Financial Crime World

Malta’s Auditors Play Crucial Role in Detecting Financial Crime

Financial crime, including fraud, corruption, bribery, and money laundering, poses a significant threat to the European Union’s economy. In Malta, auditors have a critical role to play in detecting and preventing these financial crimes.

The Cost of Financial Crime

According to estimates, financial crime costs the EU economy €120 billion annually, which is equivalent to 10% of the entire budget. Moreover, companies that engage in financial crime can suffer reputational damage, leading to a decline in their market value.

The Auditor’s Role

The auditor’s role in tackling financial crime involves several key responsibilities:

  • Alerting Management: Auditors must alert company management to incidents of fraud or non-compliance with relevant laws and regulations.
  • Reporting Suspicious Transactions: Auditors must report suspicious transactions linked to money laundering and terrorist financing to the appropriate authorities.

Statutory Auditors

Statutory auditors are regulated professionals who operate within a specific legal framework designed to combat financial crime. The EU’s Statutory Audit Regulation 537/2014, Directive 2014/56/EU, and the EU Anti-Money Laundering Directive 2015/849 provide the legal basis for these responsibilities.

Auditor Responsibilities

In practice, auditors cannot directly prevent financial crime from occurring, but they can tailor their work to increase the chances of detecting it. They must:

  • Exercise Professional Scepticism: Auditors must exercise professional scepticism when assessing audit evidence and report any suspicion of money laundering or terrorist financing.
  • Gather Evidence: Auditors gather evidence through various means, including inquiring with management, evaluating internal controls, observing physical inventory counts, and analyzing variances in account balances or transactions.

Limitations

Despite their efforts, auditors are not immune to limitations. The statutory audit’s legally limited scope means that it cannot detect every fraud or error. Moreover, auditors are not responsible for preventing financial crime from occurring in the first place.

Combating Financial Crime

To effectively combat financial crime, a coordinated approach is necessary. This requires collaboration between:

  • Business Leaders: Business leaders must prioritize transparency and compliance.
  • Accountancy Professionals: Accountancy professionals must stay up-to-date with the latest regulations and best practices.
  • Regulators: Regulators must ensure that laws and regulations are effective in preventing financial crime.
  • Standard Setters: Standard setters must establish clear guidelines for auditors to follow.
  • The Financial Sector: The financial sector must prioritize transparency and compliance.

Malta’s auditors play a vital role in this effort, and their expertise can help to develop data analytics tools and new skillsets for combating financial crime.

Conclusion

Ultimately, standing up to financial crime requires a joint effort by all relevant parties. Auditors are an essential part of this effort, and their work can help to safeguard the integrity of Malta’s economy.