The aim of the new Companies Act 2014 is to simplify and streamline company law in Ireland and will enter into force on 1 June 2015. The new Act seeks to place small private limited companies, which account for approximately 85% of all companies registered in Ireland, at the heart of the legislation, making it easier for them to do business.
Among the many and wide-ranging changes this new Act will give rise to are in relation to the rules surrounding audit exemptions. The purpose of the audit exemption is to reduce any disproportionate and undue administrative burden on those companies that meet the relevant criteria.
Company Types Entitled To An Audit Exemption
Under sections 360 and 365 of the Companies Act 2014, the following company types qualify for an audit exemption and are not under the obligation to engage a statutory auditor and have their financial statements audited every financial year:
- Small company or a group of small companies that, together, fall below the threshold for a small company. To qualify as a small company, as defined in section 350, at least two of the following three requirements must be met:
- Turnover not greater than €8.8m;
- A balance sheet not exceeding €4.4m;
- Average employee numbers of no more than 50.
- Dormant companies: Under section 365 of the new Act, dormant companies that are part of a group can avail of the audit exemption. Such companies must meet two requirements in order to be considered dormant:
- They must have no significant accounting transactions, with “significant” meaning accounting transactions that must be entered in the company’s accounting records under Sections 282 and 283 of the Act and;
- They may only have “permitted assets and liabilities”, which means investments in shares of, and amounts due to or from, other group entities.
This definition of a dormant company will also apply to those dormant companies that are part of a group that exceeds the audit exemption threshold value.
- Companies Limited by Guarantee will now also be eligible for an audit exemption.
It should be noted that companies must file their Annual Returns on time as failure to do so could result in losing their audit exemption.
As is the case at present, public limited companies, public unlimited companies and companies with securities listed on a regulated market in an EEA state will not be entitled to an audit exemption under any circumstances.
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Filing Abridged Accounts
Under the new Act both small and medium-sized companies will be able to file abridged accounts in certain circumstances. In order to meet the new definition of medium-sized, a company must meet two of the following three criteria:
- 1. Turnover not greater than €20m;
- 2. A balance sheet not exceeding €10m;
- 3. Average employee numbers of no more than 250.
Preparing For The New Obligations
The new Companies Act 2014 will usher in sweeping changes when it is commenced on 1st June 2015 and will affect all existing companies in Ireland. There is a statutory eighteen-month transition period but it is crucial that companies are aware of their new obligations under the Act and prepare accordingly.