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The main objective of this chapter is to evaluate whether social auditing is applicable to Maltese co-operatives and, if so, to lay out the possible characteristics of such an exercise. The chapter adopts a mixed research methodology with semi-structured interviews being conducted with 14 local experts, and a questionnaire being addressed to 11 Maltese co-operative managers. The findings indicate that the Maltese co-operative identity is as yet emergent and that, consequently, if a social audit is introduced now, controversies would easily arise on the audit’s frequency, publication, scope and composition of the audit team. Nonetheless, a social audit may ultimately be modelled on the Beechwood process and on the reporting indicators of the Euro Co-op Social Reporting Working Party. It would involve the examination of both the qualitative and quantitative aspects of a co-operative, concluding with recommendations for improvement. Furthermore, the exercise would need to be monitored by the Maltese regulator, the Co-operatives Board, and best be conducted regularly, say, every 3 years, by an inter-disciplinary audit team. Therefore, the chapter concludes that the introduction of such a regulatory exercise as part of the Maltese co-operative framework would ultimately be beneficial, ameliorating the co-operative movement. Yet, it is strongly recommended that, prior to its introduction, Maltese co-operatives work further on developing their fundamentals.

This study delves into the determinants and praxis of derivative hedging instruments (DHIs) usage of Malta, a small island state. Empirical evidence is also provided in relation to the impact of DHI usage and the adoption of a hedge accounting (HA) model in entities’ financial statements. A mixed methodology design is deployed involving: (1) a series of statistical models and tests and (2) seven semi-structured interviews with senior professionals.

The data collected comprise proxy variable values collected from the financial statements of 568 firm-years from 107 Maltese entities between the years 2009 and 2014. Greater likelihood of financial distress, decreasing investment efficiency and increased levels of gearing, are identified as being significant determinants for the use of DHIs. Although DHI usage is low in comparison to larger states, it has been increasing over the period under study.

HA is evidenced to be less popular in Malta, but the study evidences correlation between certain DHIs and HA usage. The quantitative statistical model results in evidence with no significant earnings volatility (EV) or cash flow volatility (CFV) reduction effects through the application of HA. Albeit, the study finds a significant CFV reduction effect emanating from DHI usage, but no corresponding EV reduction effect.

Better education and dissemination of the HA treatment by auditors and regulatory bodies could help propagate the HA treatment, potentially enhancing the EV reduction effectiveness of DHI use. This research provides empirical evidence to substantiate the rationale behind utilising DHIs in smaller island states, especially when coupled with a sound risk management culture.

This study challenges the conventional theoretical approach of the ‘Three Lines of Defence’ Model adopted by most of the Maltese credit institutions. The authors propose a paradigm shifting conceptualised framework that would alter the corporate governance structures of banks. The objective is to test the feasibility and willingness of credit institutions to adopt such an approach.

This study challenges the current practices of the internal auditing profession and organisations and invites them to evaluate their structures whilst recognising the benefits of adopting a combined assurance function.

In order to test this hypothesis, the authors sought out semi-structured interviews with controllers (Internal Auditors, Risk Managers and Compliance Officers) within Maltese Credit Institutions, varying in size from significant, medium-sized and small institutions; personal from the Malta Financial Services Authority – The regulator, the Big four audit firms and members of the Malta Forum of Internal Auditors, and practitioners working both within and outside the financial industry.

There were two contrasting opinions regarding the suggested proposition. On the one hand, those operating within the credit institutions, as well as the regulator and the external auditors, do not believe that the proposition of integrating risk, compliance and internal audit functions (IAF) in one team would be possible; the reason being that independence, which is the cornerstone of every IAF, would be severely impacted. On the other hand, there were those practitioners working outside the banking industry but with sufficient experience and knowledge in the field, who challenged the traditional concept of independence. They argue that the functions should not be separate from each other because they have much in common.

Four themes emerged from the study: (1) challenges as a concept, (2) benefits, (3) risks and (4) condition for successful implementation. All interviewees, from risk departments, boards, external auditors and regulators agree that a strong, knowledgeable and independent IAF is fundamental to every organisation but more so within the financial industry. Nevertheless, this study revealed two schools of thought that emerged from the findings in relation to the IAF and its regulation, and specifically, when the authors presented the proposition of an integrated function.

In this chapter the authors identified and discussed the most significant barriers faced by cooperative movements in Malta, providing recommendations for potential solutions. Primary data for this research were collected through the use of semi-structured interviews with a selection of 18 representatives of the small current Maltese cooperative movement, most of whom are active either in individual cooperatives (16) and/or in the cooperative institutions (five).

Findings indicated that the most significant problems are the lack of education and awareness regarding the cooperative movement. These are closely followed by the divide within the movement itself, which is also hindering further development of Maltese cooperatives. Therefore, for the movement to grow and develop, one must first tackle the lack of education and awareness of this business model. Furthermore, in order for the movement to reach its full potential there must be cooperation amongst cooperatives, leading to the appropriate environment for growth.

Through the identification of these significant barriers, targeted action may be recommended and taken so as to reduce, if not eliminate, these barriers and thereby help the Maltese cooperative movement flourish.

