ACCOUNTING DIRECTIVE CONSULTATION

Comments from ACCA Ireland March 2014 Email: john.moynihan@djei.ie Post: Company Law Department of Jobs, Enterprise and Innovation Earlsfort Centre Lower Hatch Street Dublin 2

The Association of Chartered Certified Accountants

9 Lesson Park, Dublin 6

tel: 01 4988901 www.accaglobal.com

Introduction to ACCA ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development. We aim to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that, through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and their delivery to meet the diverse needs of trainee professionals and their employers. We support our 162,000 members and over 428,000 students in 173 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of 89 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. ACCA works in the public interest, assuring that its members are appropriately regulated for the work they carry out and, promoting principles-based approaches to regulation. We actively seek to enhance the public value of accounting in society through international research and we take a progressive stance on global issues to ensure accountancy as a profession continues to grow in reputation and influence. In Ireland, ACCA has 20,000 members and students.

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Short consultation response time caveat The Directive could have a substantial effect on business in Ireland and is therefore important and needs careful consideration. Ideally this consultation and response should have been circulated to a number of ACCA member committees, discussed fully and all views reflected and this has not happened. A response such as this would normally also be fully considered by the ACCA Global technical resource and EU-based members of ACCA’s Global Forum for Corporate Reporting; this has also not happened. The time limit on responding was such that extensive consultation was not possible. Our comments are therefore very much initial comments; they have not had the full rigour that proper consultation with members would bring. In particular we have not consulted with members in specialist industries such as funds and insurance and this is something that we believe would be quite important. However, we felt it important enough to prepare a response by your deadline, no matter how caveated that response might be. Summary of responses to questions Accounting Standards for the public interest sector are set by the International Accounting Standards Board (IASB) and are commonly used across 120 countries. Although compulsory as part of our membership of the EU, it is also very much in Ireland’s interest to be a part of this common accounting platform. A common language for accounting across Europe and many other parts of the world makes possible many of the Shared Accounting Services and Business Process Outsourcing employment opportunities in Ireland. A common accounting language also reduces perceived risk and through this reduction in risk, affords Irish domiciled companies both a reduced compliance cost and access to cheaper funding. Irish company law therefore needs to facilitate Irish domiciled companies applying fully any part of the IASB standards and the FRC FRS 102 standard, a derivative of the IASB IFRS for SME standard. FRS 102 is the standard to be used from 2015 by non-public interest entities in Ireland. Flexibility to the extent of redundancy In would be in the general interest of business in Ireland that company law is flexible enough, even to the extent of some redundancy, to allow companies to apply IFRS, IFRs for SME or FRS 102 into the future. All possible available options in the Directive should therefore be availed of, with a small number of public interest exceptions, so that

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the legal environment is broad enough to allow the IASB’s detailed rules, including future rule iterations, to be applied in Ireland. A major issue running through the Directive is whether many of the provisions will be done via law or accounting standards. Ireland currently uses UK GAAP for domestic and unquoted companies, IFRS GAAP for quoted companies and effectively devolves the detailed rules to accounting standards, which means losing control of this process to bodies outside the jurisdiction. However, UK GAAP is very broadly in line with IFRS and Ireland would not be in a position to diverge from international norms without damaging our reputation as a destination for FDI. Our preference is to take up as many options as possible in Company law and then allow accounting standards to impose the detailed rules. The advantage of this is not just easier amendment to the requirements in future but adding to the requirements in the accounting standards through additional requirements in law would be seen as gold plating. Another issue is that it is not quite clear how literally the Directive’s wording has to be used. This will be of greater importance if accounting standards will be used to implement it, as against primary law. Not for profit sector It is also not clear what the scope is. The 1986 Act out scoped not for profit

companies, will this do the same? There will be a Charity Commission in Ireland shortly and they will have the power to designate accounting standards, where will this fit in? A new Charity SORP has been drafted and

specifically tailored to be easily applied in Ireland, if it is designated by the Charity Commission as being applicable in Ireland. It is unclear how this will fit in.

There is also concern that companies will implement FRS102 (2015) and then turn out to have different requirements from 2016. The timetable and

limits would need to be aligned with that being proposed by FRC in the UK. Cooperation and consultation with the BIS and ACCA UK

We also note, from our UK staff, that at the last UK advisory group meeting BIS said they would invite the RoI to take part in that group. This would be a useful invitation for the DJEI to take up. The ACCA staff member sitting on

the UK Advisory Group has also agreed to come over to Ireland and participate in any similar group in Ireland.

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Question 1 Designation of public-interest entity Do you consider that other categories of public-interest entity should be designated? If yes, what should those categories be and why? Please give reasons for your preferences. We consider that in an initial period that the definition of PIE be limited to those listed and should exclude credit unions. At some time in the future credit unions may be added to the definition, but the changes currently being imposed on the sector are a strain already and IFRS accounting, which will be required for PIE’s, is not designed for Not For Profit entities such as credit unions and there are some conflicting issues with the application of IFRS for this sector. Question 2 Participating interest presumed at 20%. Do you consider that the percentage should continue to be fixed at 20%? If not, what should the (lower) percentage be and why? Please give reasons for your preference. In the absence of a suitable definition for a qualitative measure (i.e. the ability to exercise influence) the quantitative measure of 20% is appropriate. Question 3 Inclusion in production cost of indirect overheads Do you consider that companies should be required to include such costs or that the decision on whether to include such cost should be left with companies? Please give reasons for your preference. The decision should be left to the company. While a common definition of “gross profit” or operating profit would be helpful, there are too many different types of business with different structures that render a common definition easy to implement and comparable between companies. Accounting standards require the use of full cost when valuing stock, but some costs can be difficult to categorise between direct and indirect.

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Question 4 Small Company Thresholds Do you consider that the monetary thresholds for small companies and groups should be set at the lower or upper end of the range or at an intermediate point? Please give reasons for your preference. The limits should be at the upper end. This will allow businesses to operate at the lowest possible cost whilst allowing voluntary take-up of higher thresholds where this is permitted by lenders or shareholders. Question 5 Use of alternative measures of turnover Do you consider that Irish company law ought to include a measure of this type? Please give reasons for your preference. If yes, please indicate the types of income considered appropriate and the types of undertaking to which such a measure might be relevant. This adds an unnecessary level of complication and is not something required by accounting standards. However, we accept that Ireland might need an alternative measure of turnover for charities or insurance companies or other specialist industries. The definition needs to be sufficiently broad to incorporate these different industries. Question 6 Applying size thresholds on a group basis Do you consider that Irish company law ought to include such a measure? If yes, please give reasons. It makes sense to apply the limits on a group basis. It would avoid companies deliberately “smurfing” their operations into different subsidiaries and allows a common approach to availing of audit exemption for small groups. Question 7 applying size thresholds on a group basis for affiliates Do you consider that Irish company law ought to include such a measure? If yes, please give reasons As per Q6. Question 8 Requirement for other statements (Article 4(1) Do you consider that Irish company law ought to require companies (other than small companies) to draw up specified

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additional financial statements? Please give reasons for your preference. If yes, please indicate which additional financial statements you consider ought to be required, and why. Company law should require the minimum disclosures with any additional disclosures coming from accounting standards. Accounting standards are independently set and are more flexible than law to allow for changes in business forms and models. Question 9 Requirement to produce statements in addition to the balance sheet and profit and loss (Article 4(5)) Do you consider that companies other than small companies should be required to produce primary financial statements in addition to the balance sheet and profit and loss account? If yes, please suggest what additional financial statements should be required. Please give reasons for your preference. As per question 8. We are unsure if extra statements such as a cash flow are arising from 4(1) rather than 4(5) which seems to be about additional note disclosure rather than additional statements. Company law should allow additional statements such as a cash flow and a statement of movement in reserves. Question 10 Offsetting or gross disclosure Do you consider that Irish company law ought to permit or require such set-offs and, if yes, should set-offs be voluntary or obligatory? Please give reasons for your preference. If you consider that set-offs should be permitted or required, please indicate the circumstances in which this ought to apply. Accounting standards already ban offsetting other than in very exceptional circumstances. It is appropriate to leave this level of detail to accounting standards rather than prescribing the treatment in law and then having Irish companies out of synchronisation with the rest of the IFRS using world. Irish law should permit offsetting within an overriding requirement to prepare true and fair/fairly stated financial statements. Question 11 Substance over form Do you consider that Irish company law ought to exempt companies from the requirement to have regard to the substance of a transaction or arrangement? If yes, please give reasons.

