Accountancy Cyprus - No. 142 - November 2023 by The Institute of Certified Public Accountants of Cyprus

NO. 142 / NOVEMBER 2023

ACCOUNTANCY CYPRUS

KYRIAKOS IORDANOU General Manager ICPAC

Way forward for the financial services sector – single national Financial Services Authority

DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS POSTAGE PAID LICENCE no.33 SEALED UNDER PERMIT no. 133

ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΟΡΜΙΚΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΑΔΕΙΑ ΑΡ.239

ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΑΔΕΙΑ ΑΡ. 133

The Institute of Certified Public Accountants of Cyprus is proud to announce that the 3rd ICPAC Mediterranean Finance Summit, will take place on 23 & 24 of may 2024

The 2nd ICPAC Mediterranean Finance Summit 2023 brought together top finance leaders and decision-makers to address practical challenges and solutions. Attendees had the chance to learn about impactful strategies and technologies that can transform finance into a strategic partner for long-term economic success. The summit was a tremendous success with activities, keynotes, panel discussions, workshops, and networking opportunities.

Watch the full testimonial video here:

| Forward thoughts

By Kyriakos Iordanou, General Manager of

By: Kyriakos Iordanou, General Manager of ICPAC

We need a plan!

Kyriakos Iordanou General Manager

“Everything flows”, once said by the ancient Greek philosopher Heraclitus. How true he has been ever since. The above phrase is so relevant for our country, especially these days where it has been put, once again, under the spotlight of international media, obviously not for a positive cause. Through this column, we often raised the claim that both the profession, the society, the business community and the government needed to adapt to the prevailing circumstances and adopt to the current demands. However, this has not happened yet, possibly due to the fact that we believe that the crises will not touch upon us, or that we will find a way out, or because we don’t read well what’s coming up, or just because we are too complacent or even arrogant… Anyway, whichever the reason may be, Cyprus economic framework, governmental system and professional community stand before another dire situation. The global environment underwent many changes during the last years, with the areas of fighting corruption and tax abuses, the promotion of transparency and the adoption of stricter compliance regulation surging. The geopolitical landscape constantly fluctuates, requiring thus to be alert and adaptive all the time. Traditional business models are redundant and, therefore, those still remaining attached to what they knew in the 80’s and 90’s are fundamentally obsolete. So what should we do then? For me, the answer is straight forward: we need a plan! My humble suggestion is for the government, the parliament, the political and business establishment, the economy and community stakeholders to group together and have an open and honest consultation between them about the way forward for the country. We need to sit down, do our blueprint work, set the new goals and priorities which should be aligned to today’s international commandments, in order to draft the revised

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business and economic model for Cyprus. We need a strategic plan, with long term vision, which should reflect the objectives, goals and priorities of the country as a whole, broken down into the various component sectors. We need a well-structured plan, clearly specifying who has ownership and of what, with identifiable deliverables, actions, activities and processes, containing the appropriated resources, means and other necessary tools for its implementation. We need a well-articulated plan, so as to reach the ears and heart of the whole population, engaging them as co-actors in its application. We need a plan that highlights accountability and sets thresholds for responsibility and measurable outcomes. We need a plan that will be not based on vague declarations and populism, but, to the contrary, on solemn commitment and devotion by all stakeholders. We need a plan that instils confidence and trust, adds value and prospect to the citizen, to the businesses, to the people in Cyprus and who ever else from abroad that looks at Cyprus. We need a plan that disseminates fairness, meritocracy and a genuine ethical culture, where transparency, altruism and collectivity are inherent constituents. We need a plan that will be based upon the rule of law, combating bureaucracy, corruption and kleptocracy, that will be well accepted and convincing to everybody out there. We need a plan that promotes sustainability, both environmental, economic and human, focusing on long term prosperity. I do acknowledge, that my suggestions above may sound too ideal or even utopic, nevertheless, we surely need a new plan, for the day after, for the society, for the economy, for the new generation, for the future, for hope…

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ACCOUNTANCYCYPRUS ISSN 1450-2380 The Institute Council Nicos Chimarides (Chairman) Odysseas Christodoulou (Vice-Chairman) Eleni Pyrgou (Secretary) Members Andreas Andreou, Andreas Avraamides, Pieris Markou, Demetris Vakis, Gabriel Onisiforou, Stavros Ioannou, Maria Pastellopoulou, Petros Petrakis, Demetris Siakallis, Spyros Spyrou, Constantinos Kallis, Marios Demetriades General Manager Kyriakos Iordanou Address 11 Byron Avenue, 1096 Nicosia, Cyprus Mailing Address P.O.Box 24935, 1355, Nicosia, Cyprus Tel.: +357 22870030 Fax: + 357 22766360 e-mail: info@icpac.org.cy www.icpac.org.cy The publication is prepared by FMW Financial Media Way 23B Armenias Street, Office 101 Strovolos, 2003, Nicosia Tel.: 22342005 Fax: 22342006 e-mail: info@fmw.com.cy www.fmw.com.cy Design and Pagination: Christiana Loizou Accountancy Cyprus is published quarterly by the Institute of Certified Public Accountants of Cyprus and is send free to all members of the Institute as well as to a large number of other persons, companies and organisations. The Institute can accept no responsibility fot the accuracy of contributed statements or articles appearing in this publication and any views or opinions expressed are not necessarily endorsed by the Institute, its Council or by the Editors.

