New laws governing annual financial statements to ease burden on SMEs
Author: Patrick Mullins
Practice Area: Commercial & Company
Mary Mitchell O’ Connor, Minister for Jobs, Enterprise and Innovation, on the 2nd of June, 2017, signed the Statutory Instrument, commencing the provisions of The Companies (Accounting) Act. 2017 [hereinafter, ‘The Act’].
The object of the Act, is to bring into Irish Law, EU Directive 2013/34, relating to annual financial statements, and consolidated financial statements (otherwise known as the “Accounting Directive”).
The objective of the Directive is to simplify and reduce burdens, of an administrative nature, linked to the preparation of financial statements, for Companies, and in particular, the SME sector.
The Act also introduces mandatory rules, with respect to the preparation and filing of financial statements, in relation to large Companies.
The Act also introduces, for the first time, a new definition of Company, known as a “Micro” Company.
Companies will now be designated, under four particular headings, as follows:-
Micro Company
A Micro Company must not exceed two, out of the following three thresholds:
A net turnover of €700,000.00;
A balance sheet total of €350,000.00; and
An average number of 10 employees.
A Micro Company will be exempt from disclosing Directors remuneration, and exempt from preparing a Directors Report, in the financial statements.
Small Company
A Small Company is a Company, which does not exceed two, out of the following three thresholds:
Net turnover of €12 Million;
Balance sheet total of €6 Million and;
Average employees of 50.
Medium sized Company
A Medium sized Company must not exceed two, out of the following three thresholds:
Net turnover of €40 Million;
Balance sheet total of €20 Million; and
Average employees of 250.
Large Company
A large Company constitutes a Company, which exceeds two of the three thresholds, for a Medium Company.
A ‘PLC’ or a Public Unlimited Company cannot qualify, as a Small or Micro Company.
The exemption from preparation of group financial statements, will only apply to Small and Micro Companies.
Small and Micro Companies will be permitted to file abridged financial statements, with the Companies Registration Office.
Medium sized Companies must file full financial statements.
The Legislation also includes a provision, with respect to the inclusion of details of payments to third parties, for services as Directors, in the financial statements.
Any consideration, either paid to, or received, by a third party, or third parties, with respect to making services available, of any person, as a Director of the Company, or any of its subsidiaries, must now be disclosed.
There are also significant changes, in relation to the filing structures, as regards unlimited Companies.
An unlimited Company, where there is no ultimate protection of Limited liability, within a group structure, will still be in a position to avail of an exemption, from filing financial statements. However, there is no doubt that careful consideration needs to be given, to the structure of the unlimited Company, as it is quite likely, to be the case, that many unlimited Companies may now have a filing requirement, which heretofore did not exist.
The thresholds governing the definition of Small and Micro Companies, which can avail of audit exemption, are very welcome, both in relation to privacy, and the cost of financial reporting.
It is also clear that far more Companies will now qualify as Small Companies in the future.
The Act applies to financial years, beginning after the 1st of January, 2017.
Section 14 of the Act does permit applications to be made, to apply the provisions retrospectively, to financial years, which began after January 1st 2015.
Jobs Minister, Mary Mitchell O’Connor, in her press release, stated:
“I believe that this new Act will be seen as good regulation that strikes the right balance between proportionate disclosure obligations on the one hand, and the need for meaningful transparency on the other.
Above all, the vast majority of Irish Companies should see real benefits and savings in time, effort and cost.”
There is no doubt, but that this legislation constitutes a substantial change, in relation to filing requirements, as regards the now four distinct categories of Companies.
Patrick Mullins, Solicitor,
BDM Boylan Solicitors and Business Advisory,
Clarkes Bridge House,
Hanover Street,
Cork.
Tel: 021 431 3333
Email: pmullins@bdmboylan.ie
www.bdmboylan.ie