The consolidation of the financial statements of central and local government : a Maltese study

Abstract

PURPOSE: The aim of this study is to identify the need for consolidation and harmonisation in central and local government financial reporting in Malta. Since the central government is in the process of adopting IPSAS, while local government is IFRS-compliant, this study seeks to identify the differences between IPSAS and IFRS and the challenges these differences create for consolidation purposes. DESIGN: A qualitative research methodology is adopted for this study where primary data is obtained through semi-structured interviews. The research participants are officials from the NAO, Ministry for Local Government, Local council auditor, Deloitte, KPMG, EY, PwC. FINDINGS: This study confirms that consolidation in the Maltese public sector is beneficial and should be pursued. However, harmonisation is the priority, as it will facilitate the process of consolidating government financial statements. There are several challenges that may be encountered during the consolidation process especially due to the inefficiencies and lack of harmonisation in the Maltese public sector financial reporting. The differences in the reporting requirements presented by IPSAS and IFRS, render the consolidation process more complicated, especially when information is not available to convert local government accounts from IFRS to IPSAS. Particularly, the introduction of heritage assets in IPSAS and the differences in requirements dealing with impairment of assets were feared to be problematic, especially because valuing heritage assets and measuring impairment are challenging. However, the level of challenge depends on how IPSAS are adopted in Malta. CONCLUSION: Consolidation should be pursued but it is not the priority. Harmonisation in public sector financial reporting is proposed as the solution and the way forward. This would eliminate the complication of converting local government financial statements from IFRS to IPSAS, improve public sector financial reporting, and facilitate the consolidation process. VALUE: Public sector consolidation is a current and debated topic across the EU, however, it has not yet been truly considered in Malta. Therefore, this study could be beneficial as it provides a new perspective to public sector financial reporting in Malta. Also, it could serve as a useful reference for the future smooth implementation of consolidation in Malta.