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pwc handbook for the preparation of annual accounts of banks .pdf



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Título: Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework
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www.pwc.lu/banking

Handbook for the
preparation of annual
accounts of banks
under Luxembourg
accounting framework

Applicable to credit
institutions ruled by the
bank accounting Law of
17 June 1992 as amended.
December 2012

This publication is exclusively designed for the general information of readers and is (i) not intended to address the specific circumstances of any particular individual
or entity and (ii) not necessarily comprehensive, complete, accurate or up to date and hence cannot be relied upon to take business decisions. Consequently,
PricewaterhouseCoopers, Société coopérative (“PwC Luxembourg”) does not guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. The reader must be aware that the information to which he/she has access is provided “as is” without any express or implied guarantee by
PwC Luxembourg.
PwC Luxembourg cannot be held liable for mistakes, omissions, or for the possible effects, results or outcome obtained further to the use of this publication or for any loss
which may arise from reliance on materials contained in it, which is issued for informative purposes only. No reader should act on or refrain from acting on the basis of any
matter contained in this publication without considering and, if necessary, taking appropriate advice in respect of his/her own particular circumstances.

Content
Preface

2

Introduction

3

General provisions related to the content and layout of the annual
accounts

5

Conditions for the preparation of consolidated accounts

10

Publication of annual accounts for the year ended 31 December 201y

12

Audited annual accounts

15

Content

17

Directors’ report

18

Balance sheet as at 31 December 201y

20

Profit and loss account for the year ended 31 December 201y

22

Notes to the accounts as at 31 December 201y

26

Other required disclosures

62

Contacts

65

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

1

Preface
The globalisation of business
and finance has inevitably led
to calls for a common set of
high quality, global accounting
standards. In this context,
International Financial
Reporting Standards (IFRS)
have gained significant
momentum in Europe,
especially since the
enforcement of the EU
Regulation of 2002, which
require listed companies to
prepare their consolidated
annual accounts using this
accounting framework. Since
then, the Luxembourg bank
accounting law has been
subsequently amended to
introduce the possibility for
Luxembourg credit institutions
to use IFRS - in part or as a
whole - in order to prepare
their annual accounts.

The Law of 17 June 1992 relating to the annual and consolidated accounts of
Luxembourg credit institutions has undergone substantial changes over the years.
Such changes were driven to a large extent by developments in the EU accounting
legislation.
The Law of 16 March 2006 has fully integrated the International Financial Reporting
Standards (IFRS) into Luxembourg Law, thus introducing more flexibility to
Luxembourg credit institutions in the preparation of their annual and consolidated
accounts. Luxembourg credit institutions can now choose between the current
accounting regime (LUX GAAP), the mixed accounting regime with IFRS valuation
principles applied to only certain items (i.e. financial instruments, investment
properties and provisions) and the full IFRS framework as adopted by the European
Union.
Moreover, since 2008 the IFRS have underpinned CSSF prudential reporting
framework applicable to all Luxembourg credit institutions (FinRep and CoRep). For
these reasons, the present bank accounting framework represents a good opportunity
for banks to achieve enhanced convergence in their accounting policies throughout
the entire financial reporting process.
We hope that this handbook will provide useful guidance to both preparers and users
of annual accounts published by Luxembourg credit institutions.

Fabrice Goffin

Philippe Sergiel

Partner,
Bank Accounting
Technical Leader
PwC Luxembourg

Partner,
Banking Audit Leader
PwC Luxembourg

Introduction
The Law of 16 March 2006
incorporating the
requirements imposed by EU
directives into Luxembourg
Law has introduced more
flexibility in the accounting
framework applicable to credit
institutions. Non-listed
Luxembourg banks have the
option to measure certain
captions based on applicable
IFRS valuation rules or to
apply the IFRS accounting
framework as adopted by the
European Union.

The Law of 16 March 2006 has introduced major changes into the Law of 17 June
1992 (“the Law”) relating to the annual and consolidated accounts published by
Luxembourg credit institutions. On the one hand, the Law of 16 March 2006 has
transposed into national law the optional regime of the EU IAS regulation, thus
extending the scope of IFRS as adopted by the EU to unlisted companies, both for
standalone and consolidated accounts. On the other hand, the Law of 16 March
2006 has transposed the Fair Value and Modernisation Directives into Luxembourg
Law, and enables, among others, the use of certain provisions of IFRS as adopted by
the EU. Beside credit institutions listed on a regulated market, which are required
to publish their consolidated accounts, if any, in accordance with IFRS as adopted
by the EU pursuant to the mandatory IAS regulation, the Law now permits credit
institutions to publish both their annual and consolidated accounts according to one
of the following regimes:
• Historical Luxembourg accounting rules based on the 4th bis and 7th bis EU
Directives (Luxembourg banking GAAP);
• Mixed accounting regime using historical accounting rules with some IFRS
options to use fair value for certain items;
• Full application of IFRS as adopted by the European Union.
Those options, on which the Commission de Surveillance du Secteur Financier
(“CSSF”) has provided additional guidance in CSSF Circular 08/340, are described in
this publication.
The CSSF has also introduced as from 2008 a new prudential reporting framework
based on IFRS (FinRep). Consequently, the existing “Recueil des instructions aux
banques” (the CSSF’s instructions for banks, thereafter referred as the “CSSF
Recueil”), which provides accounting and prudential reporting instructions under
the former reporting framework, is no longer applicable for CSSF prudential
reporting. However, it is still valid for the preparation of annual accounts under
Luxembourg banking GAAP.
This handbook includes a summary of the general provisions related to the content
and layout of annual and consolidated accounts under the regime introduced by
the Law of 16 March 2006 and CSSF Circular 08/340. It also describes the legal
publication requirements for credit institutions in Luxembourg. The last part of
this handbook includes a set of standard annual accounts designed to apply to the
majority of Luxembourg credit institutions, and a list of supplementary disclosures
required in certain specific circumstances.
Where possible, the standard annual accounts and the list of supplementary
disclosures include references to the relevant articles of the amended Law of 17 June
1992, of CSSF Circular 01/32 or of other related texts.
The set of standard annual accounts included in this handbook aims to be as realistic
and comprehensive as possible. However, it does not cover the full range of possible

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

3

Introduction (cont.)

notes to the accounts, and the examples given in this publication should not be
considered as universally applicable. It should be noted that the responsibility of
drawing up the annual accounts lies with the Board of Directors, and that the form
and content of the information in this guide will need to be adapted to meet the
requirements of each credit institution.
All references to the CSSF Recueil are made to the French version of the Recueil as
published on the CSSF website.
Finally, please note that the general provisions in this publication do not apply to the
full IFRS accounting regime, for which full adherence to all international standards
and interpretations is required. For a comprehensive summary of IFRS requirements
applying to Luxembourg credit institutions and a comparison with Luxembourg
accounting rules, please refer to our publication entitled “Similarities and
Differences: IFRS and Luxembourg Banking GAAP” published in November 2010.

Discover all our brochures related to IFRS
on: www.pwc.lu/ifrs

4

PwC Luxembourg

General provisions related to the
content and layout of the annual
accounts
Ref. article of
Law/Circular

2(1)

Content
The annual accounts shall comprise the balance sheet (including some off-balance sheet disclosures), the profit and
loss account and the notes to the accounts. These documents shall constitute a composite whole.

Circ. 08/340 The amendments introduced by the Law of 16 March 2006 enable banks that have elected to use the mixed
§ 1.2.1
accounting regime to include other primary statements in their annual accounts, such as a cash flow statement or
statement of changes in equity. However, the banks need to obtain approval from the CSSF before including such
additional primary statements.

2(2)
7 bis
40

2(3)

Clear layout
Annual accounts shall be drawn up clearly and in accordance with the Law.
A standard layout is required both for the balance sheet (art. 7) and for the profit and loss account (art. 41 and 42),
unless the Bank has elected to use a format complying with IFRS as adopted by the European Union by applying the
mixed or full IFRS accounting regime. In such cases, and provided the Bank has obtained prior CSSF approval, it
shall comply with the minimum layout as provided in IAS 1, with a balance sheet presented in order of liquidity.
True and fair view
The annual accounts shall give a true and fair view of the financial position and of the results of the operations of
the Bank.

2(4)

Where the application of the provisions of the Law is not sufficient to give a true and fair view, additional
information must be given.

2(5)

Where, in exceptional cases, the application of a provision of the Law is incompatible with the true and fair view,
that provision must be departed from and any such departure must be disclosed in the notes to the accounts
together with an explanation of the reasons for it and a statement of its effect on the assets, liabilities, financial
position and results of the bank.

3

4(1)

Consistency of presentation
The structure of the balance sheet and the profit and loss account, specifically as regards their layout, must be
applied consistently from one financial year to another. Departures from this principle shall be permitted in
exceptional cases. Any such departures must be disclosed in the notes to the accounts together with the reasons for
them.
Strict form of presentation
Unless the Bank has elected to apply the full IFRS accounting regime, in which case it must comply with IFRS as
adopted by the EU, the items in the layouts for the balance sheet and the profit and loss account as provided for
by articles 7, 41 and 42 of the Law, must appear separately and in the indicated order. A more detailed subdivision
of captions is authorised as long as it respects the structure of the framework. New items may be added if their
content is not covered by any of the items provided in the standard layout.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

5

General provisions related to the
content and layout of the annual
accounts (cont.)
Ref. article of
Law/Circular

4(2)

The balance sheet and profit and loss account sub-items preceded by a lower-case letter may be combined:
(a) when they represent a negligible amount with respect to the true and fair view principle;
(b) when the regrouping promotes clarity, provided that the combined items are presented in a distinct way in the
notes to the accounts.
The regroupings described in (a) and (b) may only be done after the Bank has received CSSF approval.
An item in the balance sheet or profit and loss account with a zero balance shall be omitted unless a balance was
recorded in the preceding year.

4(5)

6

Substance over form
The presentation of the amounts recorded on the balance sheet and profit and loss account should refer to the
substance of the operation rather than its legal form.
Offset
Any offsetting between assets and liabilities or between expenses and revenues is prohibited. However, the Law
provides for some limited exceptions:
• Syndicated loans: each credit institution participating in the syndicate shall disclose only that part of the total
loan which it has funded itself (art. 9).
• Presentation of the net profit or loss on financial operations (art. 46).
• Value adjustments and value re-adjustments in the profit and loss account can be disclosed as a net item
(art. 47(3) and 48(2)).
Netting reciprocal assets and liabilities of the Bank’s various units (branches, agencies) is mandatory when
preparing an aggregate situation.
In the case where the Bank has opted for the full IFRS accounting regime, it shall adhere to IFRS requirements in
terms of offsetting (mainly IAS 1 and IAS 32).


