Significant and welcome changes to the reporting requirements of many Irish companies are on the way thanks to the Companies (Accounting) Bill 2015. We take a look at the highlights of the bill here.
Current requirements and issues
Irish directors will be aware of the many statutory reporting requirements applicable to their companies. For example, under the Companies Act 2014 (the “2014 Act”) companies are required to keep proper books of account which give a true and fair view of the company's financial affairs, disclose details of their financial statements at the annual general meeting (“AGM”) and to attach a copy of those financial statements to their annual return. In addition, they are required to observe applicable standards in the preparation of financial statements such as following specimen formats and disclosing certain information by way of notes to the financial statements. Accounting requirements under the Act can therefore be quite onerous and although reforms have been implemented, small and medium sized enterprises (“SME’s”) continue to feel the burden of extensive compliance and reporting obligations.
The Companies (Accounting) Bill 2015 (the “Bill”) aims to provide relief to small businesses in Ireland through reduction of financial disclosure requirements, effectively transposing EU Directive (2013/34/EU) into Irish law.
The introduction of the new micro company is arguably the biggest amendment proposed by the Bill. In order to be categorised as a micro company, an entity must satisfy at least 2 from 3 of the following conditions:
- Turnover must be less than €700,000
- Balance Sheet must be less than €350,000
- There must be less than 10 employees
Having met the criteria, a micro company will be:
- exempt from the requirement to disclose the directors’ remuneration in their financial statements;
- exempt from the requirement to prepare a directors report;
- exempt from some of the disclosures required by sections 305 to 312 of the Act which deal with, for example, the obligation of directors to disclose information in relation to directors benefits such as loans, credit transactions and guarantees; and
- entitled to use the minimal form financial statements contained in the Bill.
The Bill will also increase the thresholds for other company sizes to the following:
Small Sized Company
- Turnover must be less than €12 million (formerly €8.8 million under the 2014 Act)
- Balance Sheet must be less than €6 million (formerly €4.4 million under the 2014 Act)
- There was no change to the maximum number of employees which remains at 50
Medium Sized Company
- Turnover must be less than €20 million (formerly €10 million under the 2014 Act)
- Balance Sheet must be less than €40 million (formerly €20 million under the 2014 Act)
- There was no change to the maximum number of employees which remains at 250
The key question for small companies in particular is whether the increased thresholds will impact their expenditure on accounting services. While every company will still be required to maintain adequate accounting records and to prepare financial statements, it is clear that SME’s will see savings arise in relation to audit, as they will be able to avail of the audit exemption as provided for in Chapter 14 of the 2014 Act. It must be noted however that under this new regime, medium sized companies will no longer be permitted to prepare abridged financial statements.
Given that micro-companies are, in many instances, effectively owner-managed, statutory financial statements are not needed to facilitate communication between shareholders and management in relation to the company’s performance. For some very small companies, the burdens associated with comprehensive financial reporting requirements are disproportionate when compared with other relatively larger SME’s.
The passing of the Bill into law is therefore eagerly awaited and will be particularly welcomed by micro-companies and small and medium sized businesses. The heads of the Bill have been drafted by the Office of the Parliamentary Counsel, however it is unclear when the Bill will be passed into law due to the recent Dáil elections. It will be hoped that the as yet unknown new government will enact the changes without too much delay upon taking over from the caretaker government currently in place.
For further information on this or any other corporate or commercial issues please contact a member of the Corporate and Commercial Department at McDowell Purcell.
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