Current provisions to avail of an audit exemption

Existing company law provides that a company may avail of an audit exemption provided it meets all of the following conditions:

  • it is a private company limited by shares;
  • it is not a parent or subsidiary of another body corporate;
  • has filed its annual return and financial statements in the previous year within the prescribed time limit;
  • has a turnover of less than €8.8m for the year;
  • has a balance sheet total of less than €4.4m for the year;
  • has less than 50 employees during the year;
  • is not a licenced bank, an insurance company or a financial services company.

Having satisfied the foregoing criteria, in order to avail of an audit exemption, the directors of a company, must:

  1. be of the opinion that the company will satisfy the statutory conditions in respect of the current year or a future year;
  2. decide that the company will avail of the exemption in respect to the financial year concerned; and
  3. record that decision in the minutes of a board meeting.

Any shareholder or shareholders who hold shares representing 10% or more (in aggregate) of the total voting rights of the company can still ensure that the company produces audited financial statements by serving a notice on the company requesting that it not avail of an audit exemption. Such a notice may be in respect of the current year or any future year and it must be filed no later than one month before the end of the year concerned.

Before making a decision to claim an audit exemption the directors of a company should ensure that there are no other reasons which require them to produce audited financial statements, for example, a bank from which the company has borrowed money may still require the company to produce audited financial statements.

Note: Companies that meet the audit exemption conditions set out above and which are within the definition of small or medium companies as set out on the Companies (Amendment) Act 1986 may also file abridged unaudited financial statements.

Proposed change

The Department of Jobs, Enterprise and Innovation ("DJEI") is carrying out a consultation process seeking submissions on whether or not to alter the criteria which allow companies to avail of an exemption from the current obligation to prepare audited financial statements.

The DJEI is suggesting that the criteria for audit exemption be amended to provide that companies which meet two of the following three thresholds, and all of the remaining criteria stated above, may avail of an audit exemption:

  1. turnover of less than €8.8m for the year;
  2. balance sheet total of less than €4.4m for the year;
  3. less than 50 employees during the year.

Such a change to the rules would align Ireland with the majority of EU member states.

The deadline for receipt of submissions to the DJEI was 31 May 2013. We will keep you updated on the outcome of the Consultation process.

The Companies Bill 2012

The Companies Bill, which is currently making its way through the Houses of the Oireachtas, proposes to extend the scope of companies which can avail of an audit exemption to include:

  • a holding company and each of its subsidiaries;
  • companies limited by guarantee; and
  • dormant companies which meet the other criteria outlined above.

The Companies Bill is not expected to be enacted until 2014. We will continue to provide information regarding the provisions of the Companies Bill and its enactment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.