The Grand Ducal Regulation of 18 December 2015 determining the form and content of the layouts of the balance sheet and profit and loss account¹ applicable to financial years starting on or after 1^st January 2016 introduced – in accordance with the accounting directive 2013/34/EU² – new balance sheet layouts in implementation of articles 34 and 35 of the amended law of 2002³ (art. 34 LRCS, art. 35 LRCS) and new profit and loss account layouts in implementation of articles 46 and 47 of the amended law of 2002 (art. 46 LRCS, art. 47 LRCS). These new balance sheet and profit and loss account layouts (2016) differ in several respects from the old layouts (2015).

At the same time, the content and presentation of the Standard chart of accounts (PCN) remain – at this stage – those determined by the Grand Ducal Regulation of 10 June 2009⁴, the structure of which has not – for the time being – been adapted to the new layouts (2016).

Questions

The introduction of new balance sheet and profit and loss account layouts (2016), the differences with the old layouts (2015) previously in force and their partial disconnection with the PCN raise a number of practical questions, including:

What is the general approach adopted for the new balance sheet and profit and loss account layouts (2016)?
What are the main differences between the new layouts (2016) and the old layouts (2015)?
How should the transition between the old layouts (2015) and the new layouts (2016) be managed, particularly with regard to the presentation of comparative figures?
What are the conventions for presenting figures in the new balance sheet and profit and loss account layouts (2016)?

Appendix 1 to 4 : Transition tables between old layouts (2015) and new layouts (2016):

Appendix 1 – Balance sheet
Appendix 2 – Abridged balance sheet
Appendix 3 – Profit and loss account
Appendix 4 – Abridged profit and loss account

Answers

What is the general approach adopted for the new balance sheet and profit and loss account layouts (2016)?

The following items are taken from the explanatory memorandum (“exposé des motifs”) to the draft Grand Ducal Regulation as adopted by the Government Council and submitted to the Professional Chambers and to the Council of State for their opinion⁵.

With regard to the general approach adopted, it was decided to limit as far as possible the differences between Luxembourg layouts and European layouts. To this end, it had been noted that during the legislative reforms of 2002⁶ then 2009⁷ – 2010⁸ and 2013⁹, Luxembourg layouts – similar to those of our Belgian and French neighbours – had deviated from the European layouts on various points. The purpose of these deviations was very often either to clarify the wording of captions and sub-captions included in the European layouts, or to add captions or sub-captions not included in the European layouts. In view of the objective of European accounting harmonisation underlying Directive 2013/34/EU, it has been proposed to align with the European layouts wherever possible. In this context, deviations are the exception and are therefore very limited.

In order to facilitate the articulation / correspondence between the new balance sheet and profit and loss account layouts and the Standard chart of accounts (PCN), a project to revise the PCN was initiated in 2015 and should be concluded by the end of 2016¹⁰.

What are the main differences between the new layouts (2016) and the old layouts (2015)?

The following items are taken from the commentary on Article 1 of the draft Grand Ducal Regulation as adopted by the Government Council and submitted to the Professional Chambers and to the Council of State for their opinion¹¹.

The new balance sheet layout (2016)

The balance sheet layout adopted at national level corresponds to the horizontal balance sheet model provided for in Article 10, Annex III of Directive 2013/34/EU. In substance, this is a layout that is well known to Luxembourg undertakings, as it is very close to the former balance sheet layout (2015) provided for by article 34 of the amended law of 19 December 2002.

The main differences between the new balance sheet layout (2016) and the old balance sheet layout (2015) are set out below (point 2.1.1.), as are the differences between the Luxembourg layout and the European layout, which do not call into question the overall conformity of the national implementing measures (point 2.1.2.).

Balance sheet – Main differences between the new balance sheet layout (2016) and the old balance sheet layout (2015)

The differences are partly due to choices made by the European legislator and partly due to the elimination of differences between the Luxembourg model and the European model.