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No, Irish company law should require regard to the substance of a transaction. Different legal structures are used and may be used in the future to undertake specific transactions; often the legal form bears no resemblance to the underlying transaction. Accounting based on the legal form only can therefore be misleading. Question 12 Materiality Do you consider that Irish company law ought to limit the application of this concept to presentation and disclosures? Please give reasons for your preference. The concept of materiality and its application is a matter of ongoing discussion in the profession and is very subjective. As an example, in a current accounting issue, 2% of a loan book might be deemed not material, yet in excess of a €100k of a loan to a director would be material to most people. Given international discussion on the matter, it is considered more appropriate that company law be flexible enough to allow Ireland to fit within whatever international framework for accounting that is designed and therefore extend the application of materiality beyond just presentation and disclosures. As a specific comment on the question, materiality should be based on recognition, measurement, presentation, and disclosure and not just two of these. Restricting materiality to just two issues could have unforseen implications in practice. Question 13 Foreseeable Liabilities and Potential Losses Do you consider that Irish company law ought to make provision for the recognition of foreseeable liabilities, potential losses or both? If you consider that Irish company law ought to make such a provision, should it be permitted or required? Please give reasons for your preference. Note that it appears that this is to allow for provisions not normally allowed by accounting standards such as future maintenance or future expenses. This concept of so called “big bath” provisions or general provisions, has been banned by accounting standard for perhaps 15 years and there is a strong argument to simply include this ban in company law. However, in light of previous comments on allowing the maximum within company law and leaving the accounting standard in this area to restrict the use of such provisions, it is

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something that DJEI may wish to allow, knowing that the section will most likely never need to be used. There are arguments here with resonance to the incurred loss and expected loss discussions and impaired loan provisioning in banks. Conceivably some future change in accounting standards requiring an especially prudent expected loss provisions might need such a section of law and to have this already in place now would be administratively easier. Question 14 Revaluation Do you consider that Irish company law should permit or require revaluations of fixed assets? If yes, should revaluation be confined to a particular class or classes of company; should revaluation be permitted or required? Please give reasons for your preference. Irish company law should permit but not require revaluations of fixed assets. Some Eastern European countries require revaluation, the US bans revaluation, IFRS permits revaluation of fixed assets but does not require it. Irish companies trade in all of these markets and need the flexibility to present financial statements that are acceptable in all of these markets. Revaluation should be allowed for all types of fixed assets. Question 15 Revaluation rules Do you have suggestions for the content, limits and rules of application for the revaluation of fixed assets? If yes, please advise the Department of them, giving reasons. Revaluation currently can be based on open market value (IFRS), existing use value (UK GAAP) or in some cases depreciated replacement cost (public benefit entities or assets for service potential or specialist assets). The law needs to be flexible enough to allow all of these methods to be used in the appropriate circumstance. The detailed rules should be left to accounting standards and a general provision allowing but not requiring revaluation should be included. Question 16 revaluation reserve Do you consider that Irish company law should contain rules (over and above the conditions prescribed by the Directive) for the application of the revaluation reserve? If yes, please advise the

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Department of any suggested content, giving reasons for your preference and for your suggestions. It may be appropriate to allow distribution of the revaluation reserve; normally only “realised” reserves may be distributed, but where more flexibility in the reduction in share capital is allowed in the Consolidated and Reform Bill and given that IFRS requires that increases in investment property be taken to the income statement (and not revaluation reserve) it may be appropriate to consider allowing this reserve to be either merged with the retained earnings reserve or to be deemed distributable on the same basis at a capital reduction. Question 17 treatment of depreciation Do you consider that Irish company law should permit or require this treatment for valuation adjustments, particularly depreciation, attributable to the historic cost component of revalued fixed assets? Please give reasons for your preference. Depreciation should be based on the revalued amount and the element attributing to the revalued in excess of cost amount should be treated in the same way as the amount attributing to the cost element. Where an entity considers it necessary, a reserve movement may be made to reallocate the excess depreciation from the revaluation out of retained profits reducing the revaluation reserve. No change on the current position. Question 18 financial instruments at fair value Do you consider that Irish company law should require measurement of financial instruments at fair value? If yes, do you consider that this should apply to companies in general or to particular categories of company (please indicate the categories)? Please give reasons for your preference. The law should permit but not require the application of fair value. The detailed rules of which categories of financial instruments must or must not be recognised at fair value should be left to accounting standards to determine. Question 19 Measurement of other assets at fair value Do you consider that Irish company law should permit or require measurement of such assets at fair value? If yes, what categories

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of asset do you consider should be specified for this purpose; do you consider that this should apply to companies in general or to particular categories of company (please indicate the categories)? Please give reasons for your preference. As per Q18 Question 20 fair values for consolidated financial statements only Do you consider that Irish company law should confine the use of fair value to consolidated financial statements? Please give reasons for your preference. Fair value should be open to all companies. Only companies’ pay tax, not consolidated groups – this section in the directive would appear to be aimed at countries that wish to defend their tax base by banning fair value in single companies. Irish single companies already use fair value and should be allowed to continue to do so. Question 21 hedge accounting Do you consider that Irish company law should allow fair value hedge accounting? Pl0ease give reasons for your preference. Yes. Hedge accounting is allowed by accounting standards and should be allowed by law. Hedging allows companies to manage risk and it should be reflected in their financial statements. Without hedge accounting, the financial statements may reflect a risk that does not exist. Question 22 fair value for UK GAAP accounts Do you consider that Irish company law should permit or require the fair valuing of financial instruments in Companies Act financial statements as if the financial statements were IFRS financial statements? Please give reasons for your preference. Irish company law should permit the fair valuing of financial instruments. UK and Irish GAAP will be based on IFRS for SME from 2015 and fairly closely aligned with full IFRS. Company law should provide a legal underpinning for the fair value provisions in UK and Irish GAAP, and IFRS. Question 23 available-for-sale financial assets

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Do you consider that Irish company law should permit or require gains and losses on available-for-sale financial assets (other than derivatives) to be taken direct to equity? Please give reasons for your preference. IFRS and UK and Irish GAAP currently allow the AFS category although this category has fallen out of favour. The law should permit but not require this accounting and allow accounting standards determine the detailed rules. Question 24 fair value changes Do you consider that Irish company law should permit or require changes in the fair value of assets, not being financial instruments, to be reflected in the profit and loss account? If yes, do you consider that this should apply to companies in general or to particular categories of company (please indicate the categories)? Please give reasons for your preference. It should be permitted. As noted already, accounting standards should be used to set the level of detail, with the maximum number of treatments being allowable in law. Question 25 level of detail on the balance sheet Do you consider that Irish company law should require more detailed subdivisions of the items in the balance sheet and profit and loss account formats, the inclusion of subtotals or both? If yes, please give reasons for your preference together with suggested subdivisions and locations for subtotals. More specified detail is not required but it should be allowed where the company deems it necessary. Ireland should retain the option and allow other differing layouts to be used where equivalent information is provided. The 1986 Act includes the list of items to be disclosed but not where to put the totals. The inclusion of prescribed subtotals would be welcome in the balance sheet where there has been a divergence of practice and the use of subtotals has potentially been misleading. Some companies aggregate the share capital and long term creditors as the total of the balance sheet. Others total the balance sheet with just the share capital section. The latter method is the most prevalent and more easily understood. Ideally the whole format would be

