Tuesday, 11 April 2017
Companies (Amendment) Bill 2017: Second Stage
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.
Fianna Fáil supports the swift introduction into Irish law of the Companies (Amendment) Bill 2017, which will extend the current expiry date of 31 December 2020 to enable qualifying companies, incorporated in Ireland, to prepare and file financial statements using US Generally Accepted Accounting Principles, GAAP, rather than International Financial Reporting Standards, IFRS. The extension is for ten years to December 2030.
In 2009, under a Fianna Fáil-led Government, a temporary exemption was introduced that enabled companies to prepare their financial statements in accordance with US GAAP. This was subsequently referenced under section 279(2) of the Companies Act 2014. The Bill will give long overdue legal certainty and clarity to the companies concerned by strengthening the regulatory competitiveness of Ireland in this area and secure jobs in the medium term. This is more salient than ever with Brexit on the horizon and a more competitive business landscape likely in the US under the new Administration. There was an impending requirement for SEC-listed and Irish incorporated companies to file accounts under both US GAAP and IFRS. However, a previous convergence project between both standards has stalled. Fianna Fáil has pressed for this expiry extension over the past 18 months and on Committee and Report Stages of the Companies (Accounting) Bill 2016 in the Dáil, in order to safeguard 8,000 highly-skilled jobs.Legal certainty was urgently needed by these companies which, in the absence of an extension to the 2020 expiry date, would have had to start making extensive preparations to meet new standards under IFRS guidelines. The deadline for the 2020 expiry date would effectively be 2018. It has been estimated that the cost of introducing and implementing the IFRS requirements would be a minimum of $20 million before the end of each company’s financial year in 2017 due to reallocation and introduction of extra resources and staff training while streamlining the different systems required to meet these compliance obligations.
It was only after Fianna Fáil indicated on Report Stage of the Companies (Accounting) Bill 2016 in the Dáil that we were going to introduce an amendment in the Seanad to extend the current expiry date that the Minister magically at the eleventh hour was able to fast forward legislative proposals at Cabinet last week to show cause on this issue. Therefore, the flagged amendment by Fianna Fáil has expedited the legislative process for this issue and, thankfully, awoken the Government.
We appreciate it coming but it could have happened a bit earlier. That is the general gist of it.
I, too, welcome the legislation and support its passage in early course. It seems to me that we should do everything we can to facilitate reasonable accommodation of the companies to which this legislation will be of benefit in current circumstances and as a matter of general policy. Am I right in thinking that we are just dealing with Second Stage today?
Indeed, although it seems to me that it is not a complex measure and there is very little reason to hold back on it.
The other point I was going to make is that I am slightly perplexed, although I take it on good faith from the Minister, as to why section 2(2) was inserted at all. Is it suggested that the amendment to be made by paragraphs (a) and (b) of section 1 might be made on a different day from the amendment made in paragraph (c) or will it all be done at one time? If it is not, why are we providing that the Minister can appoint different days for different provisions to come into effect? On the logic of the Minister's own statement, it seems to me that it should all commence as one package. Rather than delay things and propose amendments or the deletion of section 2(2), if the Minister is indicating to the House that it is her intention to commencement everything on a particular day as an entire complete package and as quickly as possible after the Bill has been passed by both Houses of the Oireachtas, I am happy. However, I do not know why the boiler plate commencement provision allowing for different provisions to be commenced on different days has been inserted into the text of the legislation if it is intended to bring it into operation as quickly as possible after the Houses have enacted it.
She can deal with it in her response. Apart from that, I wish the Minister well and I commend the Fianna Fáil Party on having created the conditions under which the matter has been brought to an early conclusion, I hope, in this House.
I thank Senator Reilly.
There is not much to say on this short Bill other than to say that I welcome the amendment to the Companies Act. Sinn Féin is happy that the benefits of the continuation of section 279 are not compromised by damages to the Exchequer. In short, the Bill extends the deadline in section 279 of the Companies Act 2014 to December 2030 so that certain companies can continue to prepare and file their financial statements using the American accounting standards. The amendment also provides that the exemption in section 279 will not be available to companies that do not avail of it now. I recognise that both the US generally accepted accounting standards and the international reporting mechanisms are to a high standard. This continued exemption provides an ease of doing business and spares some companies the associated costs of switching systems.