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08 ICPAC NEWS

• SEMINAR "Risk Identification & Best Practices for the safe use of the Internet"

10 COVER STORY

Way Forward For The Financial Services Sector – Single National Financial Services Authority Kyriakos Iordanou General Manager ICPAC

14 ARTICLE

• Tax Reform. Makis Keravnos Minister of Finance

16 TAXATION

• Debt–Equity Rules Shape Transfer Pricing Risk for Taxpayers Christos A. Theophilou Taxand Cyprus | Partner | International Tax – Transfer Pricin • VAT in the Digital Age: what to expect? Michael Grekas Board Member, Indirect Taxes and Tax Technology, KPMG Ltd & Elena Strelkova Assistant Manager, Indirect Taxes

22 AUDIT & ACCOUNTING

• New Horizons for Accountancy in a Nonlinear World Nikos Sikas • Stocktaking: The Key to Profitability Anna Ligouri Managing Director and Founder Inventus Services LTD AdHawk Greece • Consumer Tracker – Confidence improves for a third quarter but are we there? Yiannis Leonidou – Audit & Assurance Partner in Deloitte & Nikolas Efstathiou – Audit & Assurance Assistant Manager in Deloitte , Nikolas Efstathiou – Audit & Assurance Assistant Manager in Deloitte

30 BUSINESS & ECONOMY

• Big on big issues and small on small issues Christina Argyrou, Manager, Financial Accounting and Advisory Services, EY Cyprus • Cyprus Property Market Outlook Polys Kourousides MA, MRICS Chairman of Cyprus Property Valuers’ Association • The Rise of Corporate Employee Ambassadors on LinkedIn: Is Cyprus Ready to Lead? Antigoni Marinou FCA GCDF CT CSMM MSc BA(Str) CEO of Rokket by Antigoni Marinou A bespoke Coaching & Training House • Analysis of data for more efficient use in reporting exceptions Christos Skapoullis ICPAC Economic Crime and Forensic Accounting Committee • Stock Exchange - It Is Time For The Country's Business Community To Make The Most Of It Nicos Trypatsas Acting General Manager of the CSE

40 IFAC NEWS • • • •

IFAC’s News Page International Ethics Standards Board for Accountants® (IESBA®) International Auditing and Assurance Standards Board (IAASB) International Public Sector Accounting Standards Board® (IPSASB®)

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| ICPAC NEWS SEMINAR

"Risk Identification & Best Practices for the safe use of the Internet" The Institute of Certified Public Accountants of Cyprus, in the framework of the European Month of Cybersecurity, organized in cooperation with the Digital Security Authority, a training seminar on "Risk Identification & Best Practices for the safe use of the Internet".  Date: 30th October 2023  Location: Cleopatra Hotel, Nicosia The seminar focused on the techniques and tactics used by #hackers malicious individuals/groups to attack in order to gain access to resources that do not have proper rights, destroy sensitive and important information, extort money from users, or disrupt a business' workflow.

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Site Tour

www.icpac.org.cy

ICPAC issues technical circulars for the technical support of its members. The technical circulars of ICPAC aim at informing the members as regards changes or amendments of regulations and procedures relating to the accounting/auditing profession, which stem either from ambiguities or omissions that are identified during accounting or auditing work, or from harmonisation directives of the European Union for the accounting/ auditing profession.

Find the most recent technical circulars sent to the members below.

What is CPD? Continuous Professional Development (CPD) is the learning and development activity that you will do throughout your ICPAC membership. CPD will provide you with the knowledge and skills required to perform your day-to-day job in your chosen professional role, as well as to enhance your employability for the future. Find more …

Find our yearly «ICPAC action» booklet.

| COVER STORY Opinion paper by: Kyriakos Iordanou General Manager ICPAC

Way forward for the financial services sector – single national Financial Services Authority 10 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

