Reporting Frameworks

Alternative Frameworks

Schedule 3 as amended provides for the form of Companies Act financial statement.   The form and contents of the balance sheet, profit and loss account and the additional information to be provided by way of notes to the financial statements must comply with either Schedule 3 (other than for small and micro companies) comply with the applicable accounting standards and comply with the other provisions of the Companies Act.

IFRS statements are governed by the statements issued by the Financial Reporting Council of the UK.   The UK Financial Reporting Council is specifically confirmed as the prescribed standard setting body for this purpose. The financial reporting standards are applicable in the UK and the Republic of Ireland.The principal standard applicable to medium and larger companies is FRS 102.

FRS 101 provides for a reduced financial disclosure framework.  A company may qualify if it is a member of a group where the parent of the group prepares publically available consolidated financial statements which are intended to give a true and fair view of the assets, liabilities, financial position and profit and loss, and that member is included in the consolidation. This is not available to medium and large companies that must prepare group statements or have elected to prepare group statements.


Financial Reporting Framework I

Companies must prepare financial statements under the relevant financial reporting framework.  Financial statements may be prepared either (as the company elects) in accordance with the Companies Act requirements or International Financial Reporting Standards. Financial statements shall be prepared in accordance with the Companies Act for companies which do not trade for gain by its members.

Entity financial statements prepared in accordance with the Act are referred to, as “Companies Act entity financial statements”.  Financial statements prepared in accordance with international financial reporting standards are referred to, as “IFRS entity financial statements”.

The directors of a company shall not approve financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities, and financial position at the year end and the profits and loss for the financial year.


Financial Reporting Framework II

Companies Act financial statements must comply with the provisions of Schedule 3 to the Companies Act in relation to accounting principles to be applied, the form and content of the balance sheet, profit and loss account and the additional information to be provided.  Where compliance with those requirements would not be sufficient to give a true and fair view of the matters, the necessary additional information must be given by way of a note to the relevant item.

If in particular circumstances, compliance with the provisions of the Companies Act is inconsistent with the requirement to give a true and fair view of the matters and position, the directors shall depart from those provisions to the extent necessary to give a true and fair view. Particulars of the departure and the reasons for it must be set out in the notes to the accounts.


Changing Framework

After the first financial year in which the directors of a company prepare IFRS entity financial statements, all subsequent entity financial statements of the company shall be prepared in accordance with IFRS reporting standards, unless there is a change of circumstances.

A change of circumstances is where at any time during or after the first IFRS framework year;

  • the company becomes a subsidiary undertaking of another undertaking that does not prepare IFRS financial statements;
  • the company, having re-registered as a private company limited by shares, ceases to be a company with securities admitted to trading on a regulated market in an EEA state, or
  • a holding undertaking of the company ceases to be an undertaking with securities admitted to trading on a regulated market in an EEA state.

Where, following a relevant change of circumstances, Companies Act entity financial statements are prepared in relation to a company, the directors of the company may subsequently prepare IFRS entity financial statements for the company.


Companies Act Financial Statement I

A company must ensure that the Companies Act financial statements include a statement as to whether they have been prepared in accordance with the applicable accounting standards. It must identify the standards in question/ If there has been any material departure from those standards, the effect of the departure, and the reasons for it, must be noted in financial accounts.

Companies Act entity financial statements in relation to a company for any financial year shall comprise—

  • a balance sheet as at the financial year end date;
  • a profit and loss account for the financial year; and
  • any other additional statements and information required by the financial reporting framework.

Companies Act Financial Statement II

Companies Act entity financial statements shall give a true and fair view of the assets, liabilities and financial position of the company, as at the financial year end date and of the profit or loss of the company for the financial year. A company shall ensure that its Companies Act entity financial statements include a statement as to whether they have been prepared in accordance with applicable accounting standards and   identify the standards in question, and that any material departure from those standards, the effect of the departure and the reasons for it, are noted in the Companies Act entity financial statements.

If a company fails to comply with the above obligations, the company and any officer of it who is in default is 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.


Standards and Deviations

They financial statements shall comply with the provisions of Schedule 3 of the Companies Act as to the accounting principles to be applied, the form and content of the balance sheet and profit and loss account, the additional information to be provided by way of notes to the financial statements, the applicable accounting standards and the other provisions of the Act.

Accounting standards are applicable to a company’s entity financial statements if those standards are, in accordance with their terms, relevant to the company’s circumstances and those entity financial statements.Where compliance with Schedule 3, applicable accounting standards and the other provisions of this Act as to the matters to be included in entity 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 entity financial statements or in a note to them.

If in special circumstances, compliance with any of the provisions of the Act (even if additional information is given) 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 of the company.


Schedule 3 Format

Schedule 3 of the Act provides for financial accounting principles, the form and content of entity financial statements with which medium and large companies must comply. The format of the balance sheet and profit and loss accounts must be prepared in accordance with Schedule 3 under the Companies Act entity framework. Schedule 4 is the equivalent for group financial statements.

