IFRS for SMEs : its prospects as a financial reporting standard in Malta

Abstract

Purpose: The purpose of this study is twofold. First is to evaluate the local applicability of the IFRS for SMEs with the key objective of investigating whether the costs of non-harmonisation of SME financial reporting exceed the benefits of a locally developed set of accounting standards. Secondly, the study will analyse the options available to adopt the IFRS for SMEs in Malta, given that GAPSE has already been established locally. Design: The objectives of this study were achieved through a series of semi-structured interviews with relevant stakeholders, including preparers of financial statements, audit firms, small and medium sized practitioners, creditors, banks and government officials. Findings The study establishes that GAPSE requires more time in order to counter its low initial take-up and that it is designed to cater for a wider range of companies than the IFRS for SMEs, thus criticising the latter's use as a replacement of GAPSE. Given the fact that the majority of local SMEs are micro-entities, the study confirms how few would be interested in having an international framework tailored to their small company needs. It would only be those larger companies falling within the GAPSE thresholds that would perhaps be interested. The research further revealed considerable disadvantages attributed to the three-tiered system of financial reporting. Conclusions: Although revealing a case for adopting the IFRS for SMEs in Malta, the research does not recommend its adoption. Rather, the study identifies other ways of modernising the EU accounting framework on which GAPSE is based, including the preservation of Member State options and the sharing of best practices between Member States, thus encouraging EU-wide harmonisation. Value It is hoped that this study will promote further research in the different financial reporting needs of the smaller and larger unlisted companies. Malta's international financial services are of prime importance, and it should be ensured that no changes are made that would render Malta less competitive when compared to other countries.