ACT No. XXXVI of 2016 AN ACT to introduce amendments to the Accountancy Profession Act and to other Laws and to implement Directive 2014/ 56/EU and certain provisions of Regulation (EU) No. 537/2014.

I assent.

D OLORES C RISTINA

(L.S.)

Acting President

12th July, 2016

ACT No. XXXVI of 2016

AN ACT to introduce amendments to the Accountancy

Profession Act and to other Laws and to implement Directive 2014/

56/EU and certain provisions of Regulation (EU) No. 537/2014.

BE IT ENACTED by the President, by and with the advice

and consent of the House of Representatives, in this present

Parliament assembled, and by the authority of the same, as follows:-

(1) The short title of this Act is the Accountancy

Profession Act and other Laws (Amendment) Act, 2016.

(2) The provisions of this Act shall come into force on 17 June

2016. PART I

Amendment of the Accountancy Profession Act

This Part amends the Accountancy Profession Act, and

shall be read and construed as one with the Accountancy Profession

Act, hereinafter in this Part referred to as "the principal Act".

Sub-article (1) of article 2 of the principal Act shall be

amended as follows

(a) immediately after the definition "accountancy firm"

there shall be added the following new definition

" "aptitude test" means a test limited to the

professional knowledge of the applicant, made by the

Board with the aim of assessing the ability of the

applicant to pursue the profession of auditor in Malta;";

(b) the definition "Tribunal" shall be placed after the

definition "third-country auditor";

(c)

immediately after the definition "audit client" there

shall be added the following new definitions

" "Audit Directive" means Directive 2006/43/EC of

the European Parliament and of the Council of 17 May

2006 on statutory audits of annual accounts and

consolidated accounts as amended by Directive 2014/56/

EU of the European Parliament and of the Council of 16

April 2014;

"Audit Regulation" means Regulation (EU) No. 537/

2014 of the European Parliament and of the Council of

16 April 2014 or the specific requirements regarding

statutory audit of public interest entities;";

(d) immediately after the definition "Board" there shall

be added the following new definitions

" "CEAOB" means the Committee of European

Auditing Oversight Bodies;

"competent authority" means the authority

designated by the law of Member States to be

responsible for the regulation and, or oversight of

statutory auditors and audit firms or of specific aspects

thereof;";

(e)

immediately after the definition "generally accepted

accounting principles and practice" there shall be added the

following new definitions

" "home Member State" means a

Member State in which an auditor or audit

firm is approved in accordance with

regulation 4(1) of the Accountancy Profession

Regulations;

"host Member State" means a Member State in which

an auditor approved by his or her home Member State

seeks also to be approved in another Member State, or a

Member State in which an audit firm approved by its

home Member State seeks to be registered or is

registered in another Member State;

"medium-sized undertakings" means undertakings

referred to in paragraph 1 of Part I of the Third Schedule

of the Companies Act;";

(f)

in the definition "non-practitioner", for the words

"for at least three years before his involvement in the

governance of the Board or any committee thereunder" there

shall be substituted the words "during his or her involvement in

the governance of the Board and during the period of three years

immediately preceding that involvement";

(g) the definition "public-interest entity" shall be

substituted by the following

" "public-interest entity" means an entity governed

by the law of a Member State whose transferable

securities are admitted to trading on a regulated market

of any Member State within the meaning of point 14 of

Article 4(1) of Directive 2004/39/EC, a credit institution

as defined in point 1 of Article 3(1) of Directive 2013/

36/EU of the European Parliament and of the Council of

26 June 2013 on access to the activity of credit

institutions and the prudential supervision of credit

institutions and investment firms, other than those

referred to in Article 2 of that Directive, an insurance

undertaking within the meaning of Article 2(1) of

Directive 91/674/EEC and such other entities as may be

prescribed by the Minister. References to the Directives

in this definition shall include any other legislation

amending or substituting such Directives;";

(h) immediately after the definition "public-interest

entity" there shall be added the following new definition

" "small undertakings" means the

companies referred to in article 185(1) of the

Companies Act;";

(i)

the definition "statutory audit" shall be substituted

by the following new definition

" "statutory audit" means an audit of annual

financial statements or consolidated financial statements

in so far as

(a) required by European Union law;

(b) required by Maltese law as regards small

undertakings;";

(j)

in the definition "third-country audit entity", for the

words "incorporated in a third country;" there shall be

substituted the words "incorporated in a third country, other

than an entity which is registered as an audit firm in any

Member State as a consequence of approval in accordance with

Article 3 of the Audit Directive;"; and

(k) in the definition "third-country auditor", for the

words "incorporated in a third country;" there shall be

substituted the words "incorporated in a third country, other

than an individual who is registered as a statutory auditor in any

Member State as a consequence of approval in accordance with

Article 3 and 44 of the Audit Directive;".

Article 4 of the principal Act shall be amended as follows

Amendment of

article 4 of the

principal Act.

(a)

sub-article (3) thereof shall be substituted by the

following

"(3) The Board shall issue a practicing certificate to

practise in the field of auditing in Malta to an individual

of good repute who is an approved auditor in any

Member State provided that such individual has, to the

satisfaction of the Board, passed an aptitude test,

covering the local laws and regulations relevant to

auditing, set by the Board for this purpose."; and

(b) in sub-article (4) thereof, for the words "the Member

States where the auditor is also approved" there shall substituted

the words "Member States where the auditor is also registered".

Article 7 of the principal Act shall be amended as follows

Amendment of

article 7 of the

principal Act.

