Companies Accounting Act 2017 | KPMG | IE

Companies (Accounting) Act 2017

Companies (Accounting) Act 2017

The Companies (Accounting) Act 2017 (the "CAA") came into force on 9 June 2017.

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Introduction

The Companies (Accounting) Act 2017 (the "CAA") came into force on 9 June 2017. The CAA introduces the most significant changes to the Companies Act 2014 (the "2014 Act") to date. The main purpose of the CAA is to transpose into Irish law the EU Directive 2013/34/EU on annual financial statements, consolidated financial statements and related reports of certain undertakings, while also seeking to address certain issues and anomalies identified in the 2014 Act. 

We summarise some of the main provisions of the CAA below: 

New thresholds, filing obligations and introduction of 'Micro' Companies

The CAA introduces the concept of 'micro' company as well as changing the thresholds for companies qualifying as 'small' or 'medium'.

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

  Micro Small Medium
Net Turnover ≤ €700,000 ≤ €12m (prev €8.8m) ≤ €40m (prev €20m)
Balance Sheet Total ≤ €350,000 ≤ €6m (prev €4.4m) ≤ €20m (prev €10m)
Average Employees ≤ 10 ≤ 50 ≤ 250

In addition to the change in relevant thresholds, the CAA also provides:

  • Companies exceeding the thresholds for a small company are required to file full financial statements, thereby removing the option for medium companies to file abridged financial statements.
  • Small company thresholds must be met to qualify for abridged financial statements. Due to the change in thresholds, some previously qualifying medium companies will no longer be able to abridge their financial statements.
  • Certain medium companies (i.e. their balance sheet exceeds €12.5m and turnover exceeds €25m) are now required to complete a Directors’ Compliance Statement. 
  • A company with 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.
  • All holding companies (except micro and small companies) must 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. 
  • Small company thresholds apply when deciding whether a company can avail of the audit exemption. 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 companies are exempt from certain disclosures in their financial statements. More extensive disclosure exemptions are available for micro companies including an exemption from disclosing details of directors' remuneration. 
  • The CAA will require, for the first time, investment companies to file their financial statements in the CRO.

Parent Company Guarantee

A subsidiary wishing to file the financial statements of its EU parent with its annual return (in lieu of its own financial statements) must provide an irrevocable guarantee from the EU parent of the liabilities of the subsidiary for the financial year in question.

The CAA extends the reach of the parent guarantee from all ‘liabilities’ of its subsidiary to all ‘commitments’ of its subsidiary, including liabilities.

Disclosure of Payments to Third Parties

The CAA introduces an obligation on companies (with the exception of micro companies) to disclose any consideration paid to third parties for the services of any person as a director or otherwise, in connection with the management of the company's affairs or that of any of its subsidiaries. 

Change in Financial Reporting Framework

A company is now permitted to change its financial reporting framework once every five years without the old requirement of there being a ‘relevant change in circumstances’. However, under the CAA the company must now explain in its financial statements the reason for, and any impact of, a change in accounting policy.

Merger Relief

Under Section 72 of the 2014 Act any premium on shares issued as consideration for a 90% or greater interest in another company would not be subject to the general rule requiring that premium be transferred to a share premium account (generally known as ‘merger relief’). 

The CAA introduces a new definition of 'company' for the purposes of merger relief under Section 72 which extends the relief to any corporate body acquired in a merger, including a foreign company.

Financial Statement Filing Obligations of Unlimited Companies

A significant change introduced by the CAA relates to the financial statement filing obligations of unlimited companies (ULCs), the ultimate beneficial owners of which enjoy limited liability protection. The CAA amends Section 1274 of the 2014 Act to broaden the definition of 'designated ULCs" which will be obliged to file financial statements going forward.

The new filing obligations will apply to an Irish ULC which:

  • is a subsidiary or a holding company of a limited undertaking;
  • is a holding company for certain financial institutions such as banks and insurance companies or is itself a credit institution or an insurance undertaking; or
  • whether directly or indirectly, the ultimate beneficial owners of the ULC enjoy the protection of limited liability. 

The new filing rules for ULCs will first apply to financial periods starting on or after 1 January 2017, with the exception of unlimited holding companies with limited liability subsidiaries that are not otherwise required to file, who will only be obliged to file for financial years commencing on or after 1 January 2022.

External Companies

Under the 2014 Act, a foreign incorporated limited liability company, with a branch established in Ireland, must register certain details with the CRO and file financial statements on an annual basis.

When commenced, Section 80 of the CAA will extend this registration and filing obligation to unlimited foreign companies that are subsidiaries of foreign limited liability companies.

Unlimited Company Names

The CAA removes the possibility for ULCs to apply for an exemption to exclude the words 'unlimited company' after their name. This will not affect the validity of an exemption already granted.

Definition of Credit Institution

CAA amends the definition of 'credit institution' as set out in the 2014 Act and clarifies that only companies lending to the public will need to be a DAC. It is expected that as a result of this change, some companies which registered as DACs when the 2014 Act came into force will now re-register as a LTD.

Further Information

All companies, and in particular ULCs, should be aware of the changes introduced by the CAA and the potential impact they may have on their business. The changes summarised above are what we at KPMG Legal Services consider are the most significant, but there are many more. 

Contact us to find out more about how these changes may impact your business and any actions your officers and auditors are now required to take.

For more in depth information please contact Aoife Kernan, Associate Director, Legal Services.

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