New Financial Reporting requirements for Maltese companies
Through the issue of Legal Notice 289 of 2015 – Accountancy Profession (General Accounting Principles for Small and Medium-Sized Entities) Regulations (the “Regulations”), Maltese companies are now presented with a new financial reporting regime. This change has come about through the ratification of the EU Accounting Directive issued in 2015.
The Schedule relating to the preparation of the financial statements for small and medium-sized entities has been amended accordingly. For financial reporting periods commencing on or after 1st January 2016, a small and medium-sized entity is required to prepare financial statements in accordance with the Schedule, as amended, relating to general accounting principles for small and medium- sized entities (“Schedule”), unless the Board of Directors of a company or, in the case of an entity other than a company, its governing body, has resolved to prepare financial statements in accordance with IFRS as adopted by the EU for that financial reporting period.
Small and medium-sized entities are required to use the Schedule, as amended, if the entity falls within the following thresholds:
An entity is considered as a small entity if on its balance sheet, it does not exceed the limits of at least two of the three following criteria:
- balance sheet total: €4,000,000;
- total revenue: €8,000,000;
- average number of employees during the financial year: 50
An entity is considered as medium-sized entity if on its balance sheet, it does not exceed the limits of at least two of the three following criteria:
- balance sheet total: €20,000,000;
- total revenue: €40,000,000
- average number of employees during the financial year: 250
Entities for which total revenue is not relevant, are required to include income from other sources in order to calculate the above-mentioned thresholds. Where an entity which exceeds or ceases to exceed the limits of two of the three criteria set out above in relation to a subsequent financial year, the entity is required to use or cease to use the Schedule, as amended, only if such fact occurs in two consecutive financial years.
Where a small entity exceeds the ‘small entity’ criteria as stated above, such entity is required to apply the thresholds applicable to ‘medium-sized’ entity. If an entity exceeds the thresholds of small and medium-sized entities, such entity will stop using the principles set out in the Schedule, as amended.
In determining whether an entity qualifies as small or medium-sized entity as stated in this Regulation, in relation to a financial year in respect of which the amendments made by these Regulations have effect, the entity is to be treated as having qualified as small or medium-sized entity in any previous year in which it would have so qualified if amendments to the same effect as the amendments made by these Regulations had had effect in relation to that previous year.
In the case of the first financial reporting period of an entity, the entity shall determine whether the criteria have been exceeded by computing the assets comprising the balance sheet total, total revenue and the average number of employees for the first financial reporting period in accordance with the Regulation. The entity shall be deemed to have exceeded the criteria if as at the end of the first financial reporting period two of the balance sheet total, total revenue and average number of employees for the relevant financial reporting period exceed the limits as stated in the Regulation. Where a financial reporting period is shorter or longer than one calendar year, the total revenue generated during that financial reporting period shall be deemed to be the amount arrived at by dividing the total revenue figure generated in that financial reporting period by the number of months in that financial reporting period, and multiplying that number by twelve.
The Schedule, as amended, shall not apply to public interest entities.