An EU-inspired corporate governance statement for Maltese listed companies - boon or scourge?

The traditional definition of corporate governance is that of “the system by which companies are directed and controlled” (Cadbury Committee,1992: p 15). Indeed, corporate governance is concerned with the interaction of a company’s management, board of directors and stakeholders in ensuring the fairness of such a system. It needs hardly be said that corporate governance systems needed reform in the past decades for the sake of protecting the various stakeholders. For example, neither the USA nor the European Union could envy each other in the light of recent major corporate scandals such as Enron and Parmalat. Crises stimulate the search for new and more rigorous methods of surveillance and control (Moran, 1986). As would therefore be expected, both legislators and regulatory bodies have been increasingly involved in the tightening up of the global legislative regulatory framework.peer-reviewe

External auditing and corporate governance perspectives in a small state: the case of Malta

This thesis stems from academic research following my MPhil in 1992. It presents a portfolio of fourteen selected papers offering insights on major issues affecting the accountancy-related areas of external auditing (EA) and corporate governance (CG) in the small state of Malta. The commentary (Chapter 1) presents a background to the development of the portfolio and overviews the theoretical framework and methodology. It then introduces each paper, underlining common sub-themes. The contributions of the papers to knowledge are then indicated by (i) overviewing the development of each sub-theme contributing to the academic discourses in EA and CG, and (ii) laying out the relevance to the wider debates relating to small state literature. The commentary concludes by looking at the follow-up research agenda and the beckoning future. Chapters 2 to 15 then reproduce fourteen papers an introductory paper and thirteen others in two parts. The introductory paper includes most major small state sub-themes recurring in different ways in the subsequent papers: issues relating to close relationships and independence, discipline, resistance to change, regulation, secrecy, small business units and other small state issues. The following first part includes seven papers on Maltese external auditing in owner-managed companies, auditor changes, auditor perceptions, qualified opinions, first-time auditor selection, fee development and dysfunctional audit behaviour. The second part then comprises six papers on Maltese CG including the CG statement, internal audit benchmarking, conflicts of interest in co-operatives, the board/management relationship, a CG index, and small shareholder participation in the AGM. The portfolio contributes to literature notably by its original highlighting of the significance of the above-mentioned sub-themes on various aspects of EA and CG in a small state. Furthermore, the portfolio impacts Maltese EA and CG practices, particularly by emphasising the need to go beyond the adoption of imported regulatory framework

Converting an LLC into a co-operative part 1 : background and analysis

For detailed references, please refer to authors or, for most quoted sources, to the University of Malta MAccty dissertation: The Conversion of the LLC into a Cooperative and its Implications: A Maltese Analysis, May 2014 available at the University of Malta library.In certain instances, businesses may decide to convert into cooperatives, subsequent to consideration that such an alternative legal structure may be a more viable path to their entity. Nonetheless, such conversions have as yet been a rare occurrence in Malta, rendering them less prevalent and ubiquitous. This emanates from a lack of awareness and understanding, as, in theory, this route can be taken up by any business which puts its efforts towards such a conversion, although various technical elements would need to be addressed throughout the process. The objectives of this article, which builds on a 2014 MAccty dissertation, are to provide useful insights on the rationale for and the difficulties encountered in carrying out such conversions, to evaluate the corporate governance and the financial implications of such a change, and to propose a viable regulatory framework for implementing such conversions.peer-reviewe

Converting an LLC into a co-operative part 2 : background and analysis

For detailed references, please refer to authors or, for most quoted sources, to the University of Malta MAccty dissertation “The Conversion of the LLC into a Cooperative and its Implications: A Maltese Analysis” May 2014 available at the University of Malta library.With the two-tier structure being optional under the Co-operative Societies Act (CSA), many co-operatives are disregarding such alternative and opting towards the one-tier system. Upon affecting mutualisation, limited liability companies (LLCs) need not necessarily change their corporate governance structure to that of a two-tier one with a specific supervisory board. As an alternative and as illustrated in Figure 1, co-operative entities, especially larger ones, may make up their statutory Committee of Management (COM) of non-executives, with the day-to-day decisions being left over to an executive management committee, formed by the higher level managers of the co-operative. In such a corporate governance structure, it is imperative that the appropriate liaison is maintained between the two committees. Furthermore, in larger co-operatives, an Audit Committee may operate as a sub-committee of the COM on the lines of those established by LLC’s.peer-reviewe

The concept of audit materiality and attitudes towards materiality threshold disclosure among Maltese audit practitioners

Materiality permeates the audit process and is a term often used to describe the scope of the auditor’s responsibility to the general public. This paper attempts to evaluate the Maltese auditing profession’s perceptions and use of the concept of materiality in the performance of an audit as well as attitudes towards disclosure of materiality thresholds. Results from personal in-depth interviews with twenty-four practitioners show that although considerable importance is attached to qualitative aspects of materiality, professional judgment is applied to establish quantitative materiality thresholds. Practitioners in Malta do not seem to treat materiality uniformly, with various materiality thresholds applied in practice. Nevertheless, prescriptive guidelines are not advisable. The proposal of disclosing materiality thresholds to reduce the omnipresent expectations gap was strongly rejected. It is the authors’ view that such disclosures, need to be adequately regulated and users would need a proper understanding of materiality and audit methodologies.peer-reviewe

