Subscribe	<<< Back The Companies (Auditing and Accounting) Act, 2003 becomes law - Adding to the Existing Corporate Compliance Regime On the 23rd December 2003 the Companies (Auditing and Accounting) Act, 2003 ("the Act") became law. All the provisions of the Act require the Minister for Enterprise Trade and Employment ("the Minister") to specify in regulations commencement dates before the provisions of the Act become effective. To date, no sections of the Act have commenced. The Act provides for the establishment of the Irish Auditing and Accounting Supervisory Authority ("IAASA") whose function is the supervision of the regulatory functions of the recognised accountancy bodies and other prescribed accountancy bodies. The Act amends company law to transfer to the IAASA the existing functions of the Minister relating to the recognition of accountancy bodies. Amendments are also made to existing company law provisions in relation to auditing, accounting and other matters. The IAASA The stated objects of the IAASA are as follows: - To supervise how the prescribed accountancy bodies regulate and monitor their members; To promote adherence to high professional standards in the auditing and accountancy profession; To monitor whether the accounts of companies comply with the Companies Acts; and To act as a specialist source of advice to the Minister on auditing and accounting matters. In addition, the IAASA is conferred with a wide range of functions including granting recognition to accountancy bodies, approving and prescribing the standards of professional conduct for their members, undertaking investigations into possible breaches of standards and imposing sanctions where appropriate. In effect, therefore, the IAASA is to be conferred with broad investigatory and enforcement powers over accountancy bodies removing, at least in part, such bodies from the accountancy profession's own standards and codes of conduct historically derived from self-regulation. The IAASA will have the power to intervene in the disciplinary process of prescribed accountancy bodies and, where the IAASA is not satisfied that the body in question has complied with the investigation and disciplinary procedures already approved, it has the power to annul all or part of a decision of such body, to direct that body to conduct further investigation or a fresh investigation or to fine the body in question for not complying with the approved standards and procedures. There is a right of appeal to the High Court. Company Accounts The IAASA has the power to examine the accounts of all public companies and private companies whose balance sheet total exceeds €25,000,000 and whose turnover exceeds €50,000,000 to establish whether they are in compliance with the Companies Acts. If it appears to the IAASA that there is an issue relating to compliance, it will have the power to send a notice to the directors of the relevant company specifying the relevant compliance issue. Such notice will stipulate a period within which the company must provide an explanation or prepare revised accounts. Where a company fails to comply with such a request, the IAASA can apply to the High Court for a declaration of non-compliance and an order for the appropriate remedy. The Registrar of Companies is entitled to receive a copy of any such order. Directors should be aware that, in circumstances where any such order is made by the High Court, the order might also include an order for costs of the IAASA against the directors of the relevant company. Further, every director of the company at the time of the approval of the accounts will be considered to have been a party to their approval unless a director can show he/she took all reasonable steps to prevent such approval. Directors' Compliance Statement One of the key sections of the Act is the amendment to the Companies Act 1990, which imposes a new obligation on company directors to prepare a compliance statement as soon as possible after the commencement of the relevant section. The compliance statement will be required to contain the following information: - Policies regarding compliance by the company with "relevant obligations" namely the Companies Acts, the Tax Acts and any other relevant legislation which provides a legal framework within which the company operates and which may affect its financial statements; Internal financial and other procedures for ensuring compliance by the company with its obligations; and Arrangements for implementing and reviewing the effectiveness of the policies and procedures in place. Approval of the compliance statement is required to be made by the Board of Directors and there is a further obligation to review and amend the statement, where necessary, at least once every three years. In addition, a statement will be required to be inserted in the Directors Report acknowledging the directors responsibility for ensuring the company's compliance with its relevant obligations and confirming that procedures are in place to ensure compliance, that the directors have reviewed the effectiveness of their procedures and that all reasonable endeavours have been undertaken to secure compliance with its relevant obligations for the financial year. Where a company does not have in place a procedure to ensure compliance, or has not conducted the required review, the directors will be obliged to give reasons for their omission in their report. The auditors to the company will be obliged to review the contents of the compliance statement and to form an opinion that the contents are fair and reasonable. Where directors fail to prepare a compliance statement in accordance with the legislation, details of the breach must be reported to the Office of the Director of Corporate Enforcement. Exemption from requirement to prepare a Directors Compliance Statement It is important to note that company directors will be exempt from the obligation to prepare a Directors Compliance Statement unless the Balance Sheets total exceeds €7,618,428 and turnover exceeds €15,236,856. Conclusion The Act gives further statutory impetus for the enforcement of compliance with company law by increasing the accountability of directors and officers for internal compliance policies and procedures. Company directors will be obliged to include a statement of opinion in their report that "all reasonable endeavours" have been made by the directors to secure compliance by the company with its relevant obligations and, if they are not of that opinion, to specify the reasons. Interestingly, a director's failure to include the required statement of opinion is not expressed to be an offence whereas the failure to prepare a compliance statement is an offence. In practice, it is envisaged that the greatest difficulty to arise for company directors will be the scope of the company's "relevant obligations". The Act specifically mentions the Companies Acts and the Tax Acts including customs and excise duties, capital gains tax, VAT, capital acquisitions tax and stamp duty but it will be a matter for the directors of companies to determine the other "relevant" enactments. In many cases, these will include employment law, health and safety legislation and planning and environmental law. In addition, there will be specific legislation, which is sector specific such as financial services law. The key issue for directors will be to correctly identify any other legislation, which might materially affect the company's financial statements. The auditors duties have been magnified by the obligation to report to the Director of Corporate Enforcement if the director's compliance statement and the statement of opinion in the directors report have not been prepared in accordance with the provisions of the Act. Directors should be aware that it is an offence for a director of a company "willfully" to make a false statement in any company return or report or "knowingly or recklessly" to make a statement to an auditor of the company, which is "misleading, false or deceptive in a material particular". Therefore, if the compliance statement or the statement of opinion is materially false or misleading then arguably the director is guilty of an indictable offence under the Companies Acts. The maximum penalty for making such a statement is up to €1,904 on summary conviction or up to €12,697 and mandatory disqualification if convicted on indictment. If the underlying information relates to the commission of an offence under another enactment, then the Director of Corporate Enforcement may disclose this information to any member of An Garda Siochana and/or may possibly be obliged to cooperate with other statutory bodies such as the Competition Authority. For further information or general enquires please contact Joanne Griffin E-mail: jgriffin@kilroys.ie Telephone: +353-1-4395600 Fax: +353-1-4395601/4395602 © Kilroys Solicitors 2004