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The director's compliance statement returns

Draft legislation for companies on the way

The proposed new legislation, the draft Companies Bill, is currently going through the Oireachtas and it brings with it the return of The Directors’ Compliance Statement for PLCs and large private companies.

Companies with a balance sheet total greater than €12.5m and turnover greater than €25m for the financial year will now be required to make this statement, which must form part of the Directors’ Report as included with the audited financial statements. It should:

(i) State that the Directors acknowledge their responsibility for ensuring compliance with company and tax law;

(ii) Confirm that a company policy statement has been drawn up with regard to compliance with company obligations; 

(iii) Confirm arrangements are in place to ensure compliance with company obligations; and

(iv) Confirm that the Directors have reviewed the effectiveness of the procedures during the fiscal year. 

If no such policy or procedures are in place the directors must explain why.

 “Company obligations” are defined as:

(i) Company law obligations in relation to Category 1 and 2 offences,  a serious market abuse or a prospectus offence; and

(ii) Tax obligations relate to all instruments or enactments relating to tax. Category 1 offences on indictment attract a maximum fine of €500,000 and/or 10 years imprisonment. Category 2 offences on indictment attract a maximum fine of €50,000 and/or five years imprisonment.

The required statements are very wide-reaching. So as a Director you should feel comfortable making these statements. In order to ensure you are you should consider doing the following:

Assign a sponsor
Assign a project sponsor who will report to you periodically on progress and results. This will improve the level of assurance you’re getting as a Director. Public Sector

Public sector
The acceleration of radical changes to pensions for public servants is another recommendation that would draw a strong reaction. Not surprisingly, we can expect our policy makers to look towards this particular iceberg with a Nelsonian eye, but that would be foolish. The current public sector pension promises are simply not affordable in the longer run, and the sooner the issue is addressed by changing tack, the lesser the ultimate pain involved.

Policies, manuals and reporting

Review current policies, manuals and processes. This will help to identify any compliance gaps and highlight areas where updates are required. 

Continuous monitoring
A process of continuous monitoring should be put in place to ensure compliance with all policies and procedures. This will assure you that processes are operating in line with requirements. Ongoing monitoring, including spot-checking, reporting of instances or near-misses by management and also periodic auditing, will ensure obligations are being complied with.

Matrix of responsibility
The Bill requires a review to be conducted for the relevant year for which the Directors’ statement is being signed. This should be built into the monitoring cycle for the year. This can be completed by an external party or by another function such as internal audit.

Reporting obligations
As a Director you should focus on your reporting obligations. Having gone through the stages above, you should feel comfortable. However if you do not, you should re-assess how the processes could be enhanced and how additional assurance could be provided by management. 

Although these are not currently legislative requirements, given the nature of the changes, Directors and organisations should consider the impact of this Bill. Critically consider the current frameworks in place to ascertain if simple improvements may be made now to help meet these obligations later. The earlier the required changes are made, the easier it will be to obtain the required assurance when the time comes.

 

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Joanne Whelan

Partner - Tax

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