Welcome to part 4 of our 6-part article series about how audit
committees ("ACs") can prepare and deal with new
legislation. Specifically, the law of 23 July 2016 on the audit
profession ("Law") and Regulation (EU) N° 537/2014
("Regulation") will have an impact on audit committees in
terms of their roles and responsibilities, and their relationships
with external auditors.
Step 4 – What is the specific role of the AC in terms of
Step 5 – What kind of relationship should the AC maintain
with the external auditor?
Step 6 – What should the additional report of the external
auditor to the AC include?
In this article, we will discuss the AC's role regarding
non-audit services ("NAS"). The new legislation
introduces prohibitions on certain NAS as well as fee caps for
public interest entities ("PIEs").
Which NAS are prohibited?
The following NAS are prohibited, as per Luxembourg
The statutory audit firm of the PIE and any member of its
network cannot provide prohibited NAS to:
the PIE itself
its EU parent undertakings
its EU controlled undertakings
There are also limited restrictions applicable to controlled
undertakings outside the EU. A "threats and safeguards"
approach is required, although a limited number of absolute
prohibitions still apply.
When will these restrictions apply?
The statutory auditor cannot provide prohibited NAS to the PIE
between the beginning of the financial year under audit and the
release of the audit report. The restrictions apply to the first
financial year starting on or after 17 June 2016. This means that,
for a PIE with a 31 December 2016 year-end, the restrictions on NAS
would apply from 1 January 2017.
What NAS can be provided?
Those NAS which are not on the list of prohibited services are
permitted, subject to the general principles of independence and
audit committee approval.
Luxembourg has taken the view that valuation and certain tax
services are allowed (e.g. preparation of tax forms, identification
of public subsidies, support for tax inspections, calculation of
direct and indirect tax and deferred tax, and tax
advice)—provided (1) that they have no direct effect, or have
an immaterial effect, either separately or in aggregate, on the
audited financial statements, (2) that an estimation of their
effect on the audited financial statements is comprehensively
documented, and (3) that the independence principles are complied
...and the fee cap?
In addition, a 70% cap on fees from permitted NAS also applies
to the statutory audit firm. It is computed on the average of the
statutory audit fees over the preceding three years.
The 70% fee cap applies to permitted NAS provided by the
statutory audit firm to the PIE, its parents and controlled
undertakings. The geographical location of these group entities is
irrelevant. The fees are paid to the statutory audit firm but not
to its network.
When will the NAS fee cap clock start to tick?
The 70% fee cap starts to apply as from the first financial year
starting on or after 17 June 2016. For example, for a PIE with a 31
December year-end, the first financial year to count would be the
year ending 2017. Assuming three consecutive years of service, the
cap would first apply to the financial year commencing on 1 January
2020. Any full-year "break" in the consecutive nature of
the permitted NAS will result in the clock resetting back to
What are the AC's responsibilities?
ACs have the responsibility to pre-approve permissible NAS after
properly assessing threats to independence and the safeguards
applied. ACs shall also perform oversight of the operation of the
70% fee cap.
What are the practical considerations for selection and
management of professional advisers?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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25 Apr 2017, Business Breakfast, Luxembourg, Luxembourg
KPMG Luxembourg is pleased to invite you to a networking breakfast for Family Offices and Private Bankers. On this occasion, we will present the latest developments around hidden profit distributions to non-shareholders.
Here in Luxembourg, LPEA are holding an event which will offer new initiatives by bringing General Partners (GPs) and Limited Partners (LPs) together to examine and speak on the industry from the “360” perspective, leaving no stone unturned. We are a sponsor of the event, as well as having a speaker present. David Capocci, Partner and Head of Alternative Investments will be offering his own insight on the industry nowadays.
The conference will centre on the new tax normal, full transparency, and specifically the role of private bankers in this new age. Originally perceived as a threat to existing business models, full tax transparency may actually hold new opportunities for private bankers.
This pocket guide provides a summary of the recognition and measurement requirements in the Accountancy Profession (General Accounting Principles for Smaller Entities) Regulations, 2009 ("GAPSE"), that was enacted through Legal Notice 51 of 2009, and subsequently amended through Legal Notice 58 of 2010.
International Financial Reporting Standard (IFRS) 15 Revenue from Contracts with will become effective for annual periods beginning on or after 1 January 2017.
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