The General Accounting Principles for Smaller Entities (GAPSE) were launched on Friday 27th February 2009 with a view to reducing audit and financial statement reporting requirements for small and medium sized companies to more realistic requirements.
Some 95 per cent of limited liability companies in Malta were considered as small or medium sized businesses. Mr Fenech pointed out that the local accountancy profession was among the first to adopt International Financial Reporting Standards (IFRS) in 1995. However this had moved on, becoming more targeted for multinational companies listed on the world’s capital markets.
Previous requirements went beyond understandable needs of financial reporting, imposing compliance costs as well as time restrictions which could outweigh the benefits or the needs of financial statement users. The minister also explained that the financial services sector was growing and services needed to be focused where necessary. Limited liability companies whose assets do not exceed a total of €17.5 million and whose turnover does not exceed €35 million in a year will be able to benefit from the new principles. Companies must also not employ more than 250 employees.
The new framework however does not apply for public companies (including government entities), those listed on the stock exchange, banks, insurance companies, investment service companies and others that have a special licence from the Malta Financial Services Authority.
The established thresholds were high since all such companies are considered as medium sized on an EU level even though they are considered large for Malta, Mr Fenech explained. The principles were planned on a ‘time costs money’ attitude while aiming to reduce expenses of auditors and other professionals. “The previous framework was a one size fits all matter and the size was too big for most local businesses,” explained Simon Flynn, president of the Malta Institute of Accountants and Jonathan Dingli, technical director in the institute.
Accounting work would now be clearer to business people themselves and more user-friendly especially for operators of small businesses, they added. GAPSE came into effect as from 1 January and may be applied in the preparation of financial statements covering periods ending on or after 1 January, 2009. Companies may also opt not to follow this new reportage system if they thought the IFRS worked better for them although the minister said that this was quite unlikely. It was also pointed out that the new framework came into effect after over two years of consultation with stakeholders and those who will be affected by the changes. In a similar bid to facilitate matters for SMEs, the government had towards the end of last year substantially reduced registration and annual fees for SMEs that submit accounting forms in electronic format.