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Increase in audit exemption thresholds - are you eligible?

  • Ireland
  • General

01-04-2013

Private companies that meet particular conditions may avail of an exemption from the requirement to have their accounts audited. Companies which qualify for and avail of the audit exemption are absolved from the statutory requirement to appoint an auditor.

The audit exemption was introduced in response to the perception that the audit requirement imposed an undue financial and administrative burden on small companies, particularly owner-managed companies where the directors are the shareholders of the company and where the stakeholder and public interest risk of non-audit was low. A company must satisfy certain criteria in order to be eligible for the audit exemption, one of which involves specific thresholds that a company must not exceed. Recently these audit exemption thresholds were increased to €8.8 million in respect of the annual turnover of the company and €4.4 million in respect of the company’s balance sheet total. These higher thresholds only apply to financial years ending on or after 7 August 2012.

The remaining requirements for the purpose of availing of the audit exemption are unchanged, and include the following:

  • The company must be a private limited company;
  • The average number of employees must not exceed 50;
  • The company must not be a holding company or subsidiary company;
  • The company must not be regulated by the Central Bank or the Stock Exchange;
  • The company is not a bank or insurance company; and
  • The company will file its current annual return on time.

All of the foregoing conditions must be complied with both in respect of the current financial year concerned and the preceding financial year, unless the year for which the exemption is being claimed is the company’s first financial year.

A company may not avail of the exemption in a financial year if those members holding 10% or more of the voting rights request the company not to avail of the exemption in that year. Any such request from the members must be served by notice on the company not later than one month before the end of the preceding financial year. For example, if the company’s financial year commences on 1 April 2013, the members notice must be served on the company not later than 28 February 2013.

Once the directors are satisfied that the relevant conditions are met, they may pass resolutions to confirm that the company should avail of the exemption and that the company shall be exempt from the  requirement to appoint an auditor. The passing of the resolutions should be recorded in the minutes of the relevant directors meeting. The decision may not be retrospective.  Therefore the directors must make such decision in advance of the year end date of the financial year in question.

Following the decision to avail of the audit exemption, if the company has an existing auditor in place, the auditor should immediately be notified of the decision. The auditor is required in response to serve a notice on the company that there are no circumstances in connection with their termination as auditors that should be brought to the attention of the members or creditors of the company or a statement detailing any such circumstances. The auditors are required to send a copy of the notice to the Registrar of Companies.

When producing the annual accounts, where a company avails of the exemption, the balance sheet must include a statement by the directors that the company is availing of the audit exemption, that it meets the criteria for the exemption, that it has not received a notice from its members requiring an audit to be carried out and that it is otherwise maintaining proper books of accounts.

Companies would be well advised to ensure that their current annual returns are filed on time otherwise they will be unable to avail of the audit exemption, not only for the year in question but also for the following year.

It is important to note that even where a company has an audit exemption in place, the directors are still required to maintain proper books of account, prepare the accounts in the required format, present the accounts to the members and file the accounts at the Companies Registration Office together with the company’s annual return.

Where a company that previously availed of the audit exemption no longer qualifies for the exemption due to a change of conditions, the directors are required to appoint an auditor to the company as soon as possible.

For further information, please contact your usual Eversheds contact or:

Anne Murphy
Head of Company Secretarial Unit
Tel: +353 1 6644 214
Email: annemurphy@eversheds.ie

 

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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