Prudence in financial reporting : a Maltese perspective

Abstract

PURPOSE: This dissertation examines how prudence effects and influences Maltese CFOs in fulfilling their role as preparers of a set of financial statements as a result of the significant changes that have occurred over the past years. DESIGN: A qualitative approach was adopted to gather the information required, focusing on Maltese listed entities. Through this approach interviewees were encouraged to voice their opinions and share their knowledge in an unrestricted manner. FINDINGS: Prudence is not only applied in the presentation of financial statements. The concept is also exercised in various uncertain and subjective situations which require the use of judgement. Pressures may exist in various forms which might influence such situations however numerous safeguards are also in place. In determining the type of dividend policy adopted by the company, an entity may opt for a prudent dividend policy or a consistent one. Prudence may also at times conflict with neutrality and with the expectations of the regulator. CONCLUSION: The founding concept of prudence has faced substantial changes in the accounting profession with such developments having an effect on Maltese CFOs and the manner in which financial statements are prepared. Nevertheless preparers in Malta remain prudent in taking decisions and in situations of uncertainty. VALUE: This dissertation analyses the value attached to the prudence concept in the local scenario, specifically, its importance and implications towards financial reporting.