The statement of circumstances in the Maltese statutory audit : an analysis

Abstract

PURPOSE: This study seeks to establish whether any Statements of Circumstances (SOCs) have been lodged by auditors at the company's registered office and with the Registrar, as well as to ascertain those circumstances in which auditors find it appropriate to issue such Statements of Circumstances or No Circumstances (SONCs). An evaluation of the auditors' perceptions regarding the regulatory framework is also made. DESIGN: The methodology used in this study was threefold: a discussion with the Registrar, the scrutiny of a sample of 115 company files, the administration of an online questionnaire with 16 auditors and its piloting by interviewing 4 further auditors. FINDINGS: These indicate that SOCs are rarely issued in practice with 'suspected fraud or any other irregularities', 'disagreement over accounting principles' and 'disagreement over the audit opinion', being the three most important circumstances which merit an SOC. It was evident that there are circumstances in which an SOC is more adequate, yet auditors still elect to issue an SONC. Furthermore, some auditors may be preferring not to make public the circumstances that have led them to cease to hold office so that no harm is made to either party. It was also established that the most likely reason for the few Statements being issued is that agreements are commonly reached between both parties. CONCLUSION: It was concluded that currently the framework in this area is not as strong as it should be and that the original intentions of Maltese company law are not being realised since auditors are not reporting matters that the legislation has intended to be reported. VALUE: It is hoped that work will help make auditors more aware of the need to understand the information requirements of shareholders in this area. Recommendations include: the revision of the Companies Act regarding listed companies so that auditors will be invariably required to provide SOCs; the adoption within the framework of a list of the circumstances which might lead the auditor to cease to hold office and whether they give rise to the issue of an SOC/SONC and; the development of guidance for auditors amongst others.