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changed to be consistent with IFRS formats with similar terminology used e.g. Inventory/stock , receivables/debtors etc… . There will be certain sectors or forms of incorporation in Ireland that would mean the law should permit subdivision or different subtotals and this should be allowed for Question 26 adaptations of financial statements Do you consider that Irish company law should require such adaptations for any particular sector? If yes, please indicate which sector or sectors, outline the nature of the adaptations you consider appropriate and give reasons for your suggestions. Per Q25 and there was insufficient time to consult with members in specialist areas of business to make a meaningful comment in this area other than to suggest that such disclosures are best dealt with through a Statement of Recommended Practice (SORP), similar to the system used in the UK. Question 27 aggregation of immaterial items Do you consider that Irish company law should permit or require the combination of immaterial items preceded by Arabic numerals? Please give reasons for your preference. Irish company law should permit the aggregation of immaterial items. In small companies this will save on preparation costs. Question 28 Prior year comparison restatement Do you consider that Irish company law should require the restatement of corresponding items for the previous financial year where they are not comparable? Please give reasons for your preference. Accounting standards already require this and therefore the law does not need to duplicate this requirement. Question 29 Appropriations of Profit Do you consider that Irish company law should require such an adaptation? Please give reasons for your preference. This appears to allow for a reconciliation of shareholder funds statement, something that will be required by FRS 102 from 2015 and therefore should be allowed for in law.

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Question 30 Equity Accounting for Participating Interests Do you consider that Irish company law should permit or require the use of the equity method of accounting for participating interests in the entity financial statements of the investing company? Please give reasons for your preference. The current position should be continued, and the law should allow equity accounting in the case of single companies (on an all or nothing basis) and require equity accounting in the case of consolidations. Due to the way in which business is done is changing, some business is being done by way of a joint arrangement that is not an entity and is therefore effectively proportionally consolidated in a single company, while a similar activity conducted through a company might be equity accounted but only where there is a group consolidation done. Allowing (but not requiring) equity accounting in the case of single companies will aid comparison. Requiring the equity method for consolidated financial statements will continue the status quo. Question 31 Participating Interests & Dividends Do you consider that, if Irish company law were to permit or require the use of the equity method of accounting for participating interests in the entity financial statements of the investing company, the share of profits recognised in accordance with that method ought to be restricted to dividends received or “the payment of which can be claimed”? Please give reasons for your preference. In single company (non-consolidated) accounts, the share of profits recognised from an associate (entity that you have a participating interest in) is the dividends declared. In a consolidation the equity method is used and the group’s share of profits is recognised. As per Q30, it would be better to permit a company to apply the equity method even where they are not preparing a consolidation. Irish company law should require the use of equity accounting where a consolidation is being prepared. Question 32 Current/ non-Current disclosure Do you consider that Irish company law should permit or require companies or categories of company to present items in the balance sheet on the basis of a distinction between current and non-current items? Please give reasons for your preference.

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Company law should permit such disclosure, as the distinction is important for creditors and stakeholders. The issue is in determining the split between long and short term, for example, a long term loan where the entity is in breach of covenants and therefore technically repayable is currently being classified in accordance with IFRS as short term. The split needs to be determined by accounting standards and therefore it is appropriate to “permit” rather than require this disclosure and allow accounting standards determine what falls into each category. Question 33 write down of impaired financial assets Do you consider that Irish company law should permit or require such writing-down of financial fixed assets that have diminished in value? Please give reasons for your preference. Irish company law should permit writing-down of financial fixed assets allowing accounting standards to determine the specific circumstances when such a write down is necessary. Currently “held to maturity” financial assets are not written down for temporary diminutions in value but most other financial assets are. It would be inconsistent to have an absolute requirement in law that was not appropriate for accounting standards. Question 34 Capitalisation of Interest Do you consider that Irish company law should permit or require capitalisation of interest relating to the production of fixed or current assets? Please give reasons for your preference Irish company law should permit capitalisation of interest allowing accounting standards determine the specific circumstances when such a capitalisation is necessary or allowed. Question 35 Stock Valuation Do you consider that Irish company law should or should not permit any of the valuation bases mentioned; should they be applied to fungible items and investments? Please give reasons for your preference, indicating any particular bases of valuation that you consider appropriate or inappropriate. Irish company law should permit and explicitly mention weighted average; first-in first-out or “any method reflecting generally

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accepted best practice” but not specifically mentioning “last-in last-out” as explicitly allowed or disallowed. This latter method would not be acceptable under IFRS, but in general, law should facilitate as many options as possible whilst accounting standards circumscribe their use. There are some country specific GAAPs that in limited circumstances allow “last-in first-out” or other valuation methods and Ireland would not want to discourage companies from such jurisdictions applying their local GAAP treatment while operating in Ireland, once their local GAAP was allowed. Something of an accommodation was used in the Companies Amendment (Miscellaneous Provisions) Act 2009 to allow US GAAP to be used, where language used was “To the extent that the use of US generally accepted accounting principles does not contravene any provision of the Companies Acts or of any regulations made…”. It would be better to allow more flexibility in law from the start. Question 36 Excess of Amount Repayable over Value Received Do you consider that Irish company law should permit or require that such an excess of an amount owed over the value received be treated as an asset? Please give reasons for your preference. The exact text of the Directive here is “Where the amount repayable on account of any debt is greater than the amount received, Member States may permit or require that the difference be shown as an asset. It shall be shown separately in the balance sheet or in the notes to the financial statements. The amount of that difference shall be written off by a reasonable amount each year and completely written off no later than at the time of repayment of the debt.” It is unclear what exactly is being described in the directive. If this is a premium on a bond then the option should be allowed, if it is anything else then it does not appear to meet the definition of an asset and Ireland should not permit this treatment. Question 37 Useful life of goodwill What do you consider to be an appropriate period (of between five and ten years) for writing-off goodwill and, if applicable, development costs (where the useful economic life cannot be reliably estimated)? Please give reasons for your preference. To be clear, the Directive requires write off of intangible assets over their useful life (A12P11)) and then goes on to clarify that “In

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exceptional cases where the useful life of goodwill and development costs cannot be reliably estimated” that a maximum life be set in law. The Directive allows a member state the choice of between five and ten years. FRS 102 specifies 5 years (unless the life can be measured), IFRS for SME specifies 10 years and the presumption under existing UK GAAP is that it lasts no longer than 20 years. In the interest of future flexibility the state should choose the longest period available in the Directive of 10 years and allow accounting standards to determine the period which will be applied by companies. Question 38 Development Costs and Distributions Do you consider that Irish company law should provide such derogations? Please give reasons for your preference. If yes, please suggest what might constitute appropriate exceptional cases. IFRS requires capitalisation of certain development costs, IFRS for SME does not allow it and FRS 102 allows a choice. Restriction on profits available for distribution where the amount is capatilised could be seen as appropriate to ensure consistency in terms of creditor protection accross all types of GAAP. The concept of “capital maintenance” is starting to become outdated and restricting distributable profits in this way seems inappropriate. Derogation should be included but limited to the same conditions as the reduction of capital. Question 39 Extension of provision definition to expenses Do you consider that Irish company law should define “provision” so as to include expenses within its meaning? Please give reasons for your preference. The distinction between provisions for liabilities and provisions for expenses to be incurred is not entirely clear. The option to allow the creation of provisions for expenses to be incurred might include what were sometimes referred to as big bath provisions. We would not support availing of this option as these types of provision do not meet the definiton of a liability and will leave too much discretion to management to determine their extent. A complication is multi unit development where they are obliged to have a sinking fund: this might be considered to be within scope of

