The Institute of Certified Public Accountants in Ireland Companies Act 2014 What you need to know NOW Presented By: Maureen Kelly Technical Services Executive, CPA

The Institute of Certified Public Accountants in Ireland Companies Act 2014 The Companies Act 2014 was signed into law on 23rd December It was commenced on 1 st June It repeals the entire of the Companies Acts 1963 to 2013 and consolidates them into a single statute. EU-derived securities law and EU (IFRS) Regulations 2012 have not been repealed.

The Institute of Certified Public Accountants in Ireland Sections applying to financial years commencing on or after 1 June 2015

The Institute of Certified Public Accountants in Ireland For financial years commencing on or after 1 st June 2015 Section 167 – requirement for certain large companies or large groups to set up audit committees or explain why not; A large company or group is one which exceeds the following thresholds in both the most recent financial year of the company and the immediately preceding financial year. (i) the balance sheet total exceeds €25,000,000; or if an amount is prescribed under section 943(1)(i), the prescribed amount; and (ii) the amount of turnover exceeds €50,000,000; or if an amount is prescribed under section 943(1)(i), the prescribed amount;

The Institute of Certified Public Accountants in Ireland For financial years commencing on or after 1 st June 2015 Section 225 – requirement for certain companies to include a directors’ compliance statement in the directors’ report; A company if, in respect of the financial year of the company (a)its balance sheet total for the year exceeds €12,500,000; or if an amount is prescribed under section 943(1)(i), the prescribed amount; and (b) the amount of its turnover for the year exceeds €25,000,000 or if an amount is prescribed under section 943(1)(i), the prescribed amount.

The Institute of Certified Public Accountants in Ireland For financial years commencing on or after 1 st June 2015 Section 305(1)(b) – requirement to include gains on exercise of share options in directors’ remuneration; Section 306(1) – requirement to include amounts paid to connected persons in directors’ remuneration; Section 326(1)(a) – requirement to include the names of all directors’ in the directors’ report; and Section 330 – requirement to include statement on relevant audit information in the directors’ report

The Institute of Certified Public Accountants in Ireland For financial years commencing on or after 1 st June 2015 Note if the financial year of your entity ends on 31 st May and Section 167 applies to it, you will need to ensure that you put measures in place to set up Audit Committees now and put procedures in place to allow the Directors to sign their compliance statement.

The Institute of Certified Public Accountants in Ireland Companies Act 2014 compliant Financial Statements

The Institute of Certified Public Accountants in Ireland Changes to Phraseology Proper books of account becomes Accounting records. Statement on Dividends should now refer to final and interim dividend. Pensions are now Retirement Benefits Accruals and Deferred Income to be presented separately

The Institute of Certified Public Accountants in Ireland Directors Report Directors Report in addition to being signed by the directors must also state the names of the persons who signed it on behalf of the board of directors. If the company has yet to decide on whether to convert to a LTD or DAC under the new legislation consider including a statement explaining that from 1 st June, 2015 the company will operate as a DAC without any name change and that they have 18 months to decide on the company format.

The Institute of Certified Public Accountants in Ireland Directors Report Business Review Section 327 sets out the disclosure requirements for the Business Review It shall contain— (a) a fair review of the business of the company, and (b) a description of the principal risks and uncertainties facing the company. It shall be a balanced and comprehensive analysis of (a) the development and performance of the business of the company during the financial year, and (b) the assets and liabilities and financial position of the company at the end of the financial year, consistent with the size and complexity of the business.

The Institute of Certified Public Accountants in Ireland Directors Report Interest in Shares & Debentures Section 329 sets out the disclosure requirements A person who at the end of that year, was a director of the company— (a) state whether or not he or she was, at the end of that financial year, interested in shares in, or debentures of, the company or any group undertaking of that company, (b) state, if he or she was so interested at the end of that year, the number and amount of shares in, and debentures of, the company and each other undertaking (specifying it) in which he or she was then interested,

The Institute of Certified Public Accountants in Ireland Directors Report Interest in Shares & Debentures Section 329 the disclosure requirements cont: (c) state whether or not he or she was, at the beginning of the financial year (or, if he or she was not then a director, when he or she became a director), interested in shares in, or debentures of, the company or any other group undertaking, and (d) state, if he or she was so interested at either of the immediately preceding dates, the number and amount of shares in, and debentures of, the company and each other undertaking (specifying it) in which he or she was so interested at the beginning of the financial year or, as the case may be, when he or she became a director.

