The EU Accounting Directive 2013/34/EU brought about a new set of financial reporting requirements. The aim of the Directive was to simplify the preparation of statutory financial statements for qualifying micro-, small- and medium-sized entities (SMEs). The technical accounting aspects of the Directive were thereafter transposed into Maltese law through the the issue of Legal Notice 289 of 2015 – Accountancy Profession General Accounting Principles for Small and Medium-Sized Entities (GAPSME), as well as through amendments to the Companies Act.
For financial reporting periods ending on or before 31 December 2015, the Board of Directors or, in the case of an entity other than a company, its governing body, have to opt for the preparation of financial statements in accordance with GAPSE regulations.
On transposition of the Directive, GAPSME has now become the default accounting framework for SMEs for financial reporting periods starting on or after 1 January 2016. Nonetheless, small entities can still prepare financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, if the Board of Directors or its governing body, has passed a resolution to this effect.
GAPSME applies to financial reporting periods commencing on or after 1 January 2016 and may be adopted by all small- and medium-sized entities, as long as they satisfy two out of three of the following size criteria:
| Small | Medium | |
| Balance sheet total | ≤ €4,000,000 | ≤ €20,000,000 |
| Revenue | ≤ €8,000,000 | ≤ €40,000,000 |
| Average number of employees | ≤ 50 | ≤ 250 |
GAPSME does not apply to Public Interest Entities (PIEs) and has other limitations on its applicability such as entities in possession of a licence or other authorisation issued by the MFSA.
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 Regulation 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 Regulation.
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 financial statements of a small-sized entity shall comprise of a balance sheet, an income statement and notes to the financial statements. For medium-sized entities the financial statements shall also comprise of a statement of changes in equity and a statement of cash flows.
It is the responsibility of the directors to ensure that annual accounts in respect of their company are prepared and filed with the Registrar of Companies in accordance with the revised Companies Act. Directors of companies qualifying as small companies may take advantage of any exemption granted to such companies by the Companies Act by making a declaration on the prescribed form as referred to in Article 183 (3) of the Act when submitting the companies’ annual accounts to the Registrar on the relevant Form declaration, Form DD2 for the first accounting period and Form DD1 for subsequent years. This declaration must be duly signed by the directors signing the balance sheet and filed with the Registry of Companies with the respective annual accounts when such accounts do not include the Director’s report and/or the Income Statement.
Author: Dorianne Calleja, Senior Accountant, Accounts Department