Audit Committee Requirement
Section 167 of The Companies Act 2014 (“the Act”) requires UCITS PLCs to establish an Audit Committee on a “comply or explain” basis.
Subsequently, the European Union (Statutory Audits) Regulations 2016 ( S.I. 321) came into effect on 17 June 2016. It included a clause expressly dis-applying the requirement to establish an audit committee to public interest entities that are UCITS PLCs. This has resulted in a conflict between the Act’s requirements and SI 321; such that a public interest entity UCITS PLC can’t ignore it’s obligation under the Act regardless of the SI.
Audit Committee requirements
UCITS PLCs need to establish an audit committee on a “comply or explain” basis irrespective of the balance sheet amount or the turnover of the PLC for the financial year beginning on or after 1 June 2015.
The Minister for Jobs, Enterprise and Innovation has the power under the Act to grant an exemption to UCITS PLCs however this has not been exercised to date. Currently the obligation to decide to establish or explain the reason why the company is not establishing an Audit Committee apply to UCITS PLCs.
Exemption: Part 24 investment companies ( non-UCITS investment companies) are exempted from the Audit Committee requirement of Section 167 under Section 1387 of the Act.
The audit committee, if established, should comprise at least one independent director of the company. The responsibilities of the audit committee include:
- Monitoring the financial reporting process
- Monitoring the effectiveness of internal control systems, internal audit and risk management
- Monitoring the statutory audit of the statutory financial statements; and
- Monitoring and reviewing the independence of the statutory auditors.
Audit reform introduces some rules that affect all audits undertaken in Ireland, in particular in the behaviour of audit committees, the way that statutory audits are regulated. So, what are the impacts?