4(3)

4(4)

Comparative figures
Each of the balance sheet and profit and loss account items must include the comparative amount from the
preceding financial year. Any lack of comparability between the amounts from one financial year to another or, as
the case arises, any changes made to the amounts from the preceding year in order to ensure comparability, must
be disclosed in the notes to the accounts, together with relevant comments.
Valuation rules
The three below-mentioned options are further described hereafter. Please note that the application of option two
or three is however subject to prior CSSF approval.
Option 1: historical Luxembourg accounting rules based on the cost convention

51

6

The valuation of the items in the annual accounts, except derogations duly disclosed and explained in the notes to
the accounts, shall be based on the following general principles:
(a) the Bank must be presumed to be on a going concern basis for the foreseeable future;
(b) the valuation methods shall not be modified from one financial year to another;
(c) the prudence principle must be applied at all times, namely:
(i) only realised profits at the balance sheet date shall be accounted for in the profit and loss account;

PwC Luxembourg

Ref. article of
Law/Circular

(ii) account must be taken of all liabilities arising in the course of the financial year or of a previous one, even
if such liabilities become apparent only between the date of the balance sheet and the date on which it is
drawn up. In addition, account may be taken of all foreseeable liabilities and potential losses arising in
the course of the financial year or of a previous one, even if such liabilities or losses become apparent only
between the date of the balance sheet and the date on which it is drawn up;
(iii) all depreciations must be taken into account, whether or not the result of the current financial year is a
profit or a loss;
(d) all charges and income relating to the current financial year must be accounted for, irrespective of the date of
their receipt or payment;
(e) the components of asset and liability must be valued separately;
(f) the opening balance sheet of one financial year must correspond to the closing balance sheet of the previous
financial year.
52

The valuation of the items in the annual accounts shall be made in accordance with the provisions of articles 54 to
64 of the Law, based on the principle of acquisition cost or production cost.
Option 2: Luxembourg accounting rules with IFRS option to use fair value for certain items

64 bis

The general principles described above are applicable to the mixed accounting regime, except for the prudence
principle, from which credit institutions may depart to a certain extent by measuring their financial instruments
(including derivatives) and investment properties at fair value.

53
Under the mixed regime, Luxembourg credit institutions also have the possibility to use the IFRS valuation rules
Circ. 08/340 for their provisions (IAS 37) and for their defined-benefit pension obligations (IAS 19). However, the fair value
§ 1.2.1
model may not be applied to tangible or intangible assets; this restriction will remain in force until a Grand-Ducal
regulation authorising such practice has not been issued.

64 bis, 64 ter,
64 quater
Circ. 08/340
§ 1.2.1

Application of the fair value option to financial instruments
The bank has the possibility to carry all or part of its financial instruments at fair value in accordance with current
IAS 39 valuation rules applicable to available-for-sale financial assets or financial assets and liabilities at fair value
through profit or loss. The IAS 39 hedge accounting rules applicable to hedged items and hedging instruments,
which are part of a fair value hedge or cash flow hedge relationship, can also be applied. The Bank shall however
define a clear and coherent approach in the application of valuation rules, which shall comply with the principle of
consistency.

Application of the fair value option to investment properties
64 quinquies The bank has the option to remeasure its investment properties at fair value through profit or loss.
Investment properties are real estate assets (land and buildings) held for the purpose of earning rentals or for
capital appreciation rather than for own use.
Option 3: IFRS as adopted by the European Union
76 bis

The Bank has the option of preparing its annual accounts according to IFRS as adopted by the European Union and
could accordingly depart from Chapter II of the Law of 16 March 2006. Consequently, it is not subject to the Law,
except for the following requirements:
• The presentation of a Directors’ report in accordance with the Law is mandatory (see below);
• Obligation to include a report of the “Réviseur d’entreprises agréé”;
• Obligation to publish the accounts in accordance with the Law and CSSF requirements (see below);
• The following disclosures must also be presented in the notes to the annual accounts as they are not specifically
addressed by IFRS:
- Average number of staff members;
- Remuneration, pension commitments, loans and advances granted to members of the administrative,
management or supervisory bodies;
- Overview of the group composition;
- Details of fees paid to the “Réviseur d’entreprises agréé”.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

7

General provisions related to the
content and layout of the annual
accounts (cont.)
Ref. article of
Law/Circular

However, those credit institutions that fall under the scope of the EU Regulation are still subject to the following
requirements of the Law:
• Presentation of a consolidated Directors’ report in accordance with the Law;
• Obligation to include the report of the “Réviseur d’entreprises agréé”;
• Obligation to publish the consolidated accounts in accordance with the Law and CSSF requirements (see below);
• In addition, the following disclosures should be presented in the notes to the consolidated accounts as they are
not specifically addressed by IFRS:
- Number of staff members;
- Remuneration, pension commitments, loans and advances granted to members of the administrative,
management or supervisory bodies;
- Overview of the group composition;
- Fees of the “Réviseur d’entreprises agréé”.
Regarding sub-group consolidation, it should be noted that since the endorsement of the Transparency Directive
into Luxembourg Law, credit institutions whose shares or bonds are listed on a regulated market can no longer
benefit from the exemption to not consolidate. In other words, a Luxembourg parent credit institution whose
shares or bonds are listed on a regulated market must prepare consolidated accounts in accordance with the EU
IFRS Regulation, even if the Luxembourg parent credit institution is part of a larger group publishing consolidated
accounts in which the Luxembourg credit institution and its subsidiaries are included.

8

PwC Luxembourg

Conditions for the preparation
of consolidated accounts
Ref. article of
Law/Circular

77

The Bank is required to prepare consolidated accounts and a consolidated Directors’ report if it:
• has a majority of the voting rights in another entity; or
• has the right to appoint or remove a majority of the members of the administrative, management or supervisory
body of another entity and is at the same time a shareholder in or a member of that entity; or
• is a shareholder in or a member of another entity and, by virtue of an agreement with other shareholders or
members, controls a majority of the voting rights; or
• has the power to exercise, or actually exercises, a dominant influence or a control over another entity or that
Bank and another entity are managed on a unified basis.
The Law of 16 March 2006 has aligned the definition of control with the definition provided by IFRS (IAS 27,
SIC-12 and subsequently IFRS 10), so that the scope of consolidation should apply equally to both accounting
frameworks (except for certain exemptions described below provided for by the Law which cannot always be
applied under IFRS).

80(1)

Exemptions to consolidation
Any non-listed credit institution which is also a subsidiary is exempt from the obligation to prepare consolidated
accounts and a consolidated Directors’ report if the parent company is incorporated in the EU and holds:
• all of the shares of the exempted non-listed credit institution; or
• at least 90% of the shares of the exempted non-listed credit institution and the remaining shareholders or
members have approved the exemption.

80(2)

In addition, this exemption is conditional upon compliance with all of the following requirements:
• The exempted credit institution and all its subsidiaries shall be consolidated in the accounts of a larger body of
undertakings, the parent company of which is governed by the Law of an EU member state.
• The consolidated accounts, consolidated Directors’ report and consolidated audit report of the parent company
shall be published in Luxembourg (see below).
• The parent company is a credit institution.
• The notes to the exempted credit institution’s annual accounts shall disclose:
- the name and registered office of the parent company preparing the consolidated accounts and the
consolidated Directors’ report;
- the mention of the fact that the credit institution is exempted from preparing consolidated accounts and the
consolidated Directors’ report.

80(3)

Credit institutions which are listed on a regulated market do not benefit from this exemption.

82

The same sub-group exemption applies to non-listed credit institutions whose parent company is not governed by
the Law of an EU member state if the following conditions are met:
• The exempted credit institution and all its subsidiaries shall be consolidated in the accounts of a larger body of
undertakings.
• The consolidated accounts, together with the consolidated Directors’ report, where applicable, shall be prepared
in accordance with the Law or in an equivalent manner.

10

PwC Luxembourg

Ref. article of
Law/Circular

• The consolidated accounts shall be audited in accordance with the national Law governing the parent company.
• The consolidated accounts, consolidated Directors’ report and consolidated audit report shall be published in
Luxembourg (see below).
• The parent company is a credit institution.
• The notes to the exempted credit institution’s annual accounts shall disclose:
- the name and registered office of the parent company preparing the consolidated accounts and the
consolidated Directors’ report;
- specific mention of the fact that the credit institution is exempted from preparing consolidated accounts and
the consolidated Directors’ report.
83(1)

A subsidiary needs not be included in the consolidated accounts if it is not significant with regards to the true and
fair view principle.

83(2)

The materiality threshold must be assessed both at the individual and aggregate level.

83 (2 bis)

A credit institution which has only undertakings which are not significant with regard to the true and fair view
principle shall be exempted to prepare consolidated accounts and a consolidated Director’s report.

83(3)

Finally, a subsidiary needs not be included in the consolidated accounts in the case of:
• severe long-term restrictions are noted on the exercise of the parent’s rights over the assets or management of
that subsidiary; or
• a disproportionate expense or undue delay was incurred to obtain the information necessary for the preparation
of the consolidated accounts; or
• the shares of the subsidiary are held exclusively with a view to be resold.
For further guidance on credit institutions applying IFRS, please refer to our brochure “Illustrative IFRS financial
statements_ Banks” available on our website: www.pwc.lu/ifrs.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

11

Publication of annual accounts

Ref. article of
Law/Circular

The legal publication of the accounts comprises the following information:
• Name and registered address of the bank;
• Date of publication of incorporation documents in the Mémorial (official journal for Luxembourg legal
information);
• Name, occupation and address of each Board member (with entry/exit dates if changes occurred during the
financial year);
• Annual accounts as prepared in accordance with the modified Law of 17 June 1992 (including additional
disclosures on financial instruments, risk management objectives and policies as required by CSSF Circular
01/32);
• Directors’ report;
• Report of the “Réviseur d’entreprises agréé”;
• Both proposed and effective appropriation of results;
• Names of shareholders who have subscribed shares which are not yet fully paid in, including amounts still due,
and in the case of capital increase during the year, the portion of capital which is not yet subscribed;
• Any additional information where the provisions of the Law have been departed from or complemented to give a
true and fair view.
The VISA procedure
This information must first be sent to the CSSF in order to obtain its approval: this is referred to as the “Visa
procedure”, whereby the CSSF can request modifications on the documents to be published. Three copies of the
publication documents must be sent by the Bank’s management to the CSSF at least two weeks before the annual
shareholders meeting, together with a side letter signed by the Bank’s management confirming that the annual
accounts have been duly approved by the Board of Directors. In addition, together with these publication
Circ. 98/143 documents, the Bank’s management has to provide the CSSF with the report of the management on the internal
control and a copy of the summary report of the internal auditor.
These documents must be filed with the Luxembourg Register of Commerce during the month of shareholders’
approval of the annual accounts and at the latest seven months after the closing of the financial year. Although
the CSSF recommends publishing all documents which are subject to the Visa procedure, credit institutions may
publish an abridged version only of the annual accounts with a reference to where the full version of the annual
accounts are filed. In that case, a notice of this filing has to be published in the Mémorial.
The annual accounts, Directors’ report and report, also need to be published in any EU member state where the
bank has established branches.
The Visa procedure also requests the bank to provide the CSSF with a reconciliation of the net equity at year
end between the annual accounts prepared in accordance with the Law (under one of the 3 options described in
section 1.1 above) and the net equity presented in the regulatory financial reporting (“FinRep”). FinRep is prepared
under IFRS rules as adopted by the CSSF for use in Luxembourg (i.e. IFRS as adopted by the EU but allowing
certain limited prudential provisions as detailed in the CSSF circular 07/279). The “Réviseur d’entreprises agréé”
is required to draw up a specific report on the reconciliation, which is only for CSSF use and not subject to any
publication requirements.
These publication requirements, including the Visa procedure, also apply to consolidated accounts if applicable to
the credit institution.