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this section. However, existing accounting deals with this by holding the provision within reserves and not as a liability. There is no need to extend this definition. The discussion at Q13 also applies. Question 40 Profit and Loss Account Formats Do you consider that Irish company law should prescribe one or both formats; if one, please state your preference giving reasons; if both, do you consider that companies should or should not be allowed to choose (please give reasons)? Annex V1 should be the only available option. While we have not surveyed members on this point, anecdotally Annex V is not used in practice and will only add complication. While choice is usually preferable, in this case IFRS has its own formats set out in IAS 1 and FRS 102 allows a similar format to IFRS or allows a preparer use the formats in Company Law. There is too much choice in this circumstance and it is hard to justify the additional benefit of having two choices when it will add complication and potentially confusion. There is a derogation allowing additional formats which show similar information and this should be taken as it will potentially allow Irish companies to apply IFRS for SME and not have to use FRS 102. Question 41 Statement of Performance Do you consider that Irish company law should permit or require a statement of performance instead of a profit and loss account, either for all companies or for categories of company? Please give reasons for your preference, indicating which categories if appropriate. Irish company law should permit a statement of performance instead of a profit and loss account for all companies. Question 42 Do you consider that small companies should be permitted to draw up abridged balance sheets (for laying before the annual general meeting)? Please give reasons for your preference. Small companies should be permitted to draw up abridged balance sheets for laying before the annual general meeting based on 100% of

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shareholders agreeing to such an abridged statement. Shareholder accounts are important to minority shareholders and should be available to them on request. For owner managed and run companies with no external shareholders, full financial statements may have no additional value over the abridged ones. However, there would need to be agreement from the Revenue Commissioners to accept such abridged financial statements or there would be no cost saving achieved. Lenders may not need full financial statements but would have the power to demand them by virtue of their standard loan agreements. Question 43 Abridged Profit and Loss Account Do you consider that small and medium-sized companies should be permitted to draw up abridged profit and loss accounts (for laying before the annual general meeting in an Irish context) that do not disclose net turnover or cost of sales? Please give reasons for your preference. Small and medium-sized companies should not be permitted to draw up abridged profit and loss accounts for laying before the annual general meeting that do not disclose net turnover or cost of sales. The sales number is probably the most important and easily understood number; there is no reason to hide this number from shareholders. Question 44 Analysis of Changes in Fixed Assets (Small Companies) Do you consider that small companies should be required to include an analysis of movements in fixed assets in the notes to the financial statements? Please give reasons for your preference. Small Companies should be required to include an analysis of movements in fixed assets in the notes to the financial statements. This analysis/information is necessary for tax purposes to claim capital allowances. The disclosure is the most common voluntary additional disclosure one made under the current small company abridged accounts disclosure requirements, indicating how important it is seen to be. The fixed asset note gives a shareholder some unique insight into the use of company funds for reinvestment, and is easily understood by investors. It might be argued that this is gold plating, but this note is so ubiquitous that it would be difficult to describe it as such. Question 45 Holding Company (Small Companies) disclosures

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Do you consider that small companies should be required to disclose the name and registered office of the holding undertaking of the smallest group for which consolidated financial statements are drawn up and of which the company is a member? Please give reasons for your preference. Yes. Single company accounts for a company that is part of a group are often meaningless. One single company may be set up to hold title to a patent or a particular property or even a trade name. Without looking at the consolidated group the financial statements are potentially meaningless. This disclosure is especially important because 100% subsidiaries are exempt from the requirements to disclose related party transactions with other 100% group members. The information is also very cheap to obtain and disclose. Question 46 Off-Balance Sheet Arrangements (Small Companies) Do you consider that small companies should be required to disclose the nature and business purpose of material off-balance sheet arrangements to the extent necessary for assessing the company’s financial position? Please give reasons for your preference. In general the detailed accounting rules should be left to accounting standards and not set out in law, although there is the issue that in the case of material off-balance sheet arrangements, they are sometimes used to conceal the true nature of a transaction, rather than being entered into for any legitimate business reason. However, accounting standards do now require off balance sheet items to be accounted for and probably in a greater level of detail than law can ever do, so it is arguably better to leave the matter to accounting standards rather than include a vague or duplicate requirement in law. The inclusion of a “sweeping up” clause with a general requirement to disclose material off balance sheet arrangements would be useful to give a legal underpinning to the specific requirements in accounting standards. Question 47 Post Balance Sheet Events (Small Companies) Do you consider that small companies should be required to disclose the nature and financial effects of material post-balance sheet events? Please give reasons for your preference.

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Yes they should. It is a requirement of accounting standards already and is generally not an expensive matter to make disclosure of. Question 48 Certain Related Party Transactions (Small Companies) Do you consider that small companies should be required to disclose particulars of transactions with holders of a participating interest in the company, with undertakings in which the company itself holds a participating interest and with directors? Please give reasons for your preference. While disclosures of related party transactions can be expensive to prepare, they are necessary to show a true and fair view. Even if a Companies Act exemption was available, accounting standards would require the disclosure. A general exemption for transactions under a monitory limit would be useful, but the limit would also have to apply to the market value of goods and services provided at no cost. A blanket exemption for immaterial related party transaction would be too open to misinterpretation. As per Q46 the inclusion of a “sweeping up” clause with a general requirement to disclose material related party transactions would be useful to give a legal underpinning to a specific requirement in accounting standards. Question 49 Directors’ Emoluments (Waiver of Disclosure) Do you consider that the requirement to disclose particulars of directors’ emoluments should be waived where disclosure would make it possible to identify the financial position of a specific member of a board? Please give reasons for your preference. No it should not be waived. A person responsible for directing a company and therefore responsible for setting their own salary, should be willing to justify that salary. Ireland has lagged our nearest neighbour on salary disclosures and it is something that as a country we should be more open about. FRS 102 will require disclosure of the salaries of key management personnel as well as directors and the new Charity SORP will require disclosure of salary for all employees within incremental €10k bands. Question 50 Do you consider that companies should be allowed to provide information on holdings of participating interests in the form of a statement filed with the Companies Registration Office? Please give reasons for your preference.

