When The Companies Act 2014 is commenced on 1st June 2015 many companies who cannot currently avail of audit exemption may be able to do so, with the Companies Registration Office (CRO) indicating that audit exemption can be availed of once financial statements are approved after 1st June 2015. Due to the new legislation it is estimated that in excess of 96% of companies registered in Ireland will now be in a position to claim audit exemption as the following company types may be eligible:
- New Model Private LTD Companies
- Designated Activity Companies (DAC’s)
- Small Groups
- Dormant Companies
- Companies Limited by Guarantee
- Unlimited Companies
Audit Exemption and the filing of Annual Returns
While extension to the types of companies eligible to claim audit exemption is welcomed, there was much disappointment that the rules surrounding the loss of audit exemption due to the late submission of Annual Returns remain in place. As was the case under the old Acts, if a company fails to submit their annual return on time the company will lose its entitlement to claim audit exemption and therefore will be required to have their Financial Statements audited for both the current and the following year. There is however a new provision in The Companies Act 2014 which allows a company to apply to their local district court for an order extending their annual return. Once the extension order is received by the CRO on time and the annual return is filed within the extended deadline the documents will be deemed to have been received on time by the CRO, this removing any late filing penalties and loss of audit exemption. Understandably the costs associated with making an application to the district court must be taken into consideration in this regard.
Audit Exemption for LTD’s and DAC’s
The criteria for a small company claiming audit exemption has remained relatively unchanged for LTD’s and DAC’s. In addition to the requirement of having your annual returns submitted on time, these company types can avail of audit exemption if they meet 2 out of 3 of the following conditions in both the current and preceding year:
- Turnover not exceeding €8.8 million
- Balance Sheet Total not exceeding €4.4 million
- Number of employees not exceeding 50
Under the old Acts a small company had to meet all 3 of the above criteria to claim audit exemption. The reduction in the criteria to 2 out of 3 will give a larger number of companies the ability to avail of audit exemption. It must be noted that members holding 10% or more of the voting rights may prevent a company from claiming audit exemption. On that basis it is important that directors of a company notify its shareholders if they are intending to claim audit exemption in the current year.
Audit Exemption For Group Companies
The criteria for group companies to claim audit exemption are in line as those outlined above for LTD’s and DAC’s. However, the limits will apply to the consolidated accounts of the group as a whole. For example, the turnover of the consolidated accounts for the group as a whole cannot exceed €8.8 million. While the consolidated group need only meet 2 out of the 3 criteria to qualify for audit exemption they must again satisfy the conditions in both the current and the preceding year.
Audit Exemption for Dormant Companies
Unlike LTD’s, DAC’s or Group Companies the audit exemption for a dormant company is not linked to company size. Instead the eligibility to claim audit exemption is based on the fact that the company is dormant. Under the new Act, a dormant company is one which:
- Has no significant accounting transactions and
- Who’s assets and liabilities are comprised only of permitted assets and liabilities
Permitted assets are investments in shares of, or amounts due from group undertakings, with permitted liabilities being amounts due to group undertakings. For a dormant company to claim audit exemption the directors must be of the opinion that the company satisfies the conditions in that year and record their decision to claim audit exemption in the minutes of a meeting. Public Limited Companies or Public Unlimited Companies are not permitted to claim dormant company audit exemption.
Balance Sheet Declarations
When a company is claiming audit exemption, specific declarations will be required to be included on the balance sheet of the financial statements outlining that the exemption has been availed of. The declaration to be included will be specific to each company type i.e. LTD, DAC, Group Companies etc. When claiming audit exemption there is a specific process which will need to be followed. It may be advisable to speak with your financial advisor or accountant in this regard as they will be in a position to advise if your company, or group of companies, can avail of audit exemption and will also be aware of the process to be followed.