12

PwC Luxembourg

Ref. article of
Law/Circular

113

Publication of accounting documents of Luxembourg branches of credit institutions with
registered offices in the European Union
Branches of credit institutions having their registered office in the European Union must file, every year and in
compliance with article 9 of the amended Law of 10 August 1915 on commercial companies, annual accounts,
consolidated accounts, a Directors’ report, a consolidated Directors’ report as well as reports issued by the auditors
of the annual and consolidated accounts.
Directive 86/635/EEC sets out that the above-mentioned documents must be prepared and verified in accordance
with the applicable Laws of the EU Member State where the credit institution has its registered office.
Branches are not required to publish annual accounts relating to their own activity.

114

Publication of accounting documents of Luxembourg branches of credit institutions with registered offices outside the European Union
Branches of credit institutions having their registered office outside the European Union must file, every year and
in compliance with article 9 of the amended Law of 10 August 1915 on commercial companies, annual accounts,
consolidated accounts, a Directors’ report, a consolidated Directors’ report as well as reports issued by the auditors
of the annual and consolidated accounts of the credit institution. All these documents should be prepared and
verified in accordance with the applicable Laws of the country in which the registered office of the branch is
located.
If the above-mentioned documents have been prepared in accordance with parts II, II bis, III, III bis, and V of the
Law relating to the annual accounts of credit institutions or in a similar manner, the branches are not required to
publish annual accounts pertaining to their own activity.
In situations other than the ones mentioned here above, documents must be restated in order to achieve the
conformity required.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

13

Audited annual accounts
for the year ended
31 December 201y
Bank S.A.

Registered office, location and trade register number

Content

Directors’ report

18

Balance sheet as at 31 December 201y

20

Profit and loss account for the year ended 31 December 201y

22

Notes to the accounts as at 31 December 201y

26

Note 1 – General

26

Note 2 – Summary of significant accounting policies and valuation rules

26

Note 3 – Analysis of financial instruments

39

Note 4 – Cash in hand, balances with central banks and post office banks

45

Note 5 – Participating interests and shares in affiliated undertakings

45

Note 6 – Transferable securities

48

Note 7 – Fixed assets

50

Note 8 – Amounts due from leasing operations

52

Note 9 – Other assets

52

Note 10 – Fiduciary transactions included in the balance sheet

53

Note 11 – Assets pledged as collateral security

53

Note 12 – Amounts owed to customers: savings deposits

53

Note 13 – Debt securities in issue

53

Note 14 – Other liabilities

54

Note 15 – Borrowings

54

Note 16 – Subscribed capital

55

Note 17 – Reserves

55

Note 18 – Changes in shareholders’ equity

56

Note 19 – Interim dividend

57

Note 20 – Special items with a reserve quota portion

57

Note 21 – Hybrid capital instruments

57

Note 22 – Positions in foreign currencies

57

Note 23 – Contingent liabilities and commitments

57

Note 24 – Profit and loss account

59

Note 25 – Information relating to staff employed and management

60

Note 26 – Independent Auditor’s Fees
Other required disclosures

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

61
62

17

Directors’ report

Ref. article of
Law/Circular

Introduction
Article 70 of the amended Law of 17 June 1992 (“the Law”) requires the Bank to establish a Directors’ report,
usually presented on the face of the annual accounts. The “Réviseur d’entreprises agréé” must ensure that the
Directors’ report is consistent with the annual accounts of the financial year.
Circ. 01/32
§25, 29

70(1)

Circular CSSF 01/32 concerning disclosure of information of financial instruments requires some qualitative
information in the Directors’ report regarding management objectives and strategies with respect to the use of
these instruments as well as risk management policies and practice.
Information required under article 70
The Directors’ report must include a true and fair review of the development and performance of the credit
institution’s business and of its position, together with a description of the principal risks and uncertainties that
it faces. The review shall be a balanced and comprehensive analysis of the development and performance of the
credit institution’s business and of its position, consistent with the size and complexity of the business.
To the extent necessary for an understanding of the credit institution’s development, performance and position, the
analysis shall include both financial and, where appropriate, non financial key performance indicators relevant to
the particular business, including information about environment and employee matters.
In providing its analysis, the Directors’ report must include, where appropriate, references to the amounts reported
in the annual accounts and relevant explanations pertaining thereto.
The report must comply with the information contained in the annual accounts.

70(2)

The report shall also give an indication of:
• any important events that have occurred since the end of the financial year;
• the likely future development of the Bank1;
• the activities of the Bank in the field of research and development;
• the acquisition of the Bank’s own shares; the provisions of article 49-5(2) of the amended Law of 10 August 1915
on commercial companies have to be complied with, i.e.:
- the reason for purchases of shares made during the financial year;
- the number and nominal value, or in the absence of a nominal value the accounting par value, of shares
acquired and sold during the financial year, as well as the portion of share capital represented by such
transactions;
- where there has been forced acquisition or disposal of shares, the consideration exchanged for such shares;
- the number and the nominal par value, or in the absence of a nominal value, the accounting par value of
shares acquired and retained in the Bank own portfolio, as well as the portion of share capital which they
represent.
• the existence of branches of the credit institution:
• as regards the use of financial instruments by the undertaking and where relevant to the valuation of its assets,
liabilities, financial position and profit or loss:

1

18

As far as the Bank’s likely development is concerned, events that occurred during the financial year and that will have an impact on results in subsequent
years should be taken into account. Examples of such events include restructuring or downsizing activities, setting up or closing down a business unit
(private banking, credit department, custody, etc.), and acquiring or selling participating interests (CSSF Recueil, part V, Publicité, p. 29).

PwC Luxembourg

Ref. article of
Law/Circular

- the credit institution’s financial risk management objectives and policies, including its policies for hedging
each major type of forecast transaction for which hedge accounting is used, and
- the credit institution’s exposure to price risk, credit risk, liquidity risk and cash flow risk.
All information provided must be relevant to the Bank. General information on the economic environment or
related matters is not required.

70 bis


Circ. 01/32
§26, 27,
Ann.1/I

Information required for listed credit institutions
Credit institutions whose securities are admitted to trading on a regulated market4 shall include a corporate
governance statement in their Director’s report. This statement includes:
- a reference to the corporate governance code to which the bank is subject; and/or
- a reference to the corporate governance code which the Bank may have voluntarily decided to apply; and/or
- a reference to all relevant information about the corporate governance practices applied beyond the
requirements under Luxembourg law.
Information required under Circular 01/32 concerning the disclosure of information on financial
instruments
According to Circular 01/32, the Directors’ report must include qualitative information regarding the use of
financial instruments. The report must therefore describe the Bank’s risk management objectives and strategies
regarding its use of instruments within the context of its overall business objectives 2.
Circular 01/32 specifies that meaningful and comparable qualitative and quantitative information must appear in
the notes to the accounts in order to clarify the understanding of the annual accounts. Where other information
is disclosed, this should be included in the notes to the accounts if it is essential to a better understanding of the
accounts. In all other cases, the Bank may elect to disclose such information either in the notes to the accounts or in
the Directors’ report 3.
Moreover, information should be disclosed in the Directors’ report on the policies and practice of managing the
risks associated with trading and non-trading activities addressing the specific nature of the institution’s exposure
to, and its management of, credit risk, market risk, liquidity risk and other significant risks.
Quantitative information that is not essential to a good understanding of the annual accounts may also be included
in the Directors’ report.

2

Circular 01/32 gives illustrative examples regarding the information to be provided. For example, information concerning risk management may cover the
following aspects:
• basic features of the risk management system;
• transactions in instruments used for trading purposes;
• transactions in instruments used for non-trading and, in particular, for hedging purposes;
• transactions in high-risk instruments or complex instruments such as leveraged derivative instruments;
• the use of collateral;
• the use of netting agreements.

3

Circular 01/32 states that information may be drawn from the long form report of the Bank.
• transactions in instruments used for non-trading and, in particular, for hedging purposes;
• transactions in high-risk instruments or complex instruments such as leveraged derivatives instruments;
• the use of collateral;
• the use of netting agreements.

4

Regulated market as defined by article 4 (1), point 14 of Directive 2004/39/EC of 21 April 2004 on markets in financial instruments.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

19

Balance sheet as
at 31 December 201y
expressed in “currency of the share capital” 5
Ref. article of
Law/Circular

ASSETS

7

Note(s)

Cash in hand, balances with central banks and post office
banks
Treasury bills and other bills eligible for refinancing with
central banks
• treasury bills and similar securities
• other bills eligible for refinancing with central banks
Loans and advances to credit institutions
• repayable on demand
• other loans and advances
Loans and advances to customers
Leasing transactions
Bonds and other fixed-income transferable securities
• issued by public bodies
• issued by other borrowers
Shares and other variable-yield transferable securities

31 December
201y
CCY

31 December
201y-1
CCY

3, 4
3, 5.3, 5.4, 6.5

3, 5.3, 5.4

3, 5.3, 5.4
3, 5.3, 5.4, 8
3, 5.3, 5.4, 6, 7.1

3, 6.1, 6.5

Participating interests

5.1, 5.2, 5.5, 6.1, 7.1

Shares in affiliated undertakings

5.1, 5.2, 5.5, 6.1, 7.1

Intangible assets

7.1, 7.2

Tangible assets

7.1, 7.3

Own shares
Other assets

17.4
9

Subscribed capital unpaid
of which: called-up capital
Prepayments and accrued income
Total assets

The accompanying notes form an integral part of these annual accounts.

5

20

In addition to the presentation currency in which they are established, annual accounts may also be presented in euro, using the conversion rate at the
closing date of the balance sheet. In that case, this rate is specified in the notes to the annual accounts.

PwC Luxembourg

Ref. article of
Law/Circular

7

LIABILITIES
Note(s)

31 December
201y
CCY

Amounts owed to credit institutions
• repayable on demand
• with agreed maturity dates or periods of notice

3, 5.3, 5.4

Amounts owed to customers
• savings deposits
• other debts:
- repayable on demand
- with agreed maturity dates or periods of notice

3, 5.3, 5.4
12

Debt evidenced by certificates
• debt securities in issue
• others

3, 5.3, 5.4
13, 15.1

Other liabilities

31 December
201y-1
CCY

14

Accruals and deferred income
Provisions
• provisions for pensions and similar obligations
• provisions for taxation
• other provisions
Subordinated liabilities

5.3, 5.4, 15.2

Special items with a reserve quota portion

20

Fund for general banking risks
Hybrid capital instruments
Subscribed capital
Share premium account
Reserves

21
16, 18
18
17, 18

Interim dividend
Revaluation reserve

19
17.4, 18

Profit or loss brought forward

18

Profit or loss for the financial year

18

Total liabilities
Contingent liabilities
of which:
• acceptances and endorsements
• guarantees and assets pledged as collateral security

23.1

Commitments
of which:
• commitments arising out of sale and repurchase transactions

23.2
6.4

Fiduciary transactions

The accompanying notes form an integral part of these annual accounts.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

21

Profit and loss account for the
year ended 31 December 201y
expressed in “currency of the share capital” 6
Ref. article of
Law/Circular

Vertical layout

41

Note(s)

201y
CCY

201y-1
CCY

Interest receivable and similar income
of which:
• arising fixed-income transferable securities
Interest payable and similar charges
Income from transferable securities
• income from shares and other variable-yield transferable securities
• income from participating interests
• income from shares in affiliated undertakings
Commissions receivable
Commissions payable
Net profit or net loss on financial operations
Other operating income

24.3

General administrative expenses
• staff costs
of which:
- wages and salaries
- social security costs
of which: pension costs
• other administrative expenses
Value adjustments in respect of intangible and tangible assets
Other operating charges

24.2

Value adjustments in respect of loans and advances and provisions for
contingent liabilities and commitments
Value re-adjustments in respect of loans and advances and provisions
for contingent liabilities and commitments
Value adjustments in respect of transferable securities held as financial
fixed assets, participating interests and shares in affiliated undertakings
Value re-adjustments in respect of transferable securities held as
financial fixed assets, participating interests and shares in affiliated
undertakings

The accompanying notes form an integral part of these annual accounts.