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Yes they should. Once the information is available publically, the financial statements need not repeat the information, but may just refer to CRO filings. Question 51 Do you consider that companies should be allowed to omit information on holdings of participating interests where its disclosure would be seriously prejudicial to any of the undertakings to which it relates? If yes, do you consider that such omission should be subject to prior administrative or judicial authorisation? Please give reasons for your preference. Companies do not want to disclose their investments in some life science sectors or in non status loan providers or would wish to hide their involvement in child labour exploitation or other unsavoury business areas. There will be occasional times when omission of such information may be justified but mostly it will not be. Therefore, omission should be allowed but only after an administrative or judicial authorisation such as a high court application. Question 52 Participating Interests (Holding Company) Do you consider that holding companies should be exempted from the requirement to disclose particulars of participating interests where the entities to which the participating interests relate are included in the consolidated financial statements of the holding company itself or in those of a wider group? Please give reasons for your preference. For the same reasons as set out in Q51, disclosure should be made either in the financial statements or in CRO filings Question 53 Do you consider that holding companies should be exempted from the requirement to disclose particulars of participating interests where the participating interests are accounted for in the holding company’s entity financial statements using the equity method (if permitted or required)? Please give reasons for your preference. Same answer as Q52 Question 54 Related Party Transactions (Arm’s Length)

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Do you consider that companies should be required to disclose particulars only of those related party transactions that have not been concluded under normal market conditions? Please give reasons for your preference. No, all material related party transactions should be disclosed. If the vast majority of the sales in a company are to a related party at arm’s length price, then this is important information to certain stakeholders as the sales may be withdrawn at any time. Arm’s length transactions will generally have a high materiality threshold so they are less likely to be disclosed compared to non arms length transactions. The current threshold for disclosure is something that would be “of interest to an average prudent investor”. Question 55 Related Party Transactions (Arm’s Length, Small Companies) Do you consider that if small companies are to be required to disclose particulars of transactions with holders of a participating interest in the company, with undertakings in which the company itself holds a participating interest and with directors, such disclosure should be limited to transactions that have not been concluded under normal market conditions, irrespective of whether such a limitation is applied to disclosures by companies other than small companies? Please give reasons for your preference. No, the reasons are the same as Q54. Question 56 Related-Party Transactions (Intra-Group) Do you consider that Irish company law should allow the disclosure of particulars of related party transactions to exclude those between the holding undertaking and wholly owned subsidiaries and between wholly owned subsidiaries? Please give reasons for your preference. Currently IFRS allows an exemption for disclosures of transactions between 100% groups. Irish company law should allow a similar exemption. There is no minority interest to protect in these circumstances and the law should not extend beyond what current accounting standards require. Should accounting standards remove this exemption; then disclosure will be required, even though law will

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allow non disclosure. Compliance has to be with the most stringent of law or accounting standards. Question 57 Certain Related-Party Transactions (Medium-Sized Companies) Do you consider that medium-sized companies should be permitted to limit disclosures of related-party transactions to those with holders of a participating interest in the company, with undertakings in which the company itself holds a participating interest and with directors? Please give reasons for your preference. No, for the same reasons as set out above. Question 58 turnover by activity and by geographical market Do you consider that the companies concerned should be allowed to omit the analysis of net turnover where its disclosure would be seriously prejudicial? If yes, do you consider that such omission should be subject to prior administrative or judicial authorisation? Please give reasons for your preference. The computation of this disclosure will have a cost. This cost is likely to not be particularly expensive, but it is a cost. There is also a “cost” to disclosing turnover in say the arms trade, tobacco, certain rogue states etc…, At most, shareholders should be allowed to demand such disclosures and in the absence of such a demand the disclosures should be allowed to be omitted, without recourse to any administrative or judicial authorisation. Question 59 Disclosure of Audit Fees (Non Application) Do you consider that large companies and public interest entities should be exempted from the requirement to disclose audit fees and related fees in their entity financial statements provided the information is disclosed in consolidated financial statements in which they are included? Please give reasons for your preference. It can be difficult to split the audit fee between audit work done for the single entity and audit work done in the single entity for the purposes of opining on the consolidated financial statements. Disclosing the fee in the single company financial statements also serves no useful purpose, as in many cases these are not filed in CRO and are used for internal purposes only. Conversely it might be

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argued that a minority shareholder would find this information useful, and if it is required, 100% subsidiaries should be exempt. Question 60 Directors’ Report (Exemption for Small Companies) Do you consider that small companies (that are not public interest entities) should be exempted from the requirement to prepare a directors’ report? Please give reasons for your preference. We support the retention of the Directors Report but in an amended form. Some of the current required disclosures in a directors’ report are completed boilerplate fashion with no useful additional information provided. Some other of the disclosures are acknowledgements by the directors of their responsibilities under law, for example, the requirement in relation to the keeping of books of account. In small companies the former should be removed, but the latter should arguably be enhanced. Where directors of a small company wish to make voluntary statements about the performance of the company, it would be worth putting an onus in law on the directors to ensure that the comments are fair and balanced. Currently auditors opine on whether the directors’ report is consistent with the financial statements and there are suggestions that this be enhanced by the auditors opining on the fairness and balance of the Directors comments. The latter would be difficult to implement until it was a legal requirement on the Directors to be fair and balanced. Question 61 Directors’ Report (Non-financial Information) Do you consider that small and medium-sized companies (that are not public interest entities) should be exempted from the requirement to address non-financial key performance indicators and non-financial information in the directors’ report? Please give reasons for your preference. Per question 60. Disclosure of key performance indicators and non-financial information should be voluntary, but where they are made they should be fair and balanced. Question 62 Separate Corporate Governance Statement Do you consider that companies that are required to produce a corporate governance statement should be permitted to produce such a statement separate from the directors’ report and, if yes,

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should the separate report be filed with the Companies Registration Office, posted on the company’s website or either of these at the company’s discretion? Please give reasons for your preference. The best option here is “Either of these at the company’s discretion”, with mandatory disclosure of the option chosen, in the financial statements themselves, along with a statement of whether they have or have not complied with any particular corporate governance code. The financial statements are already too long and intimidating and corporate governance is a multi-year matter, not something just done at the year end. Consequently it is more appropriately dealt with on a real time basis on the company’s web site. Question 63 Corporate Governance Statement (Exemption) Do you consider that companies with securities other than shares admitted to trading on a regulated market, and which do not have shares admitted to trading on any market, should be exempted from making disclosures relating to the corporate governance code, the operation of shareholder meetings and the composition and functioning of the board? Please give reasons for your preference. The shareholders, with some protection for minorities, should be allowed to choose disclosures on their web site, disclosure in the financial statements, or with shareholder approval, no disclosure. Question 64 Dominant Influence Consolidation Rules Do you consider that Irish company law should or should not make the requirement to include a company in consolidated financial statements, on the basis of the exercise of dominant influence, subject to membership of or the holding of shares in the company concerned? Please give reasons for your preference. Beneficial or legal ownership of a share or shares is irrelevant when considering whether a company controls another. So called “golden share groups” are artificial constructs under current company law where one special share is issued to cement compliance with the ownership of at least one share – while effective “dominance” is achieved without such a share being issued. The fact of being able to exercise dominance should be sufficient without the need for a shareholding.

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Question 65 Control Agreement Consolidation Rules Do you consider that Irish company law should or should not prescribe detailed provisions concerning the form and contents of such control agreements? Please give reasons for your preference. If yes, please give an indication of what you consider should be prescribed. Irish law should not prescribe the content. Accounting standards already extend the requirement to consolidate subsidiaries and quasi subsidiaries, beyond that which is required by law. The detailed rules should be in accounting standards not law. Question 66 Board Majority Consolidation Rules Do you consider that Irish company law should or should not require the consolidation of companies where control is based on the appointment of a majority of the board and, if yes, should it require that the voting rights must represent at least 20% of the total? Please give reasons for your preference. In theory Irish company law should require the consolidation of companies where control is based on the appointment of a majority of the board – this is the current requirement in accounting standards. However mandating this level of detail in law does not take into account the different legal and corporate structures used and may have unintended consequences. The detailed rules should be in accounting standards not law. Question 67 Dominant Influence Consolidation Exemption Do you consider that Irish company law should or should not require the drawing up of consolidated financial statements and a consolidated management report where an undertaking has the power to exercise, or actually exercises, a dominant influence or control over another undertaking? Please give reasons for your preference. See Q66. The detailed rules should be in accounting standards not law. Question 68 Unified Management Consolidation Exemption Do you consider that Irish company law should or should not require the drawing up of consolidated financial statements and a

