The audit requirement under Maltese law : its importance and implications from a legal perspective

Abstract

The main purpose of auditing is to provide a high level of assurance that financial statements have been prepared in accordance with the law, free from material defects and which provide a true and fair view of the financial performance and position of the company. Departing from this purpose, the aim of this thesis is to identify the requirement of auditing as it emanates from local and European legislation and to analyse the relevance and implications of such a requirement in an evolving commercial environment. This thesis will also examine the UK position in relation to certain issues since a reference to English jurisprudence and English authors would be able to provide a better insight to the topic under discussion. Since auditing is a statutory requirement imposed by law, Chapter 1 will delve into the rationale behind the imposition of the audit requirement and examine its legal basis. This chapter also gives an overview of the qualifications of auditors and examines the provisions relating to their appointment, removal and resignations. Subsequently Chapter 2 will analyse the several duties incumbent upon auditors. The principal duty is to draw up the audit report on the annual accounts of the company for the benefit of the users of financial statements. Other duties include the duty of care, the duty to maintain independence and professional competence and the duty to provide quality assurance. Furthermore the audit requirement imposes the burden on auditors to strike a balance between their duty of confidentiality and their duty to report, especially in the light of the serious repercussions which could arise if fraud or money laundering is involved. Chapter 3 gives a brief overview of the process which has to take place prior to conducting the audit, examines the audit process which leads to the preparation of the audit report and then proceeds to scrutinize the audit report which has to contain the auditors' opinion on the financial statements of the company. This study will shed light on the fact that an auditor is not a detective of the company being audited but merely an independent party who is expressing an opinion on the truthfulness and fairness or otherwise of the financial statements. The degree of responsibility pertaining to auditors in carrying out their functions is highlighted in Chapter 4. This chapter will firstly consider the general principles of contractual and tortuous liability under Maltese law before proceeding onto an analysis of the auditor's liability vis-a-vis shareholders and third parties and the limitations of such liability. By way of conclusion, Chapter 5 will be entirely devoted to the new Eighth Directive which deals with the statutory audit of annual accounts and consolidated accounts, with a highlight of the major changes which were brought about by the transposition measures of such Directive.