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Non-Financial and Diversity Disclosure Obligations – Update to the 2017 Regulations

AUTHOR(S): Fergus Bolster
PRACTICE AREA GROUP: Corporate, Mergers and Acquisitions
DATE: 12.12.2018

Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups was transposed into Irish law by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 (the “Regulations”).

We previously summarised the substantive requirements of the Regulations which can be accessed here

By way of recap, under the 2017 Regulations, certain Irish incorporated companies will be obliged to make annual disclosures on non-financial and board diversity matters for financial years beginning on, or after, 1 August 2017.  Disclosures are required to be included in the directors’ report which accompanies the annual financial statements, or otherwise, in the case of the non-financial matters, set out in a separate statement.  Any such separate statement requires to be (i) published on the company’s website within six months of the financial year-end or (ii) annexed to the annual return of the company filed with the Companies Registration Office.  Where a separate statement is prepared, it must also be attached to every balance sheet of the company that is presented to shareholders at the AGM.

The Regulations were amended, with effect from 17 October 2018, by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) (Amendment) Regulations 2018 (the “Amendment Regulations”).

Most of the amendments introduced are technical in nature, designed, to clear-up perceived ambiguities in the drafting of the original Regulations.

The only substantive amendment relates to the statutory auditor’s obligation to report on the non-financial information.  The Amendment Regulations provide that the statutory auditor, when preparing its audit report on the annual financial statements, is required to establish that the company has, in respect of the financial year immediately preceding the financial year that is the subject of the audit report, provided the non-financial information in the directors’ report or in a separate statement.  Under the original formulation, the statutory auditor was required to report on whether the non-financial information was included in respect of the financial year that is the subject of the audit report.  It is not clear why this amendment was introduced, albeit some commentators have speculated that it was to address the situation where there could be a potential timing mismatch between when the annual financial statements and a separate non-financial statement are approved.

From a practical perspective, notwithstanding the amendment to the audit requirement, we would expect most in-scope companies to engage with their auditors in the current year in relation to their proposed non-financial disclosures, in order to mitigate the risk of a qualified audit statement 12 months later.  Furthermore, unless amended, it is important to remember that auditors have separate obligations in respect of the non-financial information under International Standard on Auditing (Ireland) 720 - The Auditor’s Responsibilities Relating to Other Information (“ISA 720”).  Under ISA 720 the non-financial information will fall to be considered as “other information”, which the statutory auditor is required to read and consider (i) if there is a material inconsistency between the “other information” and the statutory financial statements, (ii) if there is a material inconsistency between the “other information” and the auditor’s knowledge obtained in the audit of the statutory financial statements and (iii) if there is any material misstatement in the “other information”.

We await to see how these changes will impact in practice, and will continue to keep you updated on developments in this area.

For more information, please contact Fergus Bolster, partner, Corporate M&A.

With a wealth of experience across our six partner led offices worldwide and a dedicated 100 person Corporate Department, Matheson has some of the most experienced corporate lawyers in Ireland and were named Ireland M&A Legal Adviser of the Year at the 2017 Mergermarket European M&A Awards. Excellence matters and Matheson’s Corporate Department, led by 20 partners, has unparalleled experience in complex and innovative domestic and international corporate transactions across all industry sectors.


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