Corporate governance, and what amounts to good corporate governance, has become one of the major issues affecting the regulation of business internationally.

Stock Exchange listed companies are obliged to comply fully with the provisions of the Combined Code on Corporate Governance issued by the Financial Services Authority.

The Irish legal system particularly with reference to this area of corporate governance, compliance and control has been, and continues to be, completely overhauled with the introduction of the Company Law (Amendment)(No. 2) Act, 1999, the Company Law Enforcement Act, 2001 and the current Companies Auditing and Accounting Act, 2003 (“IAASA Act”) to further strengthen corporate governance in Ireland.

IAASA Act.

This Act establishes the Irish Auditing and Accounting Supervisory Authority whose responsibilities will now include supervision of the main accountancy bodies. The Act also introduces the requirement for an express statement, a “Compliance Statement”, by company directors:

- Acknowledging their responsibility for securing the company’s compliance with its relevant obligations
- Confirming that control procedures, designed to ensure this compliance, are in place
- Confirming that they have reviewed the effectiveness of these procedures during the year, and
- Specifying that, except for immaterial breaches, the company has complied with its relevant obligations for the year. The term “relevant obligations” is broadly defined to include company law, tax law, and any other laws that could have a material impact on the financial statements.

This requirement applies to private and public (whether listed or unlisted) companies alike. However, an exemption is available to certain private companies. These are companies, which in any given financial year, whose balance sheet total does not exceed € 7,618,428 AND whose turnover does not exceed € 15,236,856. In addition, the auditors of each company will be required to express an opinion, based on information obtained in respect of all work undertaken, as to whether the directors’ statement is fair and reasonable.

The Act also provides that all public companies and certain large private companies, i.e. those with a turnover of more than € 50 million and total assets of more than € 25 million should establish an Audit Committee. In the case of large private companies, should they choose not to do so, they must explain the reason for such a decision.

Sarbanes-Oxley Act, 2002 in the U.S.

This Act requires the chief executive and the chief financial officer of the top US companies to personally certify the truth and fairness of the company’s disclosures and that the financial statements “fairly presents the financial condition” of the company. They must also certify that SEC reports contain no untrue fact or no material omission. The two company officers must also certify the adequacy and effectiveness of internal controls, which are reviewed separately by the auditors. In addition, loans to officers and directors, including loans through any subsidiary, are prohibited.

There are also provisions in the Act to ensure the independence of the auditors and there are new disclosure requirements. New enhanced penalties for violations, up to $ 5m and 20 years imprisonment, have also been introduced. Trading blackouts can also be imposed on defaulting directors. Furthermore, revised rules have been imposed on solicitors and the Act also provides protection for “whistle-blowing” employees.

Higgs Review in the U.K.

For companies with a listing on the Dublin and London Stock Exchanges there are significantly expanded regulatory demands flowing from the Higgs Report.

The key recommendations in relation to non-executive directors include the following main proposals:

- At least half of the members of the Board, excluding the Chairman, should be non-executive directors
- No one non-executive director should sit on all three principal Board committees
- A chief executive should not subsequently become Chairman of the same company
- A full-time executive director should not take on more than one non-executive directorship nor become chairman of a major company
- The performance of the Board, its committees and its individual members, should be evaluated at least once a year.

This commentary on certain provisions of the legislation is not intended to be a legal or comprehensive interpretation. Professional advice should be sought in specific circumstances. For further information on statutory requirements, or any provision of the Companies Acts, 1963 to 2003, please contact our Company Secretarial Department on;

FREEPHONE: 1800 677 677

FREEPHONE:1800 677 677 or alternatively you can e-mail us at sales@iccinformation.ie ICC Information, ICC House, 17 Dame Street, Dublin 2.