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

I thank Senator Norris for his warm welcome. However, I cannot accept amendment No. 1. The effect of this amendment would be to repeal section 363 of the Companies Act 2014. That section includes a long-standing rule that a company loses its entitlement to an exemption from audit if it files its annual returns late.

Before I set out my specific concerns with the amendment, I want to clarify that I agree that the audit exemption is an important cost-saving benefit for small companies. This is generally accepted and it is the main reason we made it more widely available when we enacted the Companies Act in 2014. At that time we reduced the number of thresholds that a small company must meet from three to two. We also extended the exemption to group, dormant, guarantee and unlimited companies. The Bill before us goes further. It increases the thresholds for small companies to the maximum allowed under EU law so that even more companies will become eligible for the audit exemption. Already, the vast majority of companies in Ireland qualify for the audit exemption. That majority will increase after the enactment of this legislation.

However, the requirement for a company to file its annual return on time is an important transparency measure. The financial statements and other information that accompany the annual return provide important safeguards for third parties such as suppliers, creditors and employees. It is essential that the information is filed in a timely manner if those safeguards are to be meaningful. Therefore, we need to ensure that companies meet their filing deadlines. There is good reason to believe that the loss of an audit exemption is an effective deterrent to late filing. As I mentioned earlier, this is a long-standing rule. It dates back to the Companies (Auditing and Accounting) Act 2003. Just a few years before that, compliance with filing deadlines was only at 13%. Today, the compliance level has dramatically increased to 90%. The 13% compliance level preceded the introduction of the audit exemption rule. The rule concerning the loss of the exemption is associated with the increased level of compliance and is an important part of that improvement.

In 2011, the Company Law Review Group, CLRG, reconsidered the rule on the loss of the audit exemption. It considered several arguments in favour of abolishing the rule but did not consider any to be sufficiently compelling to outweigh the benefits of maintaining the rule. The group also noted that the majority of companies meet their filing deadlines. As a result, it recommended no change to the loss of the audit exemption for the late filing of annual returns. I know that some consider the audit exemption as an entitlement for small companies but that is not a correct assessment. In fact, neither EU nor national law gives that exemption as a right. We should also bear in mind that companies can have more than nine months to prepare and file their financial statements with the CRO. Companies also get a reminder from the CRO six weeks before their annual return is due. Furthermore, the Bill before us simplifies the existing financial reporting requirements for small companies and when it comes to micro-companies, it reduces those requirements even further. In light of that, it is difficult to accept that a company would find it onerous to file its annual return on time, other than in rare circumstances.

The rule in section 363 serves an important purpose. It is designed to support compliance with a key transparency requirement. It is not unduly onerous for companies to comply with that requirement. For all of these reasons, I support keeping section 363 in the Companies Act 2014. Therefore, I do not support the amendment tabled by Senators Norris and Boyhan which proposes to delete that section.