(a) in paragraph (e) of sub-article (1) thereof, for the

words "Directive 2006/43/EC;" there shall be substituted the

words "Directive 2006/43/EC, Directive 2014/56/EU and

Regulation (EU) No. 537/2014;";

(b) paragraph (l) of sub-article (1) thereof shall be re-

numbered as paragraph (o), and immediately after paragraph (k)

thereof there shall be added the following new paragraphs

"(l) where necessary, to initiate and conduct

investigations in relation to auditors and audit firms and

the right to take appropriate action;

(m) to regularly monitor the developments in the

market for providing statutory audit services to public-

interest entities and shall in particular assess the

following

(i) the risks arising from high incidence of

quality deficiencies of an auditor or an audit firm,

including systematic deficiencies within an audit

firm network, which may lead to the demise of any

audit firm, the disruption in the provisions of

statutory audit services whether in a specific sector

or across sectors, the further accumulation of risk of

audit deficiencies and the impact on the overall

stability of the financial sector;

(ii) the market concentration levels, including in

specific sectors;

(iii) the performance of audit committees;

(iv) the need to adopt measures to mitigate the

risks referred to in paragraph (a);

(n) to take measures in order to ensure that the

application of auditing standards to the statutory audit of

small undertakings is proportionate to the scale and

complexity of such undertakings;";

(c) sub-article (6) thereof shall be substituted by the

following

"(6) The Board shall, in accordance with the

provisions of this article, register every third-country

auditor and third-country audit entity, where that third-

country auditor or audit entity provides an audit report

concerning the annual or consolidated financial

statements of an undertaking incorporated outside the

European Union whose transferable securities are

admitted to trading on the regulated market in Malta

within the meaning of point 14 of Article 4(1) of

Directive 2004/39/EC, except when the undertaking in

question is an issuer exclusively of outstanding debt

securities for which one of the following applies

(a) they have been admitted to trading on a

regulated market in a Member State within the meaning

of point (c) of Article 2(1) of Directive 2004/109/EC of

the European Parliament and of the Council of 15

December 2004 prior to 31 December 2010 and the

denomination per unit of which is, at the date of issue, at

least fifty thousand euro (€50,000) or, in the case of debt

securities denominated in another currency, equivalent,

at the date of issue, to at least fifty thousand euro

(€50,000);

(b) they are admitted to trading on a regulated

market in a Member State within the meaning of point

(c) of Article 2(1) of Directive 2004/109/EC from 31

December 2010 and the denomination per unit of which

is, at the date of issue, at least one hundred thousand

euro (€100,000) or, in the case of debt securities

denominated in another currency, equivalent, at the date

of issue, to at least one hundred thousand euro

(€100,000).";

(d) sub-article (11) thereof shall be substituted by the

following

"(11) The Board may register a third-country auditor

or a third-country audit entity only if

(a) he/she/it is of good repute;

(b) in the case of a third-country audit entity, the

majority of the members of the administrative or

management body of the third-country audit entity

meet the requirements which are equivalent to those

laid down in article 10(6);

(c) the third-country auditor or the third-country

auditor carrying out the audit on behalf of the third-

country audit entity meets requirements which are

equivalent to those laid down in article 3(2);

(d) the audit referred to in sub-article (6) is

carried out in accordance with international auditing

standards and complies with the requirements of

independence, objectivity and audit fees set out in

this Act or by the Board or with equivalent standards

and requirements;

(e) he/she/it publishes on his/her/its website an

annual transparency report which includes the

information referred to in article 18(1) or it complies

with equivalent disclosure requirements.";

(e) sub-article (19) thereof shall be substituted by the

following

"(19) The Board shall publish an annual report

including details of its annual work programmes and

activity reports, including its tasks under the Audit

Regulation, a description of the work carried out by the

disciplinary committee, a summary of the works carried

out in respect of quality assurance and the overall results

of the quality assurance system, the aggregated

information on the findings and conclusions of

inspections referred to in Article 49 of Directive Number

4 of the Accountancy Profession (Quality Assurance)

Directive and such other things which the Board deems

relevant.

This report shall also include information on

recommendations

issued,

follow-up

on

the

recommendations, supervisory measures taken and

sanctions imposed. It shall also include quantitative

information and other key performance information on

financial resources and staffing, and the efficiency and

effectiveness of the quality assurance system."; and

(f)

immediately after sub-article (20) thereof there shall

be added the following new sub-articles

"(21) The Board shall cooperate with competent

authorities with a view to achieving a convergence of the

requirements set out in article 3(2)(c), (d) and (e). When

engaging in such cooperation, the Board and the other

competent authorities shall take into account

developments in auditing and in the audit profession

and, in particular, convergence that has already been

achieved by the profession. They shall cooperate with

the Committee of European Auditing Oversight Bodies

(CEAOB) and the competent authorities referred to in

Article 20 of the Audit Regulation in so far as such

convergence relates to the statutory audit of public-

interest entities.

(22) The Board shall cooperate with other competent

authorities within the framework of the CEAOB with a

view to achieving a convergence of the requirements of

the aptitude test mentioned in article 4(3). The

competent authorities shall enhance the transparency

and predictability of the requirements. They shall

cooperate with the CEAOB and with the competent

authorities referred to in Article 20 of the Audit

Regulation in so far as such convergence relates to

statutory audits of public-interest entities.".

Immediately after article 7 of the principal Act there shall Addition of new

articles to the

be added the following new articles

principal Act.

