Recent trends in modified audit opinions in Malta

Abstract

The objective of this paper is to analyse recent trends in Maltese modified audit reports by identifying the different types of modifications in auditor's reports for companies in Malta between 2005 and 2009, and comparing such results with previous studies in Malta. The first part of the study involved analysing the audit reports of a random sample of 374 limited liability companies registered with the Registry of Companies in Malta. Ten semi-structured interviews were conducted with audit partners from selected audit firms in Malta to complement the findings of the first part of the study. The study revealed that the average qualification rate in Malta between 2005 and 2009 was 22.4%. The majority of qualifications were noted in the case of private exempt companies and international trading non-exempt companies. Generally, private exempt companies had their audit report qualified on the basis of a limitation on scope, whilst most of the qualifications for international trading companies were attributable to disagreement with management. The findings also show that when compared to previous studies, there has been a slight increase in the qualification rate in the period under review. It was also noted that the "small company qualification", a qualification which has been long abolished, was still incorrectly being used in Maltese auditor's reports till 2009. In the light of the findings, the authors argue that there is still room for improvement in audit reporting in Malta. Whilst the big four audit firms do not appear to have issues in appropriately adhering to audit reporting standards, the Maltese smaller audit firms and sole practitioners were found to still be the main cause for inappropriate audit reporting. More guidance to smaller audit firms and sole practitioners is recommended to enhance auditor reporting in Malta.