IFRS versus LUX GAAP A comprehensive comparison © 2017 Deloitte Audit 2 Foreword The objective of this brochure is to provide you with a summary and a clear and practical oversight of the key differences between the requirements of IFRS and LUX GAAP. This summary takes new Standards and recent amendments regarding IFRS and LUX GAAP up to August 2017 into account. You may have seen our first publication describing the differences between the two accounting frameworks. A lot of development and discussions have taken place since then. The issuance of IFRS 9, 15 and – to a certain extent – IFRS 16 was the result of getting many different views from those who were in favor and those who were against these standards. We believe that because of these standards, the gap between IFRS and LUX GAAP is getting larger. In this brochure we have listed the differences between the new standards and LUX GAAP in the main part of the document, while the comparison with the old standards are included in the appendices. This summary does not attempt to capture all of the differences that exist or that may be material to a particular entity’s financial statements. Our focus is on differences that are commonly found in practice. Moreover, the significance of these differences - and others not included in this list - will vary with respect to individual entities depending on such factors as the nature of the undertaking's operations, the industry in which it operates and the accounting policy it has chosen. As a result, reference to the underlying accounting standards is key in understanding the specific differences. Special thanks goes to the main author of this brochure, Dr. Matthias Weimann, who contributed the last couple of months significant time to get his detailed knowledge of IFRS reflected in this document. I would also like to thank Ana Dondera for her contribution as an experienced member of our IFRS Center of Excellence. Also others contributed with valuable information to this brochure. As this publication can only provide a general overview, we recommend you to approach your advisor in case you want to make an analysis of the differences between IFRS and LUX GAAP specific for your company. Although great care has been given to the publication Deloitte Audit and the authors will take no responsibility for any omissions. Eddy R. Termaten Audit Partner Leader of IFRS Center of Excellence Luxembourg © 2017 Deloitte Audit 3 Abbreviations AFS Available for sale CESR Committee of European Securities Regulators CNC Commission des Normes Comptables DIA Date of Initial Application EC European Commission ECL Expected credit loss(es) ED Exposure Draft EEA European Economic Area (EU 28 + 3 countries) EFRAG European Financial Reporting Advisory Group EIR Effective interest rate ESMA European Securities and Markets Authority EU European Union (28 countries) FASB Financial Accounting Standards Board (US) FVO Fair value option FVTOCI Fair value through other comprehensive income FVTPL Fair value through profit or loss GAAP Generally Accepted Accounting Principle(s) GDR Grand Ducal regulation HTC Hold to collect (contractual cash flows) HTM Held to maturity IAS(s) International Accounting Standard(s) IASB International Accounting Standards Board IASC International Accounting Standards Committee (predecessor to the IASB) IFRSF IFRS Foundation (parent body of the IASB) IFRIC International Financial Reporting Interpretations Committee of the IASB, and Interpretations issued by that committee © 2017 Deloitte Audit 4 Abbreviations (continued) IFRS(s) International Financial Reporting Standard(s) LAR Loans and receivables LCM/LOCOM Lower of cost or market value LUX GAAP Law of 10 August 1915 on commercial companies, as amended and Law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings OCI Other comprehensive income PCN Plan Comptable Normalisé P&L Profit or loss PPE Property, plant and equipment SEC Securities and Exchange Commission (US) SIC Standing Interpretations Committee of the IASC, and Interpretations issued by that committee SPPI Solely payments of principal and interest © 2017 Deloitte Audit 5 Content © 2017 Deloitte Audit 6 Content A short history of international accounting Consolidation and related topics Recent changes in IFRS Business Combinations Use of IFRS in Luxemburg Investments in Associates and Joint Ventures Overview of the Law of July 30, 2013 and the Law of December 18, 2015 Joint Arrangements Qualitative characteristics of financial Disclosure of Interests in Other Entities statements Separate Financial Statements Presentation of Financial Statements Operating Segments Principles and Policies Earnings Per Share Fair Value Measurement Interim Financial Reporting Property, Plant