Apparently, living in the current socioeconomic environment for the last 10 years at least, we never get bored..., tired maybe, but surely not bored! The rate of change of the status quo in the domestic and especially in the international sphere, of emergence of new challenges, of dealing with problems that keep popping up, of the need to adjust and rectify, to reform and to operate in new and demanding regimes, is phenomenal and keeps us up on our toes! We are eye-witnesses of political, geostrategic, social, diplomatic, financial and investment changes, of warfare activities in our wider neighbourhood, of economic instability and surging inflation, of an increasing cost of capital and debt causing social trembles, coupled by an admittedly foreseen rise of political movements in various European regionς caused by social challenges such as the immigration issue and the surge in the cost of living. For the latter, one could not refrain from relating the current times to those of the notorious 1930’s, which ultimately shaped the future of the world a few years later. All of the above generate crises, rendering governments, the business community and the civic society “hostages” of a constant struggle to surpass them, rather than allowing them to remain focused on a more productive agenda and on a more robust future planning. This was proven recently by the covid pandemic, all of the aftermath and repercussions from the war in Ukraine coupled by the political and the commercial restrictions and the sanctions imposed. Apparently, further escalation of the uncertainty and unpredictability may also come with the developments in the digital technology (eg AI evolution) and the environmental and sustainability policies. The new global priorities! At the same time, and for the past few years, wider compliance matter capture a prominent place in the daily business and regulatory action-list, both in governments and in the financial and corporate services sectors, with serious discussions around international tax planning and reporting, as well as the ESG and green transition and the overall sustainability saga being held at various institutional and commercial levels. Consequently, all of the above inescapably lead the national economies into the arms of stubborn high inflation and to a radical flight in prices, especially in the areas of international trade, energy cost, the supply chains and retail prices. In addition, the continual increase in the cost of capital and the interest rates imposes additional hurdles in sustaining businesses and in providing the essential financial resources for new ventures and start-ups. Civilians and taxpayers undergo a noticeable contraction of their disposable income and purchasing power. We find ourselves standing at a critical edge, where, on the one side, governments and national treasuries need to exhibit their strengths and resilience and, on the other, businesses and households, ought to measure and strengthen their own financial resilience and set out their priorities. It is a tough equation to balance!

Furthermore, the new international outlook puts countries into a different business mode, a more competitive and possibly a more introvert one. Each country will try to mitigate losses and strive to increase revenues, seek relevance and importance in the international business landscape, claiming its “fair” share of the benefits. These benefits may include tax income, attraction of foreign direct investments, exports, talent, as well as political influence. Hence, possibly there may be shifts from the traditional economic and political international establishments, towards new off-springs, eg BRICS and the new block that is being molded. Traditional alliances and trade coalitions may start to “shake up”, with new ones being formed. In my opinion, Europe and the US stand at a particularly difficult step in economic and social terms, given the accumulation of all sorts of burdens and inflexibilities, which may ignite additional conflicts with the “wannabe” competitors and challengers, in an attempt to protect their own “territory”. So, it should not be of surprise to anyone if we come across either fiercer trade protectionism measures (already noticed) or a revisionism of geopolitical and economic long-established situation. At the same time, new trade and business groups appear to be forming stretching from the far east to the eastern Mediterranean, with China and India posing as the economic poles. Surely, the effects of the war in Ukraine resulted in a growing sensitivity on the application of other politico-economic tools, such as the imposition of sanctions on Russian interest entities, something that modified the scenery dramatically. Hence, there is additional onus on governments

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and authorities to address the soaring regulatory compliance arrangements, with Sanctions, AML, Terrorist Financing being dealt with at higher political levels, cascading further down into the real economy and business additional compliance overheads. Obviously, given the prevailing circumstances, this is something that we shall be living with for the foreseeable future. Undoubtedly, one of the principal pillars of the economic development of our country over the last decades has been the financial services sector. The economic crisis of 2013, the various revelations by international investigative journalists for ill-doings and scandals, the collapse of banks, the aspirations of OECD and Europe to harmonise trade, business and taxation, as well as all the consequences of the war in Ukraine, unveiled how sensitive and susceptible the services sector is to external influences and international pressure and threats. Ultimately, the lesson learnt, especially over the last several months, is that the services sector is inherent and integral to the whole of the economic environment of the country, catering for the other sectors’ performance as well. Therefore, it is a sector that needs to be governed, monitored and, respectively, protected. So, this is maybe the time to proceed with a clear goal setting expedition and to design the relevant strategies supporting these goals. This is the time to retract from the “ghosts” of the past and move fast forward in a consistent, sustainable and robust manner. Hence, it is essential that the state and all economy stakeholders synchronise their actions and align resources in order to entrench and safeguard the services sector, taking good care of its institutional, regulatory and operational framework. There is an imminent necessity to adopt and to adapt to the new realities as they are brought into the scene from the international community, shaping thus a truly modern, attractive, transparent, credible, growth oriented and sustainable business model. Amid this uncertainty and havoc, Cyprus strives to remain afloat! At the same time, besides ensuring compliance with its international business and regulatory obligations, the government, the political personnel, the business community and the technocrats have an exceptional opportunity to revisit and rethink the future of the country. It is the time to rectify mistakes, depart from old habits and perceptions and take every possible measure to safeguard Cyprus’ good repute, to build comparative advantages and to be competitive in an everincreasing tough and unfair international race. What are the options for Cyprus then? There can be a choice from two routes towards these goals: firstly that of improvisation and, secondly, that of adopting and adapting best practices from other countries. My personal opinion, given the fragmentation of the services sector to individual tasks and corresponding authorities, the first choice may not be something that can carry us far, should state of affairs remains untouched. To the contrary, it has been suggested by external assessors that we should work for a consolidated regulatory formation, especially for the corporate service providers. So, this leaves us with the latter option more or less! Taking into consideration the international landscape, the prevailing conditions and prerequisites relating to compliance and quest for inbound investments and business, Cyprus may need to rigoursly examine blending the above two choices, in order to construct a modern, forward looking, robust and convincing new model for the effective overall compliance supervision. This is fundamental should the State aspire to remain and further excel as an international business hub of premium repute. Growing from the development stage and reaching maturity whilst, at the same time, learning from more advanced countries in the financial