6

22

In addition to the presentation currency in which they are established, annual accounts may also be presented in euro, using the conversion rate at the
closing date of the balance sheet. This rate is specified in the notes to the annual accounts.

PwC Luxembourg

Ref. article of
Law/Circular

41

Vertical layout (cont.)
Note(s)

201y
CCY

201y-1
CCY

Allocation to “special items with a reserve quota portion”
Income from the reversal of “special items with a reserve quota portion”
Allocations to the fund for general banking risks
Income from the reversal of amounts included in the fund for general
banking risks
Tax on profit or loss on ordinary activities
Profit or loss on ordinary activities after tax
Extraordinary income

24.5

Extraordinary charges

24.5

Extraordinary profit or loss
Tax on extraordinary profit or loss
Extraordinary profit or loss after tax
Other taxes not shown in the preceding items
Profit or loss for the financial year

The accompanying notes form an integral part of these annual accounts.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

23

Profit and loss account for the
year ended 31 December 201y
(cont.)
expressed in “currency of the share capital” 7
Ref. article of
Law/Circular

Horizontal layout

42

Charges
Note(s)

201y
CCY

201y-1
CCY

Interest payable and similar charges
Commissions payable
Net loss on financial operations
General administrative expenses

• staff costs
of which:
- wages and salaries
- social security costs
of which: pension costs

• other administrative expenses
Value adjustments in respect of intangible and tangible assets
Other operating charges

24.2

Value adjustments in respect of loans and advances and provisions
for contingent liabilities and commitments
Value adjustments in respect of transferable securities held as
financial fixed assets, participating interests and shares in affiliated
undertakings
Allocations to “special items with a reserve quota portion”
Allocations to the fund for general banking risks
Tax on profit or loss on ordinary activities
Profit on ordinary activities after tax
Extraordinary charges

24.5

Tax on extraordinary profit or loss
Extraordinary profit after tax
Other taxes not shown under the preceding items
Profit for the financial year
Total charges

The accompanying notes form an integral part of these annual accounts.

7

24

In addition to the presentation currency in which they are established, annual accounts may also be presented in euro, using the conversion rate at the
closing date of the balance sheet. In that case, this rate is specified in the notes to the annual accounts.

PwC Luxembourg

Ref. article of
Law/Circular

42

Income
Note(s)

201y
CCY

201y-1
CCY

Interest receivable and similar income
of which:
• arising from fixed-income transferable securities
Income from transferable securities

• income from shares and other variable-yield transferable securities
• income from participating interests
• income from shares in affiliated undertakings
Commissions receivable
Net profit on financial operations
Value re-adjustments in respect of loans and advances and provisions
for contingent liabilities and for commitments
Value re-adjustments in respect of transferable securities held as
financial fixed assets, participating interests and shares in affiliated
undertakings
Other operating income

24.3

Income from the reversal of “special items with a reserve quota
portion”
Income from the reversal of amounts included in the fund for general
banking risks
Loss on ordinary activities after tax
Extraordinary income

24.5

Extraordinary loss after tax
Loss for the financial year
Total income
The accompanying notes form an integral part of these annual accounts.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

25

Notes to the accounts as at
31 December 201y
Ref. article of
Law/Circular/
IFRS standard

Note 1 - General
Bank S.A. (“the Bank“) was incorporated in the Grand-Duchy of Luxembourg on … as a 8 …..
The Bank deals with 9:

Note 2 - Summary of significant accounting policies and valuation
rules
2.1 Basis of presentation
These annual accounts have been prepared in conformity with accounting principles generally accepted in the
banking sector in the Grand-Duchy of Luxembourg. The accounting policies and the valuation principles are
determined and applied by the Board of Directors, except those which are defined by Law and by the Commission
de Surveillance du Secteur Financier.
The preparation of annual accounts requires the use of certain critical accounting estimates. It also requires
the Board of Director to exercise its judgment in the process of applying the accounting policies. Changes in
assumptions may have a significant impact on the annual accounts in the period in which the assumptions changed.
The Board of Directors believes that the underlying assumptions are appropriate and that the annual accounts
therefore present the financial position and results fairly.
The Board of Directors makes estimates and assumptions that affect the reported amounts of assets and liabilities
in the next financial year. Estimates and judgments are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
80(1)

26

On the basis of the criteria set out by the Luxembourg Law, the Bank is exempted from establishing consolidated
accounts and a consolidated Directors’ report for the year ended 31 December 201y. In accordance with the
amended Law of the 17 June 1992, the accounts are consequently presented on an unconsolidated basis.

8

As per article 4 of the amended Law of the 5 April 1993 relating to the financial sector in Luxembourg, authorisation may only be granted to legal entities
established under Luxembourg Law which have the form of an undertaking established under public Law (“établissement de droit public”), a limited
liability company (“société anonyme”), a partnership limited by shares (“société en commandite par actions”) or a cooperative company (“société
cooperative”).

9

We recommend indicating either the corporate object of the Bank as set out in the articles of incorporation, or if not, the main activities of the Bank.

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

68(10)
68(1)

64(1)

The Bank is included in the consolidated accounts of 10:
2.2 Foreign currencies
The annual accounts are expressed in the “currency of the share capital” (“CCY”). The Bank has adopted a multicurrency accounting system, as a result of which assets and liabilities are recorded in the currencies in which they
were created. For the preparation of the annual accounts, amounts in foreign currencies are translated into CCY on
the following basis:
2.2.1 Spot transactions
Assets and liabilities denominated in foreign currencies are translated into CCY at the average spot exchange rates
applicable at the balance sheet date.
However, assets held as financial fixed assets and tangible and intangible assets, which are not hedged in either the
spot or forward markets are translated into CCY at the rates prevailing on their acquisition dates 11.

64(2),
64(3)b)

Unsettled spot foreign exchange transactions are translated into CCY at the spot rate of exchange prevailing on
the balance sheet date. Foreign exchange gains and losses resulting from spot transactions not hedged by forward
transactions are accounted for in the profit and loss account for the financial year 12.

64(3)a)

Foreign exchange gains and losses resulting from spot transactions hedged by forward transactions (“swaps”) are
neutralised through “prepayments and accrued income” and “accruals and deferred income” accounts. Differences
arising due to the gap between spot and forward exchange rates are amortised in the profit and loss account on a
prorata basis.

64(2)
64(3)c)

2.2.2 Forward transactions
Unsettled forward exchange transactions are translated into CCY at the forward rate prevailing on the balance
sheet date for the remaining maturity.
Exchange losses on un-hedged forward exchange contracts are recognised in the profit and loss account at the
forward rate prevailing on the balance sheet date for the remaining term of the contract 13. Exchange gains on
unhedged forward exchange contracts are only recognised when realised.
For hedged exchange transactions, foreign exchange losses arising on revaluation are set against profits arising as
stated above. Provision is made to hedge any net loss position arising.

10

The following should be disclosed:
a) The name and registered office of the undertaking preparing the consolidated accounts of the largest body of undertakings of which the company forms
part as a subsidiary undertaking;
b) The name and registered office of the undertaking preparing the consolidated accounts of the smallest body of undertakings of which the company
forms part as a subsidiary undertaking;
c) The place where copies of the consolidated accounts referred to in a) and b) above may be obtained, provided that they are available.

11

Valuation at historical rates is optional. If the foreign currency in which these assets are denominated has suffered from a depreciation of durable nature, a
value adjustment shall be made using the exchange rates prevailing at the balance sheet date. This reduction may be compensated with the revaluation of
the intrinsic value of the underlying asset (CSSF Recueil, part III, DCP, p. 68).

12

The recording of unrealised foreign exchange gains is optional, whereas the recording of unrealised foreign exchange losses is mandatory (art 64(3)b).

13

When a forward exchange rate cannot be obtained, the Bank determines a probable value by extrapolation or uses an available rate as close as possible to
the settlement date. For practical reasons, all forward transactions maturing in the same calendar month may be converted at the end of the month rate
(CSSF Recueil, part III, DCP, p. 68).

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

27

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

In case of fair valuation of derivative instruments, under the Mixed Accounting regime:
This paragraph shall be deleted as accounting policies for forward exchange transactions are further described on pages 37
and 38.

58(2)

2.3 Loans and advances
Loans and advances are stated at their acquisition price. The policy of the Bank is to establish specific provisions for
doubtful debts in accordance with the circumstances and for amounts specified by the Board of Directors. These
provisions are deducted from the appropriate asset account balances and shall not be maintained if the reasons for
which they were recorded no longer exist.

In case of fair valuation of certain loans and advances under the Mixed Accounting regime:
Although loans and advances are usually measured at amortised cost (less impairment, if any) under IFRS as adopted by the
EU, a fair value measurement is not precluded in the following cases:
• Classification of certain loans and advances as available-for-sale financial assets, in which case they are measured at fair
value through other comprehensive income (revaluation reserve in equity). Please refer to page 31 for accounting policies on
available-for-sale financial assets.
• Classification of certain loans and advances as measured at fair value through profit or loss in the following cases:
- either because the financial asset(s) is/are held with expectation to resell it/them in a short period in order to realise a
profit (rarely the case in practice for loans and advances); or
- because the Bank has elected to make use of this classification, usually because it wants to eliminate an accounting
mismatch with hedging derivatives. Please refer to page 31 for accounting policies on financial assets at fair value through
profit or loss.
2.4 Amounts payable
Amounts payable are recorded under liabilities at the amount of reimbursement.
60

When the amount of reimbursement is greater than the amount received, the difference may be accounted for as an
asset. This difference shall be amortised on an annual basis and no later than the maturity date 14.

14

28

Should this method be selected, the reimbursement premium shall be disclosed separately in the balance sheet or in the notes to the accounts. The
premium can also be recorded in a single installment in the profit and loss account at the beginning of the transaction. When the reimbursement amount is
lower than the amount received, the difference shall not be entirely booked on the current financial year’s result. However, the premium shall be recorded
on the liabilities side in the “Accruals and Deferred Income” caption and be accounted for in the result either at maturity date or amortised on a reasonable
annual basis and no later than the maturity date. This valuation rule reflects the accounting treatment applied to fixed-income transferable securities
recorded in the investment portfolio and for which the acquisition cost is lower than the repayable amount at maturity and aims at giving a true and fair
view of the annual accounts (CSSF Recueil, part III, DCP, p. 33).

