Companies Act 2014 What you need to know NOW Presented By: Maureen Kelly, Technical Services Executive Emer Kelly, Quality Assurance Manager
Agenda Sections applying to financial years commencing on or after 1 June 2015 Companies Act 2014 compliant: Financial Statements for SMEs Audit Report Format Audit Exempt Financial Statements
Companies Act 2014 The Companies Act 2014 was signed into law on 23rd December 2014. It repeals the entire of the Companies Acts 1963 to 2013, with the exception of EU-derived securities law and consolidates them into a single statute. It will be commenced on 1 st June 2015. Until that date the citation remains the Companies Acts 1963 to 2013.
Sections applying to financial years commencing on or after 1 June 2015
For financial years commencing on or after 1 st June 2015 Section 167 requirement for certain large companies or large groups to set up audit committees or explain why not; A large company or group is one which exceeds the following thresholds in both the most recent financial year of the company and the immediately preceding financial year. (i) the balance sheet total exceeds 25,000,000; or if an amount is prescribed under section 945(1)(k), the prescribed amount; and (ii) the amount of turnover exceeds 50,000,000; or if an amount is prescribed under section 945(1)(k), the prescribed amount;
For financial years commencing on or after 1 st June 2015 Section 225 requirement for certain companies to include a directors compliance statement in the directors report; A company if, in respect of the financial year of the company (a) its balance sheet total for the year exceeds 12,500,000; or if an amount is prescribed under section 943(1)(i), the prescribed amount; and (b) the amount of its turnover for the year exceeds 25,000,000 or if an amount is prescribed under section 943(1)(i), the prescribed amount.
For financial years commencing on or after 1 st June 2015 Section 305(1)(b) requirement to include gains on exercise of share options in directors remuneration; Section 306(1) requirement to include amounts paid to connected persons in directors remuneration; Section 326(1)(a) requirement to include the names of all directors in the directors report; and Section 330 requirement to include statement on relevant audit information in the directors report
For financial years commencing on or after 1 st June 2015 Note if the financial year of your entity ends on 31 st May and Section 167 applies to it, you will need to ensure that you put measures in place to set up Audit Committees now and put procedures in place to allow the Directors to sign their compliance statement.
Companies Act 2014 compliant Financial Statements for SMEs
Changes to Phraseology Proper books of account becomes Accounting records. Statement on Dividends should now refer to final and interim dividend. Directors Report in addition to being signed by the directors must also state the names of the persons who signed it on behalf of the board of directors.
Directors Report If the company has yet to decide on whether to convert to a LTD or DAC under the new legislation consider including a statement explaining that from 1 st June, 2015 the company will operate as a DAC without any name change and that they have 18 months to decide on the company format.
Directors Report Business Review Section 327 sets out the disclosure requirements for the Business Review It shall contain (a) a fair review of the business of the company, and (b) a description of the principal risks and uncertainties facing the company. It shall be a balanced and comprehensive analysis of (a) the development and performance of the business of the company during the financial year, and (b) the assets and liabilities and financial position of the company at the end of the financial year, consistent with the size and complexity of the business.
Directors Report Interest in Shares & Debentures Section 329 sets out the disclosure requirements A person who at the end of that year, was a director of the company (a) state whether or not he or she was, at the end of that financial year, interested in shares in, or debentures of, the company or any group undertaking of that company, (b) state, if he or she was so interested at the end of that year, the number and amount of shares in, and debentures of, the company and each other undertaking (specifying it) in which he or she was then interested,
Directors Report Interest in Shares & Debentures Section 329 the disclosure requirements cont: (c) state whether or not he or she was, at the beginning of the financial year (or, if he or she was not then a director, when he or she became a director), interested in shares in, or debentures of, the company or any other group undertaking, and (d) state, if he or she was so interested at either of the immediately preceding dates, the number and amount of shares in, and debentures of, the company and each other undertaking (specifying it) in which he or she was so interested at the beginning of the financial year or, as the case may be, when he or she became a director.
Directors Report Interest in Shares & Debentures Section 329 disclosure requirements cont: (2) The reference in subsection (1) to the time when a person became a director shall, in case of a person who became a director on more than one occasion, be read as a reference to the time when he or she first became a director. (3) The information required by subsection (1) to be given in respect of the directors of the company shall also be given in respect of the person who was the secretary of the company at the end of the financial year concerned. (4) For the purposes of this section, references to interests of a director and secretary in shares or debentures are references to all interests required to be recorded in the register of interests under section 267 and includes interests of shadow directors and de facto directors required to be so registered.
Financial Statements There is no longer a requirement for the Directors to sign off on the Profit & Loss Account Balance Sheet must state the name of the Directors as well as being signed by them. Accounting Policies must now be included in Notes to the Financial Statements. If an item is material it must have an accounting policy. Financial statements may not otherwise comply with the Act if a policy for a material item is omitted.
