Accounting and audit requirements

The Companies Act requires every company to keep proper accounting records that explain its transactions and facilitate the preparation of financial statements. The records of accounts are usually kept at the registered office or some other office as decided by the directors of the company. If accounting records are kept outside of Malta than financial statements and returns must be sent and kept at a place in Malta. These financial statements and returns must disclose with reasonable accuracy the financial position of the company at intervals not exceeding six months.

The directors of the company are obliged to furnish the shareholders with a set of financial statements on an annual basis. These financial statements are to comprise the balance sheet as at the last day of the accounting period to which they refer, the profit and loss account for that period, the notes to the accounts and any other financial statements which may be required by generally accepted accounting principles.

Generally accepted accounting principles and practice mean:

• for financial reporting periods commencing on or before 31 December 2007, adherence to International Financial Reporting Standards (IFRS); and


• for financial reporting periods commencing on or after 1 January 2008, adherence to IFRS as adopted by the European Commission in accordance with the provisions set out in Article 3 of Accounting Regulation 1606/2002; and


• for entities that meet the relevant eligibility criteria, compliance may also be achieved by adherence to General Accounting Principles for Smaller Entities (GAPSE), which may be applied by a qualifying entity for financial reporting periods ending on or after 1 January 2009. GAPSE may be applied by entities not exceeding any one of the following for a consecutive two-year rolling period:
  
  • Revenue (annualised): 335 million
  • Total assets: 317.5 million
  • Average number of employees: 250.

A different set of thresholds apply to state-owned entities.

The GAPSE accounting framework provides for a number of measurement simplifications and disclosure relaxations when compared to IFRS as adopted by the EU.

Audit of financial statements

Every company incorporated in Malta is required to appoint independent auditors that are registered with the local Accountancy Board and hold a certificate to practice as auditors. Auditors in Malta must follow the International Standards of Auditing (ISA) issued by the International Federation of Accountants (IFAC). Auditors are required to report to the shareholders on every set of financial statements furnished at a company’s annual general meeting.

The auditor’s report must state whether, in the auditor’s opinion, the accounts have been properly prepared in accordance with the Companies Act and IFRSs as adopted by the EU, or GAPSE, as applicable, and whether these accounts give a true and fair view of the affairs and results of the company.

With the exception of the company’s initial auditors who may be appointed by the directors, auditors are appointed at the Annual General Meeting (AGM) to serve until the next AGM.

Auditors are entitled to attend all general meetings of the shareholders and to receive all notices of and other communications relating to any general meeting that a shareholder is entitled to receive.

Companies are required to file with the Registrar of Companies a copy of the annual financial statements presented at the AGM and of the directors’ and auditors’ reports thereon within 42 days from the end of the period for submitting annual financial statements to the general meeting. Such periods are normally ten months after the end of the relevant accounting reference period for private companies, and seven months after the end of that period for public companies.

Abridged accounts

Companies that qualify as small according to provisions included in the Companies Act may also opt to fulfil the requirement to file annual financial statements to the Registrar by filing abridged accounts. Such accounts are prepared by the directors from the full set of financial statements described above, and must be accompanied by a special auditor’s report to the directors stating whether in their opinion the company is entitled to those exemptions as claimed in the directors’ statements, and whether the documents to be proposed to be delivered are properly prepared. The original auditor’s report to the members must also be included.

Abridged accounts do not signify adherence to a separate reporting framework. Nonetheless, the disclosures required, which are specified in the Companies’ Act, are much less onerous, particularly with regard to the profit and loss account, the explanatory notes and the dispensation from the requirement to present a statement of cash flows.

Generally, abridged accounts may be drawn up by small companies that on their balance sheet date do not exceed the limits of two of the following three criteria:

• Total assets: 32.56 million
• Turnover: 35.12 million
• Average number of employees: 50.