The public consultation by the Department of Enterprise, Trade and Employment on proposals to enhance the Companies Act 2014 officially closes this week at 5:00 PM on Friday 9 June 2023. Submissions are invited from stakeholders and interested parties no later than this date.
There are several areas being consulted upon, which are too many to cover in this blog, but some of them include the:
- Companies (Miscellaneous Provisions) (COVID-19) Act, 2020;
- Corporate Governance;
- Obligations on examiners and interim examiners;
- Provisions to do with enhancing company law administration;
- Investigation of companies affairs by court appointed inspectors on the application of the company;
- Miscellaneous Company law administration matters to do with the Companies Registration Office.
Change the Audit Exemption Rules
In this blog, we want to concentrate on the proposals to change the audit exemption rules.
The proposal is that the audit exemption regime for small and micro companies should be amended to provide for a two-step graduated regime to deal with late filing, rather than automatic loss of audit exemption for two years, under the current rules.
The two step regime would operate as follows:
On the occasion of the first instance of late filing, and there would be no loss of audit exemption.
If there was a further instance of late filing within the following five years, late filing fees would be incurred and the entitlement to audit exemption would be lost for the following two financial years, with the company required to file audited financial statements for these years.
The consultation also includes a potential provision to enhance the deterrent effect for failure to deliver an annual return in time to allow that the court can request a contribution to a charity be made.
Another proposal allows for a strike off a company for failure to file details of the company secretary with the CRO.
There’s also provision to provide additional grounds for involuntary strike-off of companies by permitting the RBO Registrar to request that the CRO strike off a company for its ‘failure to comply with its obligation to file its beneficial owner details with the RBO
Make your voice heard and send your submissions. to the Department by 5:00 PM on 9 June 2023.
Please go to our website to see our:
- Letters of Engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
- ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at email@example.com.
We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
In this article, we consider practical tips for applying the requirements of Section 35 of FRS 102.
The Financial Reporting Council issued a report called the Annual Review of Corporate Reporting 2015/2016 on 21 October 2016 encouraging smaller entities to ‘start their planning as soon as possible in order to ensure they are prepared for a smooth transition’.
In this report, the FRC stated that ‘small entities will also be applying FRS102 for the first time from 1 January 2016, which may pose some challenges for preparers, but should improve reporting in certain areas, as well as offering opportunities to reconsider the necessary disclosures. Anecdotal evidence suggests that some of the larger private companies applying FRS 102 from 1 January 2015 could have started their planning for transition earlier; any entities yet to transition to new standards should start their planning as soon as possible to ensure they are prepared for a smooth transition.’
This article assumes that readers have used the FRSSE (2015) for the year ended 31 December 2015 and will now be adopting FRS 102 for the first time for year ended 31 December 2016.
Review of existing accounting policies
Companies will need to perform a detailed review of whether their current accounting policies meet the requirements of FRS 102 Financial Reporting Standard applicable in the Irish and Ireland, and whether change is necessary or desirable. and changes in accounting policy will be inevitable.
In some cases, the requirements under FRS 102 will be different from previous Irish GAAP However, transition to FRS 102 can also provide an opportunity to look again at current accounting policies and reconsider their appropriateness to the business. In some cases, there will also be accounting rules that were not previously in place e.g. the rule about recording transactions in the functional currency which can be in a currency other than the Euro, if the company’s sales are denominated mostly in sterling or dollars.
Time is of the essence
FRS 102 generally requires retrospective application (in our example the transition date will be 1 January 2015 and therefore the comparatives for the year ended 31 December 2015 will need revised under the new rules). It is very important to identify those areas most likely to have a significant impact on the financial statements and actions which might be taken to ease the burden, for example deciding which of the eighteen exemptions (currently available) to take.
You need to identify those actions which are time-critical, that is areas where action (or inaction) at transition will have a direct impact on the accounting treatment and the options available. Special care will need to be taken by entities that have hedging arrangements or defined benefit pension schemes.
Gathering information for restatement of comparatives
Don’t underestimate the challenge of restating comparative information, including numerical and narrative disclosures, on first-time adoption of FRS 102. There may be disclosures which were not required previously (e.g. the statement of cash flows) or which are now required in greater depth e.g. changes to the accounting policies on turnover and stock. It is hoped that the new companies Act (when enacted) will update the Companies Ct, 2014 and will allow smaller companies avail of the exemption form the statement of cash flows.
This information will generally be easier to gather at the time a transaction takes place or close the date a balance arises, rather than when the first FRS 102 financial statements are being prepared.
The proposed Companies (Accounting), Act 2016 is expected to make some changes in Irish company law. These changes have been expected almost since the Companies Act 2014 became effective on 1 June 2015. Publication of this new company law has been delayed by the formation of the new Government. We understand that legislators are actively working on the new law at present.
We covered the new company law as well as its potential impact on current accounting practice in FRS 102 and with the proposed FRS 105 accounting standards, at our public seminar on Monday 27 June 2016 at the Talbot Hotel, Stillorgan, County Dublin. More seminas will take place in 2016 and 2017. see our CPD Courses page for details.
Among the changes expected in the new law are:
Increased thresholds for company sizes
The new Act will trigger an increase in the accounting disclosure thresholds for company sizes. The existing size thresholds are shown in brackets.
- Small Company – a turnover of €12m (€8.8m), 50 employees with a balance sheet of €6m (€4.4m);
- Small Group – a turnover of €12m (€8.8m) net or €14.4m gross, 50 employees with a balance sheet of €6m (€4.4m) net or €7.2m gross. The reference to the term ‘gross’, is before taking account of any consolidation adjustments;
- Medium Company – a turnover of €40m (€20m), 250 employees with a balance sheet of €20m (€10m).
