The impact of changes in external reporting requirements for Maltese companies, in view of the single accounting directive (2013/34/EU)

Abstract

PURPOSE: Small business owners consider accounting to be an administrative burden. Current complexities in accounting requirements for such entities have driven the European Parliament to re-think its present legislation and on 26th June 2013, the Single Accounting Directive was issued in replacement of the Fourth and the Seventh Council Directives. With the issuance of the Single Accounting Directive, small business owners are expecting to reduce the cost and time spent on accounting requirements. Are the other stakeholders and users of financial statements expecting to benefit from the Single Accounting Directive? Or will they be worse off? In fact, the main objective of this research is to gauge the impact that the Single Accounting Directive will have on the several stakeholders and users of financial statements. DESIGN: In order to satisfy the aforementioned objectives, in-depth interviews were conducted with stakeholders and various users of financial statements. Through such interviews, the participants expressed their concerns and gave their views in respect of the new requirements as brought about by the Single Accounting Directive. FINDINGS AND IMPLICATIONS: From the interviews conducted, a number of concerns have been raised. Banks and creditors currently use audited financial statements to assess whether an entity should be granted finance or credit terms. With the endorsement of the Single Accounting Directive, the information available for public use will be limited. Although banks are in a position to request further information as they deem fit, creditors may not be able to make such requests. The latter would therefore need to rely on other sources of information. The accountancy profession is apprehensive that the endorsement of the Single Accounting Directive may affect the income they generate from audits. The option of the micro entity regime does not allow a member state to require a statutory audit. Moreover, this is neither a requirement for smaller entities, although it is a member state option. In fact, the accountancy profession together with the Inland Revenue Department are concerned that with the removal of audited financial statements, there will be a decline in the quality and timeliness of financial information. The current transparency and discipline that Malta boasts of having may be lost. Additionally, the accountancy profession and the Registry of Companies appreciate the fact that current accounting requirements are complex for smaller entities and agree that such requirements should be simplified depending on entity size. CONCLUSIONS: In view of the differing views and concerns regarding the Single Accounting Directive, the task force appointed by the Accountancy Board will need to strike a balance in order to satisfy the varying needs of stakeholders and users of financial statements.