INCREASE IN SMALL COMPANY AND AUDIT EXEMPTION THRESHOLDS

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1 INCREASE IN SMALL COMPANY AND AUDIT EXEMPTION THRESHOLDS September 2012 Consultative Committee of Accountancy Bodies in Ireland 1

2 Disclaimer This document is for information purposes only and does not give, or purport to give, professional advice. It should, accordingly, not be relied upon as such. No party should act or refrain from acting on the basis of any material contained in this document without seeking appropriate professional advice. While every care has been taken by Consultative Committee of Accountancy Bodies in Ireland in the preparation of this document, we do not guarantee the accuracy or veracity of any information or opinion, or the appropriateness, suitability or applicability of any practice or procedure contained therein. To the fullest extent permitted by applicable law, Consultative Committee of Accountancy Bodies in Ireland shall not therefore be liable for any damage or loss, including but not limited to, indirect or consequential loss or damage, loss of data, income, profit or opportunity and claims of third parties, whether arising from the negligence, or otherwise of Consultative Committee of Accountancy Bodies in Ireland, its employees, servants or agents, or of the authors who contributed to the text. Similarly, to the fullest extent permitted by applicable law, Consultative Committee of Accountancy Bodies in Ireland shall not be liable for damage or loss occasioned by actions, or failure to act, by any third party, in reliance upon the terms of this document, which result in losses incurred either by Consultative Committee of Accountancy Bodies in Ireland members, those for whom they act as agents, those who rely upon them for advice, or any third party. Consultative Committee of Accountancy Bodies in Ireland shall not be liable for damage or loss occasioned as a result of any inaccurate, mistaken or negligent misstatement contained in this document. All rights reserved. No part of this publication will be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the copyright holder. Any issues arising out of the above will be governed by and construed in accordance with the laws of the Republic of Ireland and the courts of the Republic of Ireland shall have exclusive jurisdiction to deal with all such issues Consultative Committee of Accountancy Bodies in Ireland 2

3 INFORMATION SHEET 03/2012 Increase in Small Company and Audit Exemption Thresholds Background The Minister for Jobs, Enterprise and Innovation signed the following Statutory Instruments into law during August: Statutory Instrument No. 304 of European Union (Accounts) Regulations 2012 (increasing the small company thresholds); and Statutory Instrument No. 308 of Companies (Amendment) (No. 2) Act 1999 (Section 32) Order 2012 (increasing the audit exemption thresholds). The following information has been prepared with the intention of assisting members in assessing the impact of the Statutory Instruments. This document is issued for information purposes only and does not give, or purport to give, professional advice. It should, accordingly, not be relied upon as such. Members and/or their clients may wish to obtain legal advice on the implications of the revisions to the thresholds pertaining to their specific circumstances. Small Company thresholds S.I. No 304 of 2012, which was signed on 3 rd August 2012, raised the small company thresholds per Section 8(2) of the Companies (Amendment) Act 1986 ( 1986 Act ), as follows: balance sheet total from 1,904,607 to 4,400,000; amount of turnover from 3,809,214 to 8,800,000. The third condition in Section 8(2), that the average number of employees of a company does not exceed 50, is unchanged. S.I. No 304 of 2012 does not contain a provision establishing a commencement date and is, therefore, effective as and from the date of signing of the Regulations, namely 3 rd August The increased small company thresholds apply to statutory accounts which have not been finalised / approved for issue before that date and to abridged accounts yet to be filed by small companies in respect of the relevant financial years, irrespective of when the statutory accounts have been finalised, approved or issued. 3