Micro Companies and Directors Remuneration
One of the key features of the new Bill is that micro companies (those with turnover of less than €700,000, among other criteria) will be exempt from Sections 305 to 312 of the Companies Act, 2014 which require disclosure of directors’ remuneration and certain loan arrangements.
This is likely to appeal to many company directors who wish to keep their remuneration and loan arrangements private. Those companies classified as ‘small’ will still be required to disclose directors’ remuneration and loan details in their financial statements. Certain ineligible entities cannot be micro companies and these include financially regulated entities like investment intermediaries.
In addition, directors of micro companies will not have to a file director’s report.
Medium Sized companies
Medium sized companies will have to file full financial statements as Section 354 of CA 2014 will be deleted from Irish company law. At present they do not need to disclose certain matters including their turnover.
The commencement date of the new law is not yet certain and it remains to be seen what precise changes the law will introduce.
More on Parts of FRS 102 That Are Not Yet Applicable in the RoI
Following on last week’s blog piece about Section 1A Small Entities FRS 102, which as you know, does not yet apply in the Republic of Ireland (RoI). There was an error in the blog which stated that charities that were formed as companies limited by guarantee were precluded from using the FRSSE (Financial Reporting Standard for Smaller Entities). However, with the enactment of the Companies Act 2014, companies limited by guarantee may qualify as ‘small’ and may therefore use the FRSSE. Apologies for any confusion.
Meanwhile we would like to draw your attention to another matter in FRS 102. There are now twenty exemptions (where there were previously 18) in Section 35, which many companies will be trawling through, as they transition to FRS 102 for the first time.
Two additional exemptions in Section 35, namely 35.10 (u) ‘Small entities – fair value measurement of ﬁnancial instruments’ and 35.10 (v) ‘Small entities – ﬁnancing transactions involving related parties’ . These exemptions were included in the September 2015 version of FRS 102, specifically for ‘small’ entities.
The exemptions give some relief from the amortised cost rule on, for example, directors’ loans, but companies in the Republic of Ireland cannot avail of them just yet, because the relevant company legislation underpinning these rules has not been enacted. Hopefully this will follow soon after the forthcoming election.
The mechanics of these exemptions is that they relate to comparative information only. Companies will have to account for the transactions in accordance with FRS 102 for the first reporting period that they are allowed adopt FRS 102 and make an adjustment to opening reserves at the beginning of the first reporting period (as opposed to the date of transition).
For more on FRS 102 see the following:
1. Updated Transition Checklist (February 2016 version), for more information please click here.
To assist you with the transition work – retails for €100+VAT and accompanied by free:
2. FRS 102 Training Course
To learn the latest developments in accounting and the related company law, come along to our FRS 102 Accounting Update on Tuesday 1 March 2016 at the Camden Court Hotel, Dublin 2. Places are limited and are filling steadily.
For booking details please click here.
3. FRS 102 Transition Service
Please ask us about our bespoke FRS 102 Transition Service where we will examine client accounts before/after transition and give you a tailored report explaining the issues arising and whether the transition has been successful or not. To enquire just send an e-mail to firstname.lastname@example.org
Our next blog on Investment Properties and FRS 102 will follow next week.
Section 1A of FRS 102 Not Applicable – Suggested Solution
The unwary reader of the latest version of FRS 102 could be forgiven for not realising that Section 1A Small Entities inserted into FRS 102 in September 2015 to accommodate some exemptions for certain qualifying ‘small’ entities, does not yet apply in the Republic of Ireland (RoI). This is because the necessary amendment to Irish company law has not yet been published nor enacted. We understand the necessary law is in draft but may now be delayed by the forthcoming election.
Three other developments are also delayed because they depend on the same legislation in the RoI:
1. Paragraph 19.23 of FRS 102 regarding the useful life of goodwill was updated in September 2015. This allowed that ‘if in exceptional circumstances, an entity is unable to make a reliable estimate of the useful life of goodwill, the life shall not exceed 10 years.’ This change was made in the UK following their implementation of the EU Accounting Directive. However, the equivalent change has not taken place in the RoI for the same reasons mentioned above. Therefore, the previous version of paragraph 19.23 still applies for the time being in RoI. That stated that the maximum life of goodwill, in the absence of a reliable estimate, shall not exceed 5 years.
2. FRS 105 the Micro-entities Regime, does not yet apply in the Republic of Ireland. It is expected that this legislation, when enacted, will exempt certain private companies (within certain criteria) from the requirement to disclose directors’ remuneration. They may also show all below market interest rate inter-company and directors’ loans at cost instead of amortised cost under FRS 102. The relevant criteria are that turnover must be less than €700,000, Balance Sheet Gross Assets less than €350,000 and less than 10 employees, provided two out of three of the criteria are satisfied for two consecutive years.
3. Appendix VI of FRS 102 which, in previous editions of the standard, listed the relevant RoI company law references, was not included in the September 2015 FRS 102 as the FRC state they will update the legislative references once the EU Accounting Directive is implemented.
To comply with EU Directives, the company legislation is required to be effective for accounting periods beginning on or after 1 January 2016. It is not yet clear whether the legislation or its commencement provisions will allow for application to earlier accounting periods such as those beginning on/after 1 January 2015.
In the meantime, for client companies that qualify (i.e. not regulated insurance intermediaries) the 2015 version of the FRSSE (Financial Reporting Standard for Smaller Entities) is available for periods commencing on/after 1 January 2015 for one year only.
This standard is useful as it:
- Allows for an exemption from the cash flow statement, which FRS 102 does not currently do, unless the company qualifies under FRS 101;
- Allows for below market interest rate inter-company and directors’ loans to be stated at cost;
- Largely retains the old Irish GAAP accounting rules for one last year;
- Avoids the need to transition to FRS 102 for the time being.