Balance sheet – Choices made by the European legislator

The main differences resulting from the choices made by the European legislator are as follows:

The elimination of the option to capitalise research costs under the asset caption C.I.1., as only development costs may now be capitalised under this item;
The elimination of fixed asset item C.III.7 “Own shares or own corporate units”. Own shares or own corporate units may now only be included under current assets item D.III.2 “Own shares or own corporate units”;
The amendment to equity item A.IV.4 “Other reserves, including the fair value reserve”, which now specifies that this item shall include reserves resulting from measurement by reference to fair value.

Balance sheet – Elimination of pre-existing differences

It was decided to reduce as far as possible the differences between the model adopted by the European legislator and the model proposed to Luxembourg undertakings. In practice, this convergence has several implications, including:

Aligning the terminology of captions and sub-captions: a broad interpretation should be given to certain terms such as “Investments” (D.III.3.), which may in practice include instruments and securities other than transferable securities (e.g. derivative financial instruments);
The deletion of equity item A.IX. “Temporarily not taxable capital gains”, which essentially constitute reserves benefiting from a tax deferral and which are now included under caption A.IV.4. “Other reserves, including the fair value reserve” and more specifically under item A.IV.4.b) “other non-distributable reserves” during the tax immunity period;
The deletion of item B. “Subordinated debts” not provided for in the 2013/34/EU accounting directive.

Balance sheet – Differences between the Luxembourg model and the European model

While the general approach adopted is based on the search for a maximum connection between the directive layouts and its transposition into Luxembourg law, limited deviations have – by way of exception – been maintained. These deviations relate to the following captions and sub-captions:

Assets – C.I.4. Payments on account and intangible assets under development

The words “and intangible assets under development ” have been added to ensure consistency between caption C.I.4. within fixed intangible assets and caption C.II.4. within fixed tangible assets (“Payments on account and tangible assets in the course of construction “).

Capital and reserves – Sub-captions A.IV.4. a) “Other available reserves” and b) “Other unavailable reserves”

Directive 2013/34/EU specifies that fair value measurement reserves must be classified under caption A.IV.4 “Other reserves, including the fair value reserve”.

Two sub-captions have been added to item A.IV.4 “Other reserves, including the fair value reserve” in order to distinguish between “other available reserves” (sub-caption a)) and “other unavailable reserves” (sub-caption b)).

Accordingly, reserves that are not available for distribution, either in application of legal or regulatory provisions (e.g. fair value reserves, net equity method reserves) or in application of decisions taken by the general meeting of shareholders or members, are classified as “other reserves not available for distribution”.

Capital and reserves – Item A.VII. “Interim dividends”

Following the example of the former 4^th Directive (78/660/EEC), Directive 2013/34/EU does not provide a caption for classifying interim dividends. In the absence of such a caption, undertakings are generally obliged to deduct interim dividends directly from reserves or even from the profit for the current financial year, even though the final assignment / appropriation often remains the ultimate responsibility of the general meeting. This is admittedly a departure from the model in the directive, but it is necessary in the interests of transparency.

Capital and reserves – Item A.VIII. “Capital investment subsidies”

Directive 2013/34/EU does not provide – following the example of the former 4^th Directive (78/660/EEC) – for a caption dedicated to “Capital investment subsidies”. However, given that many Luxembourg undertakings currently use this caption A.VIII., it has been decided to maintain this caption and not to change a practice that is generally accepted in Luxembourg and also known in other Member States including France and Belgium.

The new layout of the profit and loss account (2016)

The following items are taken from the commentary on Article 3 of the draft Grand Ducal Regulation as adopted by the Government Council and submitted to the Professional Chambers and to the Council of State for their opinion¹².

