The Companies (Accounting) Act 2017 (CA 2017) introduced in the Republic of Ireland made a series of amendments to the accounting and filing requirements of Companies Act 2014 (CA 2014). This move is to give effect to the provisions in the Accounting Directive that relate to the annual financial statements of companies. This included the introduction of a new simplified accounting requirement for small and micro companies.
The Directive mentions that this new simplified regime is optional for eligible small and micro companies. If required, a micro company can choose to prepare its financial statements under a financial reporting regime applicable to larger sized entities.
If the new regime is chosen to be followed, these guidance notes summarise the requirements in respect of micro companies choosing to use the micro companies’ regime under Irish law.
At the outset, making the change to this new regime, could lead to quite a number of modifications for the financial statements of small and micro companies. As the personnel who prepare final accounts familiarise themselves with the regimes more, the intended simplification for small and micro companies will become more apparent.
How do companies qualify to use the new regime?
In order to apply for the use of the new regime in the preparation of its financial statements, a company must first qualify as a small company or a micro company, as applicable, under CA 2014.
This micro companies’ regime can be adopted by a private company (or holding company of a private group not preparing group financial statements) in relation to a financial year if it checks the boxes of two or more of the qualifying conditions outlined in the table below, usually for a minimum of two consecutive financial years:
|Balance Sheet Total
|Average Number of Employees
The size exemption, however, does not apply to Public Limited or Public Unlimited companies. The company applying for the use of the regime must not come within any of the 18 classes of companies listed in the Fifth Schedule CA 2014.
The size exemption will not apply to a company if it is—
(a) an investment undertaking,
(b) a financial holding undertaking,
(c) a holding company that prepares group financial statements, or
(d) a subsidiary that is included in the consolidated financial statements of a higher holding undertaking.
Why change to the new regime?
Here is a summary of main features of the micro companies’ regime:
- The new regime works on a simpler balance sheet and profit and loss account.
- If a company elects to adopt the micro companies’ regime, it is not required to prepare a directors’ report. This is provided the information in relation to the acquisition or disposal of own shares is presented elsewhere as a note
- Financial statements are required to have limited notes
- Under this new regime, the fair value accounting and alternative accounting rules cannot be applied. This translates to no revaluations or subsequent measurement at fair value
- If the micro company financial statements are prepared in accordance with applicable accounting standards, they are presumed by law to give a true and fair view
If a company qualifies as a micro-entity in the preparation of its financial statements, does it automatically qualify for an audit exemption too?
The answer is no. A number of factors are required to determine if an audit exemption can be availed. The assessment will vary basis the standing of a company – if it is a stand-alone entity or part of a group.
Challenges are inevitable with change, but on the bright side, these simpler requirements have been put in place to ease the administrative and operational burden on small and micro-companies. As always, just going through this blog may not be sufficient information for decision making. While there are reference material and information on relevant law available online, the best source of knowledge is to start a discussion with one of our accounting and compliance experts. With over 15 years of experience, we are just a call or mail away. Get in touch at firstname.lastname@example.org