Appointment by the court
If the shareholders' meeting does not act, the appointment is made by the court at the request of any interested party or on a report from the keeper of the Registro delle imprese.
Companies · Oversight
Auditor and board of statutory auditors in an SRL
Many SRLs only find out they are required to appoint a control body when someone points it out. The thresholds are crossed more easily than people think, and failing to act has consequences that go beyond the penalty.
01 · The thresholds
When an SRL must appoint an auditor or statutory board
An SRL (Italian limited liability company) must appoint a control body or an auditor when precise conditions are met. The obligation arises when the thresholds are exceeded for two consecutive financial years, and exceeding just one parameter is enough.
- Exceeding, for two consecutive years, the limit on total balance sheet assets.
- Or the limit on revenue from sales and services.
- Or the limit on the average number of employees during the year.
- When the company is required to prepare consolidated accounts.
- When the company controls a company subject to a statutory audit.
- When the articles of association require it, even if the legal conditions are not met.
What surprises people is that a single parameter exceeded for two years is enough. A company with little revenue but substantial assets (typically because it owns property) can be caught by the obligation even though it is small in every other respect.
02 · The options
Which body to choose
The law leaves the company to choose between different solutions, with different costs and scope of checks.
- The articles of association may state which solution to adopt: if they do not, the shareholders' meeting decides.
- The sole statutory auditor or board members must be entered in the register of statutory auditors when they also carry out the audit.
- The independence requirements are strict and must be checked before the appointment.
- The term of office is three years, renewable when it ends.
- The fee must be set by the shareholders' meeting at the time of appointment, for the whole term.
| Solution | What it involves |
|---|---|
| Sole statutory auditor (sindaco unico) | A single professional who carries out both oversight and, where required, the statutory audit |
| Board of statutory auditors (collegio sindacale) | Three standing members and two alternates: the more costly solution, adopted when the articles require it |
| Statutory auditor (revisore legale) | An auditor or an audit firm that carries out only the statutory audit of the accounts |
| Audit firm | An alternative to an individual auditor, entered in the register |
03 · The duties
What the control body does
Oversight and audit are two separate functions, which can be entrusted to the same person or kept apart.
Oversight
Checking compliance with the law and the articles, observance of the principles of sound management, and the adequacy of the organisational, administrative and accounting structures.
Statutory audit
Checking that the accounts are properly kept and that the financial statements match the records, with an opinion on the financial statements.
The report
The board reports to the shareholders' meeting; the auditor gives an opinion in their own report, to be filed with the financial statements.
Flagging a crisis
The control body must alert the directors to signs of crisis. See adequate corporate structures.
The least known function
Flagging a crisis.
- The control body must alert the directors in writing to signs of crisis
- It must set a deadline for them to report on the steps taken
- Whether the alert was timely is taken into account in assessing its own liability
- That is why the appointment is not just a cost, but a safeguard
04 · The procedure
How the appointment is made
The appointment is made by the shareholders' meeting and must be resolved within a precise time limit once the conditions arise.
- The shareholders' meeting approving the financial statements in which the thresholds were exceeded must make the appointment.
- At the same time the articles must be amended, if they do not provide for the body.
- The appointment must be entered in the Registro delle imprese (Companies Register) within the time limits.
- The appointee's acceptance of the office and declaration of independence must be obtained.
- The fee must be resolved for the whole term of office.
- The obligation ends only when the conditions have ceased to apply for three consecutive financial years.
The asymmetry between coming in and going out is sharp: two years above the threshold are enough to be caught, but three years below are needed to get out. This is something to bear in mind when a company hovers around the parameters.
05 · The consequences
What happens if you do not act
Failing to act does not go without effect, and the consequences go beyond the administrative penalty.
Directors' liability
Failing to appoint is a breach of the law that can be taken into account in assessing liability towards the company, shareholders and creditors.
Dealings with banks
The absence of a mandatory body comes out in credit assessments and affects the evaluation.
Extraordinary transactions
In a due diligence the irregularity always comes out and becomes a bargaining point.
Unaudited financial statements
Where an audit was mandatory, financial statements without a report are irregular.
The cost of the remedy
Acting of your own accord costs much less than being forced to by the court.
06 · The assessment
What it costs and what you get from it
It is a structural cost that has to be budgeted for, but it is not only a cost.
- The fee is resolved by the shareholders' meeting and matched to the workload and the size of the company.
- A sole statutory auditor is the least costly solution; a board triples the personnel element.
- The cost is deductible as a negative income item.
- Oversight of business continuity has a value of its own, especially for companies carrying debt.
- Having the body in place improves the rating in bank assessments.
- Checks by an independent third party reduce the risk for directors.
The most common reaction to the obligation is to see it as a formality imposed from outside. In practice, for a growing company, having an outside eye on the accounts and the structures is often the first serious form of internal control it manages to build.
Frequently asked
The questions that keep coming up
How do I know whether my SRL is required to appoint one?
You look at the last two sets of financial statements and check whether, in both years, at least one of the parameters was exceeded: total balance sheet assets, revenue from sales, average number of employees.
A single parameter exceeded for two consecutive years is enough. Watch out for assets: companies that own property often exceed that limit even with modest revenue.
Is a sole statutory auditor or an external auditor the better choice?
It depends on what the articles provide and which functions are needed. The sole statutory auditor oversees management and, if engaged to do so, also carries out the statutory audit; the external auditor carries out only the audit of the accounts.
The sole statutory auditor is the most common solution in SRLs, because it covers both functions with a single professional and a single fee.
The parameters have fallen. Can I remove the auditor?
Only after three consecutive financial years in which none of the parameters is exceeded. Leaving the obligation is slower than entering it, which takes two years.
If the articles provide for the body regardless of the thresholds, removing it first requires an amendment to the articles, at an extraordinary shareholders' meeting.
What happens if I do not appoint one?
If the shareholders' meeting does not act, the appointment is made by the court at the request of any interested party or on a report from the keeper of the Registro delle imprese.
The omission is also a breach of the law that can be taken into account in assessing the directors' liability, and it does not go unnoticed in bank credit assessments and due diligence.
Let's talk
The thresholds are checked every year, on the accounts just closed
Two consecutive financial years above a single parameter are enough. Bring us your last two sets of accounts and we will check straight away.