Gibraltar Location

Accounting and Audit Requirements

General

The Companies Act 2014 came into force on 1 November 2013 and has repealed all previous Company Law legislation in Gibraltar as of this date. Companies with accounting periods commencing on or after 1 November 2014 will apply the requirements set out in Part VII of the Act. See Section 2.11.4 for the main changes to the Account and Audit requirements introduced by the new Act. Companies with accounting periods commencing before 1 November 2014, continue to apply the accounting and audit requirements contained in Sections 180 to 182 of the Companies Act 1930, the Companies (Accounts) Act 1999 and the Companies (Consolidated Accounts) Act 1999 (the Companies Accounts Acts).

The Companies Act transposes into Gibraltar law the EU 4th and 7th Council Directives on company accounts and consolidated accounts. The Act prescribes the presentation and format of the balance sheet, the profit and loss account, and the necessary disclosures. The Act requires the filing of accounts with the Registrar of Companies (see Section 2.12).

The Acts does not apply to banks or insurance companies. Instead, such companies must, respectively, follow the accounting, auditing and filing requirements contained in the Financial Services (Banking) Act (specifically the Banking (Accounts Directive) Regulations 1997) and the Financial Services (Insurance Companies) Act (specifically the Insurance Companies (Accounts Directive) Regulations 1997).

In addition, all companies licensed and regulated by the FSC under the Financial Services (Investment and Fiduciary Services) Act must comply with any additional disclosure requirements contained in that Act and with regulations made thereunder.

All companies are required by law to keep proper books and records. In addition, a company must prepare annual accounts (including group accounts if applicable), which give a true and fair view of the company’s (group’s) state of affairs and profit or loss for the financial reporting period. A balance sheet and profit and loss account must be set before the company in a general meeting not later than 18 months after incorporation and subsequently once at least in every calendar year.

The directors of a company must also prepare an annual report for each financial year. This annual report should include a fair review of the development and state of affairs of the company’s business (and its subsidiary undertakings, if applicable) and its financial position as at the end of that financial year. The directors’ report must also contain particulars of, inter alia, any important events that may have occurred since the end of the last financial year, any likely future developments, what dividend (if any) is recommended for payment, and the amount transferred to reserves.

There are no statutory provisions governing the preparation and presentation of accounts for unincorporated businesses or filing thereof.

Accounting Principles and Standards

As a large number of accountants and auditors in Gibraltar are members of two of UK’s major accounting bodies, guidance on accounting principles is generally obtained from pronouncements by the UK’s Financial Reporting Council (FRC). However, in certain circumstances, other internationally recognised accounting standards may be followed. Legislation also permits companies to follow International Financial Reporting Standards (IFRS).

The Gibraltar Society of Accountants (GSA) follows a process of adopting accounting standards issued in the UK, tailoring them where necessary to Gibraltar’s circumstances. For instance, the GSA has developed a formal framework of accounting standards, known as Gibraltar Accounting Standards (GASs), which members have agreed to follow in the preparation of accounts. The standards are accompanied by interpretative notes, which “cite the recommended practice in situations where Gibraltar and United Kingdom legislation conflict and also in situations where reference is made in FRC’s accounting standards to United Kingdom legislation and no corresponding Gibraltar legislation has been enacted.”*

In the case of entities licensed or authorised by the FSC, accounts are typically drawn up in accordance with GASs, UK GAAP or IFRS. At the FSC’s discretion, other reputable accounting standards may be followed. For periods commencing on or after 1 January 2015, the new UK GAAP framework (FRS 100 to FRS 103) applies.

Audit requirement and the Auditors Public Oversight Body
General

In general, all limited companies must appoint auditors and have their accounts audited except small companies (as defined in Section 2.12 below), which do not have income liable to assessment for tax under the Income Tax Act, or trade or transact business in Gibraltar in such a way as it is likely to generate such income in the future. However, banks, insurance companies and other companies licensed by the FSC (licensed entities) are subject to audit even if they are small. In general, therefore, all local limited trading companies require an audit, but not small companies that have no or limited income liable to tax in Gibraltar (other than licensed entities).

