ducal Regulation of 15 December 2016¹¹. It must be noted that the same applies to not-for-profit associations and to foundations, all of which are exempt from the PCN and from the standard collection of financial data on the eCDF platform, and for which there is therefore no requirement to use electronic forms in a standard and fixed format.

Whilst it is understood that not-for-profit associations and foundations may make “the necessary adjustments (e.g. nomenclature of line items / captions)”, the question nevertheless arises as to the nature, scope and limits of such adjustments.

In this regard, it should be noted that the accounting directive 2013/34/EU¹² – which does not apply to not-for-profit associations and foundations but which may nevertheless serve as a source of inspiration – explicitly provides, in article 9 paragraphs 2 and 3, for the option to adapt the layouts of the balance sheet and of profit and loss account within certain limits.

As a reminder:

• Article 9 paragraph 2 of the accounting directive 2013/34/EU provides that, within the balance sheet and the profit and loss account, a more detailed breakdown of line items / captions is permitted and that the addition of subtotals and new line items / captions is authorised provided that their content is not covered by any of the line items / captions set out in the prescribed layouts;
• Article 9 paragraph 3 of the accounting directive 2013/34/EU provides that the structure, nomenclature and terminology of balance sheet and profit and loss account line items / captions preceded by Arabic numerals shall be adapted where the specific nature of the undertaking so requires.

In view of the above, it appears that it can be concluded that not-for-profit associations classified as “large associations”, associations recognised as being of public utility and foundations which are required to draw up their balance sheet in accordance with article 34 of the law of 19 December 2002 (non-abridged layout) and their profit and loss account in accordance with articles 46 or 47 of the law of 19 December 2002 (abridged or non-abridged layouts) have the option to adapt these layouts by:

• providing a more detailed breakdown of the line items / captions in the balance sheet and profit and loss account;
• adding subtotals within the balance sheet and profit and loss account layouts;
• adding new line items / captions, provided that their content is not covered by any of the line items / captions set out in the standard layouts;
• adapting the structure, nomenclature and terminology of balance sheet and profit and loss account line items / captions preceded by Arabic numerals where the specific nature of the undertaking so requires.