Corporate Update: Companies (Statutory Audits) Act 2018 Commences – What You Need to Know
02 October 2018
The Companies (Statutory Audits) Act 2018 (2018 Act) was signed into law on 21 September 2018. It amends the Companies Act 2014 so that there is now a single coherent body of legislation in Ireland regulating the profession of statutory auditor and the conduct of statutory audits. Its enactment also means that Ireland has completed its implementation of the regulatory framework proposed by the EU’s 2014 audit reform package.
In 2014, the Council of the European Union adopted a legislative package for audit reform in the EU. Part of this audit package has had direct effect in Ireland since June 2016 and other mandatory provisions were transposed into Irish law by way of 2016 statutory instrument. Click here to view our previous commentary on this audit package.
The main purpose of the 2018 Act is to:
- Exercise a number of Member State options contained in the EU audit package, which were not exercised in the 2016 statutory instrument
- Elevate the 2016 statutory instrument to primary legislation
- Give the Irish Auditing and Accounting Supervisory Authority (IAASA), as the competent authority with ultimate responsibility for oversight of statutory audits, additional powers to ensure effective monitoring and enforcement of new requirements
- Replace the outdated term “public auditor” with “statutory auditor” across all relevant legislation
Audit related changes and enhanced powers given to IAASA
The 2018 Act amends the Companies Act 2014 to provide a single coherent body of legislation regulating the profession of the statutory auditor and the conduct of statutory audits in Ireland. The majority of the legislation covered in the 2018 Act was already law in Ireland under the 2016 statutory instrument. The 2018 Act revokes the 2016 statutory instrument and restates the law under the 2014 Act.
A new Part 27 on “Statutory Audits” is inserted into the 2014 Act. This part includes the provisions governing the conduct of audits, auditor standards, independence of auditors, auditor appointment and mandatory rotation of auditors for public interest entities that had been included in the 2016 statutory instrument.
The New changes to Irish law introduced by the 2018 Act include:
- Adding to the sanction powers of IAASA
- Authorising IAASA to adopt audit procedures in addition to the international auditing standards adopted by the European Commission
- Allowing IAASA to lay down additional requirements in relation to the content of the audit report
If certain companies meet specific thresholds then they are entitled to avail of an exemption from audit. Under the current provisions of the Companies Act 2014, where a company is late in filing its annual return it will lose its entitlement to an audit exemption for that financial year and the following financial year. Under the new amendment, where a company that is entitled to avail of the audit exemption is late in filing its annual return, it will not lose that entitlement for the financial year to which the return relates, but will instead lose it for the next two financial years following that financial year. This will remove the requirement for a company to arrange for a retrospective audit of an already completed financial year which can be costly and time consuming.
The provisions of the 2018 Act that have not yet been commenced relate to the streamlining of the filing by companies of annual returns and statutory financial statements.
At present, a company is required to deliver its annual return to the CRO within 28 days of its annual return date. Where a company files its annual return electronically, which every company has been required to do since 1 June 2017 within this 28 day period, it then has a further 28 days to deliver to the CRO the signature page to its annual return and its statutory financial statements or other documents required to be annexed to its annual return. In light of the now mandatory requirement that annual returns are filed electronically, the 2018 Act proposed to simplify the procedure for filing annual returns and attendant documents. The effect of the relevant provisions in the 2018 Act as drafted, however, would have had the unexpected result of reducing the total period during which annual returns and statutory financial statements could be filed from 56 days to 28 days.
We now understand that a new piece of legislation will be published in the coming months to streamline the two step filing process outlined above into a single step. It will also provide for a total period of 56 days from a company’s annual return date during which a company can file its annual return, the signature page to its annual return and its statutory financial statements or other documents required to be annexed to its annual return.
This is a high level overview of the 2018 Act. The commencement of the 2018 Act results in one single body of legislation governing statutory audits in Ireland. The collective aim of the 2018 Act is to provide regulation and oversight of the profession of statutory auditor and the conduct of statutory audits, and to further improve audit quality.
Should you require a more detailed analysis of the 2018 Act, contact a member of our Corporate Governance & Compliance team.