Audit Requirements and Audit ExemptionsMEDIA ROOM
For each accounting period, the directors of a company are responsible to prepare individual accounts comprising the balance sheet as at the last day of the accounting period, the profit and loss account for that period, the notes to the accounts and any other statements which may be required.
The company shall, at each annual general meeting at which the financial statements are presented, appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next general meeting.
Article 4(1) of the Accountancy Profession Regulations, 2016 states that audits and review engagements, may only be carried out by an individual, in his name or on behalf of an audit firm, holding a practicing certificate in auditing issued in terms of article 4 of the Act.
As set out in article 4(3) of the Accountancy Profession Act, the Board shall issue a practicing certificate in auditing in Malta to an individual of good reputation who is an approved auditor in any Member State provided that such individual has passed, to the satisfaction of the Board, an aptitude test, covering local laws and regulations relevant to auditing, as set out by the Board.
Auditors and Audit Requirement
A company’s auditor/s shall make a report to the company’s shareholders on the annual accounts of the company. The auditors’ report shall be drawn up in accordance with generally accepted auditing standards and shall state whether in the auditors’ opinion the annual accounts have been properly prepared in accordance with the Companies’ Act, and whether a true and fair view is given of the state of affairs and of the profit or loss of the company for the accounting period. Where applicable, the auditors’ report shall consider whether the information included in the directors’ report is consistent with the accounts.
Generally, all limited liability companies registered in Malta are required to prepare a set of audited financial statements every year. These audited financial statements will also be required for the purpose of the preparation of the income tax return to be filed on an annual basis.
The Income Tax Management ACT, Chapter 372, Article 19(4)(a) states that the records required to be kept shall be supported by such documents as may be appropriate in the circumstances, including, in the case of a company registered in Malta, the balance sheet and profit and loss account, which shall comply with the provisions of the Companies Act and notwithstanding any exemption made by that Act, such balance sheet and profit and loss account shall be accompanied by a report made out by a certified public auditor as provided by the applicable provisions of that same Act.
The above is subject to an exception, and there are circumstances when the auditor’s report is not deemed required.
As per L.N 101 of 2019 Companies Act (Audit Exemption) Regulations 2019, a company shall be exempted from the requirement of having its annual accounts audited in respect of its first two accounting periods if the following criteria are satisfied:
(a) annual turnover of the company does not exceed eighty-thousand euro (€80,000) or a pro-rata amount if the relevant accounting period is a period other than twelve months;
(b) all shareholders of the company are qualifying shareholders;
(c) an application is made to the Registrar within six months from of the end of the relevant accounting period in a prescribed format.
Provided that this exemption shall no longer be applicable if there is a change in the shareholding of the company as a result of which the shareholders of the company will not all be qualifying shareholders.
The above legal notice was published in the Supplement of the Government Gazzette No. 20, 190 on 17th May 2019.
The term ''qualifying shareholder'' is defined as an individual who has completed his/her educational studies at least at MQF Level 3 or an equivalent level as recognised by the Malta Qualifications Recognition Information Centre as established by the Mutual Recognition of Qualifications Act, and who have completed such studies on a date being not earlier than three years from the date of the registration of the company.
The above is also upheld by the Income Tax Management Act, Chap 372, Article 19(4)(a) which continues by stating that the auditor’s report shall not be required for the first two accounting periods of a newly registered company whose sole shareholders are individuals in possession of educational qualifications as may be prescribed who have set up the new company within three years of obtaining the said qualifications and subject to such conditions, including the amount of turnover, as may be prescribed.
This is further upheld through Legal Notice 306/17 Audit Report Waiver and Deduction Rules, which further states that where a company, fulfilling the above conditions, does not avail itself of the audit report waiver provided for, it may claim a deduction against its income of 120% of the audit fees incurred. The deduction under sub-rule (1) shall apply for the first two accounting periods of a newly registered company whose sole shareholders are individuals in possession of educational qualifications as aforementioned and who have set up the new company within three years of obtaining the said qualifications.
About the Author
This article has been authored by Christabelle Agius, CSB Group Senior Manager Client Accounting. For any additional information or support required please contact us on [email protected].