Setting up a supervisory board is not compulsory for a limited liability company (société à responsabilité limitée - SARL) with less than 60 partners. The partners remain free to set up a supervisory board or not.The internal or statutory auditors must verify that the annual accounts present a true and fair view of the company's financial situation. Internal auditors must furthermore monitor the company's operations.
SARLs with more than 60 partners who do not exceed 2 of the following 3 limits can have their accounts audited by an internal auditor only (commissaire):
- balance sheet total: EUR 4.4 million;
- net turnover: EUR 8.8 million;
- average number of full time staff during the financial year: 50.
However, companies who exceed 2 of these limits must have their accounts audited by a statutory auditor.
The crossing of these limits must:
- be of a certain stability;
- continue for 2 consecutive financial years.
Mandate of an internal auditor
The internal auditor is an organ of the company appointed by the general meeting for a maximum renewable term of 6 years unless the articles of association provide for otherwise.
There is no minimum duration of the mandate. In practice, the mandate has a duration of a financial year.
An SARL can appoint one or more internal auditors, whether they are partners or not. In practice, the mandate as internal auditor cannot be held concurrently with the mandate as business director of the same company. The names of the auditor or the members of the supervisory board of SARLs must be mentioned in the articles of association. The articles of association also define the period of re-election of the supervisory board, which may have a fixed or indefinite term of office.
There are no requirements in terms of competence or qualification to carry out the tasks of an internal auditor.
If the number of internal auditors is reduced by more than a half, the management board must immediately call a general meeting to replace the missing auditors.
An internal auditor can be dismissed ad nutum by the general meeting, i.e. without justification of grounds and without preconditions.
Competencies of an internal auditor
In principle, internal auditors have 2 main assignments:
- monitoring the operations of the company;
- auditing the annual accounts and the management report.
The supervision of business operations extends through the financial year. The auditor has unlimited rights of supervision: he/she can, at any time, access:
- the accounting books;
- the correspondence;
- the minutes and reports;
- any document established by the company.
The internal auditor can carry out regular checks without prior authorisation.
Every half-year, the internal auditor receives from the board of directors a report which summarises the business's assets and liabilities.
Each year, one month before the annual general meeting is held, the management makes available the annual accounts to the internal auditor for the purposes of drafting up a report with recommendations and the control method used. The report is deposited at the registered office 8 days prior to the general meeting. The auditor can request the assistance of an expert who must be approved by the company.
The internal auditor also has the right to call a general meeting if he deems it necessary.
Responsibilities of the internal auditor
The responsibilities of the auditor are determined by the same rules as those of the directors (see under Responsibilities of a business manager). We speak of contractual responsibilities. The auditor has an obligation of means (input based obligation) but not an obligation of result (output based obligation). He may turn to the courts of justice (juge des référés) should the company not allow him to perform his duties properly.
An internal auditor remains liable for errors committed during his/her mandate, even after his/her resignation.
Internal auditors are deemed to have committed an error if they fail to report, during the general meeting, that the following elements were missing:
- the publication of the balance sheet;
- the proposition for dissolution on behalf of the administrators in the event of a loss of half or 3/4 of the share capital;
- the management organ of the company.
An internal auditor can be discharged by the shareholders' general meeting.
Mandate of a statutory auditor
In opposition to the internal auditor, the statutory auditor is not an organ of the company. The general meeting appoints one or more statutory auditors.
The statutory auditor is bound to the company by a fixed-term service agreement which can only be cancelled for serious reasons.
The statutory auditor must be independent of the company he is auditing. He can be a legal or a natural person, registered with the Luxembourg institute of registered auditors (Institut des Réviseurs d'Entreprises - IRE).
Competencies of statutory auditors
The statutory auditor is responsible for:
- checking whether the annual accounts present a true and fair view of the company's financial situation;
- verifying whether the management report is in agreement with the accounts.
The statutory auditor's mission only begins after the annual financial statements and the management report have been established by the board of directors.
A statutory auditor is not entrusted with the monitoring of the operations of the company as is the case for the internal auditor.
Responsibilities of statutory auditors
A statutory auditor has an obligation of means and not an obligation of result.
The service agreement between the company and the statutory auditor protects the latter from the consequences of unintentional errors. Nevertheless, statutory auditors cannot be completely relieved from their responsibilities.
Civil or professional litigation against a statutory auditor can only be undertaken within 5 years of the date of the auditor's report.
The statutory auditor is bound by professional secrecy towards third-parties and his peers.