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services industry and capitalizing on the hard lessons of the recent past, possibly the most relevant and valid way forward for our country is to establish a national Financial Services Authority (FSA), with a wider scope, following the examples of the UK, with the FCA, and possibly those of South Africa and Hong Kong, which could be more revenant to Cyprus given their size. Malta has also established the MFSA with notable results. The establishment of such Authority should aim at bringing under a single roof all existing competent and regulatory authorities of the financial services sector with emphasis being placed on the AML and Sanctions legislations, including, amongst others, the Central Bank of Cyprus, CySEC, the Superintendent of Insurance Companies, the Cyprus Public Audit Oversight Board, the National Betting Authority, the Stock Exchange, ICPAC, the Cyprus Bar Association, even the FIU and other of oversight and regulatory bodies of the sector. Although it will be of state-owned nature, it is important for this new Authority to maintain its independence from mainstream government and from any other political and business influence. So, upgrading from the mere Advisory Authority under the AML law and the committees established under the Ministry of Finance pursuant to the Sanctions legislation, this new Authority could have the ultimate responsibility: • for the introduction and amendment of the relevant legislation for AML, Sanctions and other related areas, • as the direct contact point for external authorities, reviewers, press and other organisations, • for international evaluations (eg Moneyval, IMF, EU), • as the project owner of the National Risk Assessment exercise for the country, • for the transposition of EU Directives and Regulations into domestic law,

• for the adhesion by all sectoral supervisors to the legislation and their responsibilities as regulators, • for the application of latest risk assessment systems, relevant typologies and standards, • for encouraging the individual authorities to apply similar monitoring and disciplinary procedures, • for the coordination, guidance and assistance given to the sectoral supervisors, • for providing clarifications and explanations on difficult areas loke those on sanctions and aml, • for receiving and assessing potential complaints filed against financial services businesses, • for the control and imposition of enforcement measures on businesses that do not comply with the required obligations, • for investigating and instigating any criminal proceedings where warranted, • for instilling trust, confidence and accountability. For the new FSA to carry out its tasks and mission effectively, it needs to be well resourced in terms of governance, people, competency, skills and digital tools. It also has to be embraced by a robust legal framework. Having in mind the significance of the services industry, an FSA style helm could serve as a safety net to each individual sectoral supervisor. Exchange of information, enhance coordination and common application of uniform practices could reinforce the oversight regime, uplifting its effectiveness and securing no “weak links”. Given the example of FCA in the UK, this new Authority should be empowered to take on criminal actions against defaulting entities (afterall breaches of Sanctions and AML laws constitute criminal offences). This will also require changes and adjustments in the legal framework of the country, possibly with the delegation of authority by the Attorney General.

Primarily though, this proposal purports that legacy habits and perceptions relating to ancient Cyprus alikes “city-kingdoms” need to be trashed and to work in a more concerted way between all current authorities and the State. It is important at this point to underscore that, this proposal in no way suggests that the current authorities should be abandoned or terminated, to the contrary, it is hereby explicitly emphasized that every sectoral competent authority continues its operations as normal, eg to license, train, monitor, discipline and supervise their licensed entities. Going forward, this could be done under an overarching umbrella, which will ensure coordination, guidance and protection to each authority. Should such Authority be put in place, with the delegation of appropriate and corresponding powers and with the solemn commitment by the government and the political system, it will result in the gradual rectification of the country’s bruised reputation and adverse perception. Furthermore, it will also facilitate Cyprus in opening up for the provision of new types of services and products within the ambit of the financial services, of banking activities, of investment attraction and asset management, yet in a more specialized and more competitive manner. Such an outcome will be beneficial for the whole economy, the negotiating powers of the government, the political background of the country, and of course to the society at large. In other words, Cyprus will be positioning itself at the coveted peak of the financial services centers, offering quality and meaningful services, in a credible, transparent and effective environment. This will also add to the prestige and reputation of the country as a whole, of its banking and investment systems, of its trusted professionals, for the attraction of unambiguous and valuable FDI and the enrichment of the state finances. I have no illusion that this is going to be an easy decision to take or that it will be done immediately, yet the public discussion needs to be instigated in order to explore this route. Once again, considering all factors and phenomena mentioned earlier and having in mind the way technology and digitalization shape the future, this is a one-way direction we need to embark on, and we should do it as soon as possible. Otherwise, we run the risk of remaining idle and thus obsolete, whilst the rest of the world is pacing fast, regrettably condemning Cyprus and its economy as a nonrelevant, a non-attractive and a panting trailer. The business and professional community of the country should carefully reassess the type and nature of the clients it attracts, redefine its risk assessment and risk appetite, aiming at coveted and renowned organisations, with real substance, real production and real benefit creation for the whole country, not confining it for the elite few! So, we need to be selective and be prepared to reject vague clients. Implementation of the EU Directives and Regulations, such as the one for the screening of FDI, is sine qua non towards that goal. At the same time, we must install the appropriate mechanisms for servicing this upgraded clientele, from the very initial stage, all the way through. Firm and decisive decisions should eventually be taken, setting thus strong business development foundations on quality and robust building blocks. A local FSA can provide these foundations and can be catalytic in reversing third party impressions on Cyprus’ oversight and regulatory regimes. It can also boost Cyprus’ reputation and commitment towards quality and value! Moving ahead, Cyprus should be punctual on its rendezvous and convince that is a truly prominent, credible and trustworthy jurisdiction, a place that business can be facilitated legitimately, efficiently, at premium and competitive quality. Creating such a business ecosystem is not a mere vision, it is an objective to be accomplished and a promising horizon to aim at.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| ARTICLE BY THE MINISTER OF FINANCE

