Tuesday, May 26, 2015
There are now 4 working days until the Companies Act 2014 (the “Act”) comes into force in Ireland. The Act will radically change the existing legal framework for companies in Ireland. Each day, we will provide you with a snapshot of key changes to consider in advance of the Act commencing on June 1st.
As well as consolidating the numerous existing Acts, a core aim of the Companies Act 2014 (the Act) is to remove red tape for smaller companies. The Act has introduced some welcome changes to the area of accounts, including broadening the exemption from audit of financial statements.
Small company/ small group exemption
For the first time, the audit exemption may be availed of by groups of companies and to companies limited by guarantee (CLGs), in each case where they qualify as “small”. Up to now, all CLGs and groups of companies were required to complete an audit.
The audit exemption remains available to “small companies”, but the criteria for qualifying as a small company have been broadened. The thresholds have remained the same: (i) turnover not exceeding €8.8m; (ii) balance sheet total not exceeding €4.4m; and (iii) average number of employees not exceeding 50. However, now only two out of the three conditions must be satisfied to qualify as a small company (s. 350(5)) whereas under the previous regime, it was necessary to meet all three. In addition, it is only necessary that the company meets those requirements for the financial year for which it is seeking the exemption; under the previous regime it was necessary that it meet those conditions both in respect of that financial year and in respect of the previous financial year.
Certain companies are not entitled to an audit exemption, as follows:
(a) public companies (limited and unlimited);
(b) credit institutions, insurance undertakings and investment companies; and
(c) companies listed in the Schedule 5 to the Act (which are mainly in regulated sectors).
Aside from audit requirements under the Act, companies should consider that shareholders or other stakeholders (e.g. bankers or trade organisations) may still require an audit to be completed.
A new audit exemption has been introduced for dormant companies, regardless of company size (s. 365). The directors must be of the opinion that the in respect of the financial year concerned, (i) the company is dormant; (ii) it has no significant accounting transaction; and (iii) its assets and liabilities comprise only permitted assets and liabilities. “Permitted assets and liabilities” are defined as investments in shares of, and amounts due to or from, other group undertakings. The right of members to dissent to the audit exemption does not apply to a dormant company.
Disqualification from audit exemption
A company or group that would otherwise be eligible for an audit exemption cannot avail of the exemption in certain cases:
The vast majority of the Act will be commenced on 1 June 2015, including the provisions regarding audit of financial statements. The Act should be consulted when considering if an audit exemption is possible, as the qualifying criteria apply by reference to specific periods.
It should be noted that the exemption discussed above only relates to having financial statements audited. This does not include an exemption from the statutory requirement imposed on most companies to prepare financial statements, lay them before the company’s AGM, and file such financial statements with its annual return. Given the potential to forfeit the audit exemption it remains critical that companies file annual returns on time.
The current exemptions for certain unlimited companies from filing financial statements remain in place under the Act (known as non-filing structures). However this area is in transition until such time as the Accounting Directive (2013/34/EU) is transposed into Irish law, which is supposed to be by July 2015. It is expected that the transposition will remove non-filing structures and that the Act will be amended.