| The Companies (Auditing & Accounting) Act 2003- Overview |
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| Brendan Jennings gives an overview of changes made to the Companies Bill before it was passed by the Oireachtas in December. |
The Companies Bill 2003 was passed by the Oireachtas in December 2003, and we currently await the commencement of the Act through Ministerial Order. The provisions in the Act will only become effective when the Minister for Enterprise Trade and Employment commences the sections of the Act by Statutory Instrument. The amended Bill contains significant changes, which will impact on the responsibilities of all company directors.
The initial requirements
The main provisions of the Bill presented to Oireachtas, which significantly impact on companies included:
• Enshrining in legislation a requirement that public limited companies and large private companies have an Audit Committee and defining in law the role of the Audit Committee
• The requirement that the board of directors of all companies prepare a compliance statement that addresses the company’s compliance with tax laws, company law and other laws which may materially impact the financial statements
• The creation of the Irish Auditing and Accounting Supervisory Authority (IAASA). One of the duties of the supervisory authority outlined in the Bill is to review company financial statements for compliance with company law (similar to the UK Financial Reporting Review Panel);
• The use of specific accounting standards, after the accounting standards are recognised by
Ministerial regulation. This will enable the Minister to require companies to use a specific accounting framework, such as International Financial Reporting Standards or the ASB Financial Reporting Standards
• Increased financial statement disclosure of fees paid to auditors; and
• Increased auditor and accounting regulation.
Changes
The Bill was amended in both the D?il and the Seanad prior to its passing into law. The following are the significant amendments to the Bill:
Audit Committee: Rather than requiring all public limited companies (plc) and large private companies to establish an Audit Committee at the level of the ultimate Irish parent company within the group, the Audit Committee requirements have been restricted as follows:
• All plcs are required to have an Audit Committee. The role of the Audit Committee is set out in statute; and
• Large private companies are required to consider whether or not to establish an Audit Committee. Large private companies who establish an Audit Committee must decide on its appropriate responsibilities similar to those required for plcs or tailored to the needs of the company. The directors of each large private company are required to state in the directors’ report whether the company has established an Audit Committee or decided not to do so. If the company has no Audit Committee the directors are required to state whether a specific individual has responsibility for the duties of an Audit Committee.
Compliance statement: The scope of the compliance statement has been restricted from a statement of compliance with relevant legislation to a statement outlining the company’s:
• Policies to ensure compliance with its relevant obligations;
• Internal financial and other procedures for securing compliance with its relevant obligations; and
• Arrangements for implementing and reviewing the effectiveness of its policies and procedures.
• The compliance statement requirement has been restricted further by limiting the requirement to prepare the compliance statement to companies with a balance sheet total exceeding the threshold of €7,618,428 and turnover exceeding a threshold of €15,236,856.
• The auditor of a company is also required to give an opinion as to the fairness and reasonableness of the directors’ compliance statement.
Other significant changes
• The audit exemption limit for companies has been increased to a turnover threshold of €1,500,000
• The requirement that a company has a director resident in the State has been amended to clarify that the role of resident director cannot be met by an alternate director
• Companies will no longer be prohibited from purchasing or paying for directors’ or officers’ insurance in respect of any liability incurred by the director or officer by virtue of their position as director or officer of the company
• Composition of IAASA board has been modified to increase the number of accountants and business persons
• Modification of the auditors’ responsibility to report to the director of Corporate Enforcement indictable offences under the Companies Acts and the nature of the documents and information to be provided by the auditor
Summary and actions
The Companies (Auditing and Accounting) Act, 2003 introduces increased responsibilities for company directors. If you are a company director or a member of senior management you will need to assess the impact of this Act on your company. For instance, you should:
• Consider if there is a need to establish an Audit Committee
• Put in place processes to enable you to prepare a Compliance Statement unless exempted
• Review adequacy of business processes, controls and documentation to facilitate preparation of the compliance statement. |
Brendan Jennings is the national partner in charge of audit services at Deloitte.
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| Article appeared in the February 2004 issue.
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