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consolidated management report by an undertaking where that undertaking manages itself and another undertaking on a unified basis? Please give reasons for your preference. See Q66. The detailed rules should be in accounting standards not law. In addition, “…manages itself and another undertaking on a unified basis..” is very difficult to prove or disprove in many cases. A very clear definition of what this means would be needed if it is to be included: does it mean the same management team; the same premises; or does it mean a single sales and accounting system; how about dissimilar products from a single location or similar products from different locations; is it only where all costs are shared or just some costs? This issue needs further consideration. Question 69 Unified Management Consolidation Exemption Do you consider that Irish company law should or should not require the drawing up of consolidated financial statements and a consolidated management report by an undertaking where that undertaking and one or more other undertakings are managed on a unified basis by virtue of a contract with the other undertaking or undertakings, by virtue of a provision of the memorandum and articles of association of the other undertaking or undertakings or where a majority of the members of the respective boards of directors comprises the same persons? If you consider that such a requirement should apply in only one or two of the three circumstances, please indicate which. Please give reasons for your preference. Per Q68 – this should not be prescribed in law and should be left to accounting standards to determine. Question 70 Consolidation Exemption for Medium-Sized Groups Do you consider that medium-sized groups (other than those which have a public-interest entity as a member) should be exempted from the obligation to draw up consolidated financial statements and a consolidated management report? Please give reasons for your preference. There is an argument that medium-sized groups are significant entities and arguably they should not need the exemption from consolidation that is required for small ones on a cost benefit basis. However, on balance, a medium sized company / group exemption already exists

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and should continue. There is a growing trend for lenders to demand consolidated accounts from entities that are exempt under law from preparing a consolidation. Where a consolidation is needed, the market will ensure that it is prepared without every holding company having to go to the expense of preparing a consolidation. Question 71 Translation of Documents Do you consider that Irish law should require that, where an Irish parent undertaking that is itself a wholly owned subsidiary of an EEA parent is exempt from preparing consolidated financial statements, the ultimate parent undertaking’s consolidated financial statements and audit report be translated into an official language of the State? Please give reasons for your preference. Requiring a translation will add an additional administrative burden to companies locating FDI in Ireland. Borrowers will be able to demand this information if it is necessary and it can be provided where it is necessary to obtain trade credit, but it will not be required in most cases and is unnecessary to enshrine in law. Question 72 Optional Exemption from Consolidation Do you consider that a parent undertaking, the securities of which are not admitted to trading on a regulated market and which is itself a subsidiary of an EEA parent undertaking should be exempt from the requirement to prepare consolidated financial statements where it and its subsidiaries are consolidated in the financial statements of a larger group (the parent undertaking of which larger group need not be an Irish undertaking and, where it is not Irish, cannot be required to comply with Irish auditing and financial reporting requirements)? Please give reasons for your preference. Lenders or suppliers can demand consolidated accounts as can minority shareholders. There is no need to prepare consolidated financial statements for intermediate parents. This could be a disincentive to FDI. Preparing an intermediate consolidation for an Irish group could be quite expensive, as accounting systems will be set up to produce the information required under a different GAAP. The company may end up having to run two accounting systems, for example using different prescribed foreign exchange rates or valuation methods for financial instruments, or different impairment metrologies etc…

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Question 73 Imposition of additional information requirements Do you consider that, where Irish groups are exempt from the requirement to produce consolidated financial statements, there should be a requirement for the disclosure of further information in the consolidated financial statements of the larger group in which they are consolidated? If yes, please suggest the information that you consider should be disclosed (bearing in mind that it must be confined to information that would have to be disclosed in consolidated financial statements prepared in accordance with the Directive as transposed into Irish law). Please give reasons for your preference and for any suggested disclosures. No additional disclosure requirements should be imposed by law, this detail should be left to accounting standards. Question 74 Do you consider that a parent undertaking, the securities of which are not admitted to trading on a regulated market and which is itself a subsidiary of a third country parent undertaking should be exempt from the requirement to prepare consolidated financial statements where it and its subsidiaries are consolidated in the financial statements of a larger group (the parent undertaking of which larger group need not be an Irish undertaking)? Please give reasons for your preference. The exemption should be allowed in law and allow shareholders themselves decide. Question 75 Fair Value of Acquisitions Do you consider that, in making consolidation adjustments, parent undertakings should be permitted or required to measure the identifiable assets and liabilities of subsidiary undertakings at their values when acquired (or at the date of becoming a subsidiary, where acquisition was in stages)? Please give reasons for your preference. Parent undertakings should be permitted to use fair value but not required to do so. Charities and not for profit entities still use merger accounting or similar to merger accounting as per FRS 102. Permitting fair value will allow commercial companies apply the current requirements of IFRS and UK GAAP but also allow charities to opt out

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of fair value accounting in circumstances specified in FRS 102, and commercial companies opt to out in the very limited circumstances set out in IFRS (for group reconstructions which will use cost values). Question 76 Year-End dates for subsidiaries Do you consider that Irish company law ought to permit or require parent undertakings to draw up consolidated financial statements as at a date different from that as at which its entity financial statements are drawn up, so as to coincide with the dates as at which the entity financial statements of the majority of subsidiaries or the more significant subsidiaries are drawn up? Please give reasons for your preference. Better accounting is achieved with common accounting dates and as a general rule, this should be applied. It could be argued that if a holding company cannot demand that a subsidiary have a specified year end; then the holding company does not control the subsidiary and it is not therefore a subsidiary. However, some year ends are set by law and there can be good commercial reasons to have different year ends. Accounting standards deal with this issue and setting out the matter in law is not necessary. Irish company law ought to permit different year ends. The requirement to prepare true and fair consolidated accounts will ensure that this provision is not abused and being true and fair means complying with accounting standards. Question 77 Measurement Basis for Consolidation Do you consider that Irish company law ought to permit or require the use, in the preparation of consolidated financial statements, of measurement bases other than those used in the preparation of entity financial statements of the parent undertaking? Please give reasons for your preference. Some companies have been known to prepare single company accounts using UK GAAP and the consolidation using IFRS. While it might be argued that this could confuse an investor, there is no reason why a company should be excluded from doing this. Changing from one GAAP to another can have tax consequences and for example a US affiliated but Irish domiciled and head quartered company might prefer to prepare the single company financial statements using UK

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GAAP and the consolidated financial statements using US GAAP. Irish company law ought to permit the use of different measurement basis. Question 78 Entities under Common Control Do you consider that Irish company law ought to permit or require the use a form of merger accounting for combinations of undertakings under common control, provided that common control rests in the same hands before and after the combination? Please give reasons for your preference. As per Q75. Notwithstanding that merger accounting has fallen out of favour internationally, Irish company law ought to permit the use of merger accounting where, in the limited number of instances, this is allowed by accounting standards. Question 79 Proportional Consolidation of Joint Ventures Do you consider that Irish company law ought to permit or require the proportional consolidation of joint venture undertakings? Please give reasons for your preference. While Proportional Consolidation of Joint Ventures has fallen out of favour as an accounting treatment, it is still used for joint arrangements that are not entities and it may be used by non-standard GAAPs or by a change to GAAP in the future. Irish company law ought to permit the proportional consolidation of joint venture undertakings, and allow accounting standards to determine when this might be allowed, if ever. Question 80 Associated Undertakings Do you consider that Irish company law ought to prescribe one or other of the two approaches to measurement upon initial recognition under the equity method? If yes, which approach do you consider should be prescribed? Do you consider that investing entities should be permitted or required to calculate the difference between the methods (for purposes of disclosure) as at the date of acquisition or, where acquisition was in stages, as at the date that the undertaking in question became an associated undertaking? Please give reasons for your preferences. Irish law should be silent on the use of either of the two approaches and allow accounting standard prescribe the granular detail on the use of equity accounting.