From 1 January 2011, the new Income Tax Act exempted companies (other than licensed entities) that do have income assessable to tax, but whose turnover is less than £500,000, from the requirement to submit audited accounts to the Commissioner of Income Tax in Gibraltar. The threshold was raised to £1 million for accounting periods ending on or after 1 July 2013 and has now increased to £1.25 million for accounting periods on or after 1 July 2015. Such companies are required to submit accounts accompanied by an independent accountant’s report.
*Extract from the Explanatory Foreword to Gibraltar Accounting Standards

Where applicable, auditors must be appointed by the company annually in a general meeting. No director or officer of the company may be appointed as its auditor. Every auditor of a company has the right of access to the books, accounts and vouchers of the company at all times, and is entitled to require from the directors and officers of the company such information and explanations as may be deemed necessary for the performance of their duties.

In certain circumstances, a company (excluding licensed entities) that is a subsidiary undertaking may be exempted from preparing audited accounts. For the exemption to apply, the company’s parent undertaking must, inter alia, include the Gibraltar subsidiary in its consolidated accounts. The consolidated accounts must be filed with the Gibraltar Registrar of Companies.

Group Accounts

There is a legal requirement for limited companies with subsidiary undertakings to prepare consolidated accounts. These accounts must include a consolidated profit and loss account, a consolidated balance sheet and notes. Small and medium-sized groups need not prepare group accounts unless they include a listed company, a bank or an insurance company. If advantage is to be taken of this exemption, then the auditors must confirm that they are entitled to do so.

Groups are classified according to the following parameters:

*Net of consolidation set-offs and adjustments.
Small Group Medium-Sized Group
Turnover Up to £6.5 million net* or £6.72 million gross Up to £25.9 million net* or £31.1 million gross
Aggregate balance sheet total Up to £3.26 million net* or £3.9 million gross Up to £12.9 million net* or £15.5 million gross
Total number of employees Up to 50 Up to 250
Key changes to the Accounts and Audit section introduced by the Companies Act 2014

The Companies Act 2014 consolidates the previous Companies Act 1930, Company (Accounts) Act 1999 and Companies (Consolidated Accounts) Act 1999 and has removed a number of inconsistencies between those Acts and other legislation.

The Companies Act audit exemption requirement has now been aligned to the Income Tax Act exemption removing the existing inconsistency. Penalties faced by directors for not drawing up, signing or circulating the accounts now apply to both IAS accounts and non -IAS accounts, whereas previously they applied only to non-IAS accounts. Accounts may now be filed at Companies House in a number of primary currencies (USD, JPY, CHF, EUR). Directors are now permitted to voluntarily revise defective accounts. The Auditors Public Oversight Board The Financial Services (Auditors) Act 2009 (the Act) came into force on 28 May 2009 and repealed the Financial Services (Auditors Approval and Registration) Act 1988. The Act, which implements the European Directive on Statutory Audits of Annual Accounts and Consolidated Accounts, provides, inter alia, for the establishment of a Public Oversight Body (POB) comprised of a majority of non-practitioners with responsibility for the oversight of:

  • The approval and registration of auditors and audit firms
  • The adoption of standards on professional ethics, internal quality control of audit firm and auditing
  • Continuing education, quality assurance, and investigative and disciplinary systems

Statutory auditors and audit firms approved under the Financial Services (Auditors Approval and Registration) Act 1988 are automatically grandfathered under the transitional rules. In September 2009, the FSC was appointed by the Government to be the POB (also referred to as the Competent Authority). In March 2012, the FSC was accepted as a member of the International Forum of Independent Audit Regulators.

Small Companies:

They are required to file abridged balance sheet only.

The relevant documents must be filed within 13 months of the financial year-end in the case of a private company and 10 months of the financial year-end in the case of a public company. Special rules apply in the case of a company’s first reporting period. The penalty for incorrect or late filing is £100. In addition, a fine up to level 3 on the standard scale £500) may be incurred.

Banks and Insurance Companies:

They are required to file full accounts irrespective of the size of the company.


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