Where at the end of its financial year a company is a holding company, the directors of the company, as well as preparing entity financial statements for the financial year, shall prepare group financial statements for the holding company and all its subsidiary undertakings for that financial year.
A parent need not prepare a profit and loss account for itself, where it prepares group accounts. The notes to the company’s balance sheet must show details of the profit and loss for the year and the fact that the exemption has been availed of.
Where there have been changes in the composition of the undertakings in the group, which have changed significantly over the course of the year, the group accounts must give information to make the comparison of the years’ accounts meaningful.
Where a holding company prepares group financial statements, there is associated with those group financial statements, the entity financial statements. Together they constitute the statutory financial statements of the company.
Group accounts are to be laid before the parent company’s annual general meeting, together with the parent’s own accounts.
The group accounts are to consist of
- a consolidated balance sheet of the parent and subsidiaries as a whole;
- a consolidated profit and loss account; and
- notes on the accounts.
The group accounts must give a true and fair view of the group as a whole. More extensive notes may be required in order to give a true and fair view than might be the case for a single company.
The group’s accounts and directors’ reports of the parent must be prepared and audited in accordance with the law of the state where it is established and in accordance with International Financial Reporting Standards.
Notes must disclose the particulars of the parent undertaking and any exemptions from group accounts that apply.
The group accounts must be annexed to the annual return. A director’s report and auditor’s report (translated into Irish or English, if necessary) must be annexed.
The group accounts must be made up to the same date as that of the parent. The directors are to ensure in so far as practicable, unless there are good reasons otherwise, that the financial year end of the subsidiaries coincides with that of the parent.
It the dates differs, the group accounts are to be drawn upon the basis of the accounts of the subsidiary last ending before the parent undertaking financial year end, provided it is within three months. Alternatively, they may be drawn up on the basis of interim accounts prepared by the subsidiary.
The directors may apply to the Minister to direct the holding of meetings and the making of returns to be postponed with a view to enabling the alignment of the subsidiaries’ and the parents’ year end.
Inclusion of Subsidiaries
The group accounts are to consist of a consolidated profit and loss and balance sheet, together with notes. They must deal with the state of affairs of the parent and subsidiaries as a whole. They must give a true and fair account of the group, taken as a whole.
A subsidiary need not be included in certain cases. Exclusion is permissible if
- it is not necessary in order to give a true and fair view of the state of affairs of the group as a whole;
- where severe long-term restrictions hinder the parent undertaking in exercising its rights of management over the subsidiary or its assets;
- the information cannot be obtained without disproportionate expense or delay;
- the shares in the subsidiary are held by the parent exclusively with a view to their subsequent resale.
Subsidiaries must be excluded if their activities differ so much from those of the rest of the group, that their inclusion would be incompatible with the obligation to give a true and fair view of the affairs of the group as a whole. Even if a subsidiary is to be excluded on this basis, details of dealings with or interests in the parent or subsidiary undertaking must be shown in notes to the balance sheet.
An associated undertaking is one in which a parent has a significant influence, not being a subsidiary. Where it holds more than 20% of the voting rights, it is presumed to have a significant influence unless the contrary is shown.
The interest of an associated undertaking and the profit and loss attributable to the interest is to be shown by the equity method of accounting in the group accounts.
Joint ventures may be proportionately consolidated in group accounts, if (and notwithstanding that) neither is a company or a subsidiary undertaking;
- where the company has a participating interest in an associated undertaking;
- where it exercises a significant influence over its operational and financial policy;
- if it holds more than 20% of the voting rights, it is presumed to exercise a significant influence until the contrary is shown.
Accounts and Notes I
The group is treated as if it is a single entity for the purpose of group accounts. Transactions between group companies are not taken into account as this would distort the position. Intercompany balances are eliminated. This may require significant adjustments, so the group is treated as if it was a single entity.
Assets and liabilities may need to be re-valued in the group accounts so as to ensure their consistency. Where the valuation methods used differ within a group, the assets must be revalued in accordance with a consistent group account method, unless it is not material to giving a true and fair view of the group’s assets.
Accounts and Notes II
Certain information is required to be included in the notes of to the group accounts;
- acquisition of undertakings;
- the basis of currency translation;
- details of debts owed by the group;
- number of persons employed;
- aggregate staff costs;
- information on pensions, emoluments and other remuneration;
- transactions entered into by a director of a parent association with an undertaking which is consolidated proportionately or is an associated undertaking.