" Powers of the

(1) Without prejudice to Article

competent

26 of the Audit Regulation, in carrying out its

authority.

tasks under the Act and the Audit Regulation,

the Board and any other public authorities

may not interfere with the content of audit

reports.

(2) The Board shall have all the

supervisory and investigatory powers that are

necessary for the exercise of its functions

under the Act and the Audit Regulation,

including, but not limitedly the power to

(a)

access data related to the

statutory audit or other documents held

by auditors or audit firms in any form

relevant to the carrying out of their tasks

and to receive or take a copy thereof;

(b) obtain information related to

the statutory audit from any person;

(c)

carry out on-site inspections

of auditors or audit firms;

(d) refer matters for criminal

prosecution;

(e) request experts to carry out

verifications or investigations;

(f)

take

the

administrative

measures, and impose the sanctions

referred to in article 14.

(3) The Board may use the powers

referred to in sub-article (2)(a) only in relation

to

(a)

auditors and audit firms

carrying out statutory audit of public-

interest entities;

(b) persons involved in the

activities of auditors and audit firms

carrying out statutory audit of public-

interest entities;

(c)

audited

public-interest

entities, their affiliates and related third

parties;

(d) third parties to whom

auditors and the audit firms carrying out

statutory audit of public-interest entities

have outsourced certain functions or

activities; and

(e)

persons otherwise related or

connected to statutory auditors and audit

firms carrying out statutory audit of

public-interest entities.

(4) The Board shall exercise its

supervisory and investigatory powers in any

of the following ways

(a)

directly;

(b) in collaboration with other

authorities;

(c)

by application to the

competent judicial authorities.

(5) The supervisory and investigatory

powers of the Board shall be exercised in full

compliance with Maltese law, and in

particular, with the principles of respect for

private life and the right of defence.

(6) The processing of personal data

processed in the exercise of the supervisory

and investigatory powers pursuant to this

article shall be carried out in accordance with

the Data Protection Act and Directive 95/46/

EC.

(1) The Board may delegate any

Delegation of

tasks.

of the tasks required to be undertaken

pursuant to this Act and the Audit Regulation

to other authorities or bodies designated or

otherwise authorised by law to carry out such

tasks, except for tasks related to

(a)

the

quality

assurance

systems referred to in Directive 4

Accountancy

Profession

(Quality

Assurance);

(b) investigations arising from

that quality assurance system or from a

referral by another authority; and

(c)

sanctions and measures

related to the quality assurance reviews

or investigation of auditors of public-

interest entities.

(2) Any execution of tasks by other

authorities or bodies shall be the subject of an

express delegation by the Board. The

delegation shall specify the delegated tasks

and the conditions under which they are to be

carried out.

Where the Board delegates tasks to

other authorities or bodies, it shall be able to

reclaim these competences on a case-by-case

basis.

(3) The authorities or bodies shall be

organised in such a manner that there are no

conflicts

of

interest.

The

ultimate

responsibility for supervising compliance

with the Audit Regulation, this Act and the

implementing measures adopted pursuant

thereto shall lie with the Board.

The Board shall inform the European

Commission and the competent authorities of

Member States of any arrangement entered

into with regard to the delegation of tasks,

including the precise conditions governing

such delegation.".

7. Article 8 of the principal Act shall be amended as follows

Amendment of

article 8 of the

principal Act.

(a) in paragraph (b) of sub-article (1) thereof, for the

words "in particular fields of activity;" there shall be substituted

the words "in particular fields of activity, including, but not

limitedly, the laying down of additional requirements in relation

to the content of the audit report referred to in articles 179 and

179A of the Companies Act;";

(b) in paragraph (j) of sub-article (1) thereof, for the

words "Directive 2006/43/EC;" there shall be substituted the

words "Directive 2006/43/EC, Directive 2014/56/EU and

Regulation (EU) No. 537/2014;";

(c)

in paragraph (l) of sub-article (1) thereof, for the

words "in addition to the punishment aforesaid." there shall be

substituted the words "in addition to the punishment aforesaid;",

and immediately thereafter there shall be added the following

new paragraphs

"(m) the equivalence criteria of audits of

the annual and consolidated financial statements

referred to in article 7(6);

(n) the general equivalence criteria to be

used in assessing the annual and consolidated

financial statements referred to in article 7(6);

(o) the equivalence referred to in article

7(9);

(p) the

establishment

of

general

equivalence criteria which are to be used in

assessing the public oversight, quality assurance,

investigation and sanctions systems of a third

country;

(q) the adequacy of the third countries

referred to in regulation 9 of the Accountancy

Profession Regulations;

(r) the establishment of general adequacy

criteria which are to be used in order to assess

whether the competent authorities of third

countries may be recognised as adequate to

cooperate with the Board on the exchange of

audit working papers or other documents held by

auditors and audit firms.";

(d) in paragraph (a) of sub-article (2) thereof,

immediately after the words "code of ethics," there shall be

added the words "standards on internal quality control of audit

firms and";

(e)

in paragraph (k) of sub-article (2) thereof, for the

words "Directive 2006/43/EC;" there shall be substituted the

words "Directive 2006/43/EC, Directive 2014/56/EU and

Regulation (EU) No. 537/2014;"; and

(f)

paragraph (o) of sub-article (2) thereof shall be

renumbered as paragraph (q) and immediately after paragraph

(n) thereof there shall be added the following new paragraphs

"(o) in exceptional circumstances, the

signature(s) required in the audit report

mentioned in articles 179 and 179A of the

Companies Act need not be disclosed to the

public if such disclosure could lead to an

imminent and significant threat to the

personal security of any person, even though

the name(s) of the person(s) involved shall be

known to the Board;

(p) other sanctioning powers in

addition to those referred to in article 14(2);".