The 2017 legislation provided greater flexibility in relation to the format in which the accounts and information may be presented. Adaptations may be made, provided that the equivalent information is furnished.

There are a number of alternative presentations on particular points. A company may adopt the arrangements and subheadings under the Arabic number in the format of the financial statements in any manner that makes them more suitable for the particular nature of the company’s business.

Companies may use the headings and subheadings in the Schedule in their accounts in a way that is more adapted to the particular nature of their business.Items within numerals in the schedules may be combined in the financial statement, provided that the individual amounts are set out in the notes.

Entities which are not trading as such may adopt the same formats and present them as income and expenditure accounts.


IFRS Financial Statements

Where the directors of a company prepare IFRS entity financial statements, they shall comply with all IFRS standards in that regard. They shall make an unreserved statement in the notes to those entity financial statements, that those financial statements have been prepared in accordance with International Financial Reporting Standards. They shall ensure that the financial statements contain the additional information required by the Companies Act, other than that required by Schedules 3 and 4.

The requirement for entity financial statements prepared in accordance with IFRS to present fairly, their assets, liabilities, financial position, financial performance and cash flows is deemed to be equivalent to the requisite true and fair view.

If a company fails to comply with this obligation, the company and any officer of it who is in default is guilty of a category 2 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.


Large and Medium Regimes

The Companies Act 2017  in effect creates four levels of company financial reporting regimes. The changes were based on the EU Accounting Directive. One of its main purposes was to reduce compliance costs smaller companies as defined. It further harmonised common EU standards for financial statements. The Directive allowed states to opt to provide for a number of additional requirements above the minimum provided. Ireland and the UK have applied these requirements.

Schedule 3 of the Act provides for financial accounting principles, the form and content of entity financial statements with which medium and large companies must comply. The format of the balance sheet and profit and loss accounts must be prepared in accordance with Schedule 3 under the Companies Act entity framework. Schedule 4 is the equivalent for group financial statements.

The 2017 legislation inserted three new schedules into the Companies Act dealing with the content of financial statements and accounting policies. There are two further schedules which deal with group financial statements.


Small and Micro Regimes

Schedule 3A provides the accounting principles, form, and content of the financial statements of a company qualifying for the small companies regime.  Schedule 3B provides the equivalent principles, form, and content for financial statements for a company qualifying for the micro companies regime.

The Schedules set out the respective minimum requirements for small companies regime companies and micro companies regime companies and complement the existing schedule 3, which is applicable to all other companies (subject to alternative accounting frameworks that may be available to them)

The accounting principles and formats for the profit and loss accounts and balance sheet are broadly the same for Schedule 3 and 3A. Schedule 3A provides for a lesser degree of disclosures for small companies.


U.S. Quoted Parents

There are special provisions for US publicly quoted parent companies which prior to 4 July 2012, were not required to make an annual return to the CRO to which accounts were annexed or were entitled under earlier legislation to prepare accounts in accordance US accounting standards in the preparation of its Companies Act (individual) accounts or its Companies Act group accounts.

The financial statements of such a holding company that are prepared for such of its financial years after it is incorporated in the State as end or ends not later than 31 December 2020, may be prepared in accordance with US accounting standards, provided they do not contravene any provision of the Act and give a true and fair view of the assets and liabilities, financial position and profit or loss of a relevant holding company and its subsidiary undertakings as a whole.

The alternative permitted use of such standards is not available to companies incorporated after 18 July 2017. The 2017 Act extends the period in which existing companies may apply the alternative standards up to 2030 in some cases.

The Minister may specify by regulations, accounting standards in accordance with which statutory financial statements are to be prepared.  This does not apply to cases where statutory financial statements are to be prepared in accordance with IFRS standards or in certain cases, with United States reporting standards.


Other Standards

Regulations may be made by the Minister providing for the use of other internationally recognised accounting standards for a transitional period. Regulations may apply to specified categories of holding companies providing that

  • a true and fair view of the assets and liabilities, financial position and profit or loss of a holding company in such a category may be given by the preparation by it of its Companies Act entity financial statements for a specified number of its financial years in accordance with specified accounting standards, and
  • a true and fair view of the assets and liabilities, financial position and profit or loss of a holding company in such a category and its subsidiary undertakings as a whole may be given by the preparation by that holding company of its Companies Act group financial statements for a specified number of its financial years in accordance with specified accounting standards.

The regulations shall specify the accounting standards, which shall be internationally recognised, and generally accepted accounting principles or practice of a jurisdiction to which a majority of the subsidiary undertakings of the holding company have a substantial connection. They may specify the number of financial years in respect of which the regulations apply, and the date on which the latest of such financial years shall end.


References and Sources

Primary References

 

Companies Act 2014 S.274 – S.280 S.289-296 (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

Shorter Guides

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

UK Sources

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