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In 2002, a European Commission Regulation No. 1606 was passed by the European Parliament and the European Council of Ministers. The new regulation required all European Union member states adopt International Financial Reporting Standards (IFRSs), formerly International Accounting Standards (IAS), issued by the International Accounting Standards Board. As a result, all EU-listed companies are required to prepare their consolidated financial statements following IFRSs as adopted by the EU beginning on January 1, 2005. Listed companies in Luxembourg therefore follow IFRSs in preparation of their consolidated accounts. Further, the 2006 EC report on the implementation of the Regulation No. 1606 of 2002 points out that Luxembourg permits IFRSs in the annual accounts of listed companies and in the annual and consolidated accounts of all other companies. Apart from the mandatory application of IFRSs, some companies voluntarily follow the practice, whereas others follow Luxembourg's Generally Accepted Accounting Principles (GAAP) which, according to the Deloitte 2007 report, differ from the international standards. However, Luxembourg's legal environment is undergoing changes regarding accounting requirements. As explained in a 2007 IAS Plus update, the national commercial law will be amended to introduce IFRSs into Luxembourg law as a legal alternative to the current local accounting principles. Moreover, the Luxembourg authorities are drafting a commercial law which will give all limited liability companies registered in Luxembourg the option to use IFRSs for statutory accounts. Luxembourg already permits IFRSs as an option for credit institutions.

According to a 2006 self-assessment prepared by the Institute of Registered Auditors (IRE) as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, in Luxembourg, audit of financial statements is conducted in accordance with International Standards on Auditing (ISAs). The IRE adopts the pronouncements of the International Auditing and Assurance Standards Board (IAASB) without any modifications and, as explained in the self-assessment, ISAs are supplemented with additional guidance for application in Luxembourg. However, the self-assessment noted that at the national level there is a timing difference between the IFAC and IRE effective dates. Nevertheless, at the European level, due to the enactment of European Union Directive 2006/43/EC of the European Parliament and Council, which came into force in May 2006, all statutory audits of annual and consolidated accounts in the EU countries must be conducted on the basis of ISAs as adopted by the European Commission. EU member states shall adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. The auditing standards for listed entities and non-listed entities are the same.