In the second proviso to sub-article (1) of article 10 of the Amendment of

principal Act, for the words "the rules on independence" there shall article

principal Act.

be substituted the words "the rules on scepticism, independence".

Immediately after article 10 of the principal Act, there Addition of new

article to the

shall be added the following new article

principal Act.

(1) By way of derogation from article

10(7), an audit firm which is approved in another

Member State shall be entitled to perform statutory

audits provided that the key audit partner who

carries out the statutory audit on behalf of the audit

firm complies with article 3(1) and (2) and

regulation 4(1) and (2) and regulation 7 of the

Accountancy Profession Regulations.

(2) Where an audit firm which qualifies

under sub-article (1) wishes to carry out statutory

audits, it shall register with the Board in

accordance with article 7(4) and (15) and

regulation 6 of the Accountancy Profession

Regulations.

(3) The Board shall register the audit firm if

it is satisfied that the audit firm is registered with

the competent authority in the home Member State.

Where the Board intends to rely on a certificate

attesting to the registration of the audit firm in the

home Member State, the Board may require that

the certificate issued by the competent authority in

the home Member State be not more than three

months old. The Board shall inform the competent

authority in the home Member State of the

registration of the audit firm.".

10. Sub-article (4) of article 11 of the principal Act shall be

substituted by the following new sub-article

"(4) Every person or firm bound to be covered by an

indemnity insurance under this article shall each year, together

with the annual return, inform the Board in writing of the name

of the insurance company, the relative number of the insurance

policy, provide documentary evidence from the insurance

company that such person or firm is actually covered by the

identified policy of insurance, and shall declare to the Board

that such level of insurance cover amounts to not less than such

minimum level as may be prescribed.".

Article 14 of the principal Act shall be amended as

follows

(a)

the marginal note thereof shall be substituted by the

following

"Administrative fines, sanctions and measures."; and

(b) the current article shall be re-numbered as sub-

article (1) thereof and immediately thereafter there shall be

added the following new sub-articles

"(2) The Board shall have the power to

take and, or impose at least the following

administrative measures and sanctions for

breaches of the provisions of the rules under

this Act and, where applicable, the Audit

Regulation

(a)

a notice requiring the natural

or legal person responsible for the

breach to cease the conduct and to

abstain from any repetition of that

conduct;

(b) a public statement which

indicates the person responsible and the

nature of the breach, published on the

website of the Board;

(c)

a temporary prohibition, of

up to three years’ duration, banning the

statutory auditor, the audit firm or the

key audit partner from carrying out

statutory audits and, or signing audit

reports;

(d) a declaration that the audit

report does not meet the requirements of

article 179A of the Companies Act or,

where applicable, article 179B of that

Act;

(e)

a temporary prohibition, of

up to three years’ duration, banning a

member of an audit firm from exercising

functions in audit firms or public-

interest entities;

(f)

the

imposition

of

administrative pecuniary sanctions on

natural and legal persons.

(3) When determining the type and

level of administrative sanctions and

measures mentioned in sub-article (1), article

7(17) and article 15, the Board and, or the

disciplinary committees appointed in terms of

article 7(16) shall take into account all

relevant circumstances, including where

appropriate

(a)

the gravity and the duration

of the breach;

(b) the degree of responsibility

of the responsible person;

(c)

the financial strength of the

responsible person, for example as

indicated by the total turnover of the

responsible undertaking or the annual

income of the responsible person, if that

person is a natural person;

(d) the amounts of the profits

gained or losses avoided by the

responsible person, in so far as they can

be determined;

(e)

the level of cooperation of

the responsible person with the Board;

(f)

previous breaches by the

responsible legal or natural person.

Additional factors may be taken

into account by the Board and, or the

disciplinary committees appointed in terms of

article 7(16) where such factors are specified

in a legal provision, regulation or Directive.".

In paragraph (e) of sub-article (2) of article 15 of the

principal Act, for the words "such firm from being registered." there

shall be substituted the words "such firm from being registered;", and

immediately thereafter there shall be added the following new

paragraph

"(f) Where the approval of an audit firm is withdrawn

for any reason, the Board shall communicate that fact and the

reasons for the withdrawal to the relevant competent authorities

of Member States where the audit firm is also registered.".

In paragraph (b) of sub-article (3) of article 16 of the

principal Act, for the words "as may be prescribed." there shall be

substituted the words "as may be prescribed;", and immediately

thereafter there shall be added the following new paragraph

"(c) to the extent that is so prescribed, a person shall not

be deemed to exercise the profession of accountant if he gives

assurances on the future viability of an audited entity or on the

efficiency or effectiveness with which the management or the

board of directors has conducted or will conduct the affairs of

the entity.".

Article 18 of the principal Act shall be substituted by the

following

" Publication

(1) An auditor or an audit firm

of

that carries out statutory audits of public-

transparency

interest entities shall make public an annual

report in the

audit of

transparency report at the latest four months

public-interest

entities.

after the end of each financial year. That

transparency report shall be published on the

website of the auditor or the audit firm and

shall remain available on that website for at

least five years from the day of its publication

on the website. If the auditor is employed by

an audit firm, the obligations under this article

shall be incumbent on the audit firm.