MAKIS KERAVNOS

Tax Reform Setting the President’s pre-election commitment in action, the Ministry of Finance has commissioned the Economic Research Centre of the University of Cyprus to prepare a comprehensive study on the evolution of the legislative tax system. We consider the Economic Research Centre (CypERC) an independent institution which has the tools and the expertise to develop a supporting and macroeconomic analysis that will accompany the study (revenue trends, income inequalities, tax burdens) in order to produce valid results on both the current and the future tax framework. It is noted that in the context of the assignment of the project, the CypERC will involve local and foreign experts, as well as experienced specialists on tax matters. In addition, European and international macroeconomic trends, as well as the best practices of successful foreign tax systems, will be documented with a clear focus on European jurisdictions. At the same time, the existing tax and legal framework of Cyprus will be analysed and assessed, recording its current weaknesses and

shortcomings. This will assist in shaping a more modern tax framework, taking into account the obligations of the Republic of Cyprus towards the Recovery Plan, as well as towards other international and European agreements. It is worth mentioning that, in the context of the planning process and before any final decisions are taken, a broad public consultation will be carried out with all stakeholders of the economy in at least 3 stages (at the beginning, during the identification of the preliminary framework and during legislation drafting). In this context, all contributions from private and public stakeholders will be duly assessed.

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As a Ministry, we consider that the Institute of Certified Public Accountants of Cyprus is carrying out a significant work, which is reflected on the Institute’s multifaceted activity, acting as the leading representative of a very important professional sector, that of the approved accountants. We therefore look forward to ICPAC’s valuable input on the proposals for

Εναρκτήρια Συνάντηση Συμμετοχή Φορέων/ Συμβουλίων Φάση 1

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Μακροοικονομικές Τάσεις και Ανάλυση – Έκθεση Συζήτηση Ειδικών

Επιπτώσεις Πράσινης Φορολογίας Μέσω Demand System Equations Models και προσομοίωση σεναρίων αντισταθμιστικών μέτρων ‘ Έκθεση Επιπτώσεων Συζήτηση Ειδικών

Εμπειρίες και Πρακτικές ΕΕ Και άλλων Χωρών Έκθεση Καλών Πρακτικών Συζήτηση Ειδικών

Υφιστάμενο Φορολογικό Σύστημα Προτάσεις και Απλοποίηση Συζήτηση Ειδικών

Εντοπισμός Σχετικών Νομοθετικών Ρυθμίσεων

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Φάση 8 Αξιολόγηση και Διαμόρφωση Μεταρρυθμίσεων Πρώτη Εκτίμηση Οικονομικών Επιπτώσεων Συζήτηση Ειδικών

Φάση 7 Ενημέρωση Φορέων/ Συμβούλιων για πρόοδο Εργασιών/ευρημάτων

Φάση 9 Εκτίμηση Οικονομικών Επιπτώσεων Μέσω Οικονομετρικών Μοντέλων (π.χ. DSGE, EUROMOND) Έκθεση Οικονομικών Επιπτώσεων Συζήτηση Ειδικών

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the tax reform. The main pillars of the tax reform are the increase of the tax base and of employment, the enhancement of competitiveness of the Cypriot economy, the promotion of research and innovation, green transition and a fairer distribution of the tax burden, while maintaining the sustainability of public finances through a simplified tax system that reduces the administrative burden on taxpayers. In principle, it is intended to create a fairer tax model, to promote transparency for the citizens and taxpayers of Cyprus, as well as for the international community. More specifically

Φάση 10 Καθορισμός Προκαταρκτικού Πλαισίου Συζήτηση Ειδικών

Φάση 11 Ενημέρωση Φορέων/ Συμβουλίων Ανταλλαγή απόψεων

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Οριστικοποίηση Φορολογικού Πλαισίου Τελική Έκθεση

Οριστικοποίηση Νομοθετημάτων στη βάση της τελικής έκθεσης

the tax reform focuses on: • Promoting investments and lowering business risk • Shifting the tax burden from employment income to other forms of taxation, e.g. green tax • Minimalizing tax evasion and informal economy • Creating a fair, effective and competitive tax framework. At the same time, the assessment of the economic impact of the upcoming green tax and the study of compensatory measures to mitigate the impact based on econometric

models are going to be studied along the above framework, in order to neutralize the burden for the taxpayer. It should be kept in mind that the commitments to green taxation stem from Reform 1 of Pillar 2.1 of the Recovery and Resilience Plan. The planning has a timeframe of 23 months. The final deliverable is the Economic Research Centre’s final report, along with the relevant law recommendations. The graph below presents the 15 phases of the tax reform.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| TAXATION

