Audit-exemption change comes into effect
A measure that changes the audit-exemption system for small companies has come into effect after the Minister for Enterprise, Trade and Employment signed the relevant commencement order.
Under the change, small and micro-sized companies will not, in future, automatically lose the privilege of audit exemption on a first occasion, in a five-year period, of late filing of an annual return with the Companies Registration Office (CRO).
The measure is contained in section 22 of the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Act 2024.
‘Disproportionate impact’
“For the minority of small businesses that do not file on time, the loss of audit exemption can have a disproportionate impact due to the significant costs associated with providing two years of audited financial statements,” said Minister Peter Burke.
“This new regime will ease the burden on small companies, reducing paperwork and regulatory obligations on our SME sector, while bearing in mind the importance of timely filing of annual returns with the CRO,” he added.
Section 22 replaces section 363 of the Companies Act 2014 and provides that:
- A company that qualifies as a small company will not be entitled to an audit exemption for the following two years where it fails to deliver its annual return and has previously failed to file an annual return in any of the previous five financial years, and
- A company’s first annual return or previous failure to file an annual return before the commencement of the provision (as the company has already lost its audit exemption) shall not be considered a previous failure.
Under the 2014 act, a ‘small company’ Is defined as one that fulfils two or more of the following requirements:
- The balance sheet total of the holding company and the other members of the group taken as a whole does not exceed €7.5 million,
- The amount of the turnover of holding company and the other members of the group taken as a whole does not exceed €15 million, and
- The average number of persons employed by the holding company and the other members of the group taken as a whole does not exceed 50.
The department says that this approach retains late-filing fees in all cases but does not penalise small businesses further with the loss of audit exemption where a once-off late filing may arise in any five-year period.