The scope for audit exemption has been greatly increased.  The 2008 Law states that:

'The Members of a company may pass a waiver resolution exempting the company from the requirements under section255 to have its accounts for a Financial Year audited.'

A waiver resolution must be passed by at least a 90 per cent majority and must be filed with the registrar of companies within 30 days of being passed.  It should be noted that a failure to file within the deadline does not invalidate the resolution, although late filing penalties may be applied on a daily basis thereafter.

The timing of such waiver resolutions has caused some difficulties due to a requirement for foresight and preemptive action as other than in the first financial year of a company, a waiver resolution must be passed during the financial year before the commencement of the financial year to which it relates.

The 2008 Law states that an auditor need not be appointed where: 'The directors reasonably resolve otherwise on the grounds that audited accounts are unlikely to be required.'

However, we have yet to find a lawyer who is comfortable advising reliance on this wording as a means of avoiding an audit, due to the inherent uncertainty linked to the words 'reasonably' and 'unlikely'.

The 2008 Law does not give any other means for relief for a company that misses the deadline for passing the waiver resolution. Therefore, a strict interpretation of the Law would be that a failure to pass the resolution before the commencement of a particular financial year results in a requirement to undertake an audit.

A consultation paper was issued in July 2009 seeking comment on a proposal to relax the requirements for passing a Waiver Resolution in advance of each financial year.  However, at this time no further indication has been released concerning any actual amendments to be made, or the timing thereof.  As such the position under the law remains unsatisfactory.

As with many legal compliance issues, the safest course at present is to ensure professional advice is taken at an early stage.

The general principles behind the revised regulations governing audit exemptions are to be applauded, as a far larger number of companies are now able to apply them to save non-beneficial costs.

However, in our opinion, the mechanism, administration and timing of the necessary procedures are unnecessarily draconian and insufficient avenues are left open to relieve innocent mistakes or missed deadlines.

We have made representations to the relevant persons within the States of Guernsey. It appears that the law officers recognise the unworkable nature of the law as it is currently drafted and it is seems highly probable that action will be taken at some point in 2009 to remove the necessity to pass a waiver resolution in advance of the commencement of a financial year. Incentives may be introduced to encourage early action, in the form of an increased filing fee for late adoption, however the main issue is to ensure that the administrative process becomes simple and flexible.

A consultation paper was issued in July 2009 seeking comment on a proposal to relax the requirements for passing a Waiver Resolution in advance of each Financial Year. The deadline for comment was 10 August but, at the time of updating this note (10.12.09) no further indication has been released concerning any actual amendments to be made, or the timing thereof. As such the position under the law remains unsatisfactory.

As with many legal compliance issues, the safest course at present is to ensure professional advice is taken at all times.