The Department of Jobs, Enterprise and Innovation (DJEI) has announced a consultation on the issue of whether to allow companies in Ireland to avail of an audit exemption when they meet two of the three relevant criteria in the legislation. The current requirement is that companies meet all three criteria. According to the DJEI, a change in this area would bring Ireland in line with the requirements of a majority of European Member States.
Eligibility for audit exemption is based on the criteria for what is considered a "small company". The audit exemption thresholds and the thresholds for certain accounting exemptions for small companies were increased most recently in 2012.
As a result, private companies limited by shares are required to meet all three of the following criteria:
- balance sheet total of €4.4m;
- net turnover of €8.8m, and
- an average number of employees during the financial year of 50.
There are other detailed conditions that a company must meet to avail of the exemption such as having up-to-date annual return filings at the CRO. Members continue to have a right to require an audit to be carried out despite the company qualifying for an audit exemption. Certain companies are prohibited from availing of an audit exemption.
Companies Bill 2012 provisions
The Companies Bill 2012 carries forward the existing provisions in relation to audit exemption. However, the Bill proposes to extend the audit exemption rules, provided certain conditions are complied with, to (a) a holding company and each of its subsidiaries; (b) companies limited by guarantee (with certain exceptions); and (c) dormant companies.
Proposed Accounting Directive
A proposed Accounting Directive on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, is currently undergoing the legislative process in the European Council and Parliament. This Directive proposes to harmonise thresholds across the EU to ensure that the administrative burden reduction, which it is hoped will be achieved under the Directive, actually reaches all small companies in the EU. The proposed Directive states that currently many companies that are "small" under EU definitions enter the medium-sized or large company category because the definitions foreseen in the Directives are lower when implemented at Member State level. Under the proposed Directive, small undertakings will be required to meet two of the three following criteria: (a) a balance sheet total of €4m; (b) a net turnover of €8m; and (c) an average number of employees during the financial year of 50*.
Against this background, the DJEI are seeking comments on the specific suggestion that companies in Ireland be allowed to avail of audit exemption when two of the three criteria are met.
In addition to general comments on whether or not the status quo should be retained, the consultation asks for views on which of the current three criteria should apply or whether one or two of the criteria should be mandatory. Views are also sought on any new safeguards which might be necessary should the current requirements be changed.
The consultation runs until 31 May 2013.
*Council of the EU: revised Presidency compromise text, March 2013. Note: the original text of the proposed Directive proposed a balance sheet total of €5m and a net turnover of €10m.