Other details to be included in the notes include
- details of the name, qualifying interests and other particulars of each undertaking either consolidated or excluded under the above exemptions; together with
- associated undertakings and undertakings which are consolidated proportionately or undertakings in which there is a substantial interest.
Group financial statements prepared in accordance with the Companies Act are “Companies Act group financial statements”. Statement prepared in accordance with international financial reporting standards are “IFRS group financial statements”. Provisions equivalent to those applicable to non-group companies, in respect of each framework, apply to group financial statement in the same manner.
The directors of a holding company must ensure that the financial statements of the holding company, and of each of the subsidiary undertakings of the holding company, are prepared using the same financial reporting framework, except to the extent that, in their opinion, there are good reasons for not doing so. Those reasons must be disclosed in the financial statements of the holding company.
The above obligation applies only to entity financial statements of subsidiary undertakings that are required to be prepared under the Companies Act. It does not apply where the directors do not prepare group financial statements for the holding company, or to the financial statements of undertakings which do not trade for the acquisition of gain by the members.
Where the directors of the holding company prepare IFRS group financial statements and IFRS entity financial statements for the holding company, the obligation applies in modified form.
Companies Act Framework I
Companies Act group financial statements in relation to a holding company and its subsidiary undertakings included in the consolidation for any of its financial years shall comprise
- a consolidated balance sheet dealing with the assets, liabilities and financial position of the holding company and its subsidiary undertakings (including those being wound up) as at the financial year end date;
- a consolidated profit and loss account dealing with the profit or loss of the holding company and its subsidiary undertakings (including those being wound up) for the financial year; and
- any other additional information required by the financial reporting framework adopted in relation to them.
Companies Act group financial statements shall give a true and fair view of the assets, liabilities and financial position of the company and the undertakings included in the consolidation taken as a whole, as at the financial year end date and of the profit or loss of the company and those undertakings for the financial year so far as concerns the members of the company.
If a company fails to comply with any of its above obligations, the company and any officer who is in default are guilty of a category 2 offence. In any proceedings against a person in respect of an offence, it is a defence to prove that the defendant had reasonable grounds for believing and did believe that a competent and reliable person was charged with the duty of ensuring that the requirements concerned were complied with and that the latter person was in a position to discharge that duty.
Companies Act Framework II
Companies Act group financial statements must comply with the provisions of Schedule 4 to the Companies Act as to the accounting principles to be applied, the form and content of the consolidated balance sheet, consolidated profit and loss account, the additional information to be provided by way of notes to the group financial statements, applicable accounting standards, and the other provisions of the Act.
Where compliance with Schedule 4, applicable accounting standards and the other provisions of the Act as to the matters to be included in group financial statements (or in notes to those financial statements), would not be sufficient to give a true and fair view of the requisite matters, the necessary additional information shall be given in the group financial statements or in a note to them.
Companies Act Framework III
If in special circumstances, compliance with any of the provisions of the Act (even if additional information were provided) is inconsistent with the requirement to give a true and fair view of the requisite matters, the directors of the company shall depart from that provision to the extent necessary to give a true and fair view. Particulars of any departure, the reasons for it and its effect, shall be given in a note to the financial statements.
A company shall ensure that its Companies Act group financial statements include a statement
- as to whether they have been prepared in accordance with applicable accounting standards and identify the standards in question;
- as to any material departure from those standards;
- the effect of the departure and the reasons for it;
by way of a note in the Companies Act group financial statements.
IFRS Group Framework
Where the directors of a holding company prepare IFRS group financial statements, they shall comply with all IFRS standards in that regard. They shall make an unreserved statement in the notes to those group financial statements, that they have been prepared in accordance with international financial reporting standards, and shall ensure that those financial statements contain the additional information required by the Act, other than those required by Schedules 3 and 4.
The requirement for group financial statements prepared in accordance with IFRS to present the assets, liabilities, financial position, financial performance and cash flows fairly is deemed to be equivalent to the required statutory “true and fair” view.
If a company fails to comply with the above obligations, the company and any officer who is in default is guilty of a category 2 offence. In any proceedings against a person in respect of this offence, it is a defence to prove that the defendant had reasonable grounds for believing and did believe that a competent and reliable person was charged with the duty of ensuring that the provisions of the Act were complied with, and the latter person was in a position to discharge that duty.