This chapter is based on the Annual Report on Public Accounts prepared by the Maltese National Audit Office (NAO), Malta’s Supreme Audit Institution. Its objectives are to analyse and classify the reported issues, evaluate their significance and how the findings are reflected in the Public Sector, and assess the adequacy of the communication of these findings through the Annual Report. The research consisted of a qualitative analysis of the Annual Reports for the three years 2007, 2009 and 2011. This analysis was supplemented by unstructured interviews conducted with both NAO and Government officials. Findings report a significant number of issues emerging from different factors. The highest incidence of weaknesses was related to record-keeping and compliance with policies and procedures. Moreover, the interviews with NAO officials showed that the departments were not always taking on board the recommendations made through the Annual Reports, thus indicating a passive attitude towards the reported findings. The results also show that while the Government has its own structures of checks-and-balances to prevent and detect errors, and no internal control system is completely effective, there is still much room for improvement within the Public Sector to ensure that public funds are appropriately utilised. The detection of various issues by the NAO is therefore inevitable, particularly given the complexity and size of the Public Sector. In conclusion, the NAO findings should be more thoroughly examined to reduce the incidence of issues. Furthermore, the way forward should be directed at enhancing the current systems and promoting a more positive relationship between the NAO and auditees.

Although most of the traditional economic theories used to explain investor behaviour assume full investor rationality, experience proves otherwise. In this study, we examine a number of important determinants of risk appetite and tolerance, including gender, education and knowledge of financial services and loss aversion. We do this by designing a questionnaire to measure the level of risk appetite and tolerance, together with various demographic characteristics and loss aversion. The survey is administered among a random sample of 1,648 respondents from Turkey. We find that on average men exhibit a higher level of risk appetite and tolerance than women, thus suggesting a clear gender divide in terms of investment behaviour. Furthermore, knowledge of financial services is associated with higher levels of both risk appetite and tolerance, with younger respondents also exhibiting similar patterns of behaviour. By contrast, loss-averse respondents are less open and tolerant of risk, which indicates that behavioural biases such as loss aversion can have a meaningful impact on investment decisions, at odds with traditional models based on rational choice theory. The findings have a number of important implications for investment behaviour and education, including the importance of gender balance within investment committees in order to ensure a more even distribution of risk behaviour, as well as the need to incorporate considerations related to loss aversion in all aspects of policymaking and regulation.

Financial crimes involve several offenses without violence with some people obtaining financial benefit and causing financial loss to some others. The globalization of financial systems, the growing volume of trading transactions, and the acceleration of information technologies have brought many conveniences to the financial world; but unfortunately, financial crime has spread and diversified. Therefore, the fight against financial crimes, which are often complex and organized in a way which is nonviolent but causes significant financial damage to people and organizations, is gaining importance. In this sense, the struggle against this type of crime, which has become a serious threat, must be resolved by applying a comprehensive policy that should include all segments of the society.

In this chapter, we aim to give a general framework of financial crimes and carry out a literature review on the subject. Moreover, we outline the different types of financial crime (such as money laundering, insider dealing, fraud, market abuse, bribery, corruption, terrorist financing, white collar crimes, tax evasion, embezzlement, forgery, counterfeiting, identity theft, etc.) and their impact. As a result, this study has the purpose of providing awareness by drawing attention to the concept of financial crime, which is an important threat nowadays that an ordinary person may suffer at any time in daily life.

The confidence in the qualifications and independence of the audit activities and professionals has been lost due to the financial scandals that have arisen over time. These scandals in the accounting and auditing fields caused both enterprises and investors to suffer from large amounts of losses and thus the need for reliable financial statements and corporate governance increased.

Both investors and decision-makers need independent assurance to achieve transparent, reliable, and impartial financial information. The fulfillment of this requirement is possible through independent auditing activity and independent audit firms. Business management shall carry out the selection of independent auditors based on various criteria (fee, reputation, audit team, relations, etc.). In addition, it may also be necessary to periodically change an independent audit firm due to rotation or other reasons (fee, disputes, relationships, etc.).

In this study, a ranking of the importance level of the evaluation criteria, for the selection and change of the independent audit firm in an enterprise in Borsa İstanbul (BIST) 100 in Turkey, was conducted. Analytical Hierarchy Process (AHP), which is one of the multicriteria decision-making techniques, was used for ranking. In the hierarchy established for the selection of the independent audit firm, the main criteria of the “audit fee” and the “reputation and qualifications of the audit firm” have been established. According to the findings obtained as a result of binary comparisons, the first four ranks among sub-criteria are “provision of international service,” “quality of technical expertise of audit firm,” “industry expertise of audit firm,” and “suitability of fee offered by audit firm.”

For the change of audit firm, four main criteria “audit fee,” “disputes arising during the audit process,” “relations with the audit firm,” and “rotation” are taken into consideration. For sub-criteria, first four criteria were “rotation of independent audit firm,” “rotation of independent auditor,” “audit firm’s inability to adequately practice proactive audit approaches,” and “inadequate communication.”