The Consolidated Companies Bill 2012
Changing the Criteria in Relation to the Audit Exemption and Late Filing
The Administrative Burden on SME’s in Ireland
Ireland has been very focused in recent years on reducing red tape for SME
Businesses. A number of very positive strides have been made to make it easier
for small businesses to operate in the entrepreneurial economy that we have
created. However, there is one small change that could make a big difference for
SME’s and their accountants.
Availing of the Audit Exemption
At the moment to avail of the audit exemption a company must satisfy the
following size criteria:
a. Balance sheet total of €4,400,000
b. Net turnover of €8,800,000
c. Average number of employees during the financial year of 50.
To avail of the exemption from audit, which is a very welcome relief for small
companies, the company must currently satisfy 3 out the above 3 criteria and the
directors must go through a structured process to avail of the exemption. As well
as the above criteria the directors must ensure that the company has filed its
annual return on time in the current year and the preceding year. We are one of
the only countries in the EC who have chosen to add this late filing requirement
as a condition for availing of the audit exemption.
Ordinary members of the accountancy profession are raising this issue on an
ongoing basis but unfortunately the current draft of the Companies Bill 2012
does not make any provision for the removal of the requirement for timely filing
as part of the overall criteria to avail of the audit exemption.
Penalties for Late Filing
We fully agree with directors being penalized for not complying with their duties
to meet their filing deadlines. Irish company law provides up to nine months
after a financial period end to hold an AGM and gives generous timelines from
the expiry of the financial period end to the Annual Return Date by which annual
returns must be filed. If somebody is responsible for the stewardship of a
company they should comply with these laws.
Significant progress has been made in relation to corporate compliance in
Ireland in recent years. Based on the 2011 Companies Registration Office Annual
report of the 185,181 companies on the register, a total of 87.9% filed on time.
The Irish Corporate Landscape
Based on a study done by Ramboll Management for the European Commission in
2007 as cited in the Working Document of February 2009 in relation to the
Impact Assessment of the Directive of the European Parliament and of the
Council amending the Council Directive of 78/660/EEC on the annual accounts
of certain types of companies as regards Micro Entities the combined estimated
percentages of Micro and Small entities in the EC amounted to 96% of all
companies. If this percentage were applied in Ireland 177,774 companies would
fit the definition of Micro and Small entities.
Based on the current draft of the Companies Bill 2012 companies limited by
guarantee and small group companies (including parent and subsidiary) will be
eligible to avail of the audit exemption. Based on the 2011 CRO report, combined
with the Ramboll Management EC estimates, in the region of 170,000 companies
will be eligible to avail of the audit exemption in the future.
On this basis if 12.1% of all companies currently are filing late approximately
20,500 companies who should be eligible to avail of the exemption will not be
able to do so because they are filing late. Using conservative estimates of hourly
rates for accountants and auditors combined with very conservative time
estimates for the difference in work required for an accountant to do a
compilation under ISRS 4410 and to do an audit under the Clarity ISAs (UK and
Ireland) the minimum extra cost to a small company who requires an audit is
somewhere between €1,200 and €1,300. On this basis there is a combined cost
to SME businesses of somewhere in the region of €25,000,000 per annum.
Cost Savings of €25,000,000
This cost could be saved by a small change to Irish company law by removing the
requirement for filing annual returns on time as a condition of small companies
to avail of the audit exemption. If companies are to be penalised for late filing the
penalty should be levied as a financial penalty and the link to audit exemption
broken.
The Dilemma
The real issue with filing on time in the current and preceding year as a criteria
for availing of the audit exemption is that in the real world it is the auditor or
accountant who is the one that ultimately pays the price. Many small company
directors do not understand the difference between a compilation under ISRS
4410 and an audit under the Clarity ISAs. The concept and value of an audit is
strained and questionable for small owner managed SME clients at the best of
times. Companies and their directors who can not avail of the audit exemption
due to late filing invariably do not place an appropriate value on the audit and
derive very little benefit from it. The auditor or accountant struggles to recoup
the fee and are simultaneously being put under significant pressure through the
enhanced regulatory regime of their respective institutes under the watchful eye
of the Irish Auditing and Accounting Supervisory Authority. We fully agree that if
an auditor signs an audit report they should comply with all the standards and
that the auditing profession needs to be subject to rigorous regulation to
maintain public confidence. The difficulty is with these small companies the
accountant ends up paying the price directly or indirectly for the actions of a
director who they cannot control and are not responsible for.
A Change is Needed
The current approach to late filing and audit exemption needs to be changed. We
are the only country in the European Community who have created this criteria
and it needs to be removed. The ordinary accountant in practice voices this
concern on an ongoing basis but nobody appears to take heed. To demonstrate
the concern of accountants for the unnecessary cost and burden an online
petition was established recently.
The online petition commenced on 14th of May 2013 and closed on 30th of May
2013. Accountants were notified of the existence of the petition through an
article linked to the petition, which was circulated through the Accountingnet.ie
Electronic Newsletter and the OmniPro Electronic Newsletter. The existence of
the petition was also communicated to the accountancy profession by way of
social media.
The petition stated the following:
I the undersigned wish to petition the Department of Jobs, Enterprise and
Innovation to remove the requirement for companies, which otherwise could
avail of the audit exemption, to complete 2 years statutory audits where
annual return filings have been submitted late to the Companies
Registration Office.
To ensure authenticity the petition used the Survey Monkey Software and
recorded the following information from all petitioners.






Name
Firm / Company Name
County
Individual Respondent IDs
Email Address
Unique IP Address
For data protection purposes the name, firm/company name and county is the
only information included in the petition report as attached.
841 accountants responded to the petition in a period of 16 days. These 841
respondents represent approximately 25% of all registered and regulated
accountancy practices in Ireland.
This exercise clearly demonstrates that the front line people who know and
understand the SME market unequivocally want change.
Overall Conclusion
Those in a position to influence the amendment and passage of the Consolidated
Companies Bill 2012 need to ensure that the legislation is changed in this regard
for the benefit of SMEs and their accountants. The late filing requirement needs
to be removed from the criteria for availing of the audit exemption.