Small entity compliance with the financial reporting regulatory requirements

Abstract

PURPOSE: The overall purpose of this study is to analyse whether substantial simplification in disclosure requirements brought about by GAPSME resulted in higher levels of compliance recorded by small entities compared to that of medium and large entities with IFRS disclosure requirements. This study has two research objectives. Firstly, the computation of small entity compliance with GAPSME disclosure requirements. Secondly, the determination of company and country-related factors that are most significant in determining GAPSME disclosure compliance. DESIGN: A mixed research methodology was adopted. Quantitative techniques were used to determine the extent of small entity compliance and any significant company-related factors affecting such compliance. Moreover, qualitative techniques comprised semi-structured interviews with accountants in the local industry to obtain a better understanding of the extent of and factors affecting GAPSME disclosure compliance. FINDINGS: The author found that non-compliance with GAPSME disclosure compliance is evident. Although small entity disclosure compliance with GAPSME is higher than that of medium and large entities with IFRS, the desired full compliance has not been achieved. Moreover, it was concluded that type of industry, enforcement levels and country’s culture and norms are important factors determining GAPSME disclosure compliance. CONCLUSION: Much more remains to be done for Malta to achieve full compliance with GAPSME disclosure requirements. Indeed, to be able to move towards higher levels of compliance, the monitoring and enforcement of proper disclosure compliance shall be prioritised. This, coupled with more targeted education and training should encourage professionals in the local industry to change their attitudes and give disclosure compliance its due importance. VALUE: This study will provide several stakeholders such as the AB, MIA and local professionals with useful information on the extent of compliance with GAPSME disclosure requirements and the significant factors affecting compliance. This study aims at raising awareness to the concerned stakeholders about those areas in the GAPSME framework that are least complied with.