Amendments Nos. 4 and 5 will be taken together.
Private Members' Business. - Companies (Amendment) Bill, 1985: Committee Stage (Resumed).
Section 3, as amended, agreed to.
SECTION 4.
I move amendment No. 4:
In page 6, subsection (1), to delete lines 6 to 10 and substitute the following:
"and, accordingly, in the Companies Acts, 1963 to 1982, and the Companies (Amendment) Act, 1983, in relation to a company to which this Act applies—
(i) references to the said section 149 shall be construed as references to subsection (5) and, in so far as it relates to the said subsection (5), subsection (7) of the said section 149 and to the provisions of this Act corresponding to the other provisions of the said section 149, and
(ii) references to the said Sixth Schedule shall be construed as references to the corresponding provisions of this Act.
The purpose of the amendment is to conform to the Fourth Directive not just in terms of the sequence of presentations of these items but the titles given to the items concerned. This concerns Article 4.2 of the Directive. It allows flexibility.
Amendment agreed to.
Question proposed: "That section 4, as amended, stand part of the Bill."
Subsection (3) states:
Where the balance sheet, or profit and loss account, of a company has been prepared by reference to one of the formats set out in the Schedule to this Act, the directors of the company shall adopt the same format in preparing the accounts for subsequent financial years unless, in their opinion, there are special reasons for a change.
Would the Minister give us a few instances of the special reasons for a company seeking to change the format, and how extensive would the note have to be in support of a change?
There could be occasions on which a change of format would be justified. The notes would form part of a statutory document which must be filed in the Companies Registration Office. A company might change radically its type of business and decide to have a different format. A company might be taken over by another company which was using a different format. In such cases a change in the format would be logical on a company basis or a consolidated accounts basis.
If a company were to change the format of its accounts in a year, would it be entitled to use the previous year's accounting format, even though it was different, as a comparison?
The actual format of the account, whether it is balancing or profit or loss account, is hesitational in its effect and once the comparisons can be made there is no difficulty in a changeover period. It is of no great significance, it is primarily a matter of presentation. The content of the accounts under one formula or the other would be the same.
All I want to establish for practising accountants is that should they decide to change the format, they do not necessarily have to do a retrospective change of the previous year's figures so as to have the comparative in the same form. That would lead to considerable administrative costs. Will the Minister clarify that?
As stated in the Bill, there must be a comparison with the previous year's figures. Once that is maintained if there is a change over a period of one year it will not greatly affect the situation. It will not present any problem either to the accounts or to the administration of this Bill.
The Minister would agree that there is much greater rigidity now in the formats than heretofore. Up to now the matter was dealt with under the 1963 Act and certain SSAPs and certain rules attached to the Stock Exchange. Now there is a big change. I would contend that the formats are now fixed for those listed companies and the notes of disclosure are much increased and that that rigidity itself places a considerable workload on accounts. I want to try to get that into perspective so that people can be properly advised on these formats.
As the Deputy knows, the principal thrust of this is to make sure all commercial trading companies make returns to comply with the directive. I do not accept the Deputy's submission that the Bill imposes rigid formats. The formats are quite clear and comprehensive but the hesitation of the various formats is not rigid in the sense that the Deputy describes and there is quite an amount of flexibility allowed under this section to ensure that while full information is given certain sub-headings can be amalgamated for the sake of simplicity. It does not affect the thrust of the Bill. The flexibility allowed in section 4 will be acceptable to the accounting profession.
I take issue with the Minister on that. Whether or not these new formats are acceptable to practicising accountants or people involved in this business, there is no question as to their rigidity. I am alarmed that the Minister says they are not rigid. A casual glance at page 22 of Part I of the Schedule would indicate to anybody that the format for both balance sheet and profit and loss accounts is quite rigid. I take it they must be complied with, as stated in the Schedule, so it is not true for the Minister to say that there will be any flexibility in accounting practices henceforth. For that reason it is important for people involved to know that there is a narrow rigid format involved and that it is compulsory on those final accounts. Following on my question on section 4(4) should a company for a reason stated in the notes to the account decide to change the format for this particular year — and according to the Minister it is not necessary that they would use the comparatives in the previous year in the same format — and return to the original format, will they be permitted to do so. If so is there a time limit on when they may or may not return to the original format?
I take issue with the Deputy. I accept that what is required by the directors and included in this Bill is a comprehensive and a true and fair picture both in relation to profit and loss format and balance sheet format. The provision of section 13(5) of this Bill allows for an amount of flexibility which should be acceptable in relation to formats or presentations. What we are looking for is comparative figures, in other words that a figure in one year can be compared with a figure in the previous year. If there is a change in format the continuity of comparability must be maintained. That is quite clear in this section and in the Bill in general. There must be valid reasons why the director of a company would change the format. The whole thrust of the Bill is the predominant necessity of presenting a true and fair picture. While the format may change, the actual continuity of comparability must always be maintained.
I understand that. Would the Minister answer the final part of my question? If a company chooses to change the format for a reason, can they go back to their original format if subsequently they decide that it suited them better administratively?
They may go back for special reasons if the directors wish. What is really important is the continuity of comparisons and that the full information be given in each year's accounts in accordance with the formats. If the directors feel it essential for some important reason to change the format it is allowable once the continuity of comparisons is maintained.
Would the Minister give a few examples of special reasons? Any time wording of that nature appears in legislation it requires that what are regarded as special reasons should be set down specifically as advice to people working the legislation. The Minister might not have that information with him this evening but perhaps he would let us have a list later on so that people would get an indication of the special reasons affording an opportunity to change the format.
This is a matter of responsibility for the directors. No matter what format is used comprehensive information will be required. It is up to the directors to decide if there are special reasons to change, such as an essential change in trading or a take-over or a different auditor being appointed who gives valid reasons why their accounts should be presented in a different way. There is no problem here.
The formats here are only guidelines?
No, the formats for the balance sheets and the profit and loss accounts are very comprehensive in their requirements. The actual formats, so long as they contain the same information, are a matter of presentation which the directors or their auditors of the business would suggest as being to the best advantage of the company.
It must provide the information?
It must supply the comprehensive information requested.
Will the Minister report progress?
I propose that we agree section 4.
Is that agreed?
No, there are a few questions I want to ask on this section.
Progress reported; Committee to sit again.