The Institute of Certified Public Accountants in Ireland Directors Report Interest in Shares & Debentures Section 329 disclosure requirements cont: (2) The reference in subsection (1) to the time when a person became a director shall, in case of a person who became a director on more than one occasion, be read as a reference to the time when he or she first became a director. (3) The information required by subsection (1) to be given in respect of the directors of the company shall also be given in respect of the person who was the secretary of the company at the end of the financial year concerned. (4) For the purposes of this section, references to interests of a director and secretary in shares or debentures are references to all interests required to be recorded in the register of interests under section 267 and includes interests of shadow directors and de facto directors required to be so registered.

The Institute of Certified Public Accountants in Ireland Financial Statements There is no longer a requirement for the Directors to sign off on the Profit & Loss Account Balance Sheet must state the name of the Directors as well as being signed by them. Accounting Policies must now be included in Notes to the Financial Statements. If an item is material it must have an accounting policy. Financial statements may not otherwise comply with the Act if a policy for a material item is omitted.

The Institute of Certified Public Accountants in Ireland Financial Statements Approval Directors may only approve financial statements if satisfied that they give a true and fair view and otherwise comply with the Act. Section 289. Failure to comply is a category 2 offence. Auditors must report category 1 and 2 offences to ODCE. Section 393(1) sets out the duty as follows:

The Institute of Certified Public Accountants in Ireland Auditor duty to Report “Where, in the course of, and by virtue of, their carrying out an audit of the financial statements of the company, information comes into the possession of the statutory auditors of a company that leads them to form the opinion that there are reasonable grounds for believing that the company or an officer or agent of it has committed a category 1 or 2 offence, the statutory auditors shall, forthwith after having formed it, notify that opinion to the Director and provide the Director with particulars of the grounds on which they have formed that opinion.”

The Institute of Certified Public Accountants in Ireland Offences – Section 871 Category 1 offence – conviction on indictment can result in a term of imprisonment of up to 10 years or a fine of up to €500,000 or both; Category 1 offence - summary conviction can result in a class A fine or imprisonment for a term not exceeding 12 months or both; Category 2 offence – conviction on indictment can result in a term of imprisonment of up to five years or a fine of up to €50,000 or both; Category 2 offence - summary conviction can result in a class A fine or imprisonment for a term not exceeding 12 months or both;

The Institute of Certified Public Accountants in Ireland Offences – Section 871 Category 3 offence – a summary offence only, attracting a term of imprisonment of up to six months or a “Class A fine” (or both); and Category 4 offence – also a summary offence only, punishable by the imposition of a Class A fine. A “Class A fine” is a fine within the meaning of the Fines Act 2010 (i.e. a fine not exceeding €5,000).

The Institute of Certified Public Accountants in Ireland Disclosure of Directors’ Remuneration Both for the current and the preceding financial year (a) the aggregate amount of emoluments paid to or receivable by directors in respect of qualifying services, (b) the aggregate amount of the gains by the directors on the exercise of share options during the financial year, (c) the aggregate amount of the money or value of other assets, including shares but excluding share options, paid to or receivable by the directors under long term incentive schemes in respect of qualifying services,

The Institute of Certified Public Accountants in Ireland Disclosure of Directors’ Remuneration (d) the aggregate amount of any contributions paid, treated as paid, or payable during the financial year to a retirement benefit scheme in respect of qualifying services of directors, identifying separately the amounts relating to defined contribution schemes and defined benefit schemes and in each case showing the number of directors, if any, to whom retirement benefits are accruing under such schemes in respect of qualifying services, (e) the aggregate amount of any compensation paid or payable to directors in respect of loss of office or other termination payments in the financial year.

The Institute of Certified Public Accountants in Ireland Disclosure of Directors’ Remuneration For persons who are past directors of the company or past directors of its holding undertaking, the notes shall disclose both for the current and the preceding financial year the following amounts (a) the aggregate amount paid or payable for such directors’ retirement benefits, (b) the aggregate amount of any compensation paid or payable to such directors in respect of loss of office or other termination benefits.

