This is the first part of a two-part summary of the key changes to current rules on financial reporting and financial disclosures which are proposed by the Companies (Accounting) Bill 2016. Part 1 focuses on changes to financial disclosure requirements for Irish unlimited companies.
The Companies (Accounting) Bill 2016 (the Bill) was published on 3 August 2016 and, once enacted, will make a large number of changes to the Companies Act 2014 (the 2014 Act) to give effect to the latest EU Accounting Directive (Directive 2013/34/EU) (the Directive) in Irish law.
How does the Bill impact on Financial Disclosures by Unlimited Companies?
A key change which will be introduced by the Bill, once enacted, will be that many Irish unlimited companies will be required to publicly file their financial statements in the Companies Registration Office (CRO), in most cases, for the first time.
The reason for this is that the Bill reflects the "principles based" requirement of the Directive to ensure that it is not possible for an undertaking (including an Irish unlimited company) to exclude itself from the requirement to publicly disclose its financial statements by creating a group structure containing multiple layers of undertakings inside or outside the EU. It does this by significantly expanding the categories of “Designated ULCs” which are required to publicly disclose their financial statements in CRO.
How does the Bill change the current position for unlimited companies?
Under current Irish company law, Irish unlimited companies are exempted from the requirement to publicly disclose their financial statements (and can also effectively benefit from limited liability status) if their ownership structure involves the Irish unlimited company having at least one member which is also an unlimited company incorporated outside the EU and which is in turn wholly owned by a limited company incorporated outside the EU. Following enactment, such structures will no longer be eligible for such an exemption and, instead, such unlimited companies will fall within the scope of Designated ULCs which must publicly file their financial statements as will unlimited companies which are holding companies of undertakings with limited liability.
What actions should Directors of Irish Unlimited Companies take?
- Consider the potential impact to the business of the requirement to publicly disclose company’s future financial statements, particularly as regards sensitive financial information.
- Be aware that its not yet clear when the new rules will first apply but, assuming no significant further delays, it may be the case that they will apply to financial periods commencing on or after 1 January 2017 in which case, FY17 financial statements filed in CRO would presumably be required to contain comparative financial information for the previous financial year in the usual manner.
- Review corporate structures with a view to assessing the impact of the new rules and consult with the company’s accountants/auditors and solicitors with a view to determining next steps.
Timing of Enactment of Bill?
As the Oireachtas is currently in recess and will not sit again until 27 September 2016, the timeframe for debate of the Bill and ultimate enactment is still unclear. However, as Ireland is already late in complying with its obligation to transpose the Directive into Irish law, it is possible that the Bill will be enacted without significant further delay.