SMEs accounting principles to make books less taxing
Thanks to the new General Accounting Principles for Smaller Entities launched late last month, small and medium enterprises are subject to more "realistic" financial statement reporting requirements which are better suited to their business models.
Thanks to the new General Accounting Principles for Smaller Entities launched late last month, small and medium enterprises are subject to more "realistic" financial statement reporting requirements which are better suited to their business models. Launching the alternative and optional framework, Finance Minister Tonio Fenech said the government appreciated that the obligations imposed by the current International Financial Reporting Standards "could impose compliance costs which could outweigh the benefits or needs of financial statements users".
"We strongly believe that GAPSE is a robust set of accounting principles that will make financial statements shorter but still comprehensive, more user-friendly and more relevant to their users," MIA president Simon Flynn said of GAPSE.
"For instance, under GAPSE, all assets can be stated on the balance sheet at their cost, and the requirement to value certain assets at their fair value, as required by current rules in certain instances, has been done away with. Also, requirements to disclose information have been reduced. Finally, for the avoidance of doubt, we would like to clarify that GAPSE is an accounting, not an auditing, tool."
The Malta Institute of Accountants had been tasked by the Accountancy Board to identify ways to simplify accounting requirements for smaller business in May 2006.
In a presentation, the MIA says that the accountancy profession in Malta was among the first to adopt IFRS in 1995and there was no suggestion that professionals should "not continue to build on this knowledge". However, the IFRS' scope has widened to become market-oriented, with measurement, presentation and disclosure requirements becoming more burdensome and complex for SMEs. Three alternatives were considered by the Institute before making their final recommendation: the Companies Act's Third and Fourth Schedules, the IFRS for SMEs, and the UK Financial Reporting Standard for Smaller Entities which was ultimately used as a model in the drafting of GAPSE.
The institute had concluded that the Companies Act's Third Schedule governing the form and content of individual accounts, and the act's Fourth Schedule governing consolidated accounts, presented limitations and omissions and required significant upgrading.
The International Financial Reporting Standard for SMEs (now the IFRS for Private Entities) was also considered given that, by having applied International Accounting Standards Board pronouncements since 1995, it provided for easier transition to IFRS for smaller organisations. It was, however, found to be still too complex.
The MIA finally opted to draw up a local set of accounting principles modelled on the UK's Financial Reporting Standard for Smaller Entities but tailored to IFRS concepts and using IFRS terminology.
The final standalone principles (GAPSE) ensure consistency with the EU's Fourth Directive and smaller businesses' financial statements should now provide information that is more relevant to their users. Companies with securities listed on a regulated market, entities which act as guarantors of such companies, public companies, and holders of a Malta Financial Services Authority licence or authorisation or those exceeding the GAPSE quantitative criteria may not apply the new principles to their accounts.
Neither are GAPSE to be applied by entities (other than state-owned entities) that have a balance sheet in excess of €17.5 million, or total annual revenue of over €35 million, or an average number of employees in each of the immediately preceding two years of the financial year under review exceeding 250. State-owned entities which exceed two out of three criteria (a balance sheet of over €4.4 million, total annual revenue of over €8.8 million, and an average number of employees in each of the immediately preceding two years of over 50) are not eligible to apply GAPSE.
GAPSE regulations came into force on January 1.
"We strongly believe that GAPSE is a robust set of accounting principles that will make financial statements shorter but still comprehensive, more user-friendly and more relevant to their users," MIA president Simon Flynn said of GAPSE.
"For instance, under GAPSE, all assets can be stated on the balance sheet at their cost, and the requirement to value certain assets at their fair value, as required by current rules in certain instances, has been done away with. Also, requirements to disclose information have been reduced. Finally, for the avoidance of doubt, we would like to clarify that GAPSE is an accounting, not an auditing, tool."
The Malta Institute of Accountants had been tasked by the Accountancy Board to identify ways to simplify accounting requirements for smaller business in May 2006.
In a presentation, the MIA says that the accountancy profession in Malta was among the first to adopt IFRS in 1995and there was no suggestion that professionals should "not continue to build on this knowledge". However, the IFRS' scope has widened to become market-oriented, with measurement, presentation and disclosure requirements becoming more burdensome and complex for SMEs. Three alternatives were considered by the Institute before making their final recommendation: the Companies Act's Third and Fourth Schedules, the IFRS for SMEs, and the UK Financial Reporting Standard for Smaller Entities which was ultimately used as a model in the drafting of GAPSE.
The institute had concluded that the Companies Act's Third Schedule governing the form and content of individual accounts, and the act's Fourth Schedule governing consolidated accounts, presented limitations and omissions and required significant upgrading.
The International Financial Reporting Standard for SMEs (now the IFRS for Private Entities) was also considered given that, by having applied International Accounting Standards Board pronouncements since 1995, it provided for easier transition to IFRS for smaller organisations. It was, however, found to be still too complex.
The MIA finally opted to draw up a local set of accounting principles modelled on the UK's Financial Reporting Standard for Smaller Entities but tailored to IFRS concepts and using IFRS terminology.
The final standalone principles (GAPSE) ensure consistency with the EU's Fourth Directive and smaller businesses' financial statements should now provide information that is more relevant to their users. Companies with securities listed on a regulated market, entities which act as guarantors of such companies, public companies, and holders of a Malta Financial Services Authority licence or authorisation or those exceeding the GAPSE quantitative criteria may not apply the new principles to their accounts.
Neither are GAPSE to be applied by entities (other than state-owned entities) that have a balance sheet in excess of €17.5 million, or total annual revenue of over €35 million, or an average number of employees in each of the immediately preceding two years of the financial year under review exceeding 250. State-owned entities which exceed two out of three criteria (a balance sheet of over €4.4 million, total annual revenue of over €8.8 million, and an average number of employees in each of the immediately preceding two years of over 50) are not eligible to apply GAPSE.
GAPSE regulations came into force on January 1.