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

In case of fair valuation of certain financial liabilities under the Mixed Accounting regime:
Although financial liabilities are usually measured at amortised cost under IFRS as adopted by the EU, a fair value
measurement is not precluded in the following cases:
Financial liabilities at fair value through profit or loss
This category comprises two sub-categories: financial liabilities classified as held for trading, and financial liabilities
designated by the Bank as at fair value through profit or loss upon initial recognition.
A financial liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling or
repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held for
trading unless they are designated and effective as hedging instruments. Financial liabilities held for trading also include
obligations to deliver financial assets borrowed by a short seller. Those financial instruments are recognised in the consolidated
statement of financial position as ‘Financial liabilities held for trading’.
Gains and losses arising from changes in fair value of financial liabilities classified as held for trading are included in profit or
loss and are reported as ‘Net profit/ (loss) on financial operations. Interest expenses on financial liabilities held for trading are
included in ‘Interest payable and similar charges’.
The Bank can designate certain debt securities upon initial recognition as at fair value through profit or loss (fair value option).
This designation cannot be subsequently changed. According to IAS 39, the fair value option may only be applied in one of the
following cases:
• the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise; or
• the financial liabilities are part of a portfolio of financial instruments which is risk-managed and reported to senior
management on a fair value basis; or
• the financial liabilities consist of a debt host and an embedded derivative that must be separated.
To reduce accounting mismatch, the fair value option is applied to certain financial liabilities that are hedged with interest
rate swaps but for which the hedge accounting conditions of IAS 39 are not fulfilled. The loans would have been otherwise
accounted for at amortised cost, whereas the derivatives are measured at fair value through profit or loss.
2.5 Fixed-income transferable securities
The Bank has divided its portfolio of fixed-income transferable securities into three categories for valuation
purposes:
56(1)

2.5.1 Investment portfolio of financial fixed assets
This portfolio comprises fixed-income transferable securities, which are intended to be held on a continuing basis
in the normal cause of the Bank’s activities.
Principle of valuation at acquisition cost 15

56(2)a),
Fixed-income transferable securities are recorded at historical acquisition cost in their original currency.
56(2)c)bb), The acquisition cost includes the costs to purchase the asset. A value adjustment is made where the market value
56(3)
at the balance sheet date is lower than the acquisition cost. This adjustment is made when the Board of Directors
considers the depreciation as durable.
56(2)d)

The premium resulting from the purchase of fixed-income transferable securities having the characteristics of
financial fixed assets, at a price exceeding the amount repayable at maturity, is included in the profit and loss
account on an amortised basis 16.

56(2)e)

The discount resulting from the acquisition of fixed-income transferable securities having the characteristics of
financial fixed assets, at a price lower than the amount repayable at maturity, is released to income in installments
over the period remaining until repayment 17.
15

The portfolio of financial fixed assets may be composed of transferable securities valued at acquisition cost and of transferable securities valued at the
lower of cost or market, at the free choice of the Bank.

16

The value of the accumulated amortisation of the premium since the acquisition date should be disclosed separately in the balance sheet or in the notes to
the accounts. The Law foresees the proratisation method (linear amortisation ofthe premium on the basis of the remaining period until maturity), since a
write-off of the premium in a single installment would not reflect the transaction in a true and fair manner. However a write-off in a single installment is
possible under the following condition: the impact of the premium amortisation is less than 10% of the profit and loss account balance impacted before the
recording of the amortisation. This impact is to be considered also on the interest margin and on the net profit of the Bank (CSSF Recueil, Part III, DCP, p.
45-47).

17

The value of the accumulated amortisation of the discount since the acquisition date should be disclosed separately in the balance sheet or in the notes to
the accounts. The discount may also be taken in a single installment into the profit and loss account at the maturity date of the bond (CSSF Recueil, Part III,
DCP, p. 46, 47).

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

29

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

Principle of valuation at “lower of cost or market” 18
56(2)c)aa)

Fixed-income transferable securities having the characteristics of financial fixed assets are valued at the lower of
their acquisition cost or market value, and are prorated using the premium or the discount 19. The value adjustment,
corresponding to the negative difference between the market value and the acquisition cost, is not maintained if
the reasons for which it was recorded no longer exists 20.
2.5.2 Trading portfolio
This portfolio comprises fixed-income transferable securities purchased with the intention of selling them in the
short term. These securities are traded on a market whose liquidity can be assumed to be certain, and their market
price is at all times available to third parties.
Principle of valuation at “lower of cost or market 21 ”

58(2)

Fixed-income transferable securities included in the trading portfolio are valued at the lower of their acquisition
cost or market value, and prorated using the premium or the discount. The value adjustment, corresponding to the
negative difference between the market value and the acquisition cost, is not maintained if the reasons for which it
was recorded no longer exist 22, 23.
Principle of valuation at “mark-to-market” 24, 25

58(3)

62(1)

30

Bonds and other fixed-income transferable securities included in the trading portfolio are valued at their market
value. Any appreciation or depreciation in the market value at the balance sheet date is recorded in the profit and
loss account.
2.5.3 Structural portfolio
This portfolio comprises transferable securities purchased for their investment return or yield, or held to establish a
particular asset structure or a secondary source of liquidity. It also includes transferable securities not contained in
the other two categories.
18

The portfolio of financial fixed assets may be composed of transferable securities valued at acquisition cost and of transferable securities valued at the
lower of cost or market, at the free choice of the Bank

19

The rules applicable to fixed-income transferable securities valued at historical acquisition cost also apply to the fixed-income transferable securities
valued at lower of cost or market. It is mandatory to amortise the premium whereas it is optional to amortise the discount. (CSSF Recueil, part III, DCP, p.
45, 46)

20

For taxation purposes it is permitted to maintain a lower market value even if the market value has subsequently increased (“Niederstwertprinzip” or
“Beibehaltungsprinzip”). This method is optional, should it be selected, a specific note has to be included (see “Other required disclosures”).

21

The portfolio of financial fixed assets may be composed of transferable securities valued at acquisition cost and of transferable securities valued at the
lower of cost or market, at the free choice of the Bank.

22

For taxation purposes it is permitted to maintain a lower market value even if the market value has subsequently increased (“Niederstwertprinzip” or
“Beibehaltungsprinzip”). This method is optional, should it be selected, a specific note has to be included (see “Other required disclosures”).

23

Exceptional value adjustments are made if, on the basis of a reasonable commercial valuation, it appears that the valuation should be corrected as the
result of a fluctuation in value occurring shortly after the balance sheet date. In this case the amount of exceptional value adjustments should be disclosed
separately in the profit and loss account (art. 58(2)c)).

24

Exceptional value adjustments are made if, on the basis of a reasonable commercial valuation, it appears that the valuation should be corrected as the
result of a fluctuation in value occurring shortly after the balance sheet date. In this case the amount of exceptional value adjustments should be disclosed
separately in the profit and loss account (art. 58(2)c)).

25

This valuation rule applies only to bonds and other fixed-income transferable securities included in the trading portfolio. Should this valuation method
be selected, all bonds and other fixed-income transferable securities included in the trading portfolio must be valued at “mark-to-market” (no trading
portfolio securities will be then valued at lower of cost or market). (CSSF Recueil, Part III, DCP, p. 50).

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

58(2)a), b)

Securities in this portfolio are valued at the lower of their acquisition cost or market value. The value adjustment,
corresponding to the negative difference between the market value and the acquisition cost, is not maintained if
the reasons for which it was recorded no longer exists 26, 27.

In case of fair valuation of financial assets under the Mixed Accounting regime:
IAS 39p9,
IAS 39p45

The Bank can elect to allocate its transferable securities into the following categories: financial
assets at fair value through profit and available-for-sale financial assets. The Board of Directors determines the
classification of these financial instruments upon initial recognition.

IAS 1p119,
IAS 39p9

(a) Financial assets at fair value through profit or loss
This category comprises two sub-categories: financial assets classified as held for trading, and financial assets
designated by the Bank as at fair value through profit or loss upon initial recognition.

IAS 39p9

A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of
selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that
are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.
Derivatives are also categorised as held for trading unless they are designated and effective as hedging
instruments in the context of the hedge accounting. Financial assets held for trading consist of debt instruments,
including money-market papers, traded corporate, bank loans, and equity instruments, as well as financial assets
with embeded derivatives.

IAS 39p43

Financial instruments included in this category are recognised initially at fair value; transaction costs are taken
directly to profit or loss. Gains and losses arising from changes in fair value are included directly in profit or loss.
Interest and dividend on financial assets held for trading are included in “Interest receivable and similar income”
or “Income from transferable securities”, respectively.

IAS 39p17
IAS 39p9

The Bank designates certain financial assets upon initial recognition at fair value through profit or loss (fair value
option). This designation cannot subsequently be changed. According to IAS 39, the fair value option is only
applied when the following conditions are met:
• the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise; or
• the financial assets are part of a portfolio of financial instruments which is risk-managed and reported to
senior management on a fair value basis; or
• the financial assets consists of a debt host contract and an embedded derivatives that must be separated.
To reduce accounting mismatch, the fair value option is applied to certain loans and receivables that are hedged
with interest rate swaps, but for which the hedge accounting conditions of IAS 39 are not fulfilled. Otherwise, the
loans are accounted for at amortised cost, whereas the derivatives are measured at fair value through profit or loss.
(b) Available-for-sale financial assets
Available-for-sale financial assets are initially recognised at fair value (including transaction costs), and measured
subsequently at fair value with gains and losses being recognised in a separate revaluation reserve within equity,
except for impairment losses and foreign exchange gains and losses on monetary items which are immediatly
recognised in profit or loss, until the financial asset is derecognised. This revaluation reserve is not available for
dividend distribution. If an available-for-sale financial asset is determined to be impaired, the cumulative gain or
loss previously recognised in the revaluation reserve is recycled in profit or loss.

IAS 39p46

However, interest is calculated using the effective interest method, and foreign currency gains and losses
on monetary assets classified as available-for-sale financial assets are recognised profit or loss. Dividends on
available-for-sale equity instruments are recognised in the profit or loss as “Income from transferable securities”
when the Bank’s right to receive payment is established.

26

For taxation purposes it is permitted to maintain a lower market value even if the market value has subsequently increased (“Niederstwertprinzip” or
“Beibehaltungsprinzip”). This method is optional, should it be selected, a specific note has to be included (see “Other required disclosures”).

27

Exceptional value adjustments are made if, on the basis of a reasonable commercial valuation, it appears that the valuation should be corrected as the
result of a fluctuation in value occurring shortly after the balance sheet date. In this case the amount of exceptional value adjustments should be disclosed
separately in the profit and loss account (art. 58(2)c)).

