Where a group is not ‘small’ and therefore fails to qualify for the group audit exemption, any dormant companies within the group may possibly avail of an audit exemption known as the ‘dormant company audit exemption’ which is outlined in Section 365.
There are certain conditions that dormant companies must meet in order to be able to avail of the dormant company audit exemption which are:
- there are no significant accounting transactions;
- the assets and liabilities only comprise of ‘permitted assets and liabilities’
Significant accounting transactions mean a transaction that is required to be entered in the company’s accounting records.
Permitted assets and liabilities are:
- investments in shares of other group undertakings; and
- amounts due to or from other group undertakings.
Certain transactions can occur which do not cause the company to fail the ‘significant accounting transactions’ condition. These are any fees paid to the Registrar on the change of the company’s name, on the re-registration of the company or for the registration of an annual return. Similarly, any transaction arising on the taking of shares in the dormant company arising with the formation of the company are not considered. Whilst a dormant company for the purposes of the dormant company audit exemption is permitted to have shares in other group undertakings, any impairment charge on those investments would constitute a ‘significant accounting transaction’ and therefore cause the company to fail to meet the required criteria to avail of the dormant company audit exemption.
In respect of the two principle conditions outlined above, the directors must be satisfied that the company will meet these in respect of the year in question and must ensure that the decision to avail of the dormant company audit exemption is recorded in the minutes of the meeting concerned which must occur before the financial year end (unlike the small company audit exemption which can be taken at any time and not necessarily in advance of the financial year end). In addition, the annual return of the dormant company must be filed on time in both the current and preceding financial year.
Similar to the statement at the foot of the small company balance sheet, a dormant company that avails of the dormant company audit exemption must include a statement at the foot of the balance sheet, immediately before the signatures of the directors with some minor amendments to the wording (illustrated below).
A final point to note regarding the conditions outlined above, a company must meet these in respect of the financial year in question and decide that it will avail of the dormant company audit exemption in that year (Section 365(1)). Therefore, it is not a requirement that the dormant company meets the criteria in two consecutive years in order to be able to avail of the exemption, only that it has satisfied it in respect of the financial year in question.
Illustrated disclosure where a dormant company is availing of the dormant company audit exemption:
We, the directors of CA2014 Limited state that –
(a) the company is availing itself of the audit exemption provided for by Chapter 16 of Part 6 of the Companies Act 2014;
(b) the company is availing itself of the exemption on the grounds that the condition specified in Section 365(2) is satisfied;
(c) no notice under subsection (1) of Section 334 has, in accordance with subsection (2) of that section, been served on the company, and
(d) the directors acknowledge the obligations of the company under the Companies Act 2014 to
(i) keep adequate accounting records and prepare Financial Statements which give a true and fair view of assets, liabilities and financial position of the company at the end of the financial year and of its profit or loss for such a year, and
(ii) otherwise comply with the provisions of the Companies Act 2014 relating to Financial Statements so far as they are applicable to the company.
CA 2014 summary of changes – dormant company audit exemption
- A dormant company, that is part of a group, can now avail of an audit exemption provided it meets certain requirements