The going concern principle is the basic assumption for the preparation of financial statements and must be declared so, by the Director/s and confirmed by the entity’s Auditors. It is a declaration of intention for the business to keep running its activities. This is also a basic concept of the International Financial Reporting Standards (IFRS). The going concern declaration assures creditors that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

Post balance sheet date till date of signing the financial statements, if the Director/s become aware of any material transaction and/or scenario that might jeopardise the trading activity, there must be a clear disclosure to this affect, in the Director/s and in the Auditors to reflect the impact on the business going concern.

Note – The foreseeable future is usually regarded as the following 12 months after Balance Sheet date.

Debt to Equity ratio
The debt (all amounts payable – long and short term) to equity (share capital) ratio is a measure a company’s financial leverage. It is calculated by dividing a company’s total liabilities by its stockholders’ capital (Equity). The result can be expressed as a number or as a percentage.

The ratio indicates how much debt a company uses to finance its assets relative to shareholders’ equity. It is total value of liabilities divided by the Shareholders’ Equity (aka Share Capital).

This ratio assesses the risk the shareholders are taking in the business and/or whether this risk is being carried by third parties. In financial jargon the ratio is also known as gearing.

Financial Statements – Kasco Holdings Ltd.
I make reference to the Balance Sheet of the Group Kasco Holdings Ltd, as at 31 December 2014 (as reproduced in some previous post); the debt to equity ratio works out at 7.5 or 750%. (€8,366,191/€1,115,281). This simply means that the trade and non-trade creditors together with the Bank, mainly through the overdraft made available to the company, are carrying the financial risk 7.5 times more than the shareholders. (Note 21 to the Balance Sheet – indicates that the shareholders’
loan amounts to €167,247)

Panama Papers and Nexia BT
Directly and indirectly Nexia BT, has a conflict of interest and Nexia BT should not have acted as Auditors to the company. By hindsight of past years events and the latest exposures of the Panama Papers clearly reaffirms this.

As to your question, strictly speaking the answer is, it impinges on the independence of the auditor which is “sacrosant” in the performing of his function.

Such a situation would at best be in conflict with the auditor code of ethics and so on, as to being unlawful I’m unsure. A lawyer would be better able to advise.

Nevertheless it is well known that audit firms circumnavigate this obstacle by having set-ups such as that one arm of the firm conducts audits (say with one of the partners heading) and other sections of the firm with other partners heading them have other roles, such as providing tax advice and/or consultancy in general. There has been a lot of debate about this.

Personally, if I were a small shareholder in a company, I would definitely NOT be happy if one of the main shareholder and even less so if any one of the directors were being provided this sort of service by the company auditor.

Is it lawful for the auditor of a company to be the personal financial advisor of the main shareholder of that company, and to set up for him offshore companies which are not declared in Malta?

I will check about what you mean by a “going concern”.

Thank you for your good explanation.

The auditor – who by the way and contrary to common perception- represents the shareholders and not the directors or any other big-wig is there to provide assurance, by way of an annual audit and report, that things are well, or if not to state so and to what extent.

Auditors are bound by law and international auditing standards on how to perform their work and what to look out for and report on. Basically, a clean audit report gives comfort to the shareholders that the accounts (financials) reflect a true picture of the company’s position.

The concept of “going concern”, which is a pillar of accounting standards world-wide, is very important. If this is missing, that is not deemed to be a going concern it is an indication that things are going awry with the business, such as if obligations exceed income streams both short and long term in such a way that it looks as though the business is heading into the wall.

It is primarily the management’s obligation to point this out, and secondly that of the auditor if he becomes aware of it in the course of his audit. And all this to warn/protect shareholders and any other interested parties namely CREDITORS such as suppliers and providers of loans i.e. BANKS.

Kif jispjega l-fatt li filwaqt li skond id-dikjarazzjonijiet li jipprezenta kull sena, hu m’ghandu l-ebda self u l-ebda investimenti, id-depoziti bankarji tieghu baqghu kwazi kull sena l-istess meta d-dhul tieghu (minghajr id-dhul tal-mara) jammonta ghal aktar minn €60,000 u la jhallas ghall-fuel, la jhallas ghad-dawl u l-ilma, u lanqas ihallas ghal servizzi ohra.

Fil-fatt, Pinocchio ghamel dawn id-dikjarazzjonijiet tal-assi kemm ilu Prim Ministru:
Lulju 2013 (ghas-sena 2012): depożiti bankarji – €70,000; dhul – €42,075.
Lulju 2014 (ghas-sena 2013): depożiti bankarji – €70,000; dhul – €70,000.
Ġunju 2015 (ghas-sena 2014): depożiti bankarji – €75,000; dhul – €64,847.
April 2016 (ghas-sena 2015): depożiti bankarji – €73,000; dhul – bejn wiehed u iehor €65,000.

Had the government used the super profit diligently we would have solved Enemalta’s cash flow problem and would still own the vital asset.

Does the fact that there is a Gaerty employed by Nexia BT present a conflict of interest for the Commissioner with the related name in common?

These are not allegations. They are the reasonable conclusions of a rational and informed person, based on the available evidence.