I have examined the various submissions on the Department's website regarding the Bill. It is fair to say that the extension is largely uncontentious and welcomed by most. Of the 23 submissions received, 22 stated that the deadline should be extended. Only one submission - that of the Irish Tax Institute - did not make a recommendation. The submission by Chambers Ireland argued that failure to allow for an extension would result in a significant cost to companies and that extending the provision would maintain Ireland's international competitiveness.
I welcome that companies will not endure excessive costs if we pass the legislation. Excessive costs for businesses would be of no benefit to the Exchequer. There is no reason to add financial pressures to the companies that currently avail of the exemption. Ensuring that companies will not come under excessive financial pressures also ensures that the ordinary workers of Ireland will not suffer under business that is being compromised by undue costs. Overall, I welcome the extension of the provision within the Companies Act. It makes Ireland a more attractive destination for some companies, with no apparent cost to the ordinary Irish citizen.
No need at all.
I welcome the Minister to the House and welcome and commend the Bill. Contrary to the assertions of my colleague, Senator Aidan Davitt, who probably had to read a script prepared by Fianna Fáil HQ, this comes as a result of multiple sides of the House being canvassed by major international companies that will be subjected to what I think we all agree would be unnecessary cost. It was one of the few things that united us all at the Committee on Jobs, Enterprise and Innovation. There was no dissenting voice. This was an issue that had to be addressed. It was originally intended that the Minister would deal with it in the statutory auditing legislation, but it was decided that it would be provided for in separate legislation. We also did not want it to delay the Companies (Accounting) Bill, as that is very important to small business, which wanted it expedited as quickly as possible. The Minister has been as good as her word. Having been canvassed by various companies, I canvassed her on it. It made absolute sense to the Department and the Minister and I think we are all agreed that it was something that needed to be done and done quickly to give comfort to companies which would have been exposed to millions of euros of unnecessary expense.
When we speak as a House on helping business to create more employment, whether it be that of small or medium enterprises, home-grown businesses or foreign direct investment and multinationals, we all have one purpose at heart, which is not to create unnecessary expense for business. This was a classic case. I, therefore, commend the Minister on taking such speedy action. It is important that we remember where we were. I am not trying to score political points. These are just facts.
This is important. We may forget that the level of unemployment was at more than 15%. It is down to 6.4%. More than 2 million people are back at work, but we have to fight for every job and ensure that every business gets every opportunity to create that extra job.We want SMEs to be successful. One extra job in every SME means 80,000 more jobs overall. Extra jobs in existing FDI companies are also very important and we should not create unnecessary problems for them. We all need to be vigilant and we are all open to people approaching us if they come with sensible solutions to what look like problems we can all grasp and deal with.
The Minister has been very quick to respond. She said it was a short Bill but I am reminded as I often am by a certain party who is near and dear to me that good goods come in small parcels. The Bill is indeed that. It is short and to the point but it is also very effective and necessary. I welcome it and commend the Minister on it. I thank all of my colleagues in the Seanad for supporting it and also the jobs committee which was unanimous on the issue. I thank the Department also for its sterling work in getting the Bill together so quickly.
In my brevity, I omitted something I ask the Minister to address. Is the Minister in a position to say whether the Bill and the other Bill when passed will be consolidated into a single version of the Companies Act available to the public?
I thank all the Senators for their cross-party support. My approach is to do the best thing no matter who puts it forward. I note to Senator Davitt that the supply and confidence agreement is working. I had intended to put this through in the statutory audits Bill but I am delighted that we could get it through this way. I thank the Office of the Attorney General and the Office of the Parliamentary Counsel, the jobs committee and my own officials for the work they do on all the Bills we are bringing through.
Senator McDowell asked about the implementation of the legislation. My intention is to bring it in as soon as possible and on the one day. The Bill uses the standard language which the Senator will understand with his knowledge of legalese. That is how it is stated but we intend to do it on the one day. On his last question, we also intend to put the legislation together.