FINANCIAL REPORTING PRINCIPLES FOR SMALLER PUBLIC ENTITIES: THE CASE OF THE MALTESE LOCAL GOVERNMENT

This paper aims to understand the principal difficulties that Maltese Local Councils encounter during the preparation of their financial statements. One of the problems could be the type of financial reporting standards that the Local Councils are required to adopt, namely, the International Financial Reporting Standards (IFRS). IFRS were developed for the private sector where the financial statements have a different meaning and purpose than in public administration, and where even the significance of the economic result is different. A qualitative research methodology is applied, in the form of a case study, to address three specific objectives: RQ1: What are the aims of public financial statements? And what is the meaning of the economic result in the public administration? RQ2: Is it possible to apply IFRS in the public administration? RQ3: What could be the solution for the Maltese situation? The results from this study show that the aim of financial statements for a private company is different than the aim of the same documents prepared for a public entity, and therefore the significance of the economic result is also different. For the same reasons, IFRS are not applicable for public entities. The solution for the Maltese Local Councils could be to adapt the IFRS (rather than adopt them outright), taking into consideration the small dimension and the public nature of this type of entity.