The Companies Act 2014 has introduced requirements for large companies to establish an audit committee on a comply or explain basis. This is covered in section 167 of the new Act. An audit committee is a group of directors, nominated by the board to manage the financial reporting of the company. Prior to the introduction of the new Act, only public interest entities were obligated to establish an audit committee.
The definition of a large company in the context of the Act can vary. For the purpose of Section 167, a large company is one where the turnover of the company exceeds €50 million and the balance sheet total exceeds €25 million. If both of these thresholds are met in the most recent financial year, then the company is required by the Act to establish an audit committee.
Comply or Explain
Section 167 introduces the obligation for large companies to establish an audit committee or explain why they have decided not to establish the audit committee. The board of a large company is required to state in their director’s report whether or not they have decided to establish an audit committee. If they have decided not to establish the committee, they must include the reasons for their decision in the report.
If any director of a large company fails to comply with these new requirements, they can be found guilty of a category 3 offence. If found guilty of breaching company law which falls under category 3, it can result in a Class “A” fine * (up to €5,000) and/or a maximum 6 months’ imprisonment.
The Act does not specify acceptable reasons for a decision not to establish an audit committee. If the board of a company has decided not to establish an audit committee, recorded this decision in the minutes of a meeting or in a written resolution and has stated the decision in the director’s report, then they have complied with this new requirement.
Responsibilities of the Audit Committee
An audit committee has several main responsibilities which include the following:
- To oversee the financial reporting process
- To monitor the efficiency of the company’s internal control, risk management and internal audit
- To oversee the statutory audit of the company’s financial statements
- To review and monitor the independence of the statutory auditors and in particular the provision of additional services to the company
Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.