The Institute of Certified Public Accountants in Ireland Disclosure of Staff Particulars The disclosure note shall state the aggregate amounts respectively of (a) wages and salaries paid or payable in respect of that year, (b) social insurance costs incurred by the company on their behalf, (c) other retirement benefit costs so incurred, and (d) other compensation costs of those persons (such costs to be specified by type) incurred by the company in the financial year. In relation to the aggregate of all amounts stated there shall be shown the amount capitalised into assets and the amount treated as an expense or loss of the financial year.

The Institute of Certified Public Accountants in Ireland Auditors Remuneration Disclosure of remuneration for audit, audit-related and non-audit work is required in the notes for large companies for each of the following categories of work: Audit of company financial statements Other assurance services Tax advisory services Other non–audit services

The Institute of Certified Public Accountants in Ireland Comparatives In respect of every item shown in the balance sheet, or profit and loss account, or notes, the corresponding amount for the financial year immediately preceding that to which the balance sheet or profit and loss account relates shall also be shown and if that corresponding amount is not comparable with the amount to be shown for the item in question in respect of the financial year to which the balance sheet or profit and loss account relates, the former amount may be adjusted, and particulars of the adjustment and the reasons shall be given in a note to the financial statements.

The Institute of Certified Public Accountants in Ireland Creditors Disclose: the terms of payment or repayment and the rate of any interest payable on debts both repayable and not repayable by instalment. the aggregate amount of any debts which are payable or repayable otherwise than by instalments and fall due for payment or repayment after the end of the period of 5 years beginning with the day next following the end of the financial year; and in the case of any debts so included which are payable or repayable by instalments, the amount of any instalments which fall due for payment after the end of that period.

The Institute of Certified Public Accountants in Ireland Loans to Directors Section unless unambiguously evidenced in writing a loan by a company to a Director is due on demand and interest at 5% is due. This amount may be varied by the Minister by Statutory Instrument. Check the documentation on existing loans to consider whether a post balance sheet event disclosure is required.

The Institute of Certified Public Accountants in Ireland New Audit Report Wording From 1 st June 2015 all audit reports issued must be issued in accordance with the Companies Act 2014

The Institute of Certified Public Accountants in Ireland Changes to the audit report In broad terms the report will retain the requirements of the previous acts However there are changes to the terminology used and the focus of the audit reports

The Institute of Certified Public Accountants in Ireland Audit reports Requirements are set out in Part 6 of the Act apply to –Private limited companies –Designated activity companies –Companies limited by guarantee –Unlimited companies - ULC, PUC or PULCs

The Institute of Certified Public Accountants in Ireland Audit reports S.391 of the Act requires that statutory auditors make a report to members on all statutory financial statements S.336 sets out the form of the report

The Institute of Certified Public Accountants in Ireland Key changes The 2014 Act introduces –Varied wording for the auditor’s overall opinion on a company’s statutory financial statements –Auditor is no longer required to opine in the same manner on whether the company has complied with requirements in relation to accounting records –No opinion is required on the existence of a “financial situation” necessitating an EGM

The Institute of Certified Public Accountants in Ireland Capital Requirement Section 40 of the 1983 Act now only exists for PLCs in Section 1111 ie Obligation to convene extraordinary general meeting in event of serious loss of capital. This obligation is on the Directors and is a category 3 offence if breached. Section 193(4)(g) of the 1990 Act is gone so no audit opinion is required on this matter.

The Institute of Certified Public Accountants in Ireland Changes in terminology “Books of account” are now “Accounting records” “Financial statements” are now “statutory financial statements” “State of affairs” becomes “assets, liabilities and financial position”

The Institute of Certified Public Accountants in Ireland S.336(3) states as follows: “The statutory auditors’ report shall state clearly the statutory auditors’ opinion as to— (a)whether the statutory financial statements give a true and fair view— (i) in the case of an entity balance sheet, of the assets, liabilities and financial position of the company as at the end of the financial year, (ii) in the case of an entity profit and loss account, of the profit or loss of the company for the financial year, (iii) in the case of group financial statements, of the assets, liabilities and financial position as at the end of the financial year and of the profit or loss for the financial year of the undertakings included in the consolidation as a whole, so far as concerns the members of the company, (a) whether the statutory financial statements have been properly prepared in accordance with the relevant financial reporting framework and, in particular, with the requirements of this Act (and, where applicable, Article 4 of the IAS Regulation).”

