The Companies (Auditing & Accounting) Act 2003 introduces important changes to Irish company law. The Act is a response to concerns that have arisen in light of international accounting matters and it imposes additional obligations primarily on both company directors and company auditors.
Arguably, the most significant feature of the Act is the obligation on directors of Irish companies to make a compliance statement each year. This applies to directors of all companies save those with a balance sheet total of less than €7.6 million ($9.4 million) and an annual turnover of less than €15.2 million, and other specifically exempt companies.
The directors' statement must confirm that they have used all reasonable endeavours to secure the company's compliance with its company law obligations, its tax law obligations, and its obligations under "all other enactments which provide a legal framework within which the company operates and which may materially affect its financial statement" (or, if not, the reasons why). Clearly, determining which legal obligations, aside from company and tax law, are material will not be a simple matter. The auditors must then confirm that the directors' compliance statement is "fair and reasonable". The Act also imposes an obligation on companies to prepare written policies setting out procedures to ensure compliance with these legal obligations.
Additionally, the Act introduces the concept of audit committees to Irish company law. Public companies must appoint an audit committee. Large private companies must either appoint an audit committee, or explain in their annual return why they have not appointed an audit committee.
Furthermore, the Act obliges companies to disclose the remuneration paid to the company's auditor (and its affiliates) for both audit and non-audit work and the nature of any non-audit work. If the non-audit remuneration exceeds the audit remuneration, the audit committee (or the board of directors, if no audit committee is appointed) must explain the reasons the non-audit work was carried out by the auditors and must confirm its satisfaction that carrying out the non-audit work has not affected the auditor's independence.
Finally, the Act sets up an independent statutory body to supervise the regulation by the accountancy bodies of their members.
By Olivia Long and Gerry Thornton