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Question 81 Do you consider that Irish company law ought to require that the assets and liabilities of an associated undertaking be valued (upon initial recognition under the equity method) using the same measurement bases as those used for the consolidated financial statements? Please give reasons for your preference. Irish company law should not require this, as by definition you do not control an associate and cannot demand the information that may be necessary to make the calculations. Question 82 Particulars of Affiliates Do you consider that Irish company law ought to allow the specified particulars concerning subsidiaries, associated undertakings and undertakings in which a participating interest is held to be omitted from the notes to the consolidated financial statements and filed separately with the Companies Registration Office? Please give reasons for your preference. Law should allow this standing information to be disclosed once in CRO and then kept up to date, rather than being disclosed annually in financial statements. Question 83 Particulars of Subsidiaries Do you consider that companies should be allowed to omit information concerning the name, registered office, the proportion of the capital held and other particulars for subsidiaries, associated undertakings and participating interests where its disclosure would be seriously prejudicial to any of the undertakings to which it? If yes, do you consider that such omission should be subject to prior administrative or judicial authorisation? Please give reasons for your preference. Companies should be allowed to omit the information, but this should be subject to judicial oversight so that it is not abused to just hide ownership of unsavoury but legal businesses or to hide trade with rogue states etc…. Question 84 Do you consider that Irish company law ought to permit or require the disclosure of particulars of shares in the parent undertaking

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held by the parent undertaking itself, by its subsidiary undertakings or by its associated undertakings in the notes to the consolidated financial statements instead of in the directors’ report. Please give reasons for your preference. The disclosure should be in the notes to the financial statements and therefore subject to audit. Disclosure in the director’s report will be subject to a lower level of assurance from the auditor. Question 85 Directors’ Report (Exemption from Filing) Do you consider that Irish limited companies should be exempted from the requirement to file the directors’ report with the Companies Registration Office provided it can be readily obtained from the company at a price not exceeding its administrative cost? Please give reasons for your preference. Small and medium companies currently do not file directors’ reports with their abridged accounts, so it would be a change to require that they do so in future. Directors’ reports as currently drafted do not provide particularly useful information as they tend to be boiler plate and need only be consistent with financial statements rather than fair and balanced; currently a directors report can therefore be consistent but misleading. If the content and format of the directors’ report was made more meaningful then filing it in CRO might be useful to stakeholders such as providers of credit. If “readily obtained from the undertaking at a price not exceeding its administrative cost” were in law but written to also allow publication on a company web site then it would be a useful alternative. Question 86 Unlimited Liability Undertakings Do you consider that Irish partnerships, limited partnerships and unlimited companies that fall within the scope of the Directive ought to be exempted from the requirement to file their financial statements with the Companies Registration Office provided their financial statements are available from the head office of the undertaking concerned? Please give reasons for your preference. This appears to be a substantial change from current law; publication of information is seen as the cost of limited liability and as a protection for creditors. Unlimited liability is chosen primarily to avoid publication. Sole trade and unincorporated entities do not publish

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information because they are unlimited and the creditor is protected by this status. The States interest in unlimited companies is protected by virtue of full financial statements being filed with Revenue. This change could make Ireland a less attractive place to do business. There are legal loopholes that allow unlimited companies to be owned by limited entities offshore and to be structured in a way that allows limited liability and non publication. It would seem appropriate to close this loophole. It is also currently a requirement to publish the audit report for unlimited companies, this requirement is not onerous and for the same reason that it was originally implemented, it perhaps should continue. However, to make Ireland a destination of choice for FDI, we should continue to not require publication of information by unlimited liability entities. Question 87 Filing Exemption for Small Undertakings Do you consider that Irish company law should exempt small companies from the requirement to file their profit and loss accounts and directors’ reports with the Companies Registration Office? Please give reasons for your preference. It is hard to justify requiring the filing of financial statements that are self certified by the directors and not subject to any close monitoring by CRO as to compliance and disclosures. If the information in CRO cannot be relied on, then it should not be required to be filed. If there is going to be a requirement to file, then directors need additional responsibility to prepare financial statements correctly, non-compliance needs to be a serious offence in law, filings needs to be actively monitored by CRO for obvious non-compliance and ODCE need to prosecute non-compliance. If this is not in place then filing should not be required, because it will simply become an administrative burden-tax on compliant companies. Question 88 Filing of Abridged Balance Sheet Do you consider that medium-sized undertakings should be permitted to file such abridged balance sheets with the Companies Registration Office? Please give reasons for your preference. Per Q 87. There is a strong argument that the additional cost of abridging financial statements (i.e. removing notes and disclosures) is unnecessary cost and full financial statements should be filed.

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However, the feedback from ACCA members in practice is that clients are more than happy to pay for the abridging and therefore file a reduced amount of information. So in response, yes medium companies should be entitled to file abridged accounts and where they object to the cost of abridging, they have the choice of filing full accounts. Question 89 Filing of Abridged Notes Do you consider that medium-sized undertakings should be permitted to file such abridged notes to the financial statements with the Companies Registration Office? If yes, do you consider that the abridgment should extend to one or other or to both of those referred to above? Please give reasons for your preference. Where abridgement is allowed then the omission of notes on non-disclosure of movements on any provision for deferred tax and the non-disclosure of information on warrants, options etc. on the undertaking’s capital should both be allowed. Both items are not directly relevant to credit providers or customers, they are at most “nice to know” rather than “need to know” information. Question 90 Signing of Audit Report Do you consider that Irish company law should permit the non-disclosure of the auditor’s signature where such disclosure could result in a threat to personal security? Please give reasons for your preference. If you consider that disclosure should not be required in certain circumstances, please suggest circumstances where this approach might be warranted. The question is irrelevant to all but the few large firms. 1000 firms are single partner and a further 500 are two to five partner. Only 25 firms have more than six partners. Omitting the partner’s name, while including their firm’s name, will offer very little protection to an individual partner and may only serve to highlight clients with the types of businesses that would warrant the omission of the name. The firms address will be publically available, but the partner/auditor may maintain privacy over their personal home address. There is therefore no real protection offered by the omission of the individuals name and the option should not be allowed. Question 91 non-disclosure of Prepayments and Accruals

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Do you consider that Irish company law should permit micro-undertakings not to show the items “prepayments and accrued income” and “accruals and deferred income” in the balance sheet? Please give reasons for your preference. Allowing micro entities to use cash accounting has some merit, but this proposal is not cash accounting it is partial accrual and partial cash accounting. We are particularly unconvinced by the partial exemption from accruals accounting for certain overhead costs. If accrual accounting has to be done then there seems little or no burden reduction in removing the requirement to accrue/prepay some overhead costs. While these items may not be material in many cases, in some instances the exemption may create more issues with distributable profits, accounting standards and tax requirements. We remain unconvinced of the benefits of this proposal and it would be better if this were omitted from the Irish implementation – as we understand Germany and the UK have done. The wording of the directive is not very clear in regard to whether the accrual/prepayment is still required to be estimated but just need not be disclosed in the accounts. Question 92 Cash Accounting for “Other Charges” Do you consider that Irish company law should exempt micro-undertakings from the requirement to measure the item “other charges” on the accruals basis? Please give reasons for your preference. Per Q91. Question 93 Micro-undertakings (Disclosures) Do you consider that Irish company law should exempt micro-undertakings from the requirement to present notes to the financial statements (subject to providing specified information at the foot of the balance sheet)? Please give reasons for your preference. Of most importance to creditors are matters that render their debt, more or less, collectable such as security over debts and by extension access by a creditor to unencumbered assets and personal guarantees or similar matters. The inclusion of financial commitments, guarantees or contingencies and loans and advances to directors are of interest

