Availing of the Audit Exemption
This is the first of a series of articles prepared by the Institute of Certified Public Accountants in Ireland. The intent is to give an overview of the subject rather than an in-depth analysis. Directors are advised to obtain professional advice before proceeding.
Topics to be addressed in future leaflets will include Duties and Responsibilities of Directors, Directors' Compliance statements, Directors' relationship with auditors, Wealth extraction from businesses etc.
Introduction
The concept of exempting certain companies from the requirement for a statutory audit was originally legislated for in 1999.
Can my company avail of the audit exemption?
Yes, if all of the following conditions are met both for the current year and the preceding
financial year.
The company must have:
A turnover of less than €7.3m.
A balance sheet total (total of gross assets) of less than €3.65m.
An average employee level of a maximum of 50 people.
Filing requirements up to date.
Additionally the company must:
Be a private limited company.
Not be part of a group of companies.
Not be a bank or insurance company.
Not be a company listed in the second schedule of the Companies (Amendment) Act (No.2) 1999
The exemption applies to accounting periods commencing on or after 1st July 2004.
What are the advantages and disadvantages of availing of the exemption?
The advantages in not having an audit are:
The time required by a Director dealing with the audit process can be applied to other areas of the business.
Depending on the level of involvement of your auditor in the accounts process, there may be scope for reviewing the fees.
The advantages in having an audit are:
Lenders to - or investors in - the business may require audited accounts as part of their terms and conditions.
When selling the business historical audited accounts may be required.
The assurance that can be derived from knowing that a professional auditor has reviewed the business, the company’s systems and internal controls.
What must my company do to avail of the audit exemption?
The company must meet all the criteria for exemption.
The decision to avail of the exemption must be recorded in the minutes of the Directors’ meetings.
The company must not be required by its Memorandum and Articles of Association to have an annual audit.
What rights do members of the company have?
Members who hold ten per cent or more of the total voting rights may veto the decision to avail of the audit exemption.
Notice by these members to veto such a decision must be served on the company in the year preceding the financial year concerned, not later than one month before the end of that preceding year.
Does the auditor need to be notified of the decision to avail of the audit exemption?
Yes. Once the decision is made the Directors must terminate the appointment of the auditor.
A notice must be served on the auditor outlining the decision to avail of the audit exemption and to terminate the appointment of the auditor.
An auditor must, within 21 days, write to the company stating whether or not any circumstances exist which need to be brought to the attention of the creditors or shareholders. A copy of this letter must be sent – by the auditor - to the Companies Registration Office.
Does my company still need to prepare financial statements?
Yes. Financial statements, which give a true and fair view, must be laid before the AGM and submitted to the Registrar of Companies. They must be prepared in accordance with the Companies Acts and all accounting standards.
Thus the accounts of companies taking advantage of the audit exemption will differ from audited accounts in the following ways:
They will not contain an audit report.
A statement must be made at the bottom of the company’s balance sheet confirming amongst other things that the audit exemption has been availed of.
Does availing of the audit exemption mean my company does not have to file Abridged Accounts?
No. Availing of the audit exemption does not release one from the requirement to file abridged accounts with the Companies Registration Office.
An annual return, together with the abridged accounts, must be filed in the normal manner.
Can I find out, in advance, how much the audit will cost?
Your auditor can explain the fee structure and how fees will be calculated. Your auditor’s letter of engagement will explain this. Please note that the fee will depend on the quality of business records available to the auditor.
Source: Institute of Certified Public Accountants in Ireland (CPA), www.cpaireland.ie