The CRO and audit filing requirements – the company law environment for SMEs

The Annual Return date (ARD) is an important calendar date on the company’s annual horizon. The ARD must fall within nine months of the financial year end (S 341, Companies Act 2014) and companies on annual basis are prescribed to file their Annual Return with financial statements in the Companies Registration Office within fifty six days of this date.

The vast majority of companies in the SME sector will qualify for the small company audit exemption (S360), in essence the removal of the requirement to file financial statements with a statutory auditor report, and this by virtue of satisfying 2 of the following 3 conditions in the current and preceding financial year (thresholds as updated by the Companies (Accounting) Act 2017):

• Balance sheet total does not exceed €6m
• Turnover does not exceed €12m
• Number of employees does not exceed 50

However, there are various exceptions and company law requirements which will necessitate the carrying out of a statutory audit for company entities and to ensure compliance with the Act. Some of the common exceptions are as follows:

1) Missed Annual Return Date / CRO ‘Late filers’

When an Annual Return is filed late, companies will lose the entitlement to claim audit exemption for two years. It is important to note that S363 of Companies Act 2014 was updated by S10 of the Companies (Statutory Audits) Act 2018, with the effect that companies which are late filing, can file unaudited accounts in the current year (when late filing) with the audit requirement in the two subsequent years.

It should be noted that under S343 of the Companies Act 2014, applications for an extension of time to file an Annual Return may be made to the courts, to obviate the requirement for audited financial statements. In these circumstances, it is a requirement that companies make such court applications in advance of the current year late Annual Return filing with unaudited financial statements. Nonetheless, these applications have proved to have an uncertainty of outcome, cost, and court hearing date and may be challenged by the Company Registrar regarding the grounds or merits of said applications.

2) Group companies over the threshold (S 359, CA 2014)

Audit Exemption applies to any group company if the group as a whole qualifies as a Small Group. The entire group and all its subsidiary undertakings must, taken as a whole, satisfy two of the following 3 conditions in order to claim a Group Company Audit Exemption:

• Group Balance sheet total does not exceed €6m (€7.2m gross)
• Group Turnover does not exceed €12m (€14.4 gross)
• Number of employees does not exceed 50

In relation to assessing a group and audit exemption, S359 applies:

(a) if the qualifying conditions are satisfied in respect of that year and the preceding financial year;

(b) if the qualifying conditions are satisfied in respect of that year and the group qualified as small in relation to the preceding financial year;

(c) if the qualifying conditions were satisfied in respect of the preceding financial year and the group qualified as small in relation to that year.

In effect, a group which may previously have claimed ‘small’ status under CA 2014 can, in instances where the group has breached qualifying conditions (or thresholds) for two consecutive years, no longer claim ‘small’ status and will require audited financial statements.

In circumstances where group companies can avail of the ‘small’ status under the Act, the Annual Returns must be filed on time in respect of all member companies’ Annual Return Dates. A late Annual Return filing in respect of one member company, will mean the loss of audit exemption for the entire group for the subsequent two years.

3) Regulated Entities

As per S142, Companies Act 2014, Schedule 5 companies cannot avail of small company filing requirements, and therefore cannot avail of the small company audit exemption. The typical Schedule 5 companies in the SME sector include mortgage and insurance broker companies, as regulated by the Central Bank, and cannot avail of small company filing exemptions.

4) Member vote

Companies may not avail of the audit exemption in circumstances where a member vote requesting an audit represents in excess of ten per cent of the voting rights, as per Part 2 CA 2014 in relation to limited companies, and Part 16 CA2014 in relation to Designated Activity Companies. This circumstance is more common in Company Limited by Guarantee entities, as in the case of a management company, whereby only one member, as per Part 18 CA 2014, can request an audit.

This article is in relation to the Companies Registration Office filing and the company law regime for SMEs in terms of Annual Returns and audit requirements, and is not inclusive of all SME company audit requirements, as for example companies in the charity sector as regulated by the Charity Regulator and Revenue Commissioners or companies availing of grant funding with respective grantee statutory audit requirements.