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and should be included. However, it is difficult to see, so long as the balance sheet reflects that transaction, how detailed particulars of the acquisition of the micro-undertaking’s own shares will be relevant to any non shareholder stakeholders. However, acquisition of own shares is an infrequent activity and the inclusion of this part would not affect many companies. Question 94 Micro-undertakings (Management Report) Do you consider that Irish company law should exempt micro-undertakings from the requirement to prepare a directors’ report (subject to disclosure concerning acquisitions of the micro-undertaking’s own shares)? Please give reasons for your preference. Per Q87 and Q85. As the law currently stands, directors’ reports in the vast majority of small / micro entities do not convey any useful information to a user. The requirement should be omitted. Question 95 Do you consider that Irish company law should exempt micro-undertakings from the requirement to file any part of their financial statements other than the balance sheet with the Companies Registration Office? Please give reasons for your preference. Per Q87. In an international study, filing financial statements does appear to ease access to trade credit (not necessarily bank credit). Customers may also wish to perform some due diligence on the companies they intend on doing substantial business with or placing a deposit with (say replacement windows). Financial statements have to be prepared for taxation purposes, so if the CRO filing requirement mirrored the Revenue filing, then CRO filing could be done at minimal cost. There is a social benefit in limited company financial statements being available for public inspection and the transparency seems a reasonable price for the benefit of limited liability. A balance sheet on its own is almost meaningless without supporting notes, assets could be at cost or valuation, fixed security may or may not be in place, personal guarantees may or may not be in place. The current small company abridged filing requirement is a good balance between cost of preparation and fulfilling an information needs, and should be continued.

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Question 96 Micro-undertakings (Alternative Filing) Do you consider that Irish company law should allow micro-undertakings to file their balance sheets with a designated competent authority as an alternative to filing it with the Companies Registration Office? If yes, can you suggest an appropriate competent authority? Please give reasons for your preference. Filing with say Revenue and therefore automatically having these accounts filed in CRO does make sense, but it would need some careful study: there are different deadlines and financial statements filed in Revenue may sometimes be prepared to allow the calculation of a tax liability and may not be “true and fair”. For examples, limited company farms sometimes calculate their stock values using a formula agreed by Revenue 40 years ago where a % of market value is used rather than full market value. Accounting standards, and therefore true and fair accounts, require a different basis (full fair value in most cases); professional service firms may use UITF 40 for their valuation of work in progress or a Revenue Statement of Practice. Revenue also requires additional information that is not required in CRO and finally many public benefit entities are exempt from filing a CTI (Corporation tax return) but may be registered for VAT or PAYE. There are conflicts between the two requirements and these would need to be ameliorated prior to any change to the existing system is made. Irish law should allow this to happen, but not require it at this stage until proper research and cost benefit studies have been undertaken and have concluded that it will save costs overall. Question 97 Micro-undertakings (Abridged Balance Sheet) Do you consider that Irish company law should allow micro-undertakings to draw up an abridged balance sheet showing the items fixed assets, current assets, capital and reserves, provisions, and creditors and, in the case of the vertical format, showing net current assets or liabilities and total assets less current liabilities while showing separately creditors due and payable within one year and due and payable after more than one year? Please give reasons for your preference.

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A reasonable amount of aggregation is appropriate, but some research would need to be undertaken to see what is and is not required by stakeholders. It is not clear if the balance sheet items as proposed add up or if items are omitted – it would be wrong to omit items; the balance sheet should balance. The current level of disclosure in company law for small entities seems appropriate and does not need changing. Question 98 Micro-undertakings (Abridged P&L) Do you consider that Irish company law should allow micro-undertakings to draw up an abridged profit and loss account showing net turnover, other income, cost of raw materials and consumables, staff costs, value adjustments, other charges, tax, and profit or loss? Please give reasons for your preference. If financial statements of greater detail are required for taxation purposes anyway, then the answer is no; a separate set of abridged shareholder financial statements will only add unnecessary cost. A micro entity is not normally managed by reference to annual financial statements; it is managed usually by reference to cash flows and monthly management accounts or order books or sales. Imposing a requirement that serves no purpose is not appropriate. If a lender requires this information then it can be prepared and the cost can be considered as part of the cost of access to credit. Micro entities should not be obliged to prepare anything that they do not use. Question 99 Exemption from audit etc. (Subsidiaries) Do you consider that Irish subsidiary undertakings of EEA parent undertakings should be exempt from any or all of the relevant requirements i.e. the requirements regarding the content of the financial statements and management report, the requirements to file these documents with the Companies Registration Office and the requirement to have the financial statements audited? Please give reasons for your preference. Subsidiaries of an EEA parent should be treated the same as indigenous companies. Question 100 Do you consider that, where an Irish limited company is a partner in a partnership or unlimited partnership or is a shareholder of an

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unlimited company, where all of the other partners or shareholders are also limited liability companies (or the equivalent in another jurisdiction), Irish company law should require that limited company to have the financial statements of the unlimited company drawn up and audited and should require that the Irish limited company file those financial statements in the Companies Registration Office together with its own financial statements? Please give reasons for your preference. This does appear to offer better consumer / stakeholder protection but is an issue that needs further consideration. The principle should be that where limited liability is achieved, through whatever structure, then disclosure should be made; even where this limited liability includes an unlimited company entity within the structure. Where true unlimited liability is in place then non disclosure should be allowed. Question 101 Unlimited Liability Entities (filing in another Member State) Do you consider that, where the financial statements of an Irish unlimited liability undertaking (all of the members of which are limited liability undertakings, so bringing the unlimited liability undertaking within the scope of the Directive) are filed in the companies registry of another EEA Member State in accordance with the provisions of Article 38(1), Irish company law should or should not require the unlimited liability undertaking to draw up financial statements for filing in the Companies Registration Office? Please give reasons for your preference. Per Q100. Question 102 Unlimited Liability Entities (included in Consolidation) Do you consider that Irish company law should exempt unlimited liability undertakings (all of the members of which are limited liability undertakings, so bringing the unlimited liability undertaking within the scope of the Directive) from the requirement to produce and file financial statements where the undertaking in question is included in the consolidated financial statements of an EEA group? Please give reasons for your preference.

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Unless the consolidated financial statements of an EEA group are publically available then there should be no exemption. See Q100. Question 103 Profit and Loss Account of Parent Do you consider that a parent undertaking should not be required to publish an entity profit and loss account or to have it audited where the parent undertaking produces consolidated financial statements , provided that this fact, as well as the parent undertaking’s profit or loss, are disclosed in the consolidated financial statements? Please give reasons for your preference. The single company profit and loss in a consolidation is not necessary nor is it often meaningful. The exemption should be available to allow it be omitted. Question 104 Do you consider that Irish law should allow companies to first apply the provisions of the Directive to financial statements for periods commencing in the calendar year 2016? Please give reasons for your preference. 2016 is very ambitious. The timetable in the UK is apparently along the lines of:

Public consultation about the broad direction of implementation

around May 2014 for 2/3 months

Narrower consultation on the draft regulations after that

Draft regulations prepared around Jan 2015

Passed through Parliament April/May 2015 (before the General

election)

Implementation deadline set by EU July 2015

Mandatory application accounting periods beginning Jan 2016

DJEI is aware of the relative imbalance of resources in BIS compared to DJEI. The directive should be implemented when it is ready to be and without substantial additional resources, 2016 does not look realistic.