Determining the appropriateness of GAPSME for Maltese local councils

Abstract

PURPOSE: The main aim of this study was to evaluate the appropriateness of GAPSME for Maltese Local Councils (LCs). It investigated whether LCs conformed to the applicability criteria required by this accounting framework. It also examined whether the adoption of GAPSME would result in fewer non-compliance issues and whether financial statements under this framework were more relevant and understandable when compared to IFRS-compliant statements. DESIGN: Primary data was collected through ten semi-structured interviews held with an official of the National Audit Office, another from the Department for Local Government Monitoring and Support, four Local Government Auditors, and four LC accountants. A focus group was also held with five members of the Żebbuġ (Gozo) LC. The financial statements of all Maltese LCs for the years ending in 2015 and 2016 were examined. Finally, a questionnaire was distributed among the accountants who prepared the financial statements of Maltese LCs. FINDINGS: This study notes that LCs were finding it difficult to comply with the requirements imposed by IFRS. It emerged that Maltese LCs conformed to the applicability criteria imposed by GAPSME. If this framework is adopted for Maltese LCs, there should be fewer instances of non-compliance because it was considered simpler, contained fewer requirements, and was less prone to changes. Financial statements prepared under GAPSME compliance were considered more relevant and understandable to Local Councillors and the public at large. CONCLUSIONS: This study concludes that the GAPSME accounting framework is more suitable for the financial reporting of Maltese LCs. Fewer instances of noncompliance are expected under the GAPSME regime. Maltese LCs are expected to prepare their financial statements in accordance with the requirements for small entities under the GAPSME regulations. However, requirements additional to those imposed for small entities were considered to be beneficial in the context of LCs. These additional requirements included the presentation of a CFS and the inclusion of the income and expenditure breakdown in the notes. VALUE: This study is the first of its type in the Maltese context. It should provide a new perspective of the financial reporting of Maltese LCs and improve the current financial reporting process of LCs.