The changing role of the national audit office in public accountability

The purpose of the paper is to gain insight into the changing role of the National Audit Office (NAO) in public accountability with the backdrop of the legal amendments that instituted the Office. The paper seeks to analyse the strength of the Office’s legal mandate, evaluate the understandability of NAO reports as well as discuss the Office’s bearing on public policy. The discussion draws upon semi-structured interviews conducted with three NAO Officers and thirteen main users of NAO reports, consisting of Public Accounts Committee (PAC) Members, Opinion Makers and Public Officials. The analysis takes stock of relevant PAC transcripts and of visits made to PAC meetings.peer-reviewe

The changing role of the Maltese CFO

The recent past has been characterised by advances in technology, continuous changes in the environment and also added regulatory requirements, mostly as a consequence of both corporate governance scandals and a challenging recession. This has induced changes in the role of most business professionals, among whom the Chief Financial Officer (CFO) of Maltese Listed companies. The objective of this article, which builds on a recent MBA dissertation by Ms Buttigieg, is to analyse such changes in the role of these CFO’s since 2003 and their implications. For this purpose, a review of international literature is made, complemented by empirical data collected by means of semi-structured interviews held with ten CFOs of such listed companies. The rest of the paper consists of five sections. The next section will review the literature, followed by an exposition of the methodology used, the findings, the discussion thereon, and conclusion, including the limitations of the study.peer-reviewe

Materiality disclosures in statutory auditing : a Maltese perspective

Materiality is a fundamental auditing concept. The determination and application of materiality in the conduct of an external audit is regulated by International Standards on Auditing. This paper analysed the benefits and drawbacks of materiality disclosures in Maltese statutory auditing from the perspective of Maltese auditors, whilst measuring and explaining their resistance to such disclosures. A mixed-methods research design was adopted whereby data was collected from Maltese auditors first using a selfadministered questionnaire, followed by semi-structured interviews. This paper concluded that the drawbacks of disclosing materiality in Maltese statutory audit reports greatly outweighed any potential benefits that might be reaped. Maltese auditors generally resisted disclosing materiality levels mainly due to the drawbacks associated with such disclosures. This paper also concluded that materiality disclosures in the audit report should, at present, be avoided in Malta because the local market is not sufficiently mature and knowledgeable to properly understand such disclosures.peer-reviewe

The corporate governance code and compliance by Maltese listed companies

Purpose: In this paper we lay out the evaluation of non-compliance with the Code of Principles of Good Corporate Governance and the analyses of the adequacy of the explanations provided thereof, including the overall effectiveness of the existing regulatory framework. Design/methodology/approach: To achieve the objectives of this study, a review of the non-compliance section of the corporate governance statements of each Maltese listed company was carried out for the years 2012, 2014 and 2016. Furthermore, 13 semi-structured interviews were held. Findings: The paper finds that a general insufficiency in the explanations provided for non-compliance exists. Some entities give only lip service to the provisions of the Code as they fail to realise the benefits an entity may reap from having good corporate governance structures in place. There is a lack of education and awareness in this regard, and not only on the part of companies but also on the part of shareholders who seem to make minimal use of the information provided in the corporate governance statements. Practical implications: The study raises awareness of the need of improving corporate governance practices, as well as education on corporate governance, across Maltese listed companies. It is hoped that the recommendations made may encourage entities to improve in their reporting and the regulator to provide further guidance to entities to do so. Originality/value: Prior to the amendment of existing rules, increased enforcement of the current regulatory framework and monitoring by the regulator is required. The study highlights the misconceptions on the auditor's role in corporate governance.peer-reviewe

The role of the Maltese Public Accounts Committee in public finance

The objectives of this paper are to ascertain and assess the role of the Public Accounts Committee (PAC) in Maltese public finance, analyzing its operational effectiveness and the barriers to it, and assessing its relationships with major stakeholders. The research methodology involves the conduct of nineteen semi-structured interviews, attendance to one PAC sitting, a review of applicable PAC transcripts, and an examination of relevant legislative pieces governing the PAC. The study finds that PAC is fulfilling a wide proportion of its remit, recently exercising an improved role. However, the reoccurrence of errors and weaknesses within the public sector highlights the need for the Committee to investigate further areas falling within its scope, thus acting as a deterrent to the misuse of public funds. Additionally, improvements in the PAC’s operational effectiveness are called for, particularly with regard to its structure and member composition, as well as its communication of end results and follow-ups. The appointment and participation of technical expertise in PAC meetings, and the widening of the PAC’s mandate to incorporate broader topics would also be conducive to enhanced effectiveness. In addition, while the Committee’s relationships with its major stakeholders are deemed positive, it is evident that there is still room for improvement. The PAC is instrumental in the conduct of effective financial scrutiny and oversight, which in turn enhances its contribution to the proper management of Maltese public finances. Yet, achieving a strong impact may be restricted by the existence of barriers that are impeding the Committee’s operational effectiveness. While the surmounting of such obstacles becomes highly relevant for the PAC to retain its watchdog function, the maintenance of effective relationships with its main stakeholders is also necessary if it is to make the most of such links. It is hoped that this paper contributes to +further progress in the PAC’s operations and in the public sector’s use of public resources.peer-reviewe