Pre-2017 Act Exemptions
The following applies, save where the company has elected to prepare IFRS group financial statements. A holding company shall, in respect of a particular financial year, be exempt from the requirement to prepare group financial statements if, at the financial year end date of the holding company for that financial year, and for the financial year of that company immediately preceding that financial year, the holding company and all of its subsidiary undertakings taken as a whole satisfy at least 2 of the following 3 conditions.
The conditions are
- the balance sheet total of the holding company and its subsidiary undertakings taken as a whole, does not exceed €10 million;
- the amount of the turnover of the holding company and its subsidiary undertakings taken as a whole, does not exceed €20 million; and
- the average number of persons employed by the holding company and its subsidiary undertakings taken as a whole, does not exceed 250.
Small Group Companies Regime
A holding company may qualify for the small companies regime introduced by the Companies (Amendment) Act 2017. A holding company that qualifies for the regime is exempted from the requirement to prepare group financial statements. Formerly the exemption from group accounts was available only to holding companies of “medium” groups and to holding companies of “small” groups.
A holding company which qualifies for the small companies regime may choose to prepare group financial accounts. In the usual way, it may adopt the Companies Act group financial statements format or the relevant IFRS group accounts standards and conventions.
If group accounts are prepared, many of the benefits of the small companies regime are no longer available, as the IFRS disclosures are required.
In the usual way, the group accounts must give a true and fair view of the financial position, assets and liabilities of the companies and the undertakings included in the consolidation, taken as a whole for the relevant year end or period.
Small Group Financial Statements
It is confirmed that Companies Act group financial statements in relation to a holding company and its subsidiary undertakings included in the consolidation comprise
- a consolidated balance sheet setting out the assets, liabilities and financial position of the holding company and subsidiary undertakings at the financial year end;
- a consolidated profit and loss account dealing with the profit and loss of the holding company and subsidiary undertakings and any other information required by the financial reporting framework which is adopted.
Companies Act group financial statements shall state the following:
- the name and legal form of the holding company;
- the place of registration of the holding company and the number under which it is registered;
- the address of its registered office;
- confirmation of such where the holding company is being wound up.
Requirements for Accounts Small Groups
Group financial statements of a company which adopts the small companies regime must give a true and fair view of the assets, liabilities, financial position and results of the group, taken as a whole. The directors must consider if compliance with the relevant schedules or the relevant FRS standards is sufficient to give a true and fair view.
If they consider that this is not the case, they must ensure that the accounts are remedied to give a true and fair view. This is generally by way of additional disclosures rather than by departures from the substantive requirements of the Companies Act or the FRS standard.
The group accounts must comply with the relevant schedule to the Act in the case of Companies Act accounts, applicable accounting standards and other provisions of the Act. The group financial statements must include certain basic information about the company and the group as may be required to give a true and fair view.
Accounting Principles Form and Content
The small companies regime schedules set that the minimum content for companies adopting the regime. Schedules 4 and 4A provide principles in relation to group financial statements that are additional to those that apply to single entity accounts. In broad terms, the principles and disclosures required in respect of entity or single company accounts under the standard regime or the small company regime apply.
Schedule 4 provides the accounting principles, form, and content of group financial statements under the Companies Act framework. Schedule 4A provides the accounting principles, form, and content of group financial statements for companies subject to the small companies regime.
The formats for the consolidated balance sheet and consolidated profit and loss account are provided by Schedule 4A. This corresponds to Section 3A of the Companies Act for the small company regime under the Companies Act financial reporting regime. There are provisions to deal with group issues such as controlling interest, non-controlling interest etc.
FRS Reporting Standards Small Groups
FRS 102 may be adopted in group accounts. As in the case of single entity companies, FRS 102A may be adopted by a company which opts into the small company regime, irrespective of the preparation of group financial statements.
The standard requires certain disclosures including
- the fact that the statements are consolidated;
- the basis for concluding that control exists where this is not clear;
- differences in the reporting dates;
- the nature of significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of dividends or to repay loans;
- the name of subsidiaries excluded and the reasons.
The Companies Act requirements accounting principles, valuation rules in relation to a single entity are applicable to the group financial statements as if the group was a single entity.
Where the entities do not have the same year-end, there must be an adjustment to take account of important events affecting the assets, liabilities and financial position of the subsidiary that occur after the financial year end of the holding company, but before the financial year end of the subsidiary.
Schedule 4A defines an associated undertaking and a participating interest for the purpose of group accounts. A similar but different definition of undertaking is employed under the FRS standard.
References and Sources
Companies Act 2014 (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