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

31

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

2.6 Valuation of variable-yield transferable securities
The Bank has divided its variable-yield transferable securities portfolio into three categories for valuation purposes:
2.6.1 Investment portfolio of financial fixed assets
56(1)b),
Participating interests and shares in affiliated undertakings having the characteristics of financial fixed assets are
56(2)a), 56(3) recorded in the balance sheet at their acquisition cost. The acquisition cost includes the costs to purchase the assets.
19, 18

Companies in which the Bank directly or indirectly exercises a significant influence are considered to be affiliated
undertakings. Participating interests comprise rights in the capital of other undertakings, the purpose of which is to
contribute to the activity of the company through a durable link.

56(2)a), c)bb) Principle of valuation at acquisition cost 28
Variable-yield transferable securities having the characteristics of financial fixed assets are valued at their acquisition cost. A value adjustment is made if the Board of Directors considers that there exists a durable depreciation
in their value at the balance sheet date.
56(2)c)aa), cc) Principle of valuation at “lower of cost or market” 29
Variable-yield transferable securities having the characteristics of financial fixed assets are valued at the lower of
their acquisition cost or market value. The value adjustment, corresponding to the difference between the market
value and the acquisition cost, is not maintained if the reasons for which it was recorded no longer exist 30.
76(1), 76(2) Principle of valuation using the equity method
Participating interests and shares in affiliated undertakings having the characteristics of financial fixed assets in
which the Bank has a notable influence are valued at the amount corresponding to the proportion of the associated
undertaking’s shareholders’ equity represented by that participating interest.
2.6.2 Trading portfolio
This portfolio comprises variable-yield transferable securities purchased with the intention of selling them in the
short term. These securities are traded on a market whose liquidity can be assumed to be certain, and their market
price is at all times available to third parties.
Principle of valuation at “lower of cost or market”
58(2)

Variable-yield transferable securities in the trading portfolio are valued at the lower of cost or market value 31.
A value adjustment is made when the market value at the balance sheet date is lower than the acquisition cost 32, 33.

32

28

The portfolio of financial fixed assets may be composed of transferable securities valued at acquisition cost, and of transferable securities valued at the lower of
cost or market, at the free choice of the Bank.

29

The portfolio of financial fixed assets may be composed of transferable securities valued at acquisition cost, and of transferable securities valued at the lower of
cost or market, at the free choice of the Bank.

30

For taxation purposes, it is permitted to maintain a lower market value even if this market value has subsequently increased (“Niederstwertprinzip” or
“Beibehaltungsprinzip”). This method is optional, should it be selected a specific note has to be included (refer to “Other required disclosures”).

31

Variable-yield transferable securities included in the trading portfolio cannot be valued on the basis of the “mark-to-market” method (CSSF Recueil, part
III, DCP, p. 60).

32

For taxation purposes, it is permitted to maintain a lower market value even if this market value has subsequently increased (“Niederstwertprinzip” or
“Beibehaltungsprinzip”). This method is optional, should it be selected a specific note has to be included (refer to “Other required disclosures”).

33

Exceptional value adjustments are made if on the basis of a reasonable commercial valuation, it appears that the valuation should be corrected as the
result of a fluctuation in value occurring shortly after the balance sheet date (CSSF Recueil, part III, DCP, p. 50, 51).

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

2.6.3 Structural portfolio
This portfolio comprises securities purchased for their investment return or yield, or held to establish a particular
asset structure or a secondary source of liquidity. It also includes securities not contained in the other two categories.
Principle of valuation at “lower of cost or market”
58(2)

Securities in this portfolio are valued at the lower of cost or market value. A value adjustment is made when the
market value at the balance sheet date is lower than the acquisition cost. The valuation at the inferior value is not
maintained if the reasons for which the value adjustments were made no longer exist 34, 35.

In case of fair valuation of variable-yield transferable securities under the Mixed Accounting regime:
The IFRS accounting principles laid down on page 31 above do also apply to variable-yield transferable securities.
2.7 Sale and repurchase agreements
11 (2), (4) (a) If the transferee undertakes to return the asset on a specified dare, the asset items are maintained in the transferor’s
balance sheet. In that case the amount received by the transferor is booked in “Loan and advances to credit
institutions” or in “Loans and advances to customers”.
11 (3), (4) (b) In case of sale with an option to repurchase, the transferor does not maintained the assets transferred in its balance
sheet36

2.8 Intangible and tangible fixed assets
56(2)a), b), Fixed assets other than financial fixed assets are valued at historical acquisition cost. The acquisition cost includes
56(3)
the costs to purchase the assets. The acquisition cost of intangible and tangible assets whose use is limited in time
are depreciated on a straight-line basis over the estimated useful life or at the rates specified below 37.
56(2)c)bb), In case of durable reduction in value, intangible and tangible assets are subject to value adjustments, regardless of
cc)
whether their utilisation is limited. The valuation at the inferior value is not maintained if the reasons for which the
value adjustments were made no longer exist 34.

34

For taxation purposes, it is permitted to maintain a lower market value even if this market value has subsequently increased (“Niederstwertprinzip” or
“Beibehaltungsprinzip”). This method is optional, should it be selected a specific note has to be included (refer to “Other required disclosures”).

35

Exceptional value adjustments are made if on the basis of a reasonable commercial valuation, it appears that the valuation should be corrected as the
result of a fluctuation in value occurring shortly after the balance sheet date (CSSF Recueil, part III, DCP, p. 50, 51).

36

The transferor booked as off-balance sheet item the amount equal to the price agreed in case of repurchase (art.11(4)(b)).

37

All generally accepted methods of depreciation are permitted (CSSF Recueil, part III, DCP, p. 30).

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

33

Notes to the accounts as at
31 December 201y (cont.)
2.8.1 Intangible assets
Formation expenses are amortised on a straight-line basis over ... years 38.

54

Other intangible assets are amortised on a straight-line basis at the rate of ...%.
2.8.2 Tangible assets
Tangible assets are used by the Bank for its own operations.
56(2)b)

Tangible assets other than land are amortised on a straight-line basis over the estimated useful lives or at the
following rates:
Fixed assets category

Estimated useful life or Rate %

...

...

...

In case of fair valuation of certain non-financial fixed assts under the Mixed Accounting regime:
It is important to note that the Mixed Accounting regime currently does not allow the revaluation of tangible and
intangible assets; this restriction will remain in force until a Grand-Ducal regulation authorising such practice has been
made available. However, the fair valuation of investments properties is allowed under the Mixed Accounting regime.
IFRS 13p27

The fair value of a non-financial asset takes into account a market participant’s ability to generate economic benefits
by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its
high and best use

IFRS 13p28

The highest and best use of a non-financial asset takes into account the use of the asset that is physically possible,
legally permissible and financially feasible.
2.8.3 Investment properties
Properties that are held for long-term rental yields or for capital appreciation or both, and that are not occupied
by the Bank, are classified as investment properties.

IAS 40p5,
40p75(b)
IAS 40p20,
IAS 40p33,
IAS 40p35,
IAS 40p75(b)

38

34

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes
the cost of replacing parts of an existing investment property at the time the cost was incurred if the recognition
criteria are met; and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial
recognition, investment properties are stated at fair value, which reflects market conditions at the date of the consolidated statement of financial position. Gains or losses arising from changes in the fair value of investment properties
are included in profit or loss in the year in which they arise. Subsequent expenditure is included in the asset’s carrying
amount only when it is probable that future economic benefits associated with the item will flow to the Bank and the
cost of the item can be measured reliably. All other repairs and maintenance costs are charged to profit or loss during
the financial period in which they are incurred.

Formation expenses must be amortised over a maximum of five years.

PwC Luxembourg

62

2.9 Value adjustments in the context of article 62 of the amended Law of 17 June 1992 39
In accordance with the principle of prudence and in consideration of the particular risks inherent to activities of
credit institutions, credit institutions are allowed to account for value adjustments in accordance with article 62 of
the Law. For reasons of prudence, the Bank has made value adjustments as a result of the particular risks associated
with banking operations.
These provisions are limited to 4% of the net value and are determined based on the profit after tax, but before
determining the profit for the financial year.

63

2.10 Fund for general banking risks
The Bank has created a fund for general banking risks intended to cover particular risks associated with banking
operations. Increases or decreases to this fund are determined based on the profit after tax, but before determining
the profit for the financial year, and are not subject to any limitations.
Funds allocated to the fund for general banking risks and proceeds from the partial or total dissolution of the fund
shall appear separately in the profit and loss account under items called “Allocations to the fund for general banking
risks” and “Proceeds from the dissolution of amounts booked in the fund for general banking risks”, respectively.
2.11 Lump-sum provision 40
A general reserve for potential risks on balance sheet and off-balance sheet items has been booked. This
tax-deductible provision is deducted from the corresponding assets. The lump-sum provision calculated on
off-balance sheet items is booked under the item “Provision: other provisions”.

Circ. 01/32: 2.12 Valuation of derivatives 41
§28
2.12.1 Interest rate swaps
The derivatives on interest rates, mainly IRS (“Interest Rate Swaps”), traded over the counter and unallocated to
given assets or liabilities, are marked-to-market. The unrealised losses are booked in the profit and loss account
whereas unrealised gains are ignored.
IRS traded over the counter for hedging purposes of the Bank’s interest rate positions are not marked-to-market
unless they are hedging fixed-income transferable securities included in the investment portfolio valued at the
“lower of cost or market” 42.
2.12.2 Options
For the options traded over the counter and unallocated to given assets or liabilities, the premiums received or paid
appear on the balance sheet until the exercise or the expiration date of the option, if the option is not exercised
before that date. Commitments on written options are booked off-balance sheet.
Options not used for hedging purposes are marked-to-market. The unrealised losses are booked in the profit and
loss account whereas unrealised gains are ignored.
Call option contracts entered into for hedging a balance sheet item (asset or liability) are booked as follows: unrealised
result on the premiums is account for profit or loss account in “Net profit or net loss on financial operations”.
Unrealised result arising from the evaluation of the hedge item (asset or liability) is account for profit or loss in “Net
profit or net loss in financial operations”. These booking are presented in net by compensation profit or loss effects.
Option contracts traded on a regulated market and entered into for the purpose of hedging identical reverse
options also traded on a regulated market are booked as follows: as the position on these instruments is closed, the
result arising from premiums received and paid is accounted for in the profit and loss account.
39

Loans and advances to credit institutions and customers, amounts due from leasing operations and debt securities, shares and other variable-yield
transferable securities which are neither held as financial fixed assets nor included in a trading portfolio, may be shown at a value lower than the one that
would result from the application of article 58 paragraph (2) of the Law, where for reasons of prudence this is required as a result of the particular risks
associated with banking operations.

40

This provision is recorded as a tax exemption in accordance with the Instructions from the “Directeur des Contributions” dated 16 December 1997. These
Instructions state the possibility for credit institutions falling under articles 2, 33 and 35 of the amended Law of the 5 April 1993 relating to the financial
sector in Luxembourg, to form a lump-sum provision for high-risk assets. This lump-sum provision includes a part of “value adjustment” recorded in assets
and a part of “provisions” relating to off-balance sheet items (CSSF Recueil, part III, B.1.1, p. 49).

41

The examples in note 2.12 describe the derivative instruments most commonly used by financial institutions in Luxembourg. However, this example of a
note is not exhaustive and the note disclosed in the annual accounts should cover all derivatives dealt with by the Bank.

