Peter J. Baldacchino

The statutory audit of owner‐managed companies in Malta

Historically, as a former British colony, Malta has had its accounting and auditing practices highly influenced by UK regulation. However, in the last decade, departures have steadily been occurring from a UK‐based regulatory framework to one increasingly influenced both by international standards and European Union requirements. One such departure relates to the retention of the statutory audit requirement for all Maltese companies, despite its earlier abolishment for small companies in the UK. This study evaluates the relevance of a mandatory annual statutory audit requirement for owner‐managed companies as perceived by two interest groups: the owner‐manager and the auditor. It also considers possible alternatives to such a requirement. Results indicate that for Maltese owner‐managed companies, the statutory audit fulfils two important roles: it bears relevance to outside third parties, and it has a positive effect on the owner‐manager and staff.

Qualified audit opinions in Malta

Purpose – This paper has the objective of identifying the different types of qualifications in auditors reports of companies in Malta, the extent of multiple and repeated qualifications in such reports and any significant relationships between such main types of qualifications and firm‐specific variables.Design/methodology/approach – The study in this small Mediterranean island is designed to investigate the auditors reports of 419 companies in the period 1997/2000. This is also complemented by an analysis of 12 interviews held with audit partners in different practices.Findings – Results show that 19.9 per cent of sampled companies had a qualified auditors report. The most common type of qualification was that of limitation‐on‐scope found in small companies and issued by non‐Big Four audit firms. Small companies were also prone to going concern qualifications in view of their more common net liability situations. Disagreement‐with‐management qualifications were found to be more likely in larger compan...

Benchmarking in Maltese internal audit units

Purpose – The organisation‐wide drive towards total quality management (TQM) and the call for sound corporate governance require that Maltese internal audit (IA) units benchmark their operations as a first step towards the critical evaluation of their processes and the management of change. The purpose of this paper is to determine the awareness of this process in Maltese IA units, its perceived major benefits and limitations and also major barriers in its implementation.Design/methodology/approach – The objective of this study is achieved through a series of semi‐structured interviews with 12 Maltese IA executives representing most Maltese IA units.Findings – This study concludes that Maltese IA executives have a weak grasp of the benchmarking process and that, current IA evaluation techniques are mere rudimentary comparisons, essentially backward‐ and inward‐looking in nature. Maltese IA executives appreciate the benefits of benchmarking as an effective IA quality tool but are divided as to its limitati...

Jurors' and self‐perceptions of the statutory auditors in Malta

Purpose – The objective of this paper is to find out and compare perceptions of the audit profession by jurors with those of auditors themselves in the small island‐state of Malta.Design/methodology/approach – The objective is achieved by considering auditor responsibility, the reliability of audited financial statements and the decision usefulness of audited financial statements. A mail questionnaire was responded to by 56 auditors and 18 jurors, with the latter response being complemented by a further 100 jurors responding to the questionnaire when delivered by hand.Findings – The study finds substantial divergences in the perceptions of the two respondent groups, particularly in the areas of fraud detection, responsibility for the internal control structure of a company, maintenance of accounting records, and actual work performed by an auditor. In addition, a particular trend in Malta is the high regard with which both respondent groups held the audit profession.Research limitations/implications – Lim...

Factors contributing to auditor-change decisions in Malta

Auditor changes are not alarmingly high in Malta but have been rising of late and the driving forces in this regard could be particular to a small‐island state. This paper seeks to elicit the perceptions of behavioural, economic or other factors that influence auditor‐client realignments in Malta. It does this mostly by a mail questionnaire responded to by 97 Maltese companies. Such findings were complemented by 15 interviews with companies that actually changed their auditor. The study concludes primarily that behavioural forces provide the principal motivators of auditor changes in Malta. Deterioration in the working relationship with the auditor and lack of accessibility feature as foremost concerns. Economic forces, albeit being important triggers of auditor changes, come only secondary in importance. Underlying this, there is evidence of differences in the attitudes of clients and non‐clients of Big 4 audit firms as well as between small and large companies.

Recent annual report weaknesses by a supreme audit institution : an analysis

Abstract This chapter is based on the Annual Report on Public Accounts prepared by the Maltese National Audit Office (NAO), Malta’s Supreme Audit Institution. Its objectives are to analyse and classify the reported issues, evaluate their significance and how the findings are reflected in the Public Sector, and assess the adequacy of the communication of these findings through the Annual Report. The research consisted of a qualitative analysis of the Annual Reports for the three years 2007, 2009 and 2011. This analysis was supplemented by unstructured interviews conducted with both NAO and Government officials. Findings report a significant number of issues emerging from different factors. The highest incidence of weaknesses was related to record-keeping and compliance with policies and procedures. Moreover, the interviews with NAO officials showed that the departments were not always taking on board the recommendations made through the Annual Reports, thus indicating a passive attitude towards the reported findings. The results also show that while the Government has its own structures of checks-and-balances to prevent and detect errors, and no internal control system is completely effective, there is still much room for improvement within the Public Sector to ensure that public funds are appropriately utilised. The detection of various issues by the NAO is therefore inevitable, particularly given the complexity and size of the Public Sector. In conclusion, the NAO findings should be more thoroughly examined to reduce the incidence of issues. Furthermore, the way forward should be directed at enhancing the current systems and promoting a more positive relationship between the NAO and auditees.

An Analysis of Audit Report Lags in Maltese Companies

Abstract This paper investigates the audit report lag (ARL) in statutory audits. It tests a number of factors that may influence the ARL in 375 Maltese companies in the years 2006–2010. A mixed-methods research methodology is adopted, whereby company financial statements over the period are examined. Extracted information, including the ARL, is subjected to statistical tests on the relationship between such ARL and six independent variables: company size, audit firm size, audit opinion, profitability, the presence of an extraordinary item, and type of industry. This is then complemented by the analysis of 12 semistructured interviews with statutory auditors. The ARL is found to be shorter in large companies, when profit figures are positive, in financial service companies, and when the audit firms are large. A longer ARL is found when the audit report is qualified and in the absence of an extraordinary item. Interviewee response is generally consistent with these results except for the relationship to ARL of the absence of an extraordinary item. ARL is also seen to vary according to the users’ perceptions of the relevance and usefulness of the financial statements. Besides confirming or otherwise the relationship of the ARL to the stated major factors, the study also brings to light the need for cooperation by both audit firms and client companies to reduce such ARL.

Assessing the applicability of a corporate governance index in Maltese listed entities

This paper sets out to establish to what extent, if any, a corporate governance index (CGI) is suitable and applicable to Maltese listed entities (MLEs). Two sets of semi-structured interviews were held with seven financial analysts and 13 MLEs. This was followed by a CGI survey sent to the same MLEs previously interviewed and an analysis of their Annual Reports for the three-year period 2011-2013. A CGI model purposely designed for the present study was then tested on two MLEs. Findings show that corporate governance in Malta is not given appropriate importance by MLEs. Yet respondents agreed to CGI introduction in order to improve current CG practices. The study goes on to assess the impact, benefits and limitations of such a CGI in Malta and provides feasible recommendations which may help towards the consolidation of corporate governance in MLEs.