The separation of statutory audit and non-audit services in Malta : an assessment

Abstract

Purpose: The main objective of this study is to evaluate what Maltese audit firms think about the European Commission's (EC) proposal to prohibit the provision of non-audit services (NAS) offered by audit firms and the applicability of the current regulatory framework in this respect. Furthermore, any divergent opinions which emanate from different sized audit firms with regard to the EC proposal will be analysed. Design: E-mailed questionnaires were sent to Maltese audit firms registered with the accountancy board. These questionnaires were supported by a series of semi-structured interviews carried out with audit firms of different sizes. Findings: None of the audit firms interviewed or questionnaire respondents agreed with the Green Paper's proposal to prohibit the provision of NAS by audit firms. Most of the audit firms prefer the current principles-based approach Code of Ethics as opposed to a rules-based approach. Furthermore, auditors predict a rise in audit fees if the provision of NAS would be prohibited since any possibility to cross-subsidise audit fees with NAS fees will be eliminated. This study also indicates that auditors agree with safe harbours given that fundamental principles are not compromised. Finally it seems that the concept of the pure audit firm is unsustainable and if implemented it will disrupt the audit market. Conclusions: The main conclusion reached was that Maltese audit firms prefer milder reforms rather than a complete prohibition on the provision of NAS. It is suggested that any changes should focus on strengthening the principles of good corporate governance, clearer disclosures in the audit report as regards the NAS fees received from an audit client and increased scrutiny by regulatory authorities. Value: This study can be viewed as a direct reply to the Green Paper’s proposal from the Maltese auditors’ point of view.