Mary Mitchell O'Connor (Dún Laoghaire, Fine Gael) | Oireachtas source

I am pleased to bring the Companies (Amendment) Bill 2017 before the Seanad today. This is a short Bill, comprising only two sections dealing with a particular and discrete issue in the law on financial reporting by companies, namely, the application of section 279 of the Companies Act 2014 which permits certain companies to prepare and file Companies Act financial statements using the American standard known as US Generally Accepted Accounting Principals, or US GAAP.As matters stand, this section will no longer apply after December 2020.

As many Senator's are aware, the Government’s original intention was to address this issue as part of the companies (statutory audits) Bill. In February, we published the general scheme of the audits Bill and drafting is well under way. It is my intention to bring it to the Oireachtas in the autumn. However, since the publication of the general scheme, there have been calls by companies that use section 279 and some Members of the Oireachtas, including Senators, to bring this particular provision forward earlier. I am pleased to note, therefore, that the Government has responded to these calls by bringing forward this Bill in a short period. I will shortly speak in greater detail on the content of the Bill and hope Senators will agree it is appropriate.

While the Bill may be short, the history of this issue is not. It is the general rule of Irish company law that companies prepare and file financial statements using the international financial reporting standards, IFRS, as adopted by the European Union or in accordance with the provisions of the EU accounting directive using the Irish generally accepted accounting practices. If a company is listed on a regulated market within the European Union, it must use the IFRS standards. Section 279 of the Companies Act 2014 is an exception to this general rule. The section was first introduced in the Companies (Miscellaneous Provisions) Act 2009 and subsequently amended in the Companies (Amendment) Act 2012. Most recently, the 2012 provision was re-enacted in the Companies Act 2014.

The section permits companies that are not listed on a regulated market in the EU and meet certain other criteria to prepare and file their financial statements using US GAAP, rather than either IFRS or Irish GAAP. This provision was intended to facilitate companies that are registered in Ireland but listed in the United States. Once a company is listed in the US, it is subject to the rules of the Securities and Exchange Commission and obliged to prepare and file financial statements in the US in accordance with US GAAP. Without section 279, such a company would also have to prepare and file a separate set of financial statements using IFRS or Irish GAAP. In other words, 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 such a requirement would impose an administrative burden on the companies in question 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. This 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 lFRS.

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 circumstances that gave rise to the provision still pertain, it is appropriate to review the end date before it passes. The current deadline in section 279 is that it will only apply for financial years ending not later than 31 December 2020. As a result, companies will no longer be able to avail of this provision for financial years that end after that date. From that date onwards, they will be required to prepare financial statements in both US GAAP in the US and either IFRS or Irish GAAP in Ireland.Last September, the Department conducted a public consultation process on section 279. In particular, it asked for views on whether the deadline should be extended. If so, it asked for views on the length of time that would be appropriate. The Department received 23 submissions, all of which are published on the Department’s website. All those who responded supported the extension of the deadline. While a few stakeholders looked for longer or open ended timeframes, most settled on an additional ten years.

The Department also spoke with the Irish Auditing and Accounting Supervisory Authority. The views of the Minister for Finance were also sought. As a result, the Government has agreed that the deadline should be extended by a further ten years. The main reasons for this decision include that the public consultation showed support for an extension among stakeholders such as members of the accounting profession and representative bodies of business. 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 about the use of US GAAP in Ireland. Accordingly, 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 in section 279 is that the financial statements must still comply with the financial reporting requirements of Part 6 and its associated Schedules in the Companies Act. In other words, these financial statements must be in line with our national law. This important obligation will remain unchanged by today’s Bill.

As well as extending the deadline, the Bill has a second purpose, 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. Nevertheless, inversions can be damaging to Ireland’s international reputation. As Senators may be aware, they have received negative attention in the US. Ireland’s standing abroad must 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 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. 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 my intention to commence the Act as soon as possible after enactment.

Before I conclude, I will briefly deal with the timing of the Bill. The existing deadline of the year 2020 may seem a long way off now but the companies that rely on section 279 consider it a tight timetable. 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' time as originally intended. This is for two reasons. First, the companies will 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 the companies need clarity now as to whether the deadline in section 279 is to be extended. For that reason, we have agreed to introduce the provisions that are now in section 1 of this Bill earlier than was originally planned, as part of the forthcoming statutory audits Bill. For the same reason, the Government has also placed a priority on the enactment of this Bill.

The Bill represents a timely and flexible response to the needs of enterprise and to the concerns for our long-term reputation. 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.