The audit of owner-managed companies : the users' perspectives

Abstract

This dissertation studies the mandatory obligation under company law provisions for an annual audit of financial statements prepared by an owner-managed company in Malta as perceived by users of owner-managed companies' audited financial statements (bankers, trade creditors and tax authorities). The key research objectives of this study are to consider • the relevance of the mandatory annual statutory audit requirement for owner-managed companies in Malta as perceived by external parties; • possible alternatives to such requirement taking into account if these users of financial statements have other needs, which the auditor may not be satisfying. Research was conducted through a mail survey and a number of personal interviews. Valid questionnaire responses were received from 28 bankers, 30 trade creditors and 5 tax assessors. Semi-structured interviews were conducted with 2 bankers, 2 trade creditors, a tax assessor and a bank historian. The study concludes that in the context of local owner-managed companies, the statutory audit is relevant to the main outside third parties, comprising bankers, trade creditors and tax authorities. Furthermore though, these three users do not give the same importance to such statutory audit. Bankers and tax authorities give it much more importance than trade creditors do when dealing with owner managed companies. Also, apart from the audited financial statements, these three users all take in consideration other factors when dealing with owner-managed companies. The study also concludes that local tax assessors are very sceptical about the appropriateness of alternatives to the mandatory annual statutory audit requirement of owner-managed companies. Bankers are also sceptical but to a lesser extent. On the other hand, trade creditors are more open to changes to this requirement.