An auditor or an audit firm shall be

allowed to update its published annual

transparency report. In such a case, the

auditor or the audit firm shall indicate that it is

an updated version of the report and the

original version of the report shall continue to

remain available on the website.

Auditors and audit firms shall

communicate to the competent authorities that

the transparency report has been published on

the website of the auditor or the audit firm or,

as appropriate, that it has been updated.

(2) The annual transparency report

shall include at least the following

(a)

a description of the legal

structure and ownership of the audit

firm;

(b) where the auditor or the

audit firm is a member of a network

(i) a description of the

network and the legal and

structural arrangements in the

network;

(ii) the name of each auditor

operating as a sole practitioner or

audit firm that is a member of the

network;

(iii) the countries in which

each auditor operating as a sole

practitioner or audit firm that is a

member of the network is

qualified as a statutory auditor or

has his, her or its registered

office, central administration or

principal place of business;

(iv) the

total

turnover

achieved by the auditors

operating as sole practitioners

and audit firms that are members

of the network, resulting from

the statutory audit of annual and

consolidated

financial

statements;

(c)

a

description

of

the

governance structure of the audit firm;

(d) a description of the internal

quality control system of the auditor or

of the audit firm and a statement by the

administrative or management body on

the effectiveness of its functioning;

(e)

an indication of when the

last quality assurance review referred to

in Article 26 of the Audit Regulation

was carried out;

(f)

a list of public-interest

entities for which the auditor or the audit

firm carried out statutory audits during

the preceding financial year;

(g) a statement covering the

auditor’s

or

the

audit

firm’s

independence practices which also

confirms that an internal review of

independence compliance has been

conducted;

(h) a statement on the policy

followed by the auditor or the audit firm

concerning the continuing education of

auditors as referred in Directive 1

Accountancy Profession (Continued

Professional Education);

(i)

information concerning the

basis for the principals’ remuneration in

audit firms;

(j)

a description of the auditor’s

or the audit firm’s policy concerning the

rotation of key audit partners and staff in

accordance with Article 17(7) of the

Audit Regulation;

(k) where not disclosed in its

financial statements within the meaning

of article 167(2) of the Companies Act,

information about the total turnover of

the auditor or the audit firm, divided

into the following categories

(i) revenues

from

the

statutory audit of annual and

consolidated financial statements

of public-interest entities and

entities belonging to a group of

undertakings

whose

parent

undertaking is a public-interest

entity;

(ii) revenues

from

the

statutory audit of annual and

consolidated financial statements

of other entities;

(iii) revenues from permitted

non-audit services to entities that

are audited by the statutory

auditor or the audit firm; and

(iv) revenues from non-audit

services to other entities.

The auditor or the audit firm may,

in exceptional circumstances, decide not to

disclose the information required in paragraph

(f) to the extent necessary to mitigate an

imminent and significant threat to the

personal security of any person. The auditor

or the audit firm shall be able to demonstrate

to the Board the existence of such threat.

(3) The transparency report shall be

signed by the auditor or the audit firm.".

15. Immediately after article 18 of the principal Act, there Addition of new

shall be added the following new article

18A.(1)An auditor or an audit firm carrying

out the statutory audit of a public-interest entity, or

any member of the network to which the auditor or

the audit firm belongs, shall not directly or

indirectly provide to the audited entity, to its parent

undertaking or to its controlled undertakings within

the European Union any prohibited non-audit

services in

(a)

the period between the beginning

of the period audited and the issuing of the

audit report; and

(b) the financial year immediately

preceding the period referred to in paragraph

(a) in relation to the services listed in sub-

article (2)(e).

(2) For the purposes of sub-article (1),

prohibited non-audit services shall mean

(a)

tax services relating to

(i) preparation of tax forms;

(ii) payroll tax;

(iii) customs duties;

(iv) identification

of

public

subsidies and tax incentives unless

support from the auditor or the audit

firm in respect of such services is

required by law;

(v) support

regarding

tax

inspections by tax authorities unless

support from the auditor or the audit

firm in respect of such inspections is

required by law;

(vi) calculation of direct and

indirect tax and deferred tax;

(vii) provision of tax advice;

(b) services that involve playing any

part in the management or decision-making of

the audited entity;

(c)

bookkeeping

and

preparing

accounting records and financial statements;

(d) payroll services;

(e)

designing and implementing

internal control or risk management

procedures related to the preparation and, or

control of financial information or designing

and implementing financial information

technology systems;

(f)

valuation services, including,

valuations performed in connection with

actuarial services or litigation support

services;

(g) legal services, with respect to

(i) the provision of general

counsel;

(ii) negotiating on behalf of the

audited entity; and

(iii) acting in an advocacy role in

the resolution of litigation;

(h) services related to the audited

entity’s internal audit functions;

(i)

services linked to the financing,

capital structure and allocation, and

investment strategy of the audited entity,

except providing assurance services in

relation to the financial statements, such as

the issuing of comfort letters in connection

with prospectuses issued by the audited

entity;

(j)

promoting,

dealing

in,

or

underwriting shares in the audited entity;

(k) human resources services, with

respect to

(i) management in a position to

exert significant influence over the

preparation of the accounting records

or financial statements which are the

subject of the statutory audit, where

such services involve

-

searching for or

seeking out candidates for such

position; or

-

undertaking

reference checks of candidates

for such positions;

(ii) structuring the organisation

design; and

(iii) cost control.

