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Companies Act 2014: Directors' Compliance Statements and Audit Committees

2016年 10月 11日

Director Compliance Statements

Summary

Section 225 of the Irish Companies Act 2014 (the "Act") introduced a new requirement to include a directors' compliance statement ("DCS") in the directors' report that accompanies the annual financial statements of companies that meet certain criteria. 

Where applicable, the DCS must be included for all financial years commencing on or after 1 June 2015. For relevant companies with a 31 December financial year end, this requirement will be applicable to their annual financial statements for the period from 1 January 2016 to 31 December 2016.

If your company falls within the scope outlined below, you should contact us to discuss your obligations. We can also assist you in preparing a statement setting out your company's policies in respect of compliance with its relevant obligations.

Is my company within scope?

Directors should be able to determine with relative ease whether a company is within the scope of the DCS requirement.  

A company will be within the scope of the DCS requirement if:

(1) its balance sheet total for the financial year in question exceeds €12.5m; and

(2) its turnover for that year exceeds €25m.

Balance sheet total means the aggregate of the amounts shown as assets in the company's balance sheet, while turnover means the amount of the turnover shown in the company's profit and loss account.

What are the requirements?

The DCS requires directors to make two statements in the directors' report.  The first is an acknowledgment that the directors are responsible for securing the company's compliance with its obligations under Irish tax law, as well as certain obligations under the Act, prospectus law and market abuse law (and, in the case of certain public companies, transparency law) ("relevant obligations").

Second, the DCS must include either a confirmation that the directors have completed steps listed in the Act designed to secure compliance with the relevant obligations (the "opt-in model") or, if this has not been done, an explanation as to why it has not (the "explain model").

If the opt-in model is chosen, the steps are the drawing up of an internal compliance policy for the company, putting in place appropriate arrangements designed to secure material compliance with the relevant obligations and reviewing these arrangements during each financial year ("opt-in procedures").

Opt-in vs. explain models

If your company is within scope, the key decision for directors will be to choose between the opt-in and explain models.  This will be a matter for the directors to determine based on the circumstances. In many cases, the explain model may be an appropriate choice, particularly where there is limited day-to-day activity within the company in question. 

However, where a company is trading actively or where it has external investors, the opt-in model might be the best option.

What do I need to do?

You firstly need to determine whether your company is within scope, based on the financial thresholds set out above. 

For companies that are within scope, the directors need to decide which model to adopt.  If the explain model is chosen, the board should agree on a form of appropriate DCS wording to include in the directors' report. 

If the opt-in model is chosen, you should talk to us as soon as possible so that we can assist you in preparing an appropriate compliance policy and the board should agree procedures to review compliance arrangements at least annually.

Failure to Comply

Failure to comply with the compliance statement requirements outlined above is a category 3 offence under the Act, attracting a term of imprisonment of up to six months or a fine of up to €5,000 (or both).

 

Audit Committees

Summary

Section 167 of the Act introduces a new requirement for "large companies" (as defined below) to form an audit committee (or explain in their annual directors' report the rationale for not doing so). This is a committee of directors appointed by the board to oversee financial reporting and related matters. 

Section 167 applies to all financial years commencing on or after 1 June 2015 and therefore large companies are now under an obligation to comply. 

If your company falls within the scope outlined below, you should contact us as soon as possible to discuss your obligations.  

Is my company within scope?

The requirement to establish an audit committee applies to large companies.

A large company is one which in both the most recent financial year and the immediately preceding financial year:

(1) has a balance sheet total exceeding €25,000,000; and

(2) has a turnover exceeding €50,000,000.

If a company has one or more subsidiaries, it will be deemed to be a large company if the company and its subsidiaries taken together meet the above criteria.  

What are the requirements?

Directors of large companies are required to decide whether or not to establish an audit committee. If the directors decide to establish such a committee, at least one member of the committee must be an independent non-executive director (the “NED”). The NED, in order to be considered independent, cannot have a material business connection with the relevant company and cannot be an employee of the company. The NED must also be competent in accounting or auditing.

What are the responsibilities of the audit committee?

The responsibilities of the audit committee include (but are not limited to):

• the monitoring of the financial reporting process;

• the monitoring of the effectiveness of the relevant company's systems of internal control, internal audit and risk management;

• the monitoring of the statutory audit of the company's statutory financial statements; and

• the review and monitoring of the independence of the statutory auditors and, in particular, the provision of additional services to the company.

Opt-in vs. explain models

The directors of large companies can elect not to establish an audit committee.  If they do, they must clearly set out in their directors' report the reasons for not doing so.  The Act does not set out what would constitute a valid reason for directors to exercise their discretion not to set up such a committee. 

This will be a matter for the directors to determine based on the circumstances. However, the formation of audit committees is generally accepted as good corporate governance for large companies and is recommended unless there is a valid reason for opting not to do so.

What do I need to do?

You firstly need to determine whether your company is within scope, based on the financial thresholds set out above. 

For any companies that are within scope, the directors need to decide whether to appoint an audit committee or, alternatively, explain (in the directors’ report) the reasons for not doing so. 

Failure to Comply

Failure to comply with the audit committee requirements outlined above is a category 3 offence under the Act, attracting a term of imprisonment of up to six months or a fine of up to €5,000 (or both).

For assistance on any of the above matters, please liaise with your usual Maples and Calder or MaplesFS contact. 

It should be noted that these new requirements also apply to investment funds established as investment companies and authorised under the Irish UCITS regime. For further details on the implications of the new requirements from an Irish funds perspective, please liaise with your usual Maples and Calder contact in our Irish Funds Group.

 


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