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‘Unduly harsh’ audit rule axed in draft amendment

A proposed amendment to the Companies Act 2014 will mean that Irish companies that file their financial statements late will no longer automatically lose their audit exemption, Eversheds Sutherland lawyer Aidan Rafferty has clarified.

The General Scheme of Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill 2024 was published on 15 March and has been approved by Government for priority drafting.

Amendments

It proposes a number of amendments to the 2014 act covering different areas of company law such as:

• Corporate governance,
• Enforcement and administration of company law, and
• Insolvency.

On the table for removal is the automatic loss of audit exemption for companies that fail to file their annual return and financial statements within deadline.

The Eversheds briefing note points out that a missed CRO deadline means a firm loses its audit-exemption entitlement for the two subsequent financial years.

The loss of audit exemption predominantly affects small and micro companies.

Rafferty writes that the general consensus is that such a penalty is unduly harsh and disproportionate, and applies in often unavoidable situations.

If an audit exemption is lost, either an auditor must be appointed or a District Court order sought for an extension to the annual-return date.

'Significantly expensive'

Both options can be significantly expensive and the associated costs potentially devastating to a business as a going concern, the briefing states.

The change proposes that companies will only lose their entitlement to an audit exemption if they fail to file their annual return and financial statements on time more than once in a five-year period.

This amendment will be welcomed by small and micro companies that will make significant time and cost savings as a result, the Eversheds briefing concludes.