Exemptions from preparing group financial statements
Exemptions from the requirement to prepare group financial statements apply under financial reporting standards (FRSs and IFRSs) and the exemptions as set out in the Act (sections 297 to 303) essentially mirror these exemptions. New Irish GAAP or FRS 102, which is mandatory for accounting periods commencing on or after 1 January 2015, will reform existing GAAP however, the rules contained therein for exemptions from consolidation will remain the same and mirror those in the Act. The below table sets out a synopsis of these exemptions:
Available where the holding company, together with its subsidiaries, satisfy at least 2 out of the 3 following criteria for the financial year and for the immediately preceding financial year:
|Group size exemption||Previously Legislation
|Turnover (proportionately adjust if not 12 mts)||€20,000,000||€15,236,856|
|Balance sheet total (fixed + current assets)||€10,000,000||€7,617,428|
|Average no. of monthly employees||250||250|
A holding company, once it has met the above criteria for two consecutive financial years, will continue to qualify for the small group consolidation exemption until such time as it fails to meet the criteria for 2 consecutive financial years.
Balance sheet total means the aggregate of the amounts shown as assets in the company’s and subsidiaries’ balance sheets, however intercompany balances may be excluded.
Amount of turnover, in the context of the small group exemption, means the amount of turnover shown in the company and subsidiaries’ profit and loss accounts, however intercompany sales included in turnover may be excluded when determining the total of turnover for the basis of ascertaining whether the group is a ‘small group’.
This exemption cannot apply where any of the subsidiaries hold instruments that are admitted to trading on regulated markets.
A disclosure will have to be made in the holding company’s individual financial statements that the small group consolidation exemption has been availed of. An example of such a disclosure would be:
Illustrated disclosure where a company is availing of the small group consolidation exemption:
The company has not prepared consolidated financial statements on the basis that it satisfies the criteria as set out in section 297 of the Companies Act, 2014 to qualify as a small group.
A holding company that is a subsidiary undertaking of either
- an undertaking registered in the EEA; or
- an undertaking registered outside the EEA
is exempt from preparing consolidated financial statements where it is a 100% subsidiary of the other holding company or more than a 50% subsidiary of the other holding company and no request for consolidated accounts has been received before 6 months after the end of the financial year in question in aggregate of:
- more than half of the remaining shares in the lower holding company; or
- 5% or more of the total shares in the lower holding company.
Certain requirements must be met in order to avail of either of these exemptions such as certain, specific disclosures in the lower holding company’s individual financial statements (outlined below); that the exempted holding company and all of its subsidiaries are included in the group accounts of the larger group; that those group accounts are drawn up and audited in accordance with applicable EU law or IFRS; and that the consolidated financial statements of the higher holding company are delivered to the Registrar.
Another important fact in the case of groups where the ultimate parent entity is a non-EEA entity is that the consolidated accounts must be audited in lines with the laws of the relevant state under which they are drawn up.
Illustrated disclosure where a company is availing of the group consolidation exemption where its parent is an EEA/non-EEA entity preparing consolidated financial statements of which it is included:
The company is exempt from the requirement to prepare group accounts by virtue of section 299 * of Companies Act 2014. These financial statements therefore present information about the company as an individual undertaking and not about its group.
The company and all of its subsidiary undertakings are included in the consolidated financial statements of [insert name of ultimate holding company that prepares group accounts], a [limited liability/public limited etc] company incorporated in [insert EEA or non-EEA state where holding company is incorporated].
*Section 300 is the correct reference where the parent company is a non-EEA entity.
Exemption from preparing consolidated accounts can be availed of by a holding company if all of its subsidiaries could be excluded from the consolidation. Subsidiaries can be excluded from consolidation in the following circumstances:
- their inclusion is not material in aggregate
- severe long-term restrictions exist over the subsidiaries assets and activities
- information necessary for the consolidation cannot be obtained without disproportionate expense or undue delay
- subsidiary is held with an exclusive view to a subsequent resale
Where the holding company prepares IFRS financial statements, it is exempt from preparing consolidated financial statements as laid out in IFRSs. Therefore, IFRS 10 applies in this instance and it allows an exemption from the requirement to prepare consolidated financial statements where all of the below are met:
- the holding company is itself a subsidiary;
- it does not have financial instruments trading in a public market; and
- the ultimate parent of the group (or an intermediary parent) produces consolidated financial statements that are available to the public and comply with IFRSs
Furthermore, a holding company that is an investment company may account for its investments in a subsidiary at fair value through profit or loss rather than preparing consolidated accounts.