42

In this case, the IRS shall be valued according to the same valuation method as the hedged securities (“lower of cost or market”). The following valuation
rules shall apply:
• when the unrealised losses on the hedged securities are greater than the unrealised gains on the IRS, the net unrealised loss must be recorded in the
profit and loss account;
• when the unrealised losses on the IRS are greater than the unrealised gains on the hedged securities, the net unrealised loss must be recorded in the
profit and loss account;
• when the unrealised gains on the hedged securities are greater than the unrealised losses on the IRS, the net unrealised gain must not be accounted for
in the profit and loss account;
• when the unrealised gains on the IRS are greater than the unrealised losses on the hedged assets, the net unrealised gain must not be accounted for in
the profit and loss account. (CSSF Recueil, part III, DCP, p. 48).

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

35

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

2.12.3 Financial futures
Margin calls on financial futures traded on a regulated market are booked on a daily basis. Gains and losses on
trading positions are directly booked in the profit and loss account. Gains and losses on hedging positions are
amortised over the same period as the results from the hedged item.

36

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

64 ter

In case of fair valuation of derivatives and/or application of hedge accounting under the Mixed
Accounting regime:

IAS 39p88

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are
subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets
(e.g. for exchange-traded options), including recent market transactions, valuation techniques (e.g. for swaps
and currency transactions), discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

IAS 39p11

Certain derivatives embedded in other financial instruments, such as the conversion option in a purchased
convertible bond, are treated as separate derivatives when their economic characteristics and risks are not
closely related to those of the host contract and the host contract is not carried at fair value through profit or loss.
These embedded derivatives are accounted for separately at fair value, with changes in fair value recognised in
profit or loss unless the Bank chooses to designate the hybrid contracts at fair value through profit or loss.

IAS 39p86

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated
and qualifies as a hedging instrument, and if so, on the nature of the item being hedged.
Derivatives that qualify for hedge accounting
The Bank designates certain derivatives as either:
(a) Hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges);
(b) Hedges of highly probable future cash flows attributable to a recognised asset or liability, or a forecast transaction (cash flow hedges).

IAS 39p89

(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit
or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the
hedged risk. The net result is included as ineffectiveness in profit or loss.

IAS 39p92

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a
hedged item for which the effective interest method is used is amortised to profit or loss over the period to
maturity and recorded as net interest income.
The adjustment to the carrying amount of a hedged equity security is included in the profit or loss when the
equity security is disposed of as part of the gain or loss on the sale.

IAS 39p97,
IAS 39p98
IAS 39p95,
IAS 39p100,
IAS 39p101

(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges are recognised in a separate reserve in equity. This reserve is not available for distribution to the
shareholders. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Amounts accumulated in equity are recycled to profit or loss in the periods when the hedged item affects profit or
loss. They are recorded in the revenue or expense captions in which the related hedged item is reported.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit or
loss as “Gain/(Loss) on financial operations”.
Derivatives that do not qualify for hedge accounting
Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised
directly in profit or loss as “Net profit or net loss on financial operations”.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

37

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

64 quater a) If the Bank has elected to measure some financial instruments at fair value under the Mixed Accounting regime:
IFRS 13p9

2.13 Determination of fair value
The fair value is defined as the price that would be received to sell an asset or paid a liability in an orderly
transaction between market participants at the measurement date 43.
For financial instruments traded in active markets, the fair value of financial assets and financial liabilities is
based on quoted market prices or dealer price quotations. This includes listed equity securities and quoted debt
instruments on major exchanges (e.g. FTSE, NYSE) and broker quotes from Bloomberg and Reuters.

IAS 39p
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly
AG71–AG73 available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are
not met, the market is regarded as being inactive. Indications that a market is inactive are when there is a wide
bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions.
IAS 39p
For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair
AG74–AG79 values are estimated from observable data relating to similar financial instruments. This includes using models
to estimate the present value of expected future cash flows or other valuation techniques, and using inputs (e.g.
LIBOR yield curve, FX rates, volatilities and counterparty spreads) existing at the balance sheet date.
The Bank uses widely recognised valuation models for determining fair values of non-standardised financial
instruments of lower complexity, such as options or interest rate and currency swaps. For these financial
instruments, inputs into models are generally observable in the market.
For more complex instruments, the Bank uses internally developed models, which are usually based on valuation
methods and techniques generally recognised as standard within the industry. Valuation models are used
primarily to value derivatives transacted in the over-the-counter market, unlisted debt securities (including those
with embedded derivatives) and other debt instruments for which markets were or have become illiquid. Some of
the inputs to these models may not be market observable and are therefore estimated based on assumptions.
The output of a model is always an estimate or approximation of a value that cannot be determined with
certainty, and valuation techniques may not fully reflect all the factors that are relevant to the positions held by
the Bank. Valuations are therefore adjusted, where appropriate, to allow for additional factors, including model
risks, liquidity risk and counterparty credit risk.
Based on the established fair value model governance policies and related controls and procedures applied,
management believes that these valuation adjustments are necessary and appropriate to fairly state the values
of financial instruments carried at fair value on the balance sheet. Price data and parameters used in the
measurement procedures applied are generally reviewed carefully and adjusted if necessary.
The fair value of over-the-counter (OTC) derivatives is determined using valuation methods that are commonly
accepted in the financial markets, such as present value techniques and option pricing models. The fair value of
foreign exchange forwards is generally based on current forward exchange rates.
The fair value for loans and advances as well as liabilities to banks and customers are determined using a present
value model on the basis of contractually agreed cash flows, taking into account credit quality, liquidity and costs.

43

38

If the calculation of the fair value is not possible, unrealistic or not reliable, some information on the main characteristics which may influence the fair
value of the related instrument must be provided.

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

Note 3 - Analysis of financial instruments 44
Circ. 01/32: 3.1 Strategy reflecting the use of financial instruments
§25
The Bank’s strategy regarding the use of financial instruments shall be disclosed here. This part may also be
provided in the Directors’ report (Refer to the “Directors’ report” for further details).


3.2 Analysis of financial instruments 45
3.2.1 Information on primary financial instruments

Circ. 01/32:
§30, 31, 32
and 39,
Appendix 1. II.
1 65(3), (4)

The tables below analyse the level of primary financial instruments of the Bank with respect to their remaining
maturities. Financial instruments excluded from the trading portfolio are disclosed at the carrying amount, whereas
financial instruments included in the trading portfolio are disclosed at fair value 46, their acquisition costs being
disclosed for comparison purposes.

44

To discuss explanations on how each amount has been calculated must be provided. Credit institutions must provide further information on terminology
and presentation forms used, risk measurement methods, underlying assumptions and where appropriate, other parameters, where further information is
likely to provide users of the financial statements with a better understanding of the quantitative information. (Rapport d’Activités 2002, CSSF)

45

Quantitative information provided in this section have to be disclosed for the current year (201y) and the previous year (201y-1). The purpose of this
analysis is to provide information on the activity level of financial instruments of the Bank. Appropriate analysis should be provided for primary financial
instruments and for derivatives both held for trading or for other purposes (hedging or arbitrage). This analysis should essentially reflect significant terms
and conditions that may affect the amount, timing and certainty of future cash flows. Circular 01/32 specifies that this information may be disclosed in
tables (some examples are available in the appendix of Circular 01/32). For each table, comparative figures have to be shown.

46

The Circular explains that the split by maturity may contain the following time buckets from zero to three months, from three to six months, from six
months to one year, from one year to five years and more than five years. These maturities may be modified if the alternative disclosure does not impact
the relative importance of the data (refer to Appendix II.1). The financial instruments without maturity are to be classified either in the “more than five
year” category or, preferably, in a “no maturity” category.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

39

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

Analysis of financial instruments – Primary non-trading instruments (in CCY)
Primary non-trading instrument
(in CCY million)
less than

> 3 months

> 1 year

more than

no

3 months

to 1 year

to 5 years

5 years

maturity

Instrument class (financial assets)
Cash in hand, balances with central
banks and post office banks
Treasury bills and other bills eligible for
refinancing with central banks
Loans and advances to credit institutions
Loans and advances to customers
Leasing transactions
Bonds and other fixed-income transferable securities
Shares and other variable-yield transferable securities
Total financial assets
Non-financial assets
Total assets

Instrument class (financial liabilities)
Amounts owed to credit institutions
Amounts owed to customers
Debt evidenced by certificates
Total financial liabilities
Non-financial liabilities
Total liabilities

40

PwC Luxembourg

Primary trading
instruments
Carrying amount
(in CCY million)

Total

Ref. article of
Law/Circular/
IFRS standard

Analysis of financial instruments – Primary trading instruments (in CCY)
less than
3 months
Carrying Fair
amount value

> 3 months
to 1 year
Carrying Fair
amount value

> 1 year
to 5 years

more than
5 years

Carrying Fair
amount value

Carrying Fair
amount value

No
maturity
Carrying Fair
amount value

Total primary
trading
instruments
Carrying Fair
amount value

Instrument class (financial assets)
Cash in hand, balances with central
banks and post office banks
Treasury bills and other bills eligible
for refinancing with central banks
Loans and advances to credit
institutions
Loans and advances to customers
Leasing transactions
Bonds and other fixed-income
transferable securities
Shares and other variable-yield
transferable securities
Total financial assets
Instrument class (financial liabilities)
Amounts owed to credit institutions
Amounts owed to customers
Debt evidenced by certificates
Total financial liabilities

Circ. 01/32: 3.2.2 Information on derivative financial instruments
§30
3.2.2.1 Description of the derivatives used
The description and objectives of the derivatives used shall be disclosed 47.
Circ. 01/32: 3.2.2.2 Analysis of derivatives
Appendix 1.II.1
68(11)
The tables below aim to analyse the level of derivatives of the Bank used. Derivatives traded on a stock exchange
shall be disclosed separately from derivatives not traded on a stock exchange.
The tables indicating the activity level of instruments used both for trading purposes and for other purposes
present the notional values and fair values for each category of instruments 48, and divides them into groups
according to their remaining maturity and according to whether they led to unrealised gains or losses.

47

Circular 01/32 specifies that the requirements should not be applied to items that are not essential for the understanding of the accounts. The importance
of an instrument or a group of instruments must be assessed based on its nature and its amount. Credit institutions must disclose a description of the risks
resulting from their activities so that the readers can develop a good understanding of the underlying risks. A good understanding of these risks is only
possible if the description made of activities undertaken is clear enough (Rapport d’Activités 2002, CSSF).
For high-risk complex instruments, credit institutions must provide explanations on the use of such instruments. If they are not entering into such instruments, it should be clearly stated (Rapport d’Activités 2002, CSSF).

