The implementation of GAPSME by Maltese companies : an analysis

Abstract

PURPOSE: This study has three distinct research objectives. The first objective is to determine the GAPSME take-up rate three years after its issuance. The investigation of factors which influence a Maltese SME’s financial reporting framework choice is set as the second objective, while the third objective is to gauge the feedback and opinion relating to GAPSME’s use in practice by both auditors and SME representatives. DESIGN: A mixed method methodology comprising of both quantitative and qualitative aspects was the approach adopted which was deemed to provide the most comprehensive study which satisfies the research objectives stated above. Data gathered through company financial statements was statistically analysed through a binary logistic regression and supplementary statistical testing, while semi-structured interviews provided an insight into stakeholder reasoning and opinions which was used to support and discuss the quantitative findings. FINDINGS: This study identified a GAPSME take-up of 82.4% in its first year of issuance, which was found to be much higher than GAPSE’s take-up in its final year of availability (2015), which was approximately 50%. The factors which were found to influence whether firms are GAPSME adopters or not included: company size, auditor size, increases in audit fees pre and post GAPSME issuance, auditor report lag, use of GAPSE in the past, investment in subsidiaries and the company’s debt/equity ratio. Overall feedback from both sets of interviewees was positive, with many only recommending some improvements in relation to simpler recognition and measurement principles and higher small group consolidation thresholds. GAPSME was not considered inferior to IFRSs for its targeted users, which contrasted to perceptions of its predecessor. The banks’ reliance on financial statement information was found to be a misconception, while SME owners and creditors were not considered avid users of audited financial statements. Lastly, transitional costs due to GAPSME adoption were minimal, while indirect cost saving through no change in audit fees was experienced when compared to the ever more complex IFRSs. CONCLUSIONS: This study concludes that GAPSME can be considered a success, visible through its high take-up and general feedback, however improvements addressing stakeholder concerns should be considered by the MIA. The company factors which effect an SME’s framework choice provide insight into which companies are more likely to adopt GAPSME and therefore at which such improvements should be targeted. VALUE: The strength of this study lies in the fact that it is the first feedback study on GAPSME since its use in practice and the first to investigate relationships between company specific factors and framework choice.