Audit Malta Requirements.
Generally, all limited liability companies registered in Malta are required to prepare a set of audited financial statements every year. These audited financial statements will also be required for the purpose of the preparation of the income tax return to be filed on an annual basis.
Article 4(1) of the Accountancy Profession Regulations, 2016 states that audits and review engagements, may only be carried out by an individual, in his name or on behalf of an audit firm, holding a practicing certificate in auditing issued in terms of article 4 of the Act.
Appointment of auditors:
The company shall, at each annual general meeting at which the financial statements are presented, appoint an auditor to hold office from the conclusion of that meeting until the conclusion of the next general meeting.
Responsibilities of the auditor:
The auditors of a company have responsibilities under the Companies Act to report to the company's shareholders if, in their opinion:
- The information given in the directors' report is not consistent with the financial statements
- Adequate accounting records have not been kept, or that returns adequate for their audit have not been received from branches they did not visit
- The financial statements are not in agreement with the accounting records and returns
- They have not received all the information and explanations they require for their audit, and certain disclosures of directors' remuneration specified by law are not made in the financial statements, giving the required particulars in their report.
A company's auditors shall make a report to the company's shareholders on the annual accounts of the company. The auditors' report shall be drawn up in accordance with generally accepted auditing standards and shall state whether in the auditors' opinion the annual accounts have been properly prepared in accordance with the Companies' Act, and whether a true and fair view is given of the state of affairs and of the profit or loss of the company for the accounting period. Where applicable, the auditors' report shall consider whether the information included in the directors' report is consistent with the accounts.
Most often, "doing auditing" sounds very abstract for the majority of clients, they have no ideas what the audit procedure is and how it happens. In this regard, Griffiths + Associates, being a boutique licensed consulting, accounting and audit firm in Malta, would like to share their audit approach to show clients what it is and how it works.
Griffiths + Associates provides value to the clients by creating a custom audit approach that is based on a client's specific needs, risks and opportunities, using a professional audit management platform.
Our definite advantage is that the audit is always carried out by CPAs are part of the core team, not individuals brought in as required. Our audit team is made up of qualified and competent professionals who possess the required skills to carry out audits in an efficient and effective manner.
Our professional responsibility is to obtain sufficient audit evidence before an opinion is expressed on any financial statements. To achieve this, we will conduct our work in the following phases:
I. Audit planning and risk assessment:
No other phase of the process affects the success of an engagement more than the time spent in planning the general scope and direction of the audit, including assessing the risks of financial statement misstatements. As part of that process, we will conduct a pre-audit meeting with management to discuss the scope and timing of the audit. The risk assessment audit standards require assessments based on an understanding of internal controls over your financial reporting and determination of the areas that present risks of material misstatement to your financial statements. We then design our audit approach to include tests of specific internal controls and substantive audit procedures which are tailored to the identified risks. Our risk assessment includes consideration of the following factors:
- Materiality planning: quantitative factors, qualitative factors;
- Client understanding: external factors, nature of the business, business strategy, objectives, risks, key performance indicators, internal control;
- Audit team discussion: audit approach, issue resolution;
- Audit planning: staffing, timing, audit programs.
II. Year-End Fieldwork and Substantive Testing:
Based on the results of our risk assessment and internal control evaluation, a specific audit plan will be designed to focus expanded procedures on areas with the greatest risk of material misstatement, error, and fraud. We will use tests of details, substantive analytical procedures, or a combination of the two to conclude on the reasonableness of the given transaction class or account balance. By utilizing a blend of substantive testing (vouching underlying transactions to support), and substantive analytical testing (testing data through overall and stratified analysis), we are able to cover significant ground while still getting a quality level of detailed depth to our testing. Striking a good balance and not overlying on one type of testing over the other is integral to a thorough and efficient audit.
Based on our audit experience with similar companies, the primary areas of audit focus in a typical year include:
Cash & Investments; Receivables & Revenues; Capital assets; Accounts Payable and Expenditures; Long-term debt and other liabilities; Deferred Revenue; Compliance with purchasing and expenditures policies and controls; Compliance with laws and regulations; Any special transaction or situations with financial management or reporting significance; Commitments and contingencies; and Reporting in the financial statements in accordance with IFRS or GAPSME.
Typical substantive procedures include:
- Agreeing the financial statement elements to the underlying accounting records including year-end account balances and transaction activity occurring throughout the year;
- Confirming cash held in bank and investment accounts, accounts receivable, inventory held by others, material grants and long term debt balances.
Substantive procedures are an integral part of a competent and thorough audit. Significant transactions must be supported evidentially, and when they cannot be supported that may be a symptom of a potential material misstatement or other systematic issue. Typically, the "proof is in the pudding", so to speak, and in many cases the best way to test something is by verifying the ingredients that make it up.
Audit sampling provides the auditor an appropriate basis on which to conclude on an audit area by examining evidence from a sample of the entire population. We utilize both statistical and non-statistical sampling techniques, depending on the type of testing being performed. Internal control, substantive and compliance testing samples are generally selected using nonstatistical techniques. Sample sizes are determined by risk assessment and nature of the population.
Typical analytical procedures:
- Comparing financial information with comparable prior periods.
- Comparing operating results with consumption or usage type reports.
- Comparing ratios of correlating accounts year over year.
- Comparing results to budget and determine reasons for any significant variances between budget to actual results.
This analytical work allows us to form quality expectations to compare results to. When results don't align with our expectations, we investigate further to obtain sufficient evidence to conclude whether there is a valid reason for the deviation or if not, determine the root of the issue causing the variance. This is a great method for identifying systemic and significant issues and/or material misstatements.
This phase includes:
- Reviewing the financial statements and agreement to underlying audited records;
- Evaluating the financial statements for compliance with IFRS or GAPSME requirements;
- Formulating an opinion as to the fair presentation of the financial statements; and
- Preparing management letter with recommendations and communication letter to the Board.
- Formal presentation.
Finishing the conversation, we'd like to note that such approach and properly performed, meticulous audit secures a peace of mind from knowing your statutory obligations are met, accounts are true and potential problems can be identified early on. You can also add value to your business by using the audit as a basis for helping you develop strategies to drive your business forward.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.