The profit and loss account layout¹³ adopted at national level corresponds to the model of profit and loss account with presentation of expenses by nature provided for in Article 13, Annex V of Directive 2013/34/EU. In substance, the captions and sub-captions proposed in this new profit and loss account layout (2016) are well known to Luxembourg undertakings as they are relatively close to the captions / sub-captions of the former profit and loss account layout (2015) provided for by article 46 of the amended law of 19 December 2002.

The main differences between the new profit and loss account layout (2016) and the old profit and loss account layout (2015) are set out below (point 2.2.1.) and the differences between the Luxembourg model and the European model, which do not call into question the overall compliance of the national implementing measures (point 2.2.2.).

Profit and loss account – Main differences between the new profit and loss account layout (2016) and the old profit and loss account layout (2015)

The differences are partly due to choices made by the European legislator and partly to the elimination of differences between the Luxembourg model and the European model.

Profit and loss account – Choices made by the European legislator

The main differences resulting from the choices made by the European legislator are as follows:

The requirement to present the profit and loss account in list form as opposed to horizontally (in account form);
The elimination of the category of “extraordinary” income and expenses. From now on, undertakings will have to disclose in the notes any income or expenses that are of extraordinary size or impact.

Profit and loss account – Elimination of pre-existing differences

Alignment of terminology between captions and sub-captions: certain terms should be given a broad meaning. For example, “work in progress” (caption 2.) covers not only goods in progress but also “contracts and services in progress”. Similarly, item 5.a. “Raw materials and consumables” also covers “consumption of merchandise”;
A change in the breakdown of staff costs, and more specifically social security costs (item 6.b): in accordance with Directive 2013/34/EU, social security costs will henceforth be presented under item 6.b), with a separate mention of those covering pensions. This covers the statutory pension insurance scheme (item 6.b) i) as well as other social charges resulting from the statutory scheme (e.g. health insurance, accident insurance) (item 6.b) ii);
A change in the structure of financial income within the Luxembourg model in order to realign it with the structure proposed by the Directive, which is not based on a distinction between income from fixed financial assets and income from current financial assets;
The item “reversals of value adjustments” (B.4) has been deleted in order to bring it into line with the directive, which does not include such a caption. It should be noted that the concept of value adjustments – defined by the directive – covers both “downward” and “upward” value adjustments.

Profit and loss account – Differences between the Luxembourg model and the European model

While the general approach adopted is based on the search for a maximum connection between the layout of the directive and its Luxembourg transposition, limited deviations have – by way of exception – been maintained. These deviations relate to the following items:

Addition of item 6. c) “Other staff costs”.

In accordance with Article 9(2) of Directive 2013/34/EU, an item c) entitled “Other staff costs” has been added to item 6 “Staff costs”. By way of illustration, this item 6.c) will make it possible to classify personnel costs such as supplementary pension premiums paid by employers, which are not strictly speaking “wages and salaries” under item 6.a) nor “social security costs” under item 6.b).

Clarification of item 10 ” Income from other investments and loans forming part of the fixed assets”

The directive proposes a structure for financial income that differs somewhat from the current Luxembourg model (see article 3, point 1.2.). Considering that item 9 now only covers income from participating interests (including income from affiliated undertakings), the purpose of item 10 is to group together income from other financial assets, whether fixed or current. This item therefore covers income from “Investments” in current assets (D.III.) as well as ” Investments held as fixed assets ” (C.III.5.) and “other loans” (C.III.6.). In order to clarify the link between balance sheet caption C.III.5. and profit and loss account caption 10., it is proposed that the words “other investments” be added to the wording of the caption proposed by the directive.

Changes in items 11 ” Other interest receivable and similar income ” and 14 ” Interest payable and similar expenses”

It is proposed to adopt a broader wording for financial income and expenses captions 11. and 14. by replacing the concepts of “similar income” by “other financial income” and “similar expenses” by “other financial expenses”. It is clear that these items are not limited to “interest” and income and expenses similar to interest (e.g. bond coupons, bond redemption premiums) but may also include financial income and expenses of a substantially different nature (e.g. foreign exchange gains and losses that do not relate to other items).