The Institute of Certified Public Accountants in Ireland Reporting on Abridged financial statements S.350 outlines the qualification of a company as small or medium Largely unchanged with the exception that the Act increases the thresholds at which companies are deemed to be medium sized and become eligible to file abridged financial statements

The Institute of Certified Public Accountants in Ireland Increase in threshold for medium sized companies Two out of three of the following conditions Turnover < €20m (currently €15.24m) Balance sheet total <€10m (currently €7.62m) Average no. of employees <250 – no change here –Point to note is change in calculation of average employee numbers – previously calculated as a weekly average now a monthly average

The Institute of Certified Public Accountants in Ireland Reporting on Abridged financial statements Formerly two reports were required under S.18(3) and S.18(4) of the Cos. (A) Act 1986 Now just ONE special report is required to accompany the abridged financial statements annexed to the annual return (S.356 Cos Act 2014) Signing requirements brought in line with the signing of the statutory audit report – individuals name, for and on behalf of Failure to comply - category 2 offence Disclosure of directors’ remuneration is required to be included in the abridged financial statements of a small company.

The Institute of Certified Public Accountants in Ireland Audit Exemption Audit Exemption – what are the key changes?

The Institute of Certified Public Accountants in Ireland Audit Exemption and the Companies Act 2014 A small company can avail of the audit exemption, “small” defined in S.350 Must fulfil 2 or more of the following criteria for current and previous year (previously for purposes of audit exemption had to meet 3 out of 3) –Turnover of the company does not exceed €8.8m –Balance sheet does not exceed €4.4m –Average number of employees does not exceed 50

The Institute of Certified Public Accountants in Ireland Group audit exemption A small group can avail of the audit exemption if the group taken as a whole (worldwide) meets 2 or more of the following (in current and previous year) –Turnover of the group does not exceed €8.8m –Balance sheet total of group does not exceed €4.4m –Average number of employees of the group does not exceed 50 All Irish companies in the group must have filed their annual return on time (for current year and preceding year)

The Institute of Certified Public Accountants in Ireland Audit Exemption Not available for A small company/group on which a notice under S.334 of the Cos Act 2014 has been served – Rights of members to require audit despite audit exemption otherwise being available (10% of members) Audit exemption not available unless annual return filed in time (S.363 and S.364). An application for a time extension can be made by a company to the District Court.

The Institute of Certified Public Accountants in Ireland Special Audit Exemption for Dormant Companies S.365 –….for a financial year if the directors of the company are satisfied that the company will satisfy the condition specified in subsection 2…(and that decision is recorded by the directors in the minutes of the meeting concerned) – cannot be retrospective… S334 - Right of members to require audit despite audit exemption otherwise being available does not apply to dormant companies

The Institute of Certified Public Accountants in Ireland What does dormant mean? Has no significant accounting transaction, and Its assets and liabilities comprise only permitted assets and liabilities S365 has details of transactions which are disregarded for the purpose of determining dormant status eg fees to the Registrar.

The Institute of Certified Public Accountants in Ireland Company limited by guarantee Audit exemption extends to companies limited by guarantee Any one member may serve a notice in writing on the company stating that that member does not wish the audit exemption to be available to the company in a financial year specified in the notice (S.1218)

The Institute of Certified Public Accountants in Ireland Audit exemption Considerations CLGs can now avail of the audit exemption – if a registered charity then the requirements of the Charities Regulator will apply Consider carefully the rights of the shareholders (10% of shareholders or one member of a CLG) to require an audit Rights of shareholders, are they sufficiently safeguarded by– S.23 MUDS Act (OMCs), S.212 Companies Act 2014? - For consideration by company directors. Dormant company cannot retrospectively avail of the audit exemption

The Institute of Certified Public Accountants in Ireland Revision of Defective financial statements S.366 Voluntary revision of defective statutory statements – provisions allowing voluntary revision of financial statements or directors’ reports if they are determined, subsequent to their approval and issue, not to comply with the Act’s requirements. –By supplementary note –In all other cases – revised financial statements shall be prepared

The Institute of Certified Public Accountants in Ireland Thank You! Any Questions? Maureen Kelly CPA Technical Services Executive