Where the directors decide to avail of an audit exemption for a particular financial year they must meet certain criteria which are outlined in Section 358. These are:
- that they are of the opinion that the company qualifies as a small company in which case it must satisfy at least two of the conditions outlined below (‘the small company thresholds’ which are outlined in Section 350) in the current and in the preceding financial year (unless it is the first financial year of the company);
- that the company was not part of a group during the financial year (unless that group qualifies for the small group audit exemption which is outlined below).
Previously it was required that a company made an election to avail of the small company audit exemption in advance of the financial year end whereas there is no such requirement in the Companies Act 2014. Therefore, the directors may make such an election at any point once they are satisfied that the company meets the conditions as set out (not will meet the conditions as was the previous wording).
The conditions that a company must meet in the current and preceding financial years in order to be able to avail of an audit exemption are:
|Must satisfy at least two:(in current and preceding financial year)||Small-sized company|
|Turnover (proportionately adjust if not 12 months)||€8,800,000|
|Balance sheet total (fixed + current assets)||€4,400,000|
|Average no. of employees||50|
A company will continue to be deemed a small company in respect of a financial year even where it fails to meet the conditions in that particular year provided it has not failed the conditions for two consecutive financial years. This essentially gives a company a ‘break’ or a ‘free pass’ which allows it to fail to meet at least two of the criteria in respect of any one financial year (current or previous), provided it is not for two consecutive financial years, such that it will not lose its entitlement to avail of the audit exemption.
Whilst the thresholds noted above are the same as they were previously under the old legislation, the directors must now be satisfied that the company meet at least two of the criteria whereas previously, the company had to meet all three.
In addition to meeting the core criteria outlined above, in order for a company to avail of an audit exemption the directors must also take account of the following:
- Members require audit – any member or members of the company holding, in aggregate, not less than 10% of the total voting rights may serve notice in writing on the company that they do not wish for an audit exemption to be taken. This notice may be served either during the financial year immediately preceding the relevant financial year in which the notice so relates; or during the financial year in question but not later than one month before the end of that year (Section 334). There is somewhat of a timing anomaly here in that the directors can at any time take the decision to avail of the audit exemption (i.e either before, during or after the financial year) whereas the right of the member or members to demand an audit must be notified not later than 1 month before the financial year end!;
- Annual returns filed on time – the annual return must have been filed on time in respect of the current and preceding financial years (Section 363) in compliance with the requirements of Section 343;
- Proportionally adjust – where the financial year in question is not a full year, then the amounts as specified in the table above must be proportionately adjusted;
- Excluded entities – where the company is any of the companies outlined in Schedule 5 to the Act (including inter alia an authorised investment firm, a banking institution, a building society, a UCITS company, a unit trust company and any company whose business is required to be authorised by the Central Bank), it is precluded from availing of the audit exemption.
Impact on financial statements
Where the company avails itself of the small company audit exemption in a financial year, the impact, from a financial statements perspective, is firstly that there will be no audit report contained in the unaudited financial statements. Secondly, the balance sheet by the company in that year shall contain a statement by the directors which shall appear immediately above the signatures of the directors (Section 335). It is a Category 3 Offence if this is not complied with.
Illustrated disclosure where a company is availing of the audit exemption:
We, the directors of CA2014 Limited state that –
(a) the company is availing itself of the audit exemption provided for by Chapter 15 of Part 6 of the Companies Act 2014;
(b) the company is availing itself of the exemption on the grounds that two or more of the conditions specified in Section 358 are 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 the 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 – small company audit exemption:
- Where a company can avail of the small company audit exemption it can do so at any point prior to the audit whereas previously it was required that a company made an election to avail of the small company audit exemption in advance of the financial year end
- A company need now only meet at least two of the criteria to avail of the small company audit exemption whereas previously, the company had to meet all three.