Debt– Equity Rules Shape Transfer Pricing Risk for Taxpayers

he classification of transactions as loans or equity has significant impact for multinational taxpayers, especially when loans exhibit equity-like features such as indefinite maturity, no securitization, or profit-participating loans. Accurate delineation of financial transactions is crucial to determine their proper classification and mitigate potential tax consequences

CHARACTERIZATION AS LOAN OR EQUITY When examining financial transactions in a transfer pricing context, tax authorities would normally seek to recharacterize a controlled transaction when the economic substance of the transaction differs from its form, in a “substance over form” approach. In doing so, transfer pricing rules need accurate delineation of the transaction—understanding the “real deal.” In practice, a commercial analysis would take into consider the economic reality of the financial instrument and its terms and conditions. The excessive interest paid from the borrower to the lender would normally be disallowed and could also be recharacterized as a hidden dividend distribution. The 2022 OECD Transfer Pricing Guidelines and the 2021 UN Transfer Pricing Manual provide guidance on the characterization of financial transactions. In a transfer pricing context, when tax authorities challenge a financial transaction—such as an intragroup loan—the recharacterization may have the following results.

FROM THE JURISDICTION WHERE THE BORROWER IS A RESIDENT: •

•

Full recharacterization—whole loan amount might be considered equity, and therefore all interest expense would normally be disallowed. Partial recharacterization—part of the loan amount to be treated as equity, so only the excessive interest expense would normally be disallowed. The arm’s-length interest rate would be deductible on the portion of the funding that is a loan.

FROM THE JURISDICTION WHERE THE LENDER IS A RESIDENT: •

Characterization as ”quasi equity”—an interestfree or low-interest loan (low risk or risk-free

•

loan), and therefore low or no imputation of interest would be imposed. Characterization as a risk-bearing loan—the tax authorities may challenge whether the lender is properly identified.

CHALLENGES FROM THE JURISDICTION WHERE THE BORROWER IS A RESIDENT In practice, tax authorities, when characterizing a financial transaction, would normally consider the following factors. This list isn’t exhaustive, and no single factor is determinative: • Presence or absence of a fixed repayment date • Written agreement in place demonstrating indebtedness • Obligation to pay interest • Source of interest payments, for example, from earnings • Increased participation in management as the result of the loan advance • Right to enforce payment of principal and interest • Subordination and the status of the funder in comparison to regular corporate creditors • Thinness of the capital structure in relation to debt • Existence of financial covenants and security • Ability of the recipient of the funds to obtain loans from unrelated lending institutions • Extent to which the advance is used to acquire capital assets or risk involved in making the advances • Failure of the purported debtor to repay on the due date or to seek a postponement. For example, assume a lender, Company L, provides a long-term loan (15 years) to Company B, the borrower. The result of the accurate delineation of the actual transaction is that Company B is unable to service the loan (in terms of both interest and

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Christos A. Theophilou Taxand Cyprus | Partner | International Tax – Transfer Pricing

principal). Therefore, a third party (for example a bank) wouldn’t be willing to grant such a loan to Company B. Another example would be when the loan amount terms and conditions resemble equity characteristics such as profit-participating loans. For example, Company L provides a loan to Company B, and the loan agreement doesn’t include a maturity date, there is no security or covenants, and the interest is contingent on the profitability of Company B. Therefore, the transaction might not be delineated as a loan, and the interest would normally be denied. In practice, taxpayers would need solid documentation to support that the principal amount of a loan is arm’s length. Such documentation should include the purpose of the loan, such as working capital requirements or to finance a specific project, and the basis for whether the controlled transaction is commercially rational. Further, the borrower’s financial capacity should be examined and clearly documented. Finally, an analysis from both perspectives of the so-called benefit test can be helpful. In practice, from the borrower’s perspective, the “would argument” should be established on whether

the borrowing entity is willing to obtain such a loan under such terms and conditions from a third-party lender, taking into consideration the amount of debt, cost of borrowing, and other terms and conditions. From the lender’s perspective, the “could argument” should be established on whether the borrowing entity as an independent enterprise obtains access to a similar level of debt from a third-party lender such as a bank, taking into consideration the creditworthiness of such borrower.

CHALLENGES FROM THE JURISDICTION WHERE THE LENDER IS A RESIDENT The first case, described above, is when a lender provides an interest-free or low-interest loan, and the tax authorities would be inclined to impute interest income. However, if the controlled transaction is a loan, recharacterizing the controlled transaction into equity shouldn’t be an immediate response.

