The directors of a company must prepare a directors’ report for each financial year. It must contain a review of the company’s business. It must also deal with a range of key facts and specific confirmations which are required to be set out.
The matters to be set out in the directors’ report include
- the identity of the directors;
- the principal activities of the company;
- measures taken to secure compliance with accounting obligations;
- confirmation of the keeping of accounting records and their location;
- the amount of any interim dividends.
- state whether any dividend is to be recommended;
- state whether any profit is to be carried to reserves;
- information on the acquisition and disposal of its own shares;
- information on interests in shares and debentures set out below;
- certain audit information.
The contents of the directors’ report required to be prepared by medium and large companies were amended by the 2017 Act. The required information has been expanded.
Small and Medium Companies
All medium companies were formerly exempted from the requirement to prepare a Directors’ Compliance Statement. However, the relevant thresholds were increased by the 2017 Act. The increase in the thresholds means that some medium companies will be subject to the obligation to prepare a compliance statement. The obligation applies to companies whose balance sheet totals exceeds €12,500,000 and whose turnover exceeds €25,000,000.
Investment companies are obliged to file their full statutory statements, directors’ report and statutory audit.
Medium-sized companies are exempt from the obligation to disclose the auditor’s remuneration.
The directors’ report as previously required, but with modifications, is required under the new small companies regime where adopted. The small company is not obliged to disclose a business review. It is exempted from disclosure of certain information in relation to financial instruments including financial risk management objectives and policies including hedging policies for certain transactions and exposures.
A directors report is not required under the micro company regime. Certain information in relation to the acquisition of the company’s owe shares are required to be given in the notes of the accounts.
Directors Report Obligations
Breach of the obligation is a category 3 offence. It is the duty of every person who is a director, shadow director or de facto director to ensure that the above requirements are complied with. Directors and others, may on summary conviction be subject to a fine and/ or six months’ imprisonment. It is a defence that they believed reasonably that a competent and reliable person was undertaking the requirement on behalf of the company.
The director’s report must list the subsidiaries and companies in which the company has voting shares over 20%. Further particulars of shareholdings and interests in other entities must be disclosed.
Where group financial statements are published with entity financial statements, it is sufficient to prepare a group directors’ report (as distinct from that report and a directors’ report in respect of the holding company as well) provided that any information relating to the holding company only, being information which would otherwise be required to be provided, is provided in the group directors’ report.
A group directors’ report may, where appropriate, place greater emphasis on the matters that are significant to the company and its subsidiary undertakings included in the consolidation taken as a whole.
Review and Analysis
The directors’ report for the financial year shall report on the state of the company’s affairs. It should provide a fair review of the development and the performance of the company’s business (and that of its subsidiaries) in the relevant year. It should highlight important events affecting the company in the relevant year;
It should deal with
- likely future developments;
- any changes in the company’s business;
- relevant changes to the state of the company’s affairs.
- the principal risks and uncertainties facing the company;
- activities in research and development;
- branches outside the State;
- political donations that are required to be disclosed under the Electoral Act.
The fair review is to be a balanced description and analysis of the performance and the development of the business in the period. It should describe the risks facing the business. It should include an indication of likely future developments in the business of the company.
The report should include information on financial performance. It should deal with the assets, liabilities and the financial position at year end, as appropriate, consistent with the size and complexity of the business. It should where appropriate, provide additional explanations of amounts included in the statutory financial statements of the company.
To the extent necessary for understanding the company’s development, performance, financial position, assets and liabilities, it should include an analysis of financial key performance indicators, and/or an analysis using non-financial key performance indicators, such as information relating to environmental and employee matters.
Where it is material for the assessment of the company’s financial position or its profits and losses, the directors must describe the use of derivatives and financial instruments. This shall include, in particular, the financial risk management objectives and policies of the company, including policies for hedging; each major type of forecasted transaction for which hedge accounting is used, and the exposure of the company to price risk, credit risk, liquidity risk and cash flow risk.
PLCs may prepare summary financial statements for the purpose of being sent to shareholders in lieu of full statutory financial statements, directors’ and auditor’s report. Summary financial statements must give a fair and accurate summary of the financial development of the company during the year and its financial position at the year end. It must include an auditor’s opinion as to the consistency of the statements with the statutory financial statements and director’s report.
