Last night, the Companies (Statutory Audits) Bill 2017 commenced the Second Stage of the legislative process when it was introduced in Dáil Eireann by Minister for Business, Enterprise and Innovation, Heather Humphreys. The Audits Bill will further transpose the current EU statutory audit package, consisting of an Audit Directive and an Audit Regulation (both of which were adopted in 2014), into Irish law, and will also consolidate into the Companies 2014 existing legislation (principally the existing 2016 Audit Regulations) to provide a coherent legal framework for statutory auditors and audited entities on the requirements for a statutory audit.
Key Audit Reforms
The Audits Bill seeks to revise the statutory audits regime in Ireland. Included in the package of reforms are proposals:
- to enhance the supervisory powers of the Irish Auditing and Accounting Supervisory Authority (IAASA) to ensure effective monitoring and enforcement of statutory audit provisions, by introducing new sanctions which may be imposed by the IAASA on statutory auditors for breach of certain statutory audit provisions. These new sanctions include the power to give a direction to remedy conduct that gave rise to the breach; the power to give a reprimand or "severe" reprimand to a specified person in relation to that conduct; the power to give a direction to pay to IAASA an amount calculated, in the case of a statutory audit firm, by reference to the number of statutory auditors in the firm; and the power to enable IAASA to indefinitely prohibit a statutory auditor or key audit partner from carrying out statutory audits or signing the audit report;
- to permit the IAASA to prescribe additional requirements to be included in the statutory auditor's report if necessary to give effect to legal requirements relating to the scope of statutory audits, or to add to the credibility and quality of the audit report;
- to exempt public interest entities (PIEs) (entities including banks, insurers and companies listed on an EU regulated market, which have significant public interest due to their size, the number of employees and their corporate status) that are small or medium enterprises, and companies listed on an EU regulated market that have an average market capitalisation of less than EUR 100 million for the previous three years from the requirement to have an audit committee, provided that the functions assigned to an audit committee are performed by the board of directors; and
- to exempt PIEs that are captive insurers or reinsurers from the requirement to have an audit committee, where it has a body or bodies which perform equivalent functions to an audit committee in accordance with the provisions in place in the State in which the PIE to be audited is registered. In order to qualify for this exemption, a captive insurance undertaking or captive re-insurance undertaking must not be owned by a credit institution or have securities admitted to trading on a regulated market.
Late Filing of Annual Returns
The Audits Bill also seeks to amend the rules on the late filing of annual returns by providing for a new procedure, whereby a company can apply to the District Court for an order waiving the fee required for late delivery of an annual return. As the grant of an order will waive the fee rather than extend the time to file, an audit exemption that would otherwise apply will be lost.
Further, following the Audits Bill's enactment, an application to extend the time to file an annual return may only be filed with the High Court and not the District Court as is currently the case. These amendments will affect all entities which are obliged to file annual returns with the CRO.
Further reform of the Companies Act 2014
As it stands, the Audits Bill will, when enacted, add over 120 new sections and 2 new schedules to the Companies Act 2014, which was most recently amended by the Companies (Accounting) Act 2017. However, it has also been suggested that the 2014 act will be further amended, in order to remedy a number of technical anomalies that have come to light since it entered into force in June 2015. It remains to be seen if the Government will take the opportunity presented by the Audits Bill, in order to correct these anomalies.
The Audits Bill is considered by the Government to be an essential measure to combat white collar crime and strengthen corporate governance in Ireland. It is currently expected to be enacted sometime in Q2 of 2018. We will monitor the Bill as it progresses through the Houses of the Oireachtas, and keep you informed of any developments.