(3) By way of derogation from sub-article

(2), the services referred to in paragraphs (a)(i),

(a)(iv) to (a)(vii) and (f) of the said sub-article may

be provided, provided that the following

requirements are complied with

(a)

they have no direct or have

immaterial effect, separately or in the

aggregate on the audited financial statements;

(b) the estimation of the effect on the

audited

financial

statements

is

comprehensively documented and explained

in the additional report to the audit committee

referred to in Article 11 of the Audit

Regulation; and

(c)

the principles of independence

laid down in the Code of Ethics issued by the

Board are complied with by the auditor or the

audit firm.

(4) An auditor or an audit firm carrying out

statutory audits of public-interest entities and,

where the auditor or the audit firm belongs to a

network, any member of such network, may

provide to the audited entity, to its parent

undertaking or to its controlled undertakings non-

audit services other than the prohibited non-audit

services referred to in sub-articles (1) and (2),

subject to the approval of the audit committee after

it has properly assessed threats to independence

and the safeguards applied in accordance with the

Code of Ethics issued by the Board.

(5) (a)

When a member of a network to

which the auditor or the audit firm carrying out a

statutory audit of a public-interest entity belongs

provides any of the non-audit services, referred to

in sub-articles (1) and (2), to an undertaking

incorporated in a third country which is controlled

by the audited public-interest entity, the auditor or

the audit firm concerned shall assess whether his,

her or its independence would be compromised by

such provision of services by the member of the

network.

(b) If his, her or its independence is

affected, the auditor or the audit firm shall apply

safeguards where applicable in order to mitigate the

threats caused by such provision of services in a

third country. The auditor or the audit firm may

continue to carry out the statutory audit of the

public-interest entity only if he, she or it can justify,

in accordance with Article 6 of the Audit

Regulation and the Code of Ethics issued by the

Board, that such provision of services does not

affect his, her or its professional judgement and the

audit report.

(c)

For the purposes of this sub-

article

(i)

being involved in the decision-

taking of the audited entity and the provision

of the services referred to in sub-article

(2)(b), (c) and (e) shall be deemed to affect

such independence in all cases and to be

incapable of mitigation by any safeguards.

(ii) provision of the services referred

to in sub-article (2), other than paragraphs

(b), (c) and (e) thereof, shall be deemed to

affect such independence and therefore to

require safeguards to mitigate the threats

caused thereby.".

16. Immediately after article 20 of the principal Act, there Addition of new

shall be added the following new articles

(1) The Board shall publish on its

official website at least any administrative sanction

imposed for breach of the provisions of this Act,

the regulations made under it or Directives, or of

the Audit Regulation in respect of which all rights

of appeal have been exhausted or have expired, as

soon as reasonably practicable immediately after

the person sanctioned has been informed of that

decision, including information concerning the

type and nature of the breach and the identity of the

natural or legal person on whom the sanction has

been imposed

Provided that where the sanctions

imposed are subject to appeal, publication shall

only be made after all rights of appeal have been

exhausted or have expired.

(2) The Board shall publish the sanctions

imposed on an anonymous basis, and in a manner

which is in conformity with Maltese law, in any of

the following circumstances

(a) where, in the event that the

sanction is imposed on a natural person,

publication of personal data is shown to be

disproportionate by an obligatory prior

assessment of the proportionality of such

publication;

(b) where

publication

would

jeopardise the stability of financial markets or

an ongoing criminal investigation;

(c)

where publication would cause

disproportionate damage to the institutions or

individuals involved.

(3) The Board shall ensure that any

publication in accordance with sub-article (1) is of

proportionate duration and that it remains on its

official website for a minimum period of five (5)

years after all rights of appeal have been exhausted

or have expired.

(4) The publication of sanctions and

measures and of any public statement by the Board

shall respect fundamental rights as laid down in the

Charter of Fundamental Rights of the European

Union, the Constitution of Malta and the

Convention for the Protection of Human Rights and

Fundamental Freedoms; in particular the right to

respect for private and family life and the right to

the protection of personal data

Provided that such publication or any

public statement is not to contain personal data of

third parties within the meaning of "personal data"

in article 2 of the Data Protection Act.

(1) The Board shall establish

effective mechanisms that encourage reporting of

breaches of this Act, the regulations made under it

and Directives or of the Audit Regulation to the

Board.

(2) The mechanisms referred to in sub-

article (1) shall include at least

(a)

specific procedures for the receipt

of reports of breaches and their follow-up;

(b) protection of personal data

concerning both the person who reports the

suspected or actual breach and the person

who is suspected of committing, or who has

allegedly committed that breach, in

compliance with the principles laid down in

the Data Protection Act;

(c)

appropriate procedures to ensure

the right of the accused person to a defence

and to be heard before the adoption of a

decision concerning him or her, and the right

to seek an effective remedy before a tribunal

against any decision or measure concerning

him or her.

(3) Audit firms shall establish appropriate

procedures for their employees to report potential

or actual breaches of this Act, the regulations made

under it and Directives or of the Audit Regulation

internally through a specific channel.

(1) The Board shall provide the

Exchange of

information.

CEAOB annually with aggregated information

regarding all administrative measures and all

sanctions imposed in accordance with articles

7(17), 14, 15, 20, 20A and 20B.

(2) The

Board

shall

immediately

communicate to the CEAOB all temporary

prohibitions referred to in article 14(2)(c) and (e).".

PART II

Amendment of the Companies Act

17. This Part amends the Companies Act, and shall be read and Amendment of

construed as one with the Companies Act, hereinafter referred to as the

Act.

"the principal Act".

