Statutory audits play an important role in financial governance and regulatory oversight. In Ireland, qualifying companies are required to have their accounts and financial statements audited on an annual basis before they are filed with the Companies Registration Office (CRO), to check that all information is accurate and to crack down on potential fraud.
Small businesses that meet certain qualifying criteria can be granted exemption from the annual auditing regime. However, the exemption is conditional on companies continuing to keep up with their reporting obligations. With changes being proposed that would ease the disqualification criteria for small businesses, we thought we’d take a closer look at audit exemptions and explain what your business needs to know.
Qualifying criteria
Small businesses can claim exemption from the statutory auditing regime if they have a turnover of less than €12m, a balance sheet of less than €6m, and/or fewer than 50 employees.
Most SMEs that qualify for an audit exemption are also entitled to a so-called size/abridgement exemption which reduces the amount of financial paperwork they are required to file every year. A smaller number of organisations – companies and designated activity companies limited by guarantee, and non-designated private unlimited companies – are exempt from filing financial statements full stop.
There are no audit (or reporting) exemptions for public companies, while those that fall under the categories listed under Schedule 5 of the Companies Act 2014 also do not qualify.
Claiming exemption
Audit exemptions for businesses that meet the criteria are not automatic. In order to enact the exemption and remain eligible, companies must file annual financial statements containing an audit exemption statement with the Companies Registration Office (CRO).
If also claiming the size/abridgement exemption on statutory filings, the paperwork companies are required to submit is as follows:
- The company balance sheet with an audit exemption statement outlining how the company fulfils the qualifying criteria.
- An extract from the directors’ report to the AGM stating the directors’ interest in shares and debentures.
- Notes to the financial statements submitted at the company AGM.
As per above, directors of small incorporated companies are still required to prepare annual financial statements and a directors’ report for shareholders, but are not required to file these in full with the CRO.
Audit exemption does not stop third party stakeholders such as banks and creditors requesting an external audit, for example to investigate financial disputes. The exemption can also be overruled by shareholders controlling just 10% of the voting rights.
Loss of exemption
The audit exemption is aimed at minimising the regulatory burden placed on small firms. On the other hand, businesses that claim an audit exemption are required to keep up with their reporting obligations in the interests of maintaining transparency and regulatory oversight of commercial operations.
The current rules are strict on this latter point. Should a company miss its filing date or otherwise fail to meet the requirements on just one occasion, it loses its entitlement to an audit exemption.
This has long been viewed as unduly harsh, potentially subjecting small businesses to the rigours of the auditing regime for genuine mistakes. In the Companies (Corporate Governance, Enforcement and Regulatory Provisions) Bill 2024, the government is proposing to ease the rules. A business would have to fail to meet the criteria on more than one occasion before losing the right to an audit exemption.
If you are unsure of your status with regards to statutory audits and exemptions, or would like any further advice on auditing rules and procedures, please get in touch with our audit specialists.
