HSBC Bank Malta is going to consult relevant parties to review the reduced financial reporting that small and medium-sized enterprises are allowed to prepare under the General Accounting Principles for Small Entities (GAPSE). However, Bank of Valletta was not quite as convinced, seeing the situation in the light of the long-term nature of its relationship with clients, which means that needs change over time.
During a recent seminar organised by the Malta Institute of Accountants, the low take-up of GAPSE was highlighted, with members of the audience saying that there would be considerable cost and time savings to be made.
However, auditors and accountants noted that one reason that take-up of GAPSE reporting was so low – around a third of eligible companies, according to the Inland Revenue Department – was that banks still insisted on full audited accounts when considering loan applications and their ongoing administration.
Albert Frendo, chief officer for credit at Bank of Valletta, explained that the bank’s position had to be seen in the context of the long-term relationship with the client.
“Banks, as the main creditors with stakes sometimes much higher than those invested by the owner itself, expect high visibility of information to safeguard their interests.
“It is a proven fact that one of the main hurdles for SME finance is information asymmetry, potentially leading to moral hazard, which can be more pronounced when the company is underpinned by weak govern-ance structures.
“The bank encourages disclosure of information that has to be in proportion to the size and complexity of the business. Hence GAPSE is potentially the best fit to reflect the company’s operations and assessment of the inherent credit risks that banks undertake.
“However, as the company grows and expands and the level of operations becomes more complex and intricate, the bank needs to fully understand the risk being undertaken, be it financial, operational or strategic, in order to ensure that it is adequately managed. In such instances GAPSE may not fit the bank’s requirements,” he said.
The HSBC Bank Malta spokesman, saw it differently.
“HSBC Bank Malta has not been presented with any financial statements prepared under GAPSE. The bank is reviewing the financial reporting regime under GAPSE and in the process will be consulting with relevant parties in the matter,” the spokesman said.
The institute clearly has its work cut out if it wants to help SMEs reduce their financial reporting burden.
“The institute welcomes HSBC Bank Malta’s intention to consult relevant parties to review the reduced financial reporting that small and medium-sized enterprises are allowed to prepare under GAPSE. We also appreciate Bank of Valletta’s position in this regard,” newly-elected president Maria Micallef said.
“Indeed we had previously noted that one of the reasons why GAPSE adoption is not universal where applicable was that ‘third-party users’ such as banks continue to require IFRS accounts. The institute will be organising a series of meetings with the banks to explain in some detail the GAPSE framework, the measurement and disclosure requirements therein and the information that would be readily available in a set of financial statements that are prepared under this framework. We also intend to hold similar meetings with certain regulators that similarly require IFRS accounts. This should help to improve the acceptance and hence take-up of the framework to the benefit of the SMEs.”
vanessa.macdonald@timesofmalta.com