18. Article 3A of the principal Act shall be amended as Amendment of

article 3A of the

follows

principal Act.

(a) in paragraph (e) thereof, for the words "Council 84/

253/EEC;" there shall be substituted the words "Council 84/253/

EEC, which Directive was itself amended by Directive 2014/56/

EU of the European Parliament and of the Council of 16 April

2014;"; and

(b) immediately after paragraph (p) thereof there shall

be added the following new paragraph

"(q) Regulation (EU) No. 537/2014 of the European

Parliament and of the Council of 16 April 2014 on

specific requirements regarding statutory audit of

public-interest entities hereinafter referred to as "the

Audit Regulation";".

19. Immediately after sub-article (6) of article 151 of the Amendment of

article 151 of

principal Act there shall be added the following new sub-articles

the principal

Act.

"(7) Any contractual clause restricting the choice by the

general meeting of the company pursuant to sub-article (1) to

certain categories or lists of statutory auditors or audit firms as

regards the appointment of a particular statutory auditor or audit

firm to carry out the statutory audit of the company shall be

prohibited. Any such existing clause shall be null and void.

(8) For the purposes of the application of this article, for

the appointment of auditors or audit firms by public-interest

entities, the conditions set out in Article 16(2) to (6) of the

Audit Regulation, and those in the relative sectoral legislation

regulating each particular type of public-interest entity, shall

20. Immediately after article 151 of the principal Act there

shall be added the following new article

151A. (1) (a) A public-interest entity shall

appoint an auditor or an audit firm for an initial

engagement of at least one year. The engagement

may be renewed.

(b) Neither the initial engagement of

a particular auditor or audit firm by a public-

interest entity, nor this in combination with any

renewed engagements therewith shall exceed a

maximum duration of ten years.

(2) After the expiry of the maximum

durations of engagements referred to in sub-article

(1)(b), or after the expiry of the durations of

engagements extended in accordance with sub-

articles (3) or (5), neither the auditor or the audit

firm nor, where applicable, any members of their

networks within the European Union shall

undertake the statutory audit of the same public-

interest entity within the following four-year

period.

(3) By way of derogation from sub-article

(1), the maximum durations referred to in sub-

article (1)(b) may be extended to the maximum

duration of twenty (20) years, where a public

tendering process for the statutory audit is

conducted in accordance with Article 16(2) to (5)

of the Audit Regulation and takes effect upon the

expiry of the maximum durations referred to in

sub-article (1)(b).

(4) The maximum durations referred to in

sub-article (1)(b) shall be extended only if, upon a

recommendation of the audit committee, the board

of directors proposes to the general meeting of the

company, in accordance with Maltese law, that the

engagement be renewed and that proposal is

approved.

(5) After the expiry of the maximum

durations referred to in sub-article (1)(b), or in sub-

article (3), as appropriate, the public-interest entity

may, on an exceptional basis, request that the Board

grant an extension to re-appoint the auditor or the

audit firm for a further engagement where the

conditions in sub-article (3) are met. Such an

additional engagement shall not exceed two years.

(6) (a)

The key audit partners responsible

for carrying out a statutory audit shall cease their

participation in the statutory audit of the audited

entity not later than seven (7) years from the date of

their appointment. They shall not participate again

in the statutory audit of the audited entity before

three years have elapsed following that cessation.

(b) The auditor or the audit firm shall

establish an appropriate gradual rotation

mechanism with regard to the most senior

personnel involved in the statutory audit, including

at least the persons who are registered as auditors.

The gradual rotation mechanism shall be applied in

phases on the basis of individuals rather than of the

entire engagement team. It shall be proportionate in

view of the scale and the complexity of the activity

of the auditor or the audit firm.

(c)

The auditor or the audit firm shall

be able to demonstrate to the Board that such

mechanism is effectively applied and adapted to the

scale and the complexity of the activity of the

auditor or the audit firm.

(7) (a)

For the purposes of this article,

the duration of the audit engagement shall be

calculated as from the first financial year covered

in the audit engagement letter in which the auditor

or the audit firm has been appointed for the first

time for the carrying-out of consecutive statutory

audits for the same public-interest entity.

(b) For the purposes of this article,

the audit firm shall include other firms that the

audit firm has acquired or that have merged with it.

(c)

If there is uncertainty as to the

date on which the auditor or the audit firm began

carrying out consecutive statutory audits for the

public-interest entity, for example due to firm

mergers, acquisitions, or changes in ownership

structure, the auditor or the audit firm shall

immediately report such uncertainties to the Board.

(8) As from 17 June 2020, a public-interest

entity shall not enter into or renew an audit

engagement with a given auditor or audit firm if

that auditor or audit firm has been providing audit

services to that public-interest entity for twenty

(20) and more consecutive years as at 16 June

2014. (9) As from 17 June 2023, a public-interest

entity shall not enter into or renew an audit

engagement with a given auditor or audit firm if

that statutory auditor or audit firm has been

providing audit services to that public-interest

entity for eleven (11) and more but less than twenty

(20) consecutive years as at 16 June 2014.

(10) Without prejudice to sub-articles (8) and

(9), the audit engagements that were entered into

before 16 June 2014 but which are still in place as

at 17 June 2016 may remain applicable until the

end of the maximum duration referred to in sub-

article (1)(b). Sub-article (3) shall apply.

(11) Article 16(3) of the Audit Regulation

shall only apply to audit engagements after the

expiry of the period referred to in sub-article

(1)(b).".

