Companies (Accounting) Bill 2016, as initiated, has been published

Companies (Accounting) Bill 2016

Companies (Accounting) Bill 2016 has been published and includes three types of measures.

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The Companies (Accounting) Bill 2016

Summary

The Bill amends the Companies Act 2014 and includes three types of measures:   

  • Measures to give effect to the June 2013 EU Accounting Directive (2013/34/EU) which include a number of changes to the financial statements filing obligations (and contents and format of filed financial statements) for micro, small and medium sized companies.  
  • The 2013 Directive measures also give effect to the extension in scope of the obligation to file financial statements for designated unlimited liability companies. If the Bill is enacted as initiated, a number of existing groups which have Irish incorporated unlimited companies may have to file financial statements in the Companies Registration Office.   
  • Measures to transpose the EU Directive on reporting payments to governments by companies active in the extractive industries and in the logging of primary forests. 
  • A number of ad hoc measures to amend provisions in the Companies Act 2014 (2014 Act) which are unrelated to the accounting Directives but have arisen in the course of implementing the 2014 Act provisions since they came into effect in June 2015. 

Scope of application to designated unlimited liability companies

Those unlimited companies which will be obliged, from the effective date (not yet known), to file publicly available financial statements is set out at section 76 of the Bill.

The provisions incorporate both the circumstances in which a UK unlimited company is required to file and also incorporate wider principles which were set out in the underlying 2013 Accounting Directive.  This is to require unlimited companies to file financial statements which ultimately, directly or indirectly, have members which are in a form which affords limited liability protection. 

Broadly, as currently drafted, the financial statements filing obligations would appear to apply to an Irish incorporated unlimited company which:

  • Is either a subsidiary of or a parent of a limited company i.e. unlimited companies in a group corporate structure which has a limited liability parent or a limited liability subsidiary;  
  • Is a holding company for various defined financial institutions such as banks and insurance companies or is itself a credit institution or an insurance undertaking;    
  • Whether directly or indirectly, all of the members of the unlimited company are limited liability companies or limited partnerships - so that the ultimate beneficial owners enjoy the protection of limited liability.For these purposes, foreign limited companies or limited partnerships must also be taken into account where they are comparable to Irish companies and partnerships (as appropriate). 

Public Filing of Financial Statements: All Companies

While companies must present full financial statements to their shareholders at the Annual General Meeting, depending on the type and size of a company, it may have the option of filing abridged financial statements when it files its annual return.

In that regard, the Bill proposes a new concept of a micro company and increases the existing thresholds for companies to be regarded as small or medium.

A company must meet two out of the following three criteria to be regarded as micro, small or medium both for the relevant financial year and the immediately preceding financial year (unless the financial year concerned is the company's first financial year).

 

 

Micro Company

(not exceeding)

Small Company

(not exceeding)

Medium Company

(not exceeding)

Turnover €700,000 €12,000,000 €40,000,000
Balance Sheet Total €350,000 €6,000,000 €20,000,000
Average No. Employees 10 50 250
 
  • A company that exceeds the thresholds for a small company will be required to file full financial statements.  The Bill therefore proposes to remove the option for existing medium companies to file abridged financial statements.  This means they will in future have to disclose their turnover and cost of sales figures;
  • The small company thresholds will be the criteria for abridgement of financial statements.  While these have increased under the Bill such that some companies that were previously medium will now qualify as small, some previously qualifying medium companies will no longer be able to abridge their financial statements in any way;
  • A company that has subsidiaries meets the criteria for a small company if the group it heads qualifies as a small group.  Such companies are exempt from the requirement to prepare group financial statements.  However, should they do so, the group financial statements cannot be abridged;
  • The size exemption from consolidation for medium companies will be abolished requiring all but micro and small holding companies to prepare and file consolidated financial statements unless, subject to conditions, the holding company is itself a subsidiary of a company that prepares and files consolidated financial statements;
  • The small company thresholds also apply when deciding whether a company can avail of the audit exemption. However, a company with subsidiaries only qualifies for the audit exemption if the largest group of which it is a member qualifies as a small group. The thresholds must be met when all holding companies and sister companies are included;
  • Micro and small sized companies will be exempt from certain disclosures in their financial statements with more extensive disclosure exemptions for micro companies including an exemption from disclosing details of directors' remuneration;
  • The Bill clarifies that a company may avail of the audit exemption even if it was late in filing its first annual return; and
  • The Bill proposes to require, for the first time, investment companies to file their financial statements in the CRO.

Effective dates

The Bill generally will take effect from a date to be specified in a Ministerial Order (which has not yet been made). The effective date for filing financial statements for designated unlimited companies is not yet known and consequently it is possible that, once enacted, such unlimited companies would be required to file financial statements when filing their next annual return.

The Bill is due to be reviewed by the Oireachtas once the Dáil and Seanad resume sessions in the last week of September. As yet, it is not known when precisely the Bill will be scheduled for debate.

It is possible for companies to apply certain defined measures for earlier financial years (than those set out in the Ministerial Order). These are set out at section 4 of the Bill and, in the main, comprise relieving provisions which could, for example, allow micro and small companies to avail of a number of reduced reporting and simplified financial statements preparation requirements set out in the Bill.

If you would like to learn more about the potential impact of these measures on you and your business, and/or options when it comes to filing financial statements on public record, please feel free to contact me or any member of your KPMG client service team.

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