Financial Statements Approval Directors may only approve financial statements if satisfied that they give a true and fair view and otherwise comply with the Act. Section 289. Failure to comply is a category 2 offence. Auditors must report category 1 and 2 offences to ODCE.
Disclosure of Directors Remuneration Both for the current and the preceding financial year (a) the aggregate amount of emoluments paid to or receivable by directors in respect of qualifying services, (b) the aggregate amount of the gains by the directors on the exercise of share options during the financial year, (c) the aggregate amount of the money or value of other assets, including shares but excluding share options, paid to or receivable by the directors under long term incentive schemes in respect of qualifying services,
Disclosure of Directors Remuneration (d) the aggregate amount of any contributions paid, treated as paid, or payable during the financial year to a retirement benefit scheme in respect of qualifying services of directors, identifying separately the amounts relating to defined contribution schemes and defined benefit schemes and in each case showing the number of directors, if any, to whom retirement benefits are accruing under such schemes in respect of qualifying services, (e) the aggregate amount of any compensation paid or payable to directors in respect of loss of office or other termination payments in the financial year.
Disclosure of Directors Remuneration For persons who are past directors of the company or past directors of its holding undertaking, the notes shall disclose both for the current and the preceding financial year the following amounts (a) the aggregate amount paid or payable for such directors retirement benefits, (b) the aggregate amount of any compensation paid or payable to such directors in respect of loss of office or other termination benefits.
Disclosure of Staff Particulars The disclosure note shall state the aggregate amounts respectively of (a) wages and salaries paid or payable in respect of that year, (b) social insurance costs incurred by the company on their behalf, (c) other retirement benefit costs so incurred, and (d) other compensation costs of those persons (such costs to be specified by type) incurred by the company in the financial year. In relation to the aggregate of all amounts stated there shall be shown the amount capitalised into assets and the amount treated as an expense or loss of the financial year.
Auditors Remuneration Disclosure of remuneration for audit, audit-related and non-audit work is required in the notes for large companies for each of the following categories of work: Audit of company financial statements Other assurance services Tax advisory services Other non audit services
Comparatives In respect of every item shown in the balance sheet, or profit and loss account, or notes, the corresponding amount for the financial year immediately preceding that to which the balance sheet or profit and loss account relates shall also be shown and if that corresponding amount is not comparable with the amount to be shown for the item in question in respect of the financial year to which the balance sheet or profit and loss account relates, the former amount may be adjusted, and particulars of the adjustment and the reasons shall be given in a note to the financial statements.
Creditors Disclose: the terms of payment or repayment and the rate of any interest payable on debts both repayable and not repayable by instalment. the aggregate amount of any debts which are payable or repayable otherwise than by instalments and fall due for payment or repayment after the end of the period of 5 years beginning with the day next following the end of the financial year; and in the case of any debts so included which are payable or repayable by instalments, the amount of any instalments which fall due for payment after the end of that period.
Loans to Directors Section 236 - unless unambiguously evidenced in writing a loan by a company to a Director is due on demand and interest at 5% is due. This amount may be varied by the Minister by Statutory Instrument. Check the documentation on existing loans to consider whether a post balance sheet event disclosure is required.
New Audit Report Wording From 1 st June 2015 all audit reports issued must be issued in accordance with the Companies Act 2014
Changes to the audit report In broad terms the report will retain the requirements of the previous acts However there are changes to the terminology used and the focus of the audit reports
Audit reports Requirements are set out in Part 6 of the Act apply to Private limited companies Designated activity companies Companies limited by guarantee Unlimited companies - ULC, PUC or PULCs
Audit reports S.391 of the Act requires that statutory auditors make a report to members on all statutory financial statements S.336 sets out the form of the report
Key changes The 2014 Act introduces Varied wording for the auditor s overall opinion on a company s statutory financial statements Auditor is no longer required to opine in the same manner on whether the company has complied with requirements in relation to accounting records No opinion is required on the existence of a financial situation necessitating an EGM
Changes in terminology Books of account are now Accounting records Financial statements are now statutory financial statements State of affairs becomes assets, liabilities and financial position
S.336(3) states as follows: The statutory auditors report shall state clearly the statutory auditors opinion as to (a) whether the statutory financial statements give a true and fair view (i) in the case of an entity balance sheet, of the assets, liabilities and financial position of the company as at the end of the financial year, (ii) in the case of an entity profit and loss account, of the profit or loss of the company for the financial year, (iii) in the case of group financial statements, of the assets, liabilities and financial position as at the end of the financial year and of the profit or loss for the financial year of the undertakings included in the consolidation as a whole, so far as concerns the members of the company, (a) whether the statutory financial statements have been properly prepared in accordance with the relevant financial reporting framework and, in particular, with the requirements of this Act (and, where applicable, Article 4 of the IAS Regulation).