Immediately after sub-article (4) of article 157 of the

principal Act there shall be added the following new sub-article

"(5) In the case of a statutory audit of a public-interest

entity, it shall be permissible for -

(a) shareholders representing five per cent or more

of the voting rights or of the share capital of the

company; or

(b) the Board referred to in sub-article (2),

to bring a claim before the court for the dismissal of the statutory

auditor(s) or the audit firm(s) where there are proper grounds for

so doing.".

Article 179 of the principal Act shall be amended as Amendment of

article 179 of

follows

the principal

Act.

(a)

sub-article (4) thereof shall be substituted by the

following

"(4) The audit report shall comply with the

provisions of article 179A."; and

(b) in sub-article (13) thereof, for the words "set out in

this article" there shall be substituted the words "set out in this

article and in article 179A".

Immediately after article 179 of the principal Act there Addition of new

articles to the

shall be added the following new articles

principal Act.

" Audit

179A. (1) The audit report shall be in

reporting.

writing and shall

(a)

identify the entity whose annual

or consolidated financial statements are the

subject of the statutory audit; specify the

annual or consolidated financial statements

and the date and period they cover; and

identify the financial reporting framework

that has been applied in their preparation;

(b) include a description of the scope

of the statutory audit which shall, as a

minimum, identify the auditing standards in

accordance with which the statutory audit was

conducted;

(c)

include an audit opinion, which

shall be either unqualified, qualified or an

adverse opinion and shall state clearly the

opinion of the auditor(s) or the audit firm(s)

as to

(i) whether the annual financial

statements give a true and fair view in

accordance with the relevant financial

reporting framework; and

(ii) where appropriate, whether

the annual financial statements

comply with statutory requirements.

If the statutory auditor(s) or the audit

firm(s) are unable to express an audit opinion,

the report shall contain a disclaimer of

opinion;

(d) refer to any other matters to which

the auditor(s) or the audit firm(s) draw(s)

attention by way of emphasis without

qualifying the audit opinion;

(e)

include an opinion and statement,

both of which shall be based on the work

undertaken in the course of the audit, referred

to in article 179(3);

(f)

provide a statement on any

material uncertainty relating to events or

conditions that may cast significant doubt

about the entity’s ability to continue as a

going concern;

(g) identify the place of establishment

of the auditor(s) or the audit firm(s).

(2) Where the statutory audit was carried

out by more than one auditor or audit firm, the

auditor(s) or the audit firm(s) shall agree on the

results of the statutory audit and submit a joint

report and opinion. In the case of disagreement,

each statutory auditor or audit firm shall submit his,

her or its opinion in a separate paragraph of the

audit report and shall state the reason for the

disagreement.

(3) The audit report shall be signed and

dated by the auditor. Where an audit firm carries

out the statutory audit, the audit report shall bear

the signature of at least the auditor(s) carrying out

the statutory audit on behalf of the audit firm.

Where more than one auditor or audit firm have

been simultaneously engaged, the audit report shall

be signed by all auditors or at least by the auditors

carrying out the statutory audit on behalf of every

audit firm

Provided that the audit report may also

be co-signed by an auditor authorised in another

Member State as long as he/she/it is a member of

the same network and has obtained the prior written

consent of the Board.

(4) Without prejudice to the provisions of

sub-articles (1) to (3), and articles 179 and 179B,

the scope of the statutory audit shall not include

assurance on the future viability of the audited

entity or on the efficiency or effectiveness with

which the management or the board of directors has

conducted or will conduct the affairs of the entity.

179B. (1) The audit report of public-interest

entities shall be prepared in accordance with the

provisions of articles 179 and 179A and in addition

shall at least

(a)

state by whom or by which body

the auditor(s) or the audit firm(s) was (were)

appointed;

(b) indicate the date of the

appointment and the period of total

uninterrupted engagement including previous

renewals and reappointments of the auditors

or the audit firms;

(c)

provide, in support of the audit

opinion, the following

(i) a description of the most

significant assessed risks of material

misstatement, including assessed risks

of material misstatement due to fraud;

(ii) a summary of the auditor’s

response to those risks; and

(iii) where

relevant,

key

observations arising with respect to

those risks.

Where relevant to the above information

provided in the audit report concerning each

significant assessed risk of material

misstatement, the audit report shall include a

clear reference to the relevant disclosures in

the financial statements;

(d) explain to what extent the

statutory audit was considered capable of

detecting irregularities, including fraud;

(e)

confirm that the audit opinion is

consistent with the additional report to the

audit committee referred to in Article 11 of

the Audit Regulation;

(f)

declare that the prohibited non-

audit services referred to in article 18A(1) of

the Accountancy Profession Act were not

provided and that the auditor(s) or the audit

firm(s) remained independent of the audited

entity in conducting the audit;

(g) indicate any services, in addition

to the statutory audit, which were provided by

the auditor or the audit firm to the audited

entity and its controlled undertaking(s), and

which have not been disclosed in the

directors’ report or financial statements.

(2) Except as required by sub-article (1)(e)

the audit report shall not contain any cross-

references to the additional report to the audit

committee referred to in Article 11 of the Audit

Regulation. The audit report shall be in clear and

unambiguous language.

(3) The statutory auditor or the audit firms

shall not use the name of any competent authority

in a way that would indicate or suggest

endorsement or approval by that authority of the

audit report.".

Passed by the House of Representatives at Sitting No. 414 of the

A NĠLU F ARRUGIA

Speaker

R AYMOND S CICLUNA

Clerk of the House of Representatives

€3.06