The Companies (Statutory Audits) Act 2018 was passed on the 25th of July 2018. A commencement order was signed on the 21st of September 2018. Most of the Act is now commenced, however there are a number of provisions that have yet to be commenced and I have highlighted these for you below.
The 2018 Act does not change the citation, it will continue as “Companies Act 2014”.
Not Yet Commenced: Sections 3 (a), (h), (i) and (j) and Section 9 .These are all related to the 28-day deadline for filing the annual return.
Key Provisions of the Act
- If a company files an annual return late with audit exempt financial statements, those financial statements can be filed as audit exempt and the company will be required to have the following two financial years audited
- There is no change to the Sec 343 District Court Applications for lost Audit Exemption
- Automatic 56 days to file the annual return and financial statements from the ARD instead of having to file the annual return within 28 days and getting another 28 days to file the signature page and the pdf financial statements – THIS HAS NOT YET BEEN COMMENCED
- New powers for IAASA of sanction and enforcement; changes to auditors of quoted companies and change to remove the definition of a “public auditor”
- It is a category 2 offence for a person or firm (who is other than a statutory auditor) to act as, describe themselves as or carry out statutory audits.
Loss of Audit Exemption
One of the most significant changes in the 2018 Act is the change to the audit exemption. Companies that filed late had to have the late financial statements audited and for the following year. This caused a number of issues both for the company and the auditor as they were not engaged as the auditor during the financial year. Also what was the benefit of auditing a set of financial statements that could be at least 11 months after the year end?
The 2018 Act now provides that if a company misses a filing deadline it can file the financial statements as audit exempt financial statements and pay the late filing penalties. It will then have to have the following two financial years audited. This will allow the company and the accountant to agree the process for engaging an auditor and allow the company to plan for the costs of the audit. This cost is often borne by the accountant as the fee for the preparing the financial statements may have been agreed in advance and often been paid so it is often difficult to recover this cost.
When Does this apply?
The Act was commenced on 21st September 2018 so any annual return that is filed after this date the new rule will apply. That includes annual returns dated earlier than 21 September 2018 that are now being filed after this date.
This is not a perfect solution but it is a step in the right direction and should help manage companies that miss deadlines and may not be in a position to apply to the District Court. I believe the audit should be imposed for just one year and hopefully this is something that will amended in time.
No change to the Sec 343 District Court Applications
A controversial proposal in the Statutory Audits Bill was companies that wished to retain the audit exemption and avoid late filing penalties would have to apply to the High Court for the order. Most companies would not have the funds to make the application to the High Court and there would have been no cost savings to apply to the District Court to just avoid paying the late filing penalties.
After significant lobbying this proposal has been removed so the District Court process continues. Companies that have missed the filing deadline may still apply to the District Court for an order to extend the time to file the annual return without losing audit exemption and incurring late filing penalties.
Automatic 56 days to file the annual return
A company must file an annual return electronically within 28 days of its Annual Return Date (ARD). Companies have an extra 28 days from the date the annual return is filed electronically to upload the financial statements and send the signed signature page into the CRO.
The 2018 Act removes the first 28 day filing deadline so companies will have 56 days from the ARD to electronically file the annual return, upload the financial statements and file the signature page with the CRO. This section has not yet been commenced so the usual 2 filing deadlines continue to apply.
Industrial and Provident Societies, Friendly Societies and Credit Unions were originally required to be audited by a public auditor. This has now been changed to a statutory auditor in accordance with the definition of the Companies Act 2014 so auditors may now operate fully from a limited company.