Where at any time during a financial year of a company, shares in the company are held or acquired by the company whether by forfeiture, surrender or otherwise or are held or acquired by a subsidiary undertaking of the company, the directors’ report shall state:
- the number and the nominal value of any shares so held by the company and subsidiary at the beginning and end of the period together with the consideration paid;
- a reconciliation of the number and nominal value of the shares from the beginning of the financial year to the end showing (Section 36, 2017 Act);
- the reasons for any acquisitions made;
- the consideration paid;
- the proportion of called-up share capital at the beginning and end of the period.
The directors’ report must contain a statement that insofar as the directors are aware, that there is no relevant audit information of which the auditors are unaware and that the directors have taken all steps which they ought to take as directors to make themselves aware of relevant audit information and establish that the auditors are aware of that information.Relevant audit information is information needed by the company’s statutory auditors in preparing their report.
This statutory requirement supplements the duty of the directors and other officers to make company information available to the auditors and to give all explanations within their knowledge or which they can procure. The auditors are to state in their report whether they have obtained the necessary cooperation, information, and explanations, which they believe necessary to the best of their knowledge, for their audit.
A director is regarded as having taken all the steps he ought to have taken as a director in order to do the things mentioned above, if he has made such enquiries of his fellow directors, if any, and of the company’s statutory auditors for that purpose, and taken such other steps for that purpose, as are required by his or her duty as a director of the company, to exercise reasonable skill, care, and diligence.
Where the directors’ report contains the above statement, every director who knew that the statement was false, or was reckless as to whether it was false, or who failed to take reasonable steps to prevent the report from being so approved, is guilty of a category 2 offence.
Some classes of companies must state the position as to the establishment or otherwise of an audit committee.
Directors’ Interests In Shares
The directors’ report shall, as respects each director, state whether he was, at the end of the financial year, interested in shares or debentures of, the company or any group company. If a director was so interested at the end of that year, it should state the number of shares and debentures concerned. The requirement also applies to the interests of shadow directors and de facto directors.
The report shall state whether or not the director was, at the beginning of the financial year interested in shares or debentures of any other group undertaking. It shall state, if he was so interested at either of the above dates, the number and number of shares and debentures of each undertaking in which he was so interested, at the beginning of the year or, when he became a director.
The same information is required in respect of the company secretary. The information required is equivalent to that to be provided in registers of interests.
Details of (aggregate) directors’ salaries and payments must be given in the accounts or in an annexed statement. This includes salaries, expenses, benefits in kind (emoluments), pensions, and compensation for loss of office for present and previous directors.
Transactions and arrangements between the company and the directors must be disclosed. This applies to loans, quasi-loans guarantees, credit transactions and agreements and arrangements for any of them. Details must be given.
Transactions and arrangements in which a director has a material interest must be disclosed. The details of the transaction must be disclosed. There is an exemption where the transaction does not exceed a prescribed minimum or 1% of the net assets of the company.
Compliance Statements I
Legislation was introduced in 2003, providing for compliance statements by directors in relation to the company’s legal obligations and its procedures for securing compliance. The statement was to be reviewed every three years and was to be included in the directors’ report. The legislation was never commenced and has been superseded by the 2014 Act.
Directors of limited liability companies, designated activity companies, and companies limited by guarantee with a balance sheet size of more than €12.5 million and turnover of more than €25 million and all public liability companies other than investment companies, must include a director’s compliance statement in the director’s report on the financial statements.
The compliance statement requires the directors to acknowledge that they are responsible for compliance with “relevant obligations.” Relevant obligations mean taxation, and certain investor protections laws and Companies Act compliance obligations, breaches of which would constitute a category 1 or category 2 offences.
Compliance Statements II
The compliance statement must confirm in relation to the following matters, that they have been done or specify why they have not been done, giving reasons;
- preparation of a compliance policy statement, embodying the company’s policies which are in the opinion of the directors, appropriate to the company regarding compliance by the company with its relevant obligations;
- maintenance and putting in place of arrangements or structures which in the director’s opinion are designed to secure material compliance with its obligations and
- the conduct of a review during the financial year of any such arrangements or structures that have been put in place.
