When should a statutory auditor be appointed for corporations and associations?

In Belgium, the appointment of a statutory auditor is defined by law in the Companies and Associations Code. Since the introduction of this new Code, corporations and associations are largely considered equal. The appropriate legal provisions must be observed even if a statutory auditor is appointed in accordance with the statutes or on a voluntary basis.

Criteria for the mandatory appointment of a statutory auditor

To comply with the obligation to appoint a statutory auditor, it is necessary to first make a distinction between companies with liability, such as an NV or BV, and companies without liability, such as a VOF or CommV. The latter are not subject to statutory audits due to their unlimited liability.

Next a decision needs to be made as to whether or not a corporation can be considered “large”. The Code stipulates three criteria in this respect: turnover, balance sheet total and the annual average number of employees. If more than one criterion is exceeded during two consecutive financial years, the company will be considered “large” from the start of the next financial year. Companies considered “large” shall be obliged to appoint a statutory auditor. Since the introduction of the new Code, associations must be assessed in accordance with the same criteria as corporations.

The threshold value of these criteria was increased by the transposition of the new Directive 2023/2775 into national legislation and this for financial years commencing after 31 December 2023. The turnover criteria were increased from €9,000,000 to €11,250,000 whilst the balance sheet total was adjusted from €4,500,000 to €6,000,000. The annual average number of employees was not changed and is still fixed at 50. Although the transposition law did not provide for transitional arrangements, the government shall still assume that the assessment on the balance sheet date of the last completed financial year will be decisive. If a company exceeds more than one of the new criteria, it will be considered large.

It is important to note here that the legislator did not provide for an increase in the thresholds for associations and that the old thresholds will consequently continue to apply.

What about companies that are part of a group?

If a company is part of a group, it is necessary to distinguish between a “parent” and a “subsidiary” company under corporate law. To determine whether or not a parent company should be considered “large”, the criteria must be assessed on a consolidated basis. A subsidiary, on the other hand, unless it is in control, should be judged on an individual basis. A parent company can, therefore, be considered “large” under corporate law while its subsidiary remains “small”. A significant nuance here is that when verifying a statutory auditor duty, a company always needs to be assessed on a singular basis. An association may well be part of a group, yet it can never be considered a parent company and is always assessed on a singular basis.

Specific rules for consolidated annual accounts

The Companies and Associations Code also imposes criteria as to when a group of companies and associations must prepare its consolidated annual accounts and have them audited and published. The assessment and criteria are similar to those for individual financial statements, although the thresholds are obviously considerably higher. As with individual annual accounts, the thresholds regarding a “group of limited size” were raised following the introduction of the new directive. Again the number of employees has not changed, yet the threshold on turnover was raised from €34,000,000 to €42,500,000 and the balance sheet total to €21,250,000.

In particular with respect to consolidated annual accounts it is mandatory to appoint a statutory auditor for each of the companies or associations under Belgian law included in the consolidation. Moreover, any companies and associations under Belgian law that are part of a group that prepares, has audited and publishes consolidated annual accounts worldwide are required to appoint a statutory auditor regardless of the quantitative criteria. A Belgian “small” subsidiary of a Brazilian group which publishes consolidated annual accounts in the United States is consequently required to appoint a statutory auditor for its individual annual accounts in Belgium.

Conclusion

The criteria pertaining to statutory auditor duties for companies and associations are varied and depend upon legal provisions, statutory requirements or voluntary choices. Where legal provisions are concerned the first thing to consider is the legal status and size criteria. The legislator recently increased the thresholds relating to the size criteria for financial years commencing after 31 December 2023. Moreover, since the introduction of the new Code, associations are considered equal to companies in terms of assessment, yet the new thresholds do not apply to them.

Within a group of companies, the statutory auditor duty must always be assessed on a singular basis. When consolidated annual accounts need to be published, it is mandatory to appoint a statutory auditor for each company or association under Belgian law that is part of the consolidation, regardless of its size or the location of the parent company.