In Malta we have our own default accounting framework that can be used by small or medium companies known as "GAPSME", which stands for The Accountancy Profession (General Accounting Principles for Small and Medium sized entities). GAPSME regulations were issued in 2015 and are based on IFRS's but require much less disclosures, and therefore it is less costly to prepare the supporting documents and the financial statements using GAPSME. As a result, professional fees charged for the preparation of management accounts, and financial statements using this framework are lower.
Overview
GAPSME can be used by companies registered in Malta who qualify as a small and medium-sized company. This framework cannot be used by public interest entities. To qualify as a small or medium-sized entity a company is required to meet at least two of the following three criteria.
| Individual company financial statements | Small Company | Medium Sized Company |
| Total revenue | EUR8,000,000 | EUR40,000,000 |
| Balance sheet total | EUR4,000,000 | EUR20,000,000 |
| Average no. of employees | 50 | 250 |
For periods shorter or longer than one year, the balance sheet and revenue totals shall be divided by the number of months and multiplied by 12 months since the limits set are for a full calendar year.
Companies required to consolidate should meet at least two of the following three criteria.
| Consolidated financial statements | Computed Net | Computed gross* |
| Total revenue** | EUR40,000,000 | EUR 48,000,000 |
| Balance Sheet total | EUR20,000,000 | EUR24,000,000 |
| Employees | 250 | 250 |
*Computed gross: without any set offs and other adjustments that would be required for the preparation of consolidated financial statements.
**Where revenue is not relevant, a company should include income from other sources
For a company that is exempt from preparing consolidated financial statements, two of the following three criteria should be met on the balance sheet of the parent to use this framework:
| Computed net | Computed gross | |
| Total revenue | EUR8,000,000 | EUR9,600,000 |
| Balance Sheet total | EUR4,000,000 | EUR4,800,000 |
| Employees | 50 | 50 |
Benefits of using GAPSME over IFRS:
This framework is simple when compared to International Financial reporting Standards (IFRS). IFRS's are becoming more complex to cater for the needs of all the big companies. To take an example, under GAPSME revenue regulations are included in four pages which outline how to calculate the fair value of the consideration received or receivable for sale of goods, rendering of services, interest, royalties, rents and dividends, and construction contracts. The new Revenue standard without accompanied notes under IFRS is over 62 pages long.
IFRS's tend to change frequently with a number of changes taking place each year. Some new standards effective for accounting periods starting from 1 January 2018 include IFRS15 Revenue from Contracts with Customers; IFRS9 dealing with Financial instruments; and IFRS 16 Leases effective from 1 January 2019.
Comparative information is not required to be disclosed for items of Property, plant and equipment, intangible assets, investments, non-current investments in subsidiaries, associates and jointly controlled entities.
Various disclosures under IFRS are not required under GAPSME.
Benefits of companies qualifying as small companies adopting GAPSME
Companies qualifying as "Small companies" are not:
- Required to prepare a statement of changes in equity;
- Required to prepare a cashflow statements;
- Fewer disclosures are required to be made by companies qualifying as small companies than by companies qualifying as medium-sized companies. Amongst others, an entity is exempt from disclosing related party transactions between members of a group provided that subsidiaries which are party to the transactions are wholly owned by a member of the group.
IFRS
If a company does not qualify to prepare its financial statements under GAPSME the company is required to prepare financial statements under IFRS. If for some reason or other a company wants to prepare the financial statements under IFRS, maybe because it needs to prepare the accounts in the same reporting framework as its parent company, or because it is required by international users of the financial statements (including suppliers) the company can make a resolution to use IFRS.
Directors' report
Further to GAPSME small companies as defined in the Companies Act of Malta are not required to include the directors' report in the financial statements. The Companies Act has the same thresholds as GAPSME for small companies.
Most companies have a December year end, and therefore it is time to start closing the management accounts to prepare the financial statements. In Malta some companies have excellent employees preparing the day-to-day transactions and management accounts throughout the year but some assistance is required to prepare the financial statements. At the same time, auditors are requesting companies to prepare their own financial statements. At GM Corporate and Fiduciary Services ( a subsidiary of GMI) we provide assistance with the preparation of the financial statements.
Other services offered
Our profession team is trained to provide legal services to incorporate clients in Malta and to provide other legal services, and we have a team of professional accountants who assist companies with matters relating to VAT, preparation of management accounts and financial statements using GAPSME or IFRS.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