48

Fair values or notional amounts should be classified by maturity. If the determination of the fair value is not possible, unrealistic or not reliable, information on the main factors which may influence the fair value of the instrument must be provided.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

41

Notes to the accounts as at
31 December 201y (cont.)
Analysis of financial instruments – derivative non-trading instruments (fair value in CCY)
Instrument class

Contract/notional
amount (CCY)

less than
3 months
Financial
assets

Financial
liabilities

> 3 months
to 1 year
Financial
assets

Financial
liabilities

> 1 year
to 5 years
Financial
assets

Financial
liabilities

more than
5 years
Financial
assets

Financial
liabilities

Interest rates
OTC
Forwards
Swaps
Options
...
Exchange-traded
Forwards
Swaps
Options
...
Foreign exchange/gold
OTC
Forwards
Swaps
Options
...
Exchange-traded
Forwards
Swaps
Options
...
Equities
OTC
Forwards
Swaps
Options
...
Exchange-traded
Forwards
Swaps
Options
...
Credit derivatives
...
Total

42

PwC Luxembourg

Total
Financial
assets

Financial
liabilities

Analysis of financial instruments – derivative trading instruments (fair value in CCY)
Instrument class

Contract/notional
amount (CCY)

less than
3 months
Financial
assets

Financial
liabilities

> 3 months
to 1 year
Financial
assets

Financial
liabilities

> 1 year
to 5 years
Financial
assets

Financial
liabilities

more than
5 years
Financial
assets

Financial
liabilities

Total
Financial
assets

Financial
liabilities

Interest rates
OTC
Forwards
Swaps
Options
...
Exchange-traded
Forwards
Swaps
Options
...
Foreign exchange/gold
OTC
Forwards
Swaps
Options
...
Exchange-traded
Forwards
Swaps
Options
...
Equities
OTC
Forwards
Swaps
Options
...
Exchange-traded
Forwards
Swaps
Options
...
Credit derivatives
...
Total

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

43

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

3.3 Credit risk
Circ. 01/32: 3.3.1 Description of credit risk
§33
Describe the credit risk relating to financial instruments to which the Bank is exposed 49.
Circ. 01/32: 3.3.2 Measurement of credit risk exposure 50
§34, 35,
Information on the credit risk linked to primary financial instruments is disclosed on the basis of the carrying
Annexe 1.II.2 amount, after deduction of any value adjustments. In the following tables, the guarantees received, which reduce
credit risk exposure, are not taken into account.
3.3.3 Concentration of credit risk
Circ. 01/32: The tables below disclose the concentrations of the credit risk linked to financial instruments, from both on and
§36
off-balance sheet exposures, by geographical location and economic sector 51.
Concentration of credit risk by geographical location (in CCY)
Geographical location

Credits and other
balance sheet items
201y 201y-1

Commitments

OTC derivatives

201y 201y-1

201y 201y-1

………
………

44

49

Information on credit risk linked to financial instruments should be disclosed on the basis of the amount that best represents the maximum credit
risk exposure at the balance sheet date (net of any value adjustments or provisions and of any netting agreements that are legally enforceable by the
institution) without taking into account any collateral. Information on the maximum credit risk exposure should be complemented by information on the
potential credit risk exposure taking into account any collateral. As a result, information provided on credit risk must cover primary financial instruments
as well as derivative financial instruments.
Where the carrying amount of an instrument represents the maximum credit risk exposure, disclosure of additional information, for the purposes of the
previous paragraph, is not necessary. With respect to derivative instruments not traded on a recognised, regulated market (“OTC”), the carrying amount
(principal or notional amount) does not reflect the maximum risk exposure. The maximum exposure to credit risk is the overall replacement cost as
detailed in CSSF circular 06/273. Credit institutions must add quantitative details to their explanations. If they are dramatically exposed to credit risk
concentration, it should be clearly stated in order to avoid any doubt.

50

With respect to credit risk exposure on OTC derivatives, Circular 01/32 stipulates that information must be disclosed in tables, broken down as follows:
• on the vertical axis, by the degree of creditworthiness of the counterparty based on internal or external ratings;
• on the horizontal axis, by:
• notional amount, adjusted for the effect of any legally binding netting agreements;
• current replacement cost, adjusted for the effect of any legally binding netting agreements;
• potential future credit exposure, adjusted for the effect of any legally binding netting agreements;
• overall replacement cost, net of any provisions;
• net risk exposure adjusted for any collateral.

51

Circular 01/32 specifies that only significant credit risk concentrations linked to financial instruments from on and off-balance sheet items should be
disclosed by economic sector and geographic location. The tables shown shall also be part of the section 9 of the long form report. The Bank may decide
either not to disclose geographical and economic sector concentration if it is not essential for the understanding of the annual accounts, or to disclose it by
larger categories (such as OECD/non-OECD countries).

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

Concentration of credit risk by economic sector (in CCY)
Economic
sector

Credits and other
balance sheet items
201y 201y-1

Commitments
201y 201y-1

OTC
derivatives
201y 201y-1

3.4 Market risk
Circ. 01/32: 3.4.1 Description of market risk
§37,38,
Information on market risk inherent in the institution’s positions in trading and non-trading instruments should be
Annexe 1.II.3 disclosed on the basis of Value-at-Risk, sensitivity analysis or other market price risk measures 52.

Note 4 - Cash in hand, balances with central banks 53 and post office
banks
In accordance with the requirements of the European Central Bank, the Central Bank of Luxembourg has implemented a system of mandatory minimum reserves which applies to all Luxembourg credit institutions54. The
minimum reserve balance as at 31 December 201y held by the Bank with the Central Bank of Luxembourg
amounted to CCY... .

Note 5 - Participating interests and shares in affiliated undertakings

68(2)

5.1 Summary of participating interests and shares in affiliated undertakings
As at 31 December 201y, the Bank directly or indirectly held participating interests and shares in affiliated undertakings of at least 20% of the share capital in the following companies 55:
Name

Head
Office

Carrying
amount
CCY

Proportion
of capital held
%

Shareholders’
equity
31/12/201y
CCY

Profit or loss for
the year ended
31/12/201y
CCY

Participating interests
Shares in affiliated undertakings

52

The different methods should be used alternatively or in combination in such a way as to provide a comprehensive picture of the Bank’s exposure to market
risks linked to the financial instruments held for trading or non-trading purposes. This information shall be disclosed separately for each category of
market risks.
When the credit institutions use methods such as Value-at-Risk to assess the market risk, the information disclosed should include a description of the
risks monitored based on these methods as well as a description of the calculation assumptions and quantitative information on the values at risk (Rapport
d’activités 2002, CSSF).

53

The CSSF Recueil sets out that these funds are available immediately either from a Eurozone central bank (European Central Bank or EU Member State
central bank) or from the central bank of any country where the credit institution has a branch.

54

As detailed in the Central Bank of Luxembourg circular 2003/181.
According to article 68(2), this information may be omitted if it is of negligible importance with regard to the objective of true and fair view. Disclosure of
capital and reserves and of the profit or loss for the latest financial year may be omitted if the undertaking does not publish its balance sheet itself and if
less than 50% of its capital is held directly or indirectly by the Bank.
According to article 69(1), these disclosures may be omitted when their nature is such that they would be seriously prejudicial to any of those undertakings. Any such omission must be disclosed in the notes to the accounts. According to article 69(3), the disclosure prescribed in article 68(2), concerning
the amount of shareholders’ equity and the profit or loss for the latest financial year, may be omitted:
• where the undertakings concerned are included in the consolidated accounts prepared by the parent company or in the consolidated accounts of a
larger entity as described in article 80(2), the parent undertaking of which is governed by the Law of a Member State of the European Union; or
• where the rights in the capital of the undertakings held by the parent company are accounted for under the equity method, either in the annual
accounts of the parent company (see article 76) or in the consolidated accounts of the parent company (see article 103).

55

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

45

Notes to the accounts as at
31 December 201y (cont.)
Ref. article of
Law/Circular/
IFRS standard

68(11) (b)

The participation in Company A has been maintained at historical cost, and the fair value of this participation
amounts to CCY ...
Management believes that this reduction in value is temporary for the following reasons 56:


65(1), (2)



5.2 Participating interests in other credit institutions and shares in affiliated undertakings which
are credit institutions
Participating interests in other credit institutions amount to CCY ... Shares in affiliated undertakings which are
credit institutions amount to CCY ...
5.3 Loans and advances to and debts owed to affiliated undertakings
These items 57 are detailed as follows:
201y
CCY

66(1)

201y-1
CCY

Assets
Treasury bills and other bills eligible for refinancing with central banks
Loans and advances to credit institutions
Loans and advances to customers
Leasing transactions
Bonds and other fixed-income transferable securities
Liabilities
Amounts owed to credit institutions
Amounts owed to customers
Debt evidenced by certificates
Subordinated liabilities

The following items have been maintained at historical cost despite lower fair value:
Carrying amount
201y
CCY

68(11)

201y-1
CCY

Fair value
201y
CCY

201y-1
CCY

Financial asset A
Financial asset B

46

56

According to article 68(11) b), for financial fixed assets carried at an amount in excess of their fair value (i.e. if the cost model has been applied), the Bank
shall disclose:
i) the carrying amount and the fair value of either the individual assets or appropriate groupings of those individual assets; and
ii) the reasons as to why the carrying amount has not been written down and specifically the nature of the information that leads to believe that the
carrying amount will be recovered.

57

Indicate for each item and sub-item the assets that are subordinated (art. 66(2)).

PwC Luxembourg

Ref. article of
Law/Circular/
IFRS standard

Management believes that those reductions in value are temporary for the following reasons 58:
5.4 Loans and advances to and debts owed to related undertakings
These items 59 are detailed as follows:
201y
CCY

66(1)

201y-1
CCY

Assets
Treasury bills and other bills eligible for refinancing with central banks
Loans and advances to credit institutions
Loans and advances to customers
Leasing transactions
Bonds and other fixed-income transferable securities
Liabilities
Amounts owed to credit institutions
Amounts owed to customers
Debt evidenced by certificates
Subordinated liabilities

The following items have been maintained at historical cost despite lower fair value:
Carrying amount
201y
CCY

68(11)

Fair value

201y-1
CCY

201y
CCY

201y-1
CCY

Financial asset A
Financial asset B
Management believes that those reductions in value are temporary for the following reasons 60:

64 quater b) Additional disclosure required under the Mixed Accounting regime for participating interests and shares
in affiliated undertakings measured at fair value:
5.5 Fair value disclosures
Amounts in CCY

Participating
interests

Shares in affiliated
undertakings

Fair Value - opening balance
Additions for the year
Disposals for the year
Unrealised gains/losses recognised in profit or loss
Unrealised gains/losses recognised in revaluation reserve
Fair Value – closing balance

58

According to article 68(11) b), for financial fixed assets carried at an amount in excess of their fair value (i.e. if the cost model has been applied), the Bank
shall disclose:
i) the carrying amount and the fair value of either the individual assets or appropriate groupings of those individual assets; and
ii) the reasons as to why the carrying amount has not been written down and specifically the nature of the information that leads to believe that the
carrying amount will be recovered.

59

Indicate for each item and sub-item the assets that are subordinated (art. 66(2)).

60

According to article 68(11) b), for financial fixed assets carried at an amount in excess of their fair value (i.e. if the cost model has been applied), the Bank
shall disclose:
i) the carrying amount and the fair value of either the individual assets or appropriate groupings of those individual assets; and
ii) the reasons as to why the carrying amount has not been written down and specifically the nature of the information that leads to believe that the
carrying amount will be recovered.

Handbook for the preparation of annual accounts of banks under Luxembourg accounting framework

47


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