In practice, taxpayers who typically argue that the controlled transaction is considered equity, the “equity function argument,” would normally prevent tax authorities from imputing interest income. In doing so, such taxpayers would normally argue that the borrower is thinly capitalized, and a third-party lender wouldn’t be willing to lend such an amount. The second case described above would be when the controlled transaction is respected as a loan pursuant to an accurate delineation. However, the tax authorities will challenge whether the lender has been properly identified. Therefore, if the lender isn’t exercising control over the risks associated with an advance of funds or doesn’t have the financial capacity to assume the risks, such risks should be allocated to the enterprise exercising control and having the financial capacity to assume the risk. Consequently, the lender will be entitled to no more than a risk-free return.

The article was published in Bloomberg BNA at International Tax News This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| TAXATION

VAT in the Digital Age: what to expect?

he ‘digital’ steadily increases its presence expanding business opportunities for cross-border activities and blurring the borders between countries. Transactions that were difficult to imagine several decades ago represent a significant part of every country’s economy nowadays. In 2021, for instance, every fifth EU enterprise made e-sales1.

Michael Grekas Eleni Ashioti Board Member, Indirect Taxes and Tax Head of Technology,Technical KPMG Ltd and Professional Matters of ICPAC

Elena Strelkova Eleni Ashioti Assistant Manager, Indirect Taxes Head of Technical and Professional Matters of ICPAC

Part 1 As any other economic activity, these transactions have a noticeable impact on the VAT area, creating opportunities for VAT evasion and fraud which can be difficult to detect with traditional VAT systems. Evidently, VAT collection and control methods, especially with respect to the digital transactions, demonstrate lack of efficiency being administratively burdensome for both the tax authorities and the taxpayers. These sub-optimal collection and control methods inevitably result in revenue loss, known as VAT gap, which was estimated in 2020, at EUR 93 billion2. As of now, the ViDA initiative is under the review of the EU Parliament to be voted by the Member States on 23 October 2023.

1. OVERVIEW OF THE VIDA INITIATIVE Considering that VAT remains the key source of revenue in each EU country3 and finances the EU budget up to 12%4, the European Commission proposed a series of measures addressing the challenges and recognizing the opportunities digitalization presents. As part of these measures, on 8 December 2022, the “VAT in the Digital Age initiative” (ViDA initiative)5 was released with the aim to amend, inter alia, Directive 2006/112/EC (VAT Directive) in respect of the three main ways: 1) VAT digital reporting requirements and e-invoicing; 2) VAT treatment of the platform economy; and 3) the single VAT registration in the European Union. The proposed measures are predominantly tailored by the experiences of the Member States, having attempted to establish streamlining tax administration and realtime monitoring of transactions. Overall, it is estimated that implementation of the described measures will help Member States to collect up to €18 billion more in VAT revenues annually

18 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

(€11 billion due to anti-fraud measures)6. 1.1. Transfer to the Digital Reporting Requirements Although many EU countries have recognized the opportunities the use of the digital tools for VAT collection unveils, the very VAT Directive creates considerable barriers in implementation of the reporting obligations based on the mandatory e-invoicing. Under the VAT Directive, the Member States must maneuver through the burdensome and time-consuming procedure, namely, to request a derogation subject to the unanimous agreement of the Council based on a proposal from the Commission7. At the same time, the existing mechanism (i.e., the Recapitulative statements) aimed to obtain the information on the intra-Community transactions, provides only aggregated data, without the opportunity to crossmatch supplies with acquisitions (as the later are optional). Even if the information is available in full, the time has elapsed and the opportunity to immediately address instances of VAT fraud might be missed. Neverthless, currently enacted local reporting obligations, although they demonstrate an increase in VAT collection in particular Member States, do not always allow to trace the intraCommunity transactions and, being divergent from country to country, place a noticeable administrative burden on the businesses operating in many of them. In particular, the ViDA initiative estimates the compliance costs at about EUR 1.2 million by small-scale companies and EUR 0.4 million by large-scale multinational companies8. Considering the issues described above, the ViDA initiative proposes to introduce the transaction-by-transaction reporting system operating in (almost) real time: the taxpayers will have to report the data on intra-Community B2B transactions within two days from the

moment the electronic invoice is issued or should be issued9. To receive and to circulate the information in the unified format it is suggested to accept e-invoices issued according to the EU standard (EN16931)10 and if the Member States decide so, other data formats will be also acceptable. For the domestic B2B supplies, the ViDA initiative proposes partial alignment allowing Member States to implement their own DRR or leave the one they already have, but the system must be compliant with requirements introduced for the intra-EU DRR. The authors of the ViDA initiative expect the reporting obligation (along with the merger of the currently active local reporting systems to the new one) to be effective starting from 1 January 2028. The possibility to implement e-invoicing will be granted as soon as the described amendments become effective11 (therefore, some Member States have already initiated local implementation processes, e.g., Germany12, Belgium13). Overall, it is expected that the Member States will be able to recoup up to EUR 11 billion in lost VAT revenues a year for the next 10 years, whereas the businesses will save EUR 4.1 billion a year over the next 10 years in compliance costs14. 1.2. New VAT treatment rules for passenger transport and short-term accommodation platforms The ViDA initiative points out that currently the EU countries have different VAT approaches in respect of the transactions via online platforms, namely, they struggle with VAT treatment of the services rendered by the platforms (electronically supplied services vs. intermediary services) and VAT status of the underlying supplier (possibility to apply reverse charge mechanism or OSS)15. Undoubtedly, the European Court of Justice attempted to shed some light on these questions in OnlyFans (analysis of deemed supplier model)16, Star Taxi App17 and Airbnb18 (qualification of intermediation services as information society services), nevertheless, most of the issues remain unresolved and lack harmonization. The proposed measures focus on the shortterm accommodation and transportation sectors attempting to address the imbalance resulted from the current VAT treatment. The ViDA initiative highlights that, for instance, the cost of accommodation in Europe booked via a platform can be, on average, 8% to 17% cheaper