Arrangements or structures are deemed to be designed to secure material compliance with the company’s obligations if they provide reasonable assurance of compliance in all material respects with the obligations concerned. They may, if the directors determine, include reliance on advice of persons employed or retained by the company on a professional basis, who appear to have the requisite knowledge and experience to advise the company on compliance with its obligations.
Other Compliance Matters
The directors’ report must set out the steps taken by the directors to secure compliance with the duty to keep proper books of accounts. It must report on the acquisition of its own shares, whether by purchase, forfeiture or surrender.
The report must contain an evaluation of steps taken to implement the safety statement, required under the Safety, Health and Welfare at Work Act. Larger companies must give information on certain environmental and employee matters.
Quoted companies must give further information on its share structure, voting rights, restrictions on transfers.
Corporate Governance Statement I
A traded company must include a corporate governance statement in its directors’ report. A traded company is a company that has shares or debentures admitted to trading on a regulated market within the EEA.
The corporate governance statement shall included at least, all of the following information:
- a reference to the corporate governance code to which the company is subject and where the relevant text is publicly available; or ) which the company has voluntarily decided to apply and where the relevant text is publicly available;
- all relevant information concerning corporate governance practices applied in respect of the company which are additional to any statutory requirement, and where the information on such corporate governance practices is available for inspection by the public;
- where the company departs, in accordance with any statutory provision, from a corporate governance code an explanation by the company as to which parts of the corporate governance code it departs from in accordance with the statutory provision and the extent to which it departs from such code; and the reasons for such departure;
- and where the company has decided not to apply any provisions of a corporate governance code, the company shall explain its reasons for doing so;
- a description of the main features of the internal control and risk management systems of the company in relation to the financial reporting process;
- certain information required under the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations where the company is subject to those Regulations;
- a description of the operation of the shareholder meeting, the key powers of the shareholder meeting, shareholders’ rights and the exercise of such rights;
- the composition and operation of the board of directors and the committees of the board of directors with administrative, management and supervisory functions.
Corporate Governance Statement II
The information required may be set out in a separate report published in conjunction with the directors’ report, or provided by a reference in the directors’ report to where the separate report is publicly available on the website of the company. Where a separate report is provided, the corporate governance statement may contain a reference to the annual report where the requiste information is provided.
Where a company prepares a corporate governance statement in the form of a separate report, such report shall be attached to every balance sheet, re, laid before the annual general meeting of the company and shall be signed on behalf of the directors by 2 of the directors of the company.
Where a company prepares a corporate governance statement in the form of a separate report, a copy of such report shall be published on the website of the company, and a statement that a copy of the report has been so published, together with the address of the website of the company, shall be included in the report of the directors of the company; or be annexed to the annual return of the company.
Auditors Report on Corporate Governance Statement
The statutory auditor’s report must report in relation to the corporate governance statement. The report must provide an opinion based on work undertaken in the course of audit as to whether the information given
- is consistent with the company’s statutory financial statements in respect of the financial year, and whether such information has been prepared in accordance with the section;
- state whether, based on their knowledge and understanding of the company and its environment obtained in the course of the audit, that they have identified any material misstatement in the information given and, where they have so identified it, give an indication of the nature of such misstatement;
- state whether in their opinion, based on the work undertaken during the audit, the requisite information is contained in the company’s corporate governance statement.
The auditors are required to state whether the information required above is consistent with the financial statements or inconsistent with their knowledge and understanding of the company and its environment that they have obtained in the course of the audit.
Non-Financial Statements Requirement
- in relation to a financial year, qualify under certain criteria as “large companies” and have more than 500 employees on average,
- ineligible entities including companies which have transferable securities admitted to trading on a “regulated market” of any EEA Member State,PLCs ( listed or unlisted), credit institutions; insurance undertakings; and certain other specified undertakings, such as investment companies;
- companies that are large traded companies; “large companies” which are also “traded companies” i.e., admitted to trading on a “regulated market” in an EEA Member State.
There is an exemption for a subsidiary company from having to prepare a non-financial statement where it is included in group non-financial statements of the undertaking which have been drawn up in accordance with the requirements in another EU state.
Failure to comply with the obligations imposed by the Regulations is an offence subject to a Class A fine or imprisonment for up to 6 months, or both.
Non-Financial Statements I
- environmental matters;
- social and employee matters;
- respect for human rights
- bribery and corruption.