and Equipment Accounting for Government Grants Investment Property Agriculture Intangible Assets Financial Instruments Impairment of Assets End notes Inventories Provisions, Contingent Liabilities and Appendices Contingent Assets Appendix 1 - Financial Instruments Income Taxes (IAS 39) Revenue from Contracts with Customers Appendix 2 - Leases (IAS 17) Employee Benefits Appendix 3 - Revenue Recognition Share-based Payment (IAS 18 and related) Leases Borrowing Costs The Effects of Changes in Foreign Exchange Rates Non-current Assets Held for Sale and Discontinued Operations Events after the Reporting Period Related Party Disclosures © 2017 Deloitte Audit 7 A short history of international accounting © 2017 Deloitte Audit 8 © 2017 Deloitte Audit 9 A short history of international accounting Harmonizing global accounting This convergence project was of particular standards importance as: History • The US Securities and Exchange Commission (SEC) was considering From its inception in 1973, the former whether to adopt, or allow, IFRS for use International Accounting Standards by domestic issuers in the United States, Committee (IASC) worked towards and gave consideration to the success of harmonizing global accounting standards by the convergence process as part of this developing standards that could serve as a assessment. As time of the writing, the model on which national standard setters SEC has not decided about the could base their own requirements. incorporation of the IFRSs into the US financial reporting system The IASC was replaced by the International Accounting Standards Board (IASB) effective • The Leaders of the Group of 20 (G20) in 2001. Its mission became the issued a statement in 2009 calling for the convergence of global accounting standards convergence of accounting standards in by developing a single set of enforceable the member nations by 2011. Whilst the global accounting standards that require original June 2011 deadline has not been high quality, transparent and comparable met, subsequent G20 meetings in 2012 information in financial statements and other and 2013 reaffirmed the commitment to financial reporting to help participants in the achieve convergence of accounting world’s capital markets and other users in standards making economic decisions. Current status The IASB has complete responsibility for all technical matters of the IFRS Foundation The scope of the overall IASB-FASB including: convergence project has evolved over time. Whereas joint work on some projects has • full discretion in developing and been discontinued, such as Government pursuing its technical agenda, subject grants, Impairment or Income taxes, other to certain consultation requirements joint projects led to converged standards, with the Trustees and the public such as business combinations, • the preparation and issuing of IFRSs consolidation, fair value measurement and (other than Interpretations) and revenue recognition. Other high-priority exposure drafts, following the due projects of both boards with divergent process stipulated in the Constitution outcomes in some areas, have been • the approval and issuing of completed by the IASB resulting in IFRS 9 Interpretations developed by the IFRS Financial Instruments and IFRS 16 Leases. Interpretations Committee As by now the convergence project is coming to an end and it is expected that no IFRS-US GAAP convergence new projects will be added to the agenda. Background The objective of this project is to eliminate a variety of differences between IFRS and US GAAP. The project, which is being done jointly by Financial Accounting Standards Board (FASB) and IASB, grew out of an agreement reached by the two boards in October 2002 (the “Norwalk Agreement”). © 2017 Deloitte Audit 10 A short history of international accounting (continued) Use of IFRS in Europe Endorsement of IFRS for use in Europe The EU Accounting Regime requires that IFRSs be adopted individually for use in the European Accounting Regulation European Union (‘endorsement’). The effective from 2005 endorsement process involves the following steps: the European Commission (EC) translates Listed companies • the IFRSs into all European languages; In 2002 the European Union (EU) approved the private-sector European Financial an Accounting Regulation (the "IAS • Reporting Advisory Group (EFRAG) Regulation") requiring all EU companies provides endorsement advice to the EC; listed on a regulated market (about 8,000 companies in total) to follow IFRS in their • the EC’s Accounting Regulatory consolidated financial statements starting in Committee (ARC) makes an endorsement 2005. The IFRS requirement applies not only recommendation; and in the 28 Member States of the EU but also in