Part 6 – Financial Statements, Annual Return and Audit
23 Chapters – Sections 272 to 407
Part 6 Chapter Overview
Chapter 1 – Preliminary
Chapter 2 – Accounting Records
Chapter 3 – Financial Year
Chapter 4 – Statutory Financial Statements
Chapter 5 – Group Financial Statements : Exemptions and exclusions
Chapter 6 – Disclosure of Directors’ Remuneration and transactions
Chapter 7 – Disclosure required in notes to financial statements of other matters
Chapter 8 – Approval of statutory financial statements
Chapter 9 – Directors’ Report
Chapter 10 – Obligation to have statutory financial statements audited
Chapter 11 – Statutory auditors’ report
Chapter 12 – Publication of financial statements
Chapter 13 – Annual Return and Documents annexed to it
Chapter 14 – Exclusions, exemptions and special arrangements with regard to public disclosure of financial information
Chapter 15 – Audit exemption
Chapter 16 – Special audit exemption for dormant companies.
Chapter 17 – Revision of defective statutory financial statements
Chapter 18 – Appointment of statutory auditors
Chapter 19 – Rights, duties and obligations of statutory auditors
Chapter 20 – Removal and resignation of statutory auditors
Chapter 21 – Notification to Supervisory Authority of certain matters and auditors acting while subject to disqualification order
Chapter 22 – False statements – offence
Chapter 23 – Transitional
Part 6 Summary
Part 6 focuses on the requirements regarding accounting records kept by companies, the financial statements to be prepared by them, auditing requirements and the returns to be made to the Registrar of Companies. It outlines the definitions and applications of financial statements prepared under the Companies Act or under IFRS.
What is new?
The biggest impact of Part 6 is the commencement provisions. Despite the fact that the commencement order was only issued on the 1st of May 2015, by way of S.I. 169 of 2015, all financial statements approved after the 1st of June must be prepared under the Companies Act 2014, with no transition options. This creates very tight timelines for the accountancy profession in terms of assisting companies prepare and present financial statements in the required statutory formats and gives no time for planning an orderly transition.
S.288 in relation to financial years dictates that a company must prepare financial statements on an annual basis and if they are changing their year end by more than 7 days longer or shorter than 12 months from its previous financial year end date they must notify the Registrar.
Chapter 9 and sections 325 to 332 deal with what goes in the directors’ report and while the core contents of the directors’ report remains largely the same the layout and wording of the directors’ report will change. For the first time S.332 provides for single director approval of financial statements for new LTD companies who only have 1 director. The revision of deficient financial statements is to be allowed at the CRO under S.366 if the directors’ are of the opinion that financial statements in respect of a particular year did not comply with the requirements of the Act.
The audit exemption which is covered in Chapter 15 and sections 358 to 364, has been extended to groups meeting certain requirements along with companies limited by guarantee and unlimited companies. Another big change here is that now companies can exempt themselves from audit exemption if they are a small company and meet 2 of the 3 size criteria set out in S.350
- Balance Sheet Total not to exceed €4,400,000
- Turnover not to exceed €8,800,000
- Average number of persons employed not to exceed 50
Previously companies had to meet 3 of the 3 criteria. Unfortunately despite the negative impact it has on the accountancy and auditing profession late filing remains linked as a criteria for availing of the exemption under S.364 and S.365. S.399 deals with the termination of the auditors’ appointment in the context of companies availing of the audit exemption but based on guidance recently issued by the Companies Registration Office it appears that the audit exemption can be retrospectively availed of.
For the first time S.335(5) permits the ODCE access to the books and documents of the company and obliges the company to provide any information relating to availing of the exemption under S.358 and S.359 to ensure that the company has complied with the criteria and requirements.
For the first time there are specific audit exemption provisions for dormant companies under S.365 of the Act.
Everything to do with the obligation to file an annual return is contained in S.343, and now there are provisions whereby a company can make an application to the court to extend their annual return date.
What is different?
Several definitions have been clarified and certain requirements have been given greater prominence. An anomaly regarding penalties for failure to keep proper books of account has been resolved.
Groups can avail of the exemption from consolidation under similar circumstances as set out in the EC Group Accounts Regulations 1992 but the size criteria for that exemption has increased in line with the large company size criteria based on the consolidated results and financial position of:
- Balance Sheet Total not to exceed €10,000,000
- Turnover not to exceed €20,000,000
- Average number of persons employed not to exceed 250
The holding company and the subsidiaries combined must meet 2 out of the 3 criteria in the current and preceeding years.
While disclsoure of directors’ benefits: loans, quasi loans, credit transactions and guarantees has long been a requirement, S.307 has now also been expanded to include an indication of the interest rate payable.
Chapter 7 sets out the disclosures required in notes to the financial statements and there has been a small change from the 1986 Act in terms of how the average number of employees is calculated set out in S.317. Chapter 6 and 7 combined will have an impact on the level of detail being disclosed in the abridged accounts of small companies and in particular for those companies applying the interpretation of S.I. 116 of 2005 in preparing their abridged accounts. S.353 specifies all of the notes required in abridged finanical statements and is likely to result in expanded disclosures in the public domain for many companies.
S.336 deals with the statutory auditors report and given that the old S.40 requirements under the 1983 Act have not carried into the new Act, the auditors statement in this regard in the audit report will be ommitted. It is anticipated that the FRC will issue a revision to Bulletin 1(I) in relation to this change.
Auditors still have to report indictable offences to the ODCE but with the new categoristion of offences it is clearer what the implications are for each offence. S.393 states that auditors must report category 1 and 2 offences.
S.403 continues the SI 220 of 2010 requirement for both the auditor and the company to notify IAASA where an auditor ceases to hold office under either S.394 whereby they are removed or S.400 whereby they resign. IAASA have recently added an online notification option to their website.
The obligation to deliver an annual return during winding-up or voluntary strike-off has been removed. The qualifying criteria for audit exemption has been brought into line with the relevant EU Directive.
Under the Act, failure to file a company’s first annual return by its due date will result in the loss of the audit exemption for companies that would otherwise be audit exempt. This a change from previous legislation.
What are the Key Points?
- Extension of audit exemption to groups
- Change to audit exemption criteria
- Changes to disclsoures in financial statements and abridged financial statements
- Revision of deficient financial statements at CRO
- ODCE right of inspection when audit exemption availed of
- Loss of audit exemption if first annual return is filed late
What do accountants need to do?
Accountants need to ensure that all financial statements signed after the 1st of June 2015 are prepared in accordance with the CA 2014 format requirements. There is an opportunity to eliminate smaller companies from the audit net so it is critical that these companies are identified and that accountants apply the appropriate termination process and procedures where they are currently appointed as auditors. Accountants may need to expand their abridged accounts disclosures and auditors will need to ammend their audit report formats.
What do companies need to do?
If directors are availing of the exemption immediatley after commencement from the 1st of June, for periods ending before the commencement date, they will need to ensure that they are not breaching their fiduciary duties under S.228. Directors need to be happy that they are acting in the best interest of members, where members had no legislative framework to object to the audit exemption under the previous legislation. Directors need to ensure that the financial statements they are preparing and presenting are prepared in accordance with the requirements of the new Act from 1st of June onwards.