15 Feb 23
Audit exemptions for Irish companies
As the financial year end of many Irish registered companies mirror the calendar year, a common question our clients ask at this time of year is whether their companies need to be independently audited. The good news is that Irish company law allows many small private companies, or small groups of companies that meet certain criteria as set out below, to avail of exemptions from the requirement to have an audit.
In order for a stand-alone private company to avail of a small company audit exemption, it must qualify as ‘small’ in respect of the financial year in question in accordance with Section 280A of the Companies Act 2014 (the Act) by satisfying at least two of the following three conditions:
The amount of turnover of the company does not exceed €12 million;
The balance sheet total of the company does not exceed €6 million; and/or
The average number of employees during the year in question does not exceed 50.
A company only loses its ‘small’ status under the Act if it does not satisfy the qualifying conditions in respect of two consecutive years.
It should also be noted that qualifying as a small company entitles a company to file abridged annual financial statements with the Companies Registration Office (the CRO) with its annual return. Abridged financial statements need only consist of the company’s balance sheet and certain prescribed notes to the financial statements.
A company that is part of a group of companies can also avail of an audit exemption for small group companies if the group that the company is part of qualifies under Section 359 of the Act as a small group in relation to that financial year. The qualifying conditions for a small group are satisfied when two or more of the following requirements are met:
The aggregate amount of the turnover of the group does not exceed €12 million net;
The aggregate balance sheet total of the group does not exceed €6 million net; and/or
The aggregate average number of employees of the group during the year in question does not exceed 50.
As with the small company exemption, a group only loses its ‘small’ status under the Act if it does not satisfy the qualifying conditions in respect of two consecutive years.
The Act also provides for a dormant company audit exemption for companies that meet the criteria to qualify as dormant in accordance with Section 365 of the Act. The Dormant Company Audit Exemption is not specific to company size. The qualifying criteria are that in respect of the year in question:
The company must have had no “significant accounting transaction”, which is defined as a transaction that is required under the Companies Acts to be entered in the company’s accounting records, subject to some minor exemptions such as the payment of CRO fees; and
The assets and liabilities of the company must only comprise of permitted assets and liabilities, which are defined by the Act as investments in the shares of the company and amounts due to or from other group undertakings. If a company holds a fixed asset (such as property or a bank account), a tax liability or any other non-group liability or contingent asset or liability, it will not meet the requirements to avail of the dormant company audit exemption irrespective of having no transactions.
Companies that cannot avail of an audit exemption
There are no audit exemptions available to the following types of company, irrespective of size:
Public limited companies;
Public unlimited companies;
Public unlimited companies that have no share capital;
Investment companies, as defined in Section 1386 (1) of the Act;
Companies that fall within any of the categories of companies listed in the Fifth Schedule to the Act, which can be broadly summarised as financial services companies, banks and insurance companies; and
“Relevant securitisation” companies, as defined in Section 362(3) of the Act.
Effect of Audit Exemption
It should be noted that even when a company qualifies for an audit exemption, it still must prepare annual statutory accounts in accordance with the company law legislation and the applicable accounting standards. When a company is availing of an audit exemption, a statement must be included at the bottom of the company’s balance sheet confirming that an audit exemption has been availed of and that the qualifying conditions of the audit exemption have been complied with.
Loss of Audit Exemption and Reinstatement
If a small or dormant company fails to file its annual return on time with the CRO (i.e., 56 days or later after the annual return date), it cannot claim any audit exemptions for a period of two years. Likewise, in a group situation, in order to claim the small group exemption, each of the Irish companies in the group must have filed their annual return on time and the annual returns of all of the other Irish members of the group for the preceding year must also have been filed on time. It is therefore vital to ensure that annual return filings are made on time with the CRO in order to maintain audit exempt status for smaller companies and groups.
However, an audit exemption may be reinstated by making an application to the District Court under Section 343 of the Act where the directors of that company have a legitimate reason as to why the annual return was filed late.
It should also be noted that shareholders who hold at least 10% of the voting rights in a company have the right to request that an audit be conducted by serving a notice on a company in writing under Section 334 of the Act. This notice must be served on the company during the financial year immediately preceding the financial year to which the notice relates, or during the financial year to which the notice relates, but not later than one month before the year end. Directors of companies should therefore be cognisant of the views and rights of shareholders when considering the availability of the audit exemption to their company.
If you require further information regarding audit exemption or reinstatement, company law and/or corporate governance, please contact Ronan Donohoe, Head of the Company Secretarial team.