Other minor changes

Other minor changes have been made to the Luxembourg layout, either to reflect the exercise by Luxembourg of options provided for in the Directive (e.g. item 12 “Share of profit or loss of undertakings accounted for under the equity method”) or to clarify the wording of captions (e.g. change in the wording of item 16 “Profit or loss after income tax”) and improve the overall readability of the profit and loss account.

How should the transition between the old layouts (2015) and the new layouts (2016) be managed, particularly with regard to the presentation of comparative figures?

The transition between the old layouts (2015) and the new layouts (2016) raises a number of issues relating to the presentation of both the figures for the current financial year (2016) and the comparative figures for the previous financial year (2015). Some items have been deleted (“Deletion“), while others have been added (“Addition“), modified (“Form“) or grouped together (“Grouping“). As a result of these deletions, additions, modifications of form and groupings, the content of other captions / sub-captions is sometimes modified (“Content“).

In order to facilitate the transition for undertakings, tables of concordance – of an indicative nature – are proposed in the appendix, as follows:

Appendix 1 – Balance sheet
Appendix 2 – Abridged balance sheet
Appendix 3 – Profit and loss account
Appendix 4 – Abridged profit and loss account

These concordance tables identify each of the differences between the captions and headings in the old layouts and the captions and headings in the new layouts by categorising them according to the typology mentioned above, i.e. “Deletion“, “Addition“, “Form“, “Grouping” and “Content”..

What are the conventions for presenting figures in the new balance sheet and profit and loss account layouts (2016)?

The conventions for presenting the figures in the balance sheet layout (point 4.1.) and in the profit and loss account layout (point 4.2.) are set out below.

Balance sheet layout (2016): conventions for presenting figures

The new balance sheet layout (2016) is based – like its predecessor – on the so-called “horizontal” presentation¹⁴ where assets appear distinctly on the one hand and shareholders’ equity and liabilities appear distinctly on the other, as opposed to the so-called “vertical” presentation¹⁵ where shareholders’ equity appears as the balance of assets after deduction of liabilities.

Within the horizontal layout of the balance sheet – well known in Luxembourg – the conventions for presenting the figures remain unchanged from the previous system, namely:

Within assets, items with a debit balance are shown as positive values;
Within liabilities, items with a credit balance are shown as positive values;
Within capital and reserves (equity), items with a credit balance are shown as positive values and items with a debit balance¹⁶ are shown as negative values;
As a result, total assets and total equity and liabilities are equal and have the same sign.

In summary, the conventions for presenting the figures in the new balance sheet (2016) remain unchanged from those previously in force in the old balance sheet (2015).

Profit and loss account layout (2016): conventions for presenting figures

Unlike the old profit and loss account layout (2015), which was based on a “horizontal” model, the new profit and loss account layout (2016) is based on a “list” presentation¹⁷.

Within this new profit and loss account layout, expenses continue to be presented “by nature”¹⁸ as in the previous model. However, the new presentation “in list form” differs from the previous presentation “in account form” in that it does not present expense items and income items distinctly.

In this context, it was decided to adopt a convention for presenting the figures that would be both simple and clear for both the preparers and users of the accounts. Considering that certain items may be debit or credit depending on the circumstances (e.g. 1. to 5. “Gross profit or gross loss”, 7. “Value adjustments”, 12. “Share of profit or loss of undertakings accounted for under the equity method”), the conventions for presenting the figures in the new profit and loss account layout (2016) have been defined as follows:

Items showing a credit balance are always presented as positive values;
Items with a debit balance are always presented as negative values.

As a result of the above, income captions / sub-captions will generally appear in positive values (e.g. net turnover, other operating income) while expense captions / sub-captions will generally appear in negative values (e.g. staff costs, other external charges, other operating expenses). As mentioned above, other captions / headings will sometimes appear as positive values and sometimes as negative values, depending on the circumstances (e.g. 1. to 5. “Gross profit or loss”, 7. “Value adjustments”, 12. “Share of profit or loss of undertakings accounted for under the equity method”).

