Communication of the modified audit report in Malta

Abstract

Purpose: The purpose of this study is to analyse the communication portrayed through the modified audit report in Malta from two different perspectives, being the bankers and auditors’ perspectives. This study’s objective was to determine the barriers in communication in the modified audit report in Malta. Other elements are also analysed, which are the completeness, understandbility and comparability of the modified audit report in Malta. Finally, the implications of all these issues will also be determined. Design: This study was analysed through a qualitative approach. Interviews were held with major banks in Malta, the Big 4 Audit firms and other auditors employed in smaller audit firms. The interviews held were were semi-structured interviews so that discussion could be stimulated. The latest financial statements of listed companies were also analysed to determine whether modifications are common amongst listed companies. Findings: The study revealed that in Malta there are numerous misunderstandings when it comes to the reading of the modified audit report in Malta. The technical jargon was found to be amongst the most common barrier in communication. To solve this barrier the only solution that was mostly recommended was that of education of the user of the modified audit report. According to auditors this should be provided from the directors of the company while bakers believe that it is the auditor who should explain what is done during an audit. Definitions of the modifications issued in the modified audit were recommended so that the user of the modified audit report would immediately realise the audit report is modified, why it is modified and its implications. Bankers were clear that the auditors should make themselves more available for both the client and banks since auditors are perceived as being defensive. Bankers also believed that auditors carry out an audit just to satisfy legal requirements. Auditors on the other hand mentioned that information regarding their clients must be kept confidential unless clients give their permission to give information or if required by law. Both bankers and auditors stated that modifications for listed companies are not common. This was confirmed from the analysis of the latest financial statements of listed companies where only two EOM were found. No qualifications were found. Conclusion: It was concluded that a communication gap will always be present since it is impossible for everyone to understand a modified audit report. However, improvements in the auditing profession are an on-going process that must always be present so as to keep up with the major developments and growth in the financial industry. Value: Due to the recent debates and discussion regarding the amendments of the clean audit report, I sincerely hope that this study can be helpful for improvements in the modified audit report, if any.