Availing of the Audit Exemption Section 32 of Companies (Amendment) (No. 2) Act, 1999 (“the Act”) states that a private limited company may avail of an exemption from a requirement to have financial statements audited. In order for a company to be in a position to avail of the audit exemption, the Company must satisfy certain conditions pursuant to Section 32 (3) of the Act. Section 32 (3) (b) of the Act also states that the exemption is conditional to the timely filing of the annual returns at the Companies Registration Office.
A summary of these conditions include:-
- Is a company to which the Companies (Amendment) Act 1986 applies;
- The amount of turnover of the Company must not exceed €8.8 million;
- The balance sheet total of the Company is less than €4.4 million at the end of its financial year;
- Average employees does not exceed 50
- The company is not one of the following
- A company limited by guarantee?
- A public limited company
- Bank or Insurance Company
- A group company (i.e. parent, holding or subsidiary company)
- An investment, stock broking, building society, credit institution, management or? trustee company.
- The company must be up to date both this year and last year with its filing requirements at the Companies Registration Office.
- The company should satisfy all the conditions in respect of the financial year in which the company is to avail of the exemption and the previous financial year.
Meeting of Directors
Once the Company has satisfied the conditions, the next step is for the Directors to hold a Board meeting. At the meeting, the Directors pass a resolution that they are of the opinion that the Company will satisfy the conditions specified in Section 32 (3) of the Act in respect of the current financial year and that the Company should avail of the audit exemption. The Directors should also resolve to terminate the appointment of the Auditors pursuant to Section 34 (1) (b) of the Act. The decision must be recorded in the minutes of the meeting and entered into the minute book of the Company.
Letter to Auditor
The Directors should send a letter to the Auditors advising that the Company is availing of the audit exemption, that their appointment as Auditor has been terminated and that they serve notice, within 21 days, on the Company confirming that there are no circumstances connected with the termination of their appointment which should be brought to the notice of the members and creditors pursuant to Section 34 (2) (a) of the Act.If there are circumstances, which the Auditor considers, should be brought to the notice of the members and creditors of the Company this should be contained in the statement and within 14 days send a copy of the notice to every person entitled to receive notice (i.e. the members, debenture holders etc.).
Notice to Company and CRO
The Auditor should then serve notice on the Company pursuant to Section 34 (2) (a) confirming that there are no circumstances connected with the decision of the company to avail of the audit exemption that they consider should be brought to the notice of the members or creditors of the company. The Auditor must also file a copy of the notice at the Companies Registration Office within 14 days.
Once all the above has been completed the company may avail of the audit exemption for that financial year.
Filing Annual Return and Financial Statements
The Company must file an Annual Return made up to the date of the Annual Return Date (“ARD”) and file the unaudited financial statements at the Companies Registration Office within 28 days of the ARD.
Wording to be inserted into unaudited financial statements
The following is a sample wording to be inserted into the balance sheet immediately above the Directors signatures for audit exempt financial statements pursuant to Section 33 (4) & (5) of the Act:-
“We as Directors of Name of Company Limited, state that:-
1. The company is availing itself of the exemption provided for by Part III of Companies (Amendment) (No. 2) Act, 1999;
2. The company satisfies the conditions in Section 32 of Companies (Amendment) (No. 2) Act, 1999 as amended by Section 53 of Companies (Auditing and Accounting) Act, 2003;
3. No notice containing a request referred to in Section 33 (1) and (2) of Companies (Amendment) (No. 2) Act, 1999 has been served on the Company, and
4. The Directors acknowledge the obligations of the Company, under the Companies Acts, 1963 to 2005, to keep proper books of account and prepare accounts which give a true and fair view of the state of affairs of the Company at the end of its financial year and of its profit and loss for such a year and to otherwise comply with the provisions of those Acts relating to accounts so far as they are applicable to the Company.”
Failure to insert the wording pursuant to Section 33 (4) & (5) of the Act and for the Directors not to sign the balance sheet will result in every officer of the Company who is in default being guilty of an offence and liable of a fine.
Newly Incorporated Companies
For newly incorporated companies, if the Company satisfies the aforementioned conditions for the audit exemption and the Company has not appointed an Auditor, the Company does not have to apply for the exemption provided they tick the relevant box on the front page of the annual return when unaudited financial statements for the first time. The Annual Return and financial statements must be filed within 28 days of the Annual Return Date to avail of the exemption. The Directors still must hold a board meeting within the financial year to which the Company is to avail.
Appointment of Auditor on Cessation of Exemption
If a company has availed of the audit exemption pursuant to Section 32 of the Act, and subsequently has failed to meet one or more of the conditions, it shall be the duty of the Directors to appoint an Auditor to the Company as soon as those circumstances arise and such an appointment may be made by the Directors at a meeting of Directors pursuant to Section 35 of the Act. An Auditor appointed during the year shall hold office until the next Annual General Meeting at which the Auditor may be reappointed or another Auditor appointed. If the Directors fail to appoint an Auditor, the members may appoint an Auditor at a general meeting of the Company.