In summary, the conventions for presenting the figures in the new profit and loss account layout (2016) differ considerably from those previously in force in the old profit and loss account layout (2015).

Disclaimer

This document – provided as a courtesy – is an unofficial translation of the French original document entitled “eCDF/PCN – Nouveaux schémas de bilan et de compte de profits et pertes (2016) : conséquences pratiques”. In case of discrepancy in interpretation, the French version shall prevail.

The “questions and answers” published by the “Commission des normes comptables (CNC)” (Accounting Standards Board):

are of a general nature and do not refer to the specific situation of any natural or legal person;
are intended to contribute to the development of accounting doctrine in accordance with Article 73(b) of the amended Law of 19 December 2002 on the trade and companies register, as well as on the bookkeeping and annual accounts of undertakings;
represent only the opinion of the GIE CNC on a number of doctrinal and interpretative issues.

The administrative or management bodies of undertakings remain responsible in accordance with general law for any decisions taken based on this document.

1 Grand Ducal Regulation of 18 December 2015 determining the form and content of the balance sheet and profit and loss account layouts and implementing articles 34, 35, 46 and 47 of the amended law of 19 December 2002 on the trade and companies register as well as the bookkeeping and annual accounts of undertakings, Mém. A – N°258 of 28 December 2015.

2 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, OJ L 182, 29.6.2013.

3 Law of 19 December 2002 on the trade and companies register as well as the bookkeeping and annual accounts of undertakings, Mém. A – N°149 of 31 December 2002.

4 Grand Ducal Regulation of 10 June 2009 determining the content and presentation of a standard chart of accounts, Mém. A – N°145 of 22 June 2009.

5 Draft Grand Ducal Regulation determining the form and content of the layouts of the balance sheet and of the profit and loss account and implementing articles 34, 35, 46 and 47 of the amended law of 19 December 2002 on the trade and companies register as well as the bookkeeping and annual accounts of undertakings.
http://www.conseil-etat.public.lu/content/dam/conseil_etat/fr/avis/2015/07/17_07_2015/50_937/50937-Texte.pdf

6 Law of 19 December 2002 on the trade and companies register as well as the bookkeeping and annual accounts of undertakings (parliamentary document 4581)

7 Grand Ducal Regulation of 10 June 2009 determining the content and presentation of a standard chart of accounts

8 Law of 10 December 2010 on the introduction of international accounting standards for undertakings (parliamentary document 5976)

9 Law of 30 July 2013 reforming the Accounting standards board (CNC) and amending various provisions relating to the bookkeeping and annual accounts of undertakings and the consolidated accounts of certain types of companies (parliamentary document 6376)

10 The revised Standard chart of accounts (PCN) is expected to apply from financial years beginning on 1 January 2018.

11 See: supra note 4.

12 See: supra note 4.

13 In the French version the “compte de profits et pertes” (profit and loss account) is referred to as the “compte de résultat” (income statement) under Directive 2013/34/EU.

14 This is the layout proposed in Annex III of Directive 2013/34/EU, entitled “Horizontal layout of the balance sheet provided for in Article 10”.

15 This is the model proposed in Annex IV of Directive 2013/34/EU, entitled “Vertical layout of the balance sheet provided for in Article 10”.

16 For example, interim dividends shown under caption A.VII. will be shown as a negative value, as will losses brought forward or the loss for the financial year shown under caption A.V. and A.VI.

17 This is the model proposed in Annex V of Directive 2013/34/EU, entitled “Layout of the profit and loss account – by nature of expenses, provided for in Article 13”.

18 As opposed to a presentation of expenses “by function of expense” as also proposed by Directive 2013/34/EU in its Annex VI entitled “Layout of the profit and loss account – by function of expense, provided for in Article 13”.