The Benefits Of Dropping A Size: Adjusted Company Size Thresholds - Industry Updates & Analysis - Strategy (2024)

The EU (Adjustments of Size Criteria for Certain Companies and Groups) Regulations 2024 (the "Regulations") represent a significant update to the regulatory framework governing the classification...

Ireland Strategy

The EU (Adjustments of Size Criteria for Certain Companies andGroups) Regulations 2024 (the“Regulations”) represent a significantupdate to the regulatory framework governing the classification ofcompanies and corporate groups within the European Union. TheseRegulations, which took effect on 1 July 2024, aim to modernise andrefine the criteria used to categorise companies based on theirsize. This has significant implications for compliance, reporting,and eligibility for various EU programs and benefits.

The Regulations give effect to the EU delegated Directive2023/2775/EU, which amended a 2013 Directive known as the‘Accounting Directive', to adjust the size criteria forcertain companies in line with inflation. The Regulations amendspecific provisions of the Companies Act 2014 (the“Act”) dealing with the requirementfor accounting records and financial statements in different sizecompanies.

Purpose and Objectives

The primary objective of the Regulations is to ensure that theclassification system remains relevant and accurately reflects thecurrent economic environment; specifically, the Regulations adjustcompany size thresholds by approximately 25 per cent to takeaccount of inflation.

This change will widen the scope for companies to potentiallyavail of various exemptions if they fall under certain thresholds.Therefore, by increasing these thresholds it means more companieswill benefit from less burdensome accounting obligations and availof CRO filing exemptions. In particular:

1. companies newly meeting the criteria for ‘smallcompanies' or ‘micro companies' may:
   1. get an exemption from making certain disclosures in theirfinancial statements; or
   2. be allowed to file abridged financial statements with theirannual return; and
2. a broader range of companies may be entitled to avail of theaudit exemption under Chapter 15 of Part 6 of the Act as a resultof being classified as a ‘small company' or‘small group'.

Of course, company size criteria can, and do, have relevantbeyond just financial reporting obligations under the Act –many other compliance requirements are determined by reference to acompany's size category for the purposes of the Act. By wayof example, it means more companies may not have to comply withreporting obligations under the Corporate Sustainability ReportingDirective (“CSRD”) during its initialimplementation period. As currently only companies qualifying as‘large companies' under the Act must comply with theCSRD (aside from ‘public interest undertakings' andlisted SMEs). With the increased thresholds there will be a numberof companies dropping from ‘large company' status to‘medium company' status. However, note that a companyhas to fall outside the relevant criteria for at least twofinancial years to escape CSRD reporting obligations.

Key Changes

The Regulations amend Part 6 of the Act by increasing certaincriteria for turnover and balance sheet total for ‘microcompanies', ‘small companies' and ‘smallgroups' and ‘medium companies' and ‘mediumgroups'.

The thresholds have been adjusted for turnover and balance sheettotal. It must be noted, however, that there has been no change tothe average number of employees criteria.

The increased size criteria are as follows:

• Micro company: A balancesheet total of not greater than €450,000 and a net turnover ofnot greater than €900,000 (and no more than 10 averageemployees).
• Small company: A balancesheet total of not greater than €7.5 million and a netturnover of not greater than €15 million (and no more than50 average employees).
• Small group: A group balancesheet total of no greater than €7.5 million net (or €9million gross) and group turnover no greater than €15 millionnet (or €18 million gross) (and no more than 50 averageemployees of the group).
• Medium company: A balancesheet total of not greater than €25 million and a net turnoverof not greater than €50 million (and no more than 250average employees).
• Medium group: A group balance sheet total ofno greater than €25 million net (or €30 million gross)and a group turnover no greater than €50 million net (or€60 million gross) (and no more than 250 average employeesof the group).
• Large company: A balance sheet total ofgreater than €25 million and net turnover of greater than€50 million (and more than 250 averageemployees).¹

Implications for Businesses

Companies will need to take their compliance and reportingrequirements into account. In particular, the financial position ofcompanies should be reviewed and compared against the newthresholds to determine if the company in question has dropped intoa different category, which will then allow a determination ofwhether the company's financial reporting obligations havechanged.

There may be significant benefits for companies moving to adifferent category aside from benefitting from less onerousaccounting requirements. For example, companies previouslyclassified as ‘large companies' may now be classifiedas an SME under the new criteria and therefore may gain access to awider range of EU support programs, including funding, grants, andtechnical assistance. Certain companies, such as those on thethreshold of different size categories, might be in a position tomake strategic changes in order to optimise their classificationand avail of any of these additional benefits. In addition, it mustbe noted there may be potential impacts on mergers andacquisitions, as companies reassess the size and scale of potentialpartners to align with the new criteria.

Although the Regulations take effect from 1 July 2024, theadjusted thresholds will apply for the financial year commencing 1January 2024. Companies will also have the option to apply themfrom 1 January 2023.

Conclusion

In conclusion, it is hoped that by updating the size criteria,companies will be relieved of unduly burdensome financial reportingrequirements, thereby stimulating greater economic growth,innovation, and competitiveness across the EU. Stakeholders in theaccounting industry have also welcomed this development. At a timewhen the costs of doing business are, in many cases, exponentiallyhigher than they were, for some lucky businesses this may offer adegree of relief.

Footnote

1 The previous thresholds were as follows;

• Micro company: A balance sheet total ofnot greater than €350,000, a net turnover of not greater than€700,000 and no more than 10 average employees.
• Small company: A balance sheet total ofnot greater than €6 million, a net turnover of not greaterthan €12 million and no more than 50 averageemployees.
• Small group: group balance sheet totalof no greater than €6 million net (or €7.2 milliongross), group turnover no greater than €12 million net (or€14.4 million gross) and no more than 50 average employees ofthe group.
• Medium company: A balance sheet totalof not greater than €20 million, a net turnover of not greaterthan €40 million and no more than 250 averageemployees.
• Medium group: A group balance sheettotal of no greater than €20 million net (or €24 milliongross), group turnover no greater than €40 million net (or€48 million gross) and no more than 250 average employees ofthe group.
• Large company: A balance sheet total ofgreater than €20 million, net turnover of greater than€40 million and more than 250 averageemployees.¹

Co-authored by Stephanie Glennon

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