Niall Collins (Limerick County, Fianna Fail) | Oireachtas source

Fianna Fáil supports the Companies (Statutory Audits) Bill 2017 and will examine amendments to strengthen it further and to ensure there is proportionate impact on small and micro-sized businesses following its enactment. However, we have serious reservations about the loss of the audit exemption to small companies. I will return to this later.

As a policy response to the global financial crisis, the European Commission proposed an audit package of legislative reforms in 2011 to strengthen the independence of auditors and to ensure further transparency for the financial information of companies, while creating a single market for statutory audit services. The statutory audits Bill enshrines elements of the EU audit package proposals, comprising a 2014 EU directive and regulation, in primary law with respect to the regulation of statutory audits and auditors. However, there has been haphazard implementation of the EU audit package in Ireland. This has necessitated creating a single regulatory framework at this juncture to ensure coherence in primary legislation for statutory audits and practitioners.

With regard to white collar crime, the Government’s announcement last November that the statutory audits Bill would form part of the package of reforms to enhance powers to clamp down on white collar crime was disingenuous. In fact, the package being spun was a rehash of existing legislative proposals not enacted, which date back as far as 2013. White collar crime reforms have been a fig leaf under Fine Gael. In the 2011 programme for Government, many commitments were entered into in this area but were not delivered.

The collapse of the longest running criminal trial in history, involving charges against Seán FitzPatrick, represented a damning indictment of the Office of the Director of Corporate Enforcement, ODCE. Ministerial oversight of the ODCE under successive Fine Gael Ministers with regard to insufficient staff resources leaves, and has left, a lot to be desired. This was the biggest case the ODCE was ever involved in but it was left exposed. To this day, there has been no form of accountability. The intention to establish the ODCE as an independent agency to enforce company law has long been signalled and is overdue. The Minister, Deputy Humphreys, must honour the commitment she has given to publish an account of the investigative failures identified by Judge Aylmer and the steps that are being taken to address them as a result of the trial.

As I said, we have serious reservations about the loss of the audit exemption. This will impose an unnecessary administrative burden on the SME sector when the Government should be doing all it can to reduce the cost of doing business in Ireland. SMEs are the backbone of the domestic economy, with nearly 1 million people employed in approximately 238,000 active enterprises. Some 92% of all SMEs are micro-enterprises, having fewer than ten employees. The Government has turned a blind eye to the concerns of accounting practitioners and the SME community with the proposal in the Bill to change section 343(5) of the Companies Act 2014. This would result in the automatic loss of an audit exemption for companies that apply to the courts to extend their filing deadline. Currently, a company can apply to the District Court for an extension to file its annual return. If the court is content, an extension may be granted and the annual return is considered to be received on time.

The consequences of the late filing - penalties or loss of audit exemption - will not apply for that annual return. However, the Bill proposes that the application must be made via the High Court and that the District Court will only be empowered to waive the filing fee if a company is late in filing. Accounting representative bodies have strongly criticised the loss of the audit exemption for late filing. Although a strong regulatory environment to ensure compliance is necessary, any new laws must impact proportionately on small businesses. Although the audit exemption mainly applies to small and micro companies, the cost of applying to the High Court will be prohibitive and, according to the Institute of Certified Public Accountants, outside the financial capacity of most such companies. It would also place a disproportionate administrative burden on the SME sector, which is contrary to the Government policy of reducing the cost to small businesses. Accountancy bodies have said the audit exemption loss for late filing is an overly punitive sanction and makes section 345 ineffective in all cases, including genuine force majeurecircumstances. On a practical note, this would result in companies changing accounting firms at the very last minute due to the fact that many such firms are not registered auditors.

The Consultative Committee of Accountancy Bodies considers this administrative and financial burden to be:

disproportionate to the late filing offence for small companies. The cost and disruption which can arise from switching accounting services provider seems to us to be contrary to government policy to ensure Ireland remains an attractive business environment for companies of all sizes.

The Government will say that in 2016 there was a large increase in applications to the District Court for late filings and audit exemptions. It is likely that resulted from the very uncertain financial reporting environment for small businesses that year, which was due to the severe delay in the Government transposing a 2013 EU accounting directive. The Government was over two years late in enacting that directive into Irish law, which was alarming considering it is to the benefit of Irish SMEs as it simplifies financial reporting requirements and reduces the administrative burden and compliance cost on such companies.

We look forward to addressing the issues I have highlighted on Committee Stage.

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