Non-Financial Statement II
The directors may omit certain information from the disclosures where it relates to an impending development of a matter in the course of negotiation and where in the opinion of the directors, the disclosure would seriously prejudice the company’s competitive operations. The exception is available where the omission of the information does not prevent a fair and balanced understanding of the company’s development, performance, position and the impact of the relevant activity. Directors must state where they have omitted information and give the reason.
In preparing the non-financial statement, a company may rely on a national, European Union or international frameworks. Where it does so, it should specify the framework on which it has relied. The EU Commission has issued guidelines on non-financial reporting methodology for reporting non-financial information. This gives guidance on the information required.
Directors may prepare the non-financial statements as a separate report. It must be published on the company’s website within six months of the end of the year-end date. The directors’ report must state that a copy of the statement has been or will be published and give the address of the website.
Diversity Information Traded and Large Companies I
The obligations apply to certain undertakings as defined. They include
- most varieties of public companies whose shares are traded,
- public interest companies in Ireland or EU
- financial services, credit institutions, and insurance entities, which are traded on a multilateral trading facility.
Diversity Information Traded and Large Companies II
The diversity report shall include a description of the diversity policy applied in relation to the company by the board of directors with regard to
- matters such as age, gender, education, profession, and background;
- the objectives of the diversity policy;
- how the diversity policy has been implemented by the company and
- the results of the policy in that year.
Where a diversity policy is not applied, the directors shall include an explanation in the corporate governance statement as to why there is no such policy. The statutory auditors must state whether in their opinion based on their work undertaken, the information required is contained in the corporate governance statement.
Auditors Report on Non-Financial Information
Payment to Government Re Extractive Industries
The Companies Act 2017, made provision in respect of payments to Governmental bodies. This requirement derives from the EU Accounting Directive. The purpose is to promote transparency in relation to payments by larger corporates to governments in certain sectors. It applies only to larger companies which undertake certain extractive primary industries. This includes in particular mining and logging activities.
Companies which are subject to the requirement must make a report on an annual basis specifying payments made to a government. They must do so by project and Country.
A payment is any kind of consideration including participation in the company, royalties, taxes, dividends, bonus, license fees, payments for infrastructure improvements.
A governmental body includes any government or sub-government agency such as a national, regional or local authority. It includes development departments, agencies, and undertakings controlled by any such authority.
A project is any operational activity covered by a single contract, licence, lease or concession or multiple such arrangements which are the basis of payment to a government.
A company subject to the legislation which is not a group company must prepare ann entity payment report. There is an exception if the company is subject to an equivalent reporting requirement, subject to compliance with conditions.
Group Statement (Extractive Industries)
In the case of group companies, a subsidiary must prepare an entity payment report but may qualify for an exemption where there is a consolidated group report and those payments are included in it.
There is an exemption where the subsidiary of a holding company is subject to the obligations of another member state and the payments made by the subsidiary company are included in the consolidated payment report. There is an exemption where the holding company is subject to the EU Accounting Directive in another State and the holding undertaking is subject to equivalent requirements.
There is an obligation for certain group companies to prepare a consolidated payment report. This applies to group companies which must prepare group financial statements. There is an exemption where the holding company itself, is a subsidiary of a higher undertaking which is subject to the obligations or equivalent obligations.
There is an exemption if the holding company is a subsidiary of a higher-level undertaking subject to the obigations or equivalent obligations.
Particulars Required (Extractive Industries)
A company shall in respect of its entity financial report for each financial year includes the following.
- the government to which payments are made,
- the total amount of payments,
- the total amount per type of payment to each government,
- the total attributable to a specific project and the total for each such project.
There is an exception for payments less than €100,000 provided that they are not part of a series of related payments. Equally, where the series of payments is less than €100,000, the exemption applies. There are anti-avoidance provisions which seek to prevent artificial splitting and division of payments for the purpose of the avoidance of the obligation.
There is provision for a consolidated payment report for groups. The same lower level threshold applies. The entity payment report or consolidated payment report must be approved by the board of directors and signed by at least two directors. A copy must be filed with the CRO within 11 months of the financial year-end. The failure to do so is a category 3 offence.
References and Sources
Companies Act 2014 S.325-S,332 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.18 Courtney
Keane on Company Law 5th Ed. (2016) Ch. 30 Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Palmer’s Company Law