4 Financial reporting issues impacted by the increase in the small company thresholds include: The FRS 1 exemption for small companies from the requirement to prepare a cash flow statement; The ability of a small company to adopt the Financial Reporting Standard for Smaller Entities ( FRSSE ); The filing of small company abridged accounts prepared in accordance with Sections 10 and 12 of the 1986 Act. As and from 3 rd August 2012, in assessing whether a company qualifies as small in respect of a financial year, in accordance with Section 8 of the 1986 Act, directors compare the relevant turnover and balance sheet amounts in the financial year in question and the immediately preceding financial year with the revised threshold amounts set out above. The requirement to meet two of the three conditions set out in Section 8(2) of the 1986 Act is unchanged. Thus, if the company does not exceed two of the three (revised) conditions in the financial year in question and the immediately preceding financial year, then it qualifies to be treated as small under company legislation. CCAB-I has received legal advice to the effect that any company that satisfies two of the conditions set out in Section 8(2) of the 1986 Act on the basis of the new thresholds in respect of a financial year and the immediately preceding financial year, but did not satisfy two of the three conditions set out in Section 8(2) of the 1986 Act on the basis of the old thresholds for those financial years, becomes a small company in respect of the latter of those two financial years on 3 rd August Thus, as and from 3 rd August 2012, the old thresholds are irrelevant in determining size and, accordingly, the new thresholds are applied to both the current and preceding financial year in determining whether a company is small in respect of the current financial year. Small Company Abridged Accounts The abovementioned legal advice also indicates that: The exemptions available to small companies under Sections 10 and 12 of the 1986 Act are available in respect of accounts yet to be filed by small companies in respect of the relevant financial years, irrespective of when the statutory accounts have been finalised, approved or issued. In the event that a company became a small company on 3 rd August 2012 on foot of S.I. No 304 of 2012 but has already filed accounts in respect of the relevant financial year that do not avail of the exemptions afforded by Sections 10 and 12 of the 1986 Act, the directors would in 4

5 effect be deemed to have decided not to avail of the exemptions available to the company for that financial year. The remaining provisions of Section 8 of the 1986 Act are unchanged. Audit exemption thresholds S.I. No 308 of 2012, which was signed on 7 th August 2012, raised the audit exemption thresholds per Section 32 of the Companies (Amendment) (No 2) Act 1999 ( 1999 Act ) as follows: balance sheet total from 3,650,000 to 4,400,000; amount of turnover from 7,300,000 to 8,800,000. S.I. No 308 of 2012 also does not contain a provision establishing a commencement date and is, therefore, also effective as and from the date of signing of the Order, namely 7 th August The remaining requirements for availing of audit exemption, contained in Sections 32, 32A and 33 of the 1999 Act, are unchanged. Thus, for example, companies must still: Meet all of the conditions, in the financial year in question and the preceding financial year, set out in section 32(3) of the 1999 Act e.g. balance sheet total, turnover amount, average number of employees, company within the scope of the 1986 Act, not a parent or subsidiary company etc; Have filed annual returns in respect of the financial year and the immediately preceding financial year in a timely manner (Section 32A of the 1999 Act); Make the required statement on the balance sheet with regard to the company availing of the audit exemption (Section 33(4) of the 1999 Act); Include in the minutes of the board meeting the decision to avail of the audit exemption on the basis of the directors opinion that the company will satisfy the conditions (Section 32(1)(a) of the 1999 Act). In terms of assessing whether or not a company is entitled to avail of the audit exemption for a particular financial year, the legal advice indicates that the new thresholds apply to the conditions contained in Section 32 of the 1999 Act as and from 7 th August However Section 32(1)(a) of the 1999 Act requires that a company avail of the audit exemption for a particular financial year during the financial year in question, so it is not possible to avail of the exemption retrospectively in respect of a financial year that has already ended. This means that, in effect, the new thresholds can only apply to financial years ending on or after 7 th August

6 As noted above, one of the other requirements to avail of the exemption under the 1999 Act is that the company has also met all the conditions in the preceding financial year. The new thresholds will apply in making this assessment for financial years ending on or after 7 th August In this regard see the What s New 2012 section of the CRO website ( and paragraph 2.8 of the CRO Information Leaflet No. 10, which is also available on the CRO website ( The legal advice agrees with the CRO s position that a company is precluded from availing of the exemption retrospectively in respect of a financial year that has already ended. It remains the case that if any member or members of a company holding not less than one tenth of the voting rights serve notice in writing on the company (during the financial year immediately preceding the financial year concerned, or during the financial year concerned but not later than one month before the end of that year), to the effect that they object to the company availing of the audit exemption, the company must continue to appoint an auditor. Further information on the audit exemption is also available on the CRO website at: 6

INFORMATION SHEET European Communities (Statutory Audits) (Directive EC) Regulations 2010

INFORMATION SHEET European Communities (Statutory Audits) (Directive 2006 43 EC) Regulations 2010 The Institute of Certified Public Accountants in Ireland Disclaimer This document is for information purposes