Review of sample Audit Report Sample available at www.cpaireland.ie
Reporting on Abridged financial statements S.350 outlines the qualification of a company as small or medium Largely unchanged with the exception that the Act increases the thresholds at which companies are deemed to be medium sized and become eligible to file abridged financial statements
Increase in threshold for medium sized companies Two out of three of the following conditions Turnover < 20m (currently 15.24m) Balance sheet total < 10m (currently 7.62m) Average no. of employees <250 no change here Point to note is change in calculation of average employee numbers previously calculated as a weekly average now a monthly average
Reporting on Abridged financial statements Formerly two reports were required under S.18(3) and S.18(4) of the Cos. (A) Act 1986 Now just ONE special report is required to accompany the abridged financial statements annexed to the annual return (S.356 Cos Act 2014) Signing requirements brought in line with the signing of the statutory audit report individuals name, for and on behalf of Failure to comply - category 2 offence
Audit Exemption Audit Exemption what are the key changes?
Audit Exemption and the Companies Act 2014 A small company can avail of the audit exemption, small defined in S.350 Must fulfil 2 or more of the following criteria for current and previous year (previously for purposes of audit exemption had to meet 3 out of 3) Turnover of the company does not exceed 8.8m Balance sheet does not exceed 4.4m Average number of employees does not exceed 50
Group audit exemption A small group can avail of the audit exemption if the group taken as a whole (worldwide) meets 2 or more of the following (in current and previous year) Turnover of the group does not exceed 8.8m Balance sheet total of group does not exceed 4.4m Average number of employees of the group does not exceed 50 All Irish companies in the group must have filed their annual return on time (for current year and preceding year)
Audit Exemption Not available for A small company/group on which a notice under S.334 of the Cos Act 2014 has been served Rights of members to require audit despite audit exemption otherwise being available (10% of members) Audit exemption not available unless annual return filed in time (S.363 and S.364). An application for a time extension can be made by a company to the District Court.
Special Audit Exemption for Dormant Companies S.365.for a financial year if the directors of the company are satisfied that the company will satisfy the condition specified in subsection 2 (and that decision is recorded by the directors in the minutes of the meeting concerned) cannot be retrospective
What does dormant mean? Has no significant accounting transaction, and Its assets and liabilities comprise only permitted assets and liabilities
Company limited by guarantee Audit exemption extends to companies limited by guarantee Any one member may serve a notice in writing on the company stating that that member does not wish the audit exemption to be available to the company in a financial year specified in the notice (S.1218)
Audit exemption Considerations CLGs can now avail of the audit exemption if a registered charity then the requirements of the Charities Regulator will apply Consider carefully the rights of the shareholders (10% of shareholders or one member of a CLG) to require an audit Rights of shareholders, are they sufficiently safeguarded by S.23 MUDS Act (OMCs), S.212 Companies Act 2014? - For consideration by company directors. Dormant company cannot retrospectively avail of the audit exemption
Revision of Defective financial statements S.366 Voluntary revision of defective statutory statements provisions allowing voluntary revision of financial statements or directors reports if they are determined, subsequent to their approval and issue, not to comply with the Act s requirements. By supplementary note In all other cases revised financial statements shall be prepared
On the way. CCAB-I guidance being issued Statutory audit reports Other reports by auditors Reporting to ODCE And many more CPA Engagement letters audit and non audit available on CPA website
Updated for Companies Act 2014.. CPA Audit Programmes CPA Audit Exempt Programmes All in the process of being updated for Companies Act 2014 and will be available for purchase on the CPA website shortly
Certificate in the Companies Act 2014 CPA Ireland s Certificate in the Companies Act 2014 is designed to update accountants fully on the new changes in the Act while also covering the main aspects of Company Law accountants deal with on a daily basis. Practical examples of how the Act will be administered and how best to guide employers and clients through the impacts of this new Act. The Certificate will be delivered in a modular fashion through a combination of seminars and webinars.
Companies Act 2014 Certificate A comprehensive course in new Company law for Accountants Focusing not just on the new areas created by this Act but also covering the aspects of company law that accountants deal with regularly in their daily work. Delivered in modular fashion in a combination of seminar and webinar format Using practical examples of how the new Act will be administered and how to guide employers or clients through the impacts of this new Act
Companies Act 2014 Certificate
Module 1 and 2
Module 3 and 4
Module 5 and 6
Where to next? The CPA Technical team will be posting updates on matters as they arise/develop here - CPA Companies Act 2014 Resource www.cpaireland.ie
Keeping up to date And we will be busy updating members over the coming weeks through the following channels so please keep an eye out for.. Accountancy Plus June is the next edition insolvency implications of the Companies Act 2014 E-bulletin end of month round up for all members Friday, 29 th May Practice Plus bulletin mid month for members in practice 16 th June
Thank You! Any Questions? Maureen Kelly CPA Technical Services Executive mkelly@cpaireland.ie Emer Kelly Quality Assurance Manager ekelly@cpaireland.ie