Specific requirements for public-interest entities

Pursuant to the Audit Law, public-interest entities are: 

• entities governed by Luxembourg law whose securities are admitted to trading on a regulated market in a Member State;
• credit institutions governed by Luxembourg law;
• insurance and reinsurance undertakings governed by Luxembourg law, with the exception of captive insurance and reinsurance undertakings.

All public-interest entities must, unless otherwise provided for by the Audit Law, set up an audit committee.

In the absence of specific cases, the CSSF has not yet set out the conditions under which public-interest entities that have a body performing functions equivalent to those of an audit committee may derogate from the obligation to set up an audit committee.

Henceforth, the audit committee has a more active role to play, its members must be mostly independent of the audited entity, competent in the entity’s field of activity and at least one of the members must have accounting and/or audit skills.

In addition to the tasks historically entrusted to it, namely ensuring:

• the monitoring of the financial reporting process;
• the effectiveness of internal control and risk management systems and, where applicable, internal audit;
• the statutory audit and the independence of the statutory auditor or approved audit firm;

it must now also:

• communicate the results of the statutory audit to the administrative or supervisory body and report on the actions it has taken in this process to ensure the integrity of the financial information;
• assess the quality of the additional report issued to it by the réviseur d’entreprises agréé.

The audit committee must also submit its recommendation to the administrative or supervisory body of the audited entity as part of the procedure for selecting the réviseur d’entreprises agréé or cabinet de révision agréé. This recommendation, except in the case of the renewal of a statutory audit, shall be justified and shall include at least two possible choices, from among the candidates, and shall indicate the duly justified preference of the audit committee for one of them. In other words, it will have to provide more support and supervision to the approved auditor and the approved audit firm in their work.

As independence is a pillar of the European texts, réviseurs d’entreprises agréés and cabinets de révision agréés must now confirm their independence each year in writing to the audit committee and discuss the risks to their independence and the safeguards applied to mitigate these risks. This is particularly true in the case of non-audit services provided to the audited entity.

The CSSF will have to evaluate the work of these audit committees and report to the European Commission. The regulator has been given the option of sanctioning the least diligent audit committees.