Pat Breen (Clare, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time”.

A copy of my speech together with a short information note is being circulated to Members present in the House, which give will them additional useful information to what I will outline in my speech. I am pleased to bring the Companies (Amendment) Bill 2017 before the Dáil today. This is a very short Bill, with just two sections, dealing with a very specific issue in the law on financial reporting by companies.

The issue is the application of section 279 of the Companies Act 2014. That is the section that permits certain companies to prepare and file Companies Act financial statements using the American accounting standard, known as US generally accepted accounting principles or US GAAP. As things stand, that section will no longer apply after December 2020. As Deputies will be aware, the provisions of the Bill before the House today were originally proposed as part of the general scheme of the Companies (Statutory) Audits Bill 2017, which was published by the Government earlier this year, in February. While drafting of that Bill is well under way and publication is planned for the summer, it has become apparent to the Government that the issue dealt with in today's Bill may require more immediate attention. Indeed some Deputies have raised this issue and called for those provisions in the general scheme of the statutory audits Bill that relate specifically to section 279 to be taken out of that proposed Bill and brought forward as a matter of urgency. Accordingly, I am pleased to say today that the Government has responded to those calls for urgency and given the relevant provisions their own stand-alone Bill, which is before the House now. I hope Members will welcome it.

The history of this issue dates back to the Companies (Miscellaneous Provisions) Act 2009, when the Oireachtas first enacted the possibility for some companies to use US GAAP. Under Irish company law, companies are generally required to prepare and file their financial statements using one of two sets of accounting standards, namely, international financial reporting standards, IFRS, as adopted by the European Union, or Irish generally accepted accounting practices, Irish GAAP, in accordance with EU law. With the 2009 Act, an exception to this rule was introduced allowing particular types of companies to prepare their financial statements using US GAAP. Those provisions were later amended in the Companies (Amendment) Act 2012 and then re-enacted as section 279 of the Companies Act 2014.

In short, section 279 permits companies that are not listed on a regulated market in the EU and that meet certain other criteria to prepare and file their financial statements using US GAAP rather than using either IFRS or Irish GAAP. This provision was intended to facilitate companies that are registered in Ireland but are listed in the US. Once a company is listed in the US, it is subject to the rules of the Securities and Exchange Commission and is obliged to prepare and file financial statements in the US in accordance with US GAAP. Without section 279, that company would also have to prepare and file a separate set of financial statements using IFRS or Irish GAAP. It would have to prepare two very different sets of financial statements in respect of the same financial year. At the time the provision was introduced, the Oireachtas accepted that this would be an administrative burden on those companies that was not merited.

The Oireachtas also framed the provision as a temporary measure, with an end point after which it could not be used. That was due to an expectation that the Securities and Exchange Commission would permit the use of IFRS for the relevant companies. There were also international efforts toward convergence between US GAAP and IFRS. The Securities and Exchange Commission still does not permit IFRS for companies known as US domestic issuers and it seems unlikely it will do so in the near future. Furthermore, the discussions on convergence have not come to a conclusion. Given that the considerations which gave rise to the provision are still relevant, it is appropriate to review the end date before it passes. In the event that this date is not extended beyond the current deadline of 31 December 2020, companies will have to prepare and file two different sets of accounts according to two different accounting standards for financial years ending after that date.

Last September, the Department conducted a public consultation on the impending deadline in section 279. It received 23 responses from a range of stakeholders, and all are available on the Department's website. Virtually all the submissions were in favour of extending the deadline beyond 2020. While some respondents advocated an extension with no end date, most other respondents felt a ten year extension would be appropriate. The Department also spoke to the Irish Auditing and Accounting Supervisory Authority. The views of the Minister for Finance were also sought. As a result, the Government has decided that it is appropriate to extend the deadline by a further ten years. The main reasons for this decision include, first, the fact the public consultation showed support for an extension among stakeholders such as members of the accounting profession and representative bodies of business. It is important to point out there were no objections. Second, the circumstances that gave rise to the deadline in section 279 have not improved. Third, the relevant companies have been using US GAAP for several years now, so it is easier to compare historical figures if the format remains the same in future. Moreover, neither the Department nor the Irish Auditing and Accounting Supervisory Authority is aware of any complaints with the use of US GAAP in Ireland. Therefore, section 1 of the Bill provides that section 279 will continue to apply to financial years ending no later than 31 December 2030.

Apart from the deadline, one of the other conditions that is currently in section 279 is that the financial statements must comply with all the financial reporting requirements of Part 6 and its associated Schedules in the Companies Act. The financial statements must be in line with our national law. That important obligation will remain unchanged by today's Bill. As well as extending the deadline, the Bill has a second function, which is to address the fact that the use of section 279 is not entirely without concern. Some of the companies that qualify to use US GAAP are companies that came to Ireland from the US following a so-called inversion process.

Many of these companies have brought or grown their investment in Ireland. In some cases, their businesses in Ireland are substantial. I have met representatives of some of those companies myself when I was doing trade missions to the United States.

Nevertheless, inversions can be damaging to Ireland’s international reputation. As Deputies may be aware, they have received negative attention in the US. Ireland’s standing abroad must also be borne in mind.

The availability of section 279 for companies has been suggested as a potential factor in attracting US companies that are inverting to Ireland. In that light, the proposal in the Bill to extend the deadline in section 279 could be seen as a measure to encourage more company inversions in future. Accordingly, the Government is proposing to close off section 279 at this time to any new companies. Therefore, section 1 of the Bill introduces a new criterion for qualification. That new criterion is the requirement that a company has been registered in Ireland before the commencement of this Bill. That point has to be made quite clear, particularly in an international context.

In summary, section 1 of the Bill extends the deadline for companies using US GAAP for a further ten years, bringing that deadline to the end of 2030. Section 1 also provides that any company that forms after the Bill comes into operation will not be eligible.

Section 2 of the Bill is technical and provides for the commencement of the Bill. It is intended to commence the Bill as soon as possible after enactment.

I would like to mention the timing of the Bill and the reason for some urgency. The existing deadline of 2020 may be over three years away, but companies that rely on section 279 are requesting certainty on the issue well in advance of this date. They have made representations to the Government and Members of this House asking that the Oireachtas reconsider that deadline at this stage, rather than in a few months as originally intended.

This is for two reasons. First, the companies would need to introduce new accounting systems to prepare financial statements in either IFRS or Irish GAAP. Second, both IFRS and Irish GAAP require comparative information in respect of the preceding financial year. This information must be restated in terms of IFRS or Irish GAAP, as the case may be, when IFRS or Irish GAAP is first used. In effect, this requires restatement of two earlier balance sheets. If the current deadline of 2020 stands, the companies are clear that they will need to start their preparations straight away.

The Government accepts that companies need clarity now as to whether the deadline in section 279 is to be extended. For that reason it has agreed to introduce the provisions that are now in section 1 of this Bill earlier than was originally planned. For the same reason, the Government has also placed a priority on the enactment of this Bill.

The Bill is pragmatic, timely legislation that addresses the needs of businesses while taking long-term reputational issues into consideration. It respects the importance of transparency for third parties. They will continue to have access to financial information in a format that is comparable with the information that is already available on these companies. Finally, it respects the policy of proportionate regulation.

I commend the Bill to the House.

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