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| TAXATION than a regional hotel’s average daily rate, whereas up to 70% of the suppliers using the platform are not registered for VAT purposes19. The solution proposed is to implement the mandatory deemed supplier model. Under the new rules, all platforms will be obliged to account for VAT on the underlying supply if the underlying supplier does not charge it. The facilitation services are proposed to be treated exclusively as intermediary services20. As a result, VAT should be due in the country where the underlying transaction is supplied, i.e., the place where the transport takes place or where the rental accommodation is located. In addition to leveling the playing field between traditional providers and those who use online platforms, the deemed supplier model is dedicated to simplify VAT compliance for the third-party hosts or drivers who sell through online platforms. According to the proposed measures, they will not need to register for VAT purposes and report their sales separately, as the online platform will take care about everything and remit VAT on their behalf. At the same time, this measure is considered to help in raising up to €6 billion in tax revenue per year. 1.3.Single VAT Registration Although IOSS and OSS are proved to be successful reaching both aims: reducing the compliance burden and improving tax collection, the ViDA initiative notes that certain supplies of goods and services still remain outside the scope of these simplified schemes. As a result, the suppliers operating in different Member States have to follow the burdensome compliance procedures suffering one-off (on average EUR 1 200 for VAT registration in another Member State) 1 2

4 5

6 7 8

and ongoing expenses (on average EUR 8 000 for an annual VAT compliance)21. In order to avoid the necessity for multiple registrations, the ViDA initiative introduces the Single VAT Registration targeting to minimize the instances for which a taxable person has to VAT register in another Member States. The proposed measure will allow businesses having consumers in another Member State to VAT register only once for the entire Union and fulfil their VAT obligations in one language, via a single online portal. Technically, Single VAT Registration will extend the application of OSS/ IOSS (e.g., in respect of supply of goods with installation or assembly, supply of goods on board means of transport, supply of gas, electricity, heating and cooling, the supply of

Digital economy and society statistics – enterprises: Digital economy and society statistics - enterprises - Statistics Explained (europa.eu) European Commission, Directorate-General for Taxation and Customs Union, Poniatowski, G., Bonch-Osmolovskiy, M., Śmietanka, A., et al., VAT gap in the EU : report 2022, Publications Office of the European Union, 2022, https://data.europa. eu/doi/10.2778/109823. P. 137. About €1 trillion is collected in the EU in VAT revenue alone, making it the third highest tax revenue raiser in the EU on average, behind social contributions and the personal income tax. In 2021, nearly 18 % of all taxes collected in the EU was sourced from VAT. For more information, please refer to: https://ec.europa. eu/eurostat/databrowser/view/GOV_10A_TAXAG__custom_4906804/default/ table?lang=en Eurostat: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Tax_ revenue_statistics Publications Office of the European Union. (2022, December 8). ST 15842 2022 INIT, Proposal for a Council Regulation amending Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age. &Copy; European Union. https://op.europa.eu/en/publication-detail/-/publication/9303d01d7790-11ed-9887-01aa75ed71a1/language-en EUR-Lex - 52022SC0394 - EN - EUR-Lex. (n.d.). https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX%3A52022SC0394&qid=1673341443041 Article 395 of the VAT Directive Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age dated 08/12/2022. EUR-Lex - 52022PC0701 - EN - EUR-Lex (europa.eu) Group on the Future of VAT (GFV) - EU monitor. (n.d.). https://www.eumonitor. eu/9353000/1/j9vvik7m1c3gyxp/vk66hsify7qk. P. 4.

20 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

margin scheme goods, transfer of own goods between the Member States) and reverse charge mechanism. All three measures considered, ViDA initiative has introduced conceptually new VAT framework for the EU intracommunity trade. Aiming to eliminate piecemeal regulation and varying across the EU market VAT approaches, ViDA measures promise to establish coherent and well-organized structure helping in combating VAT gap and easing certain compliance requirements for business. Although it is impossible to predict the results of ViDA initiative adoption precisely, we will try to give you a fuller picture of potential implications based on experience of some Member States in Part 2 of this Article.

10 Directive 2014/55/EU of the European Parliament and of the Council of 16 April 2014 on electronic invoicing in public procurement Text with EEA relevance 11 Group on the Future of VAT (GFV) - EU monitor. (n.d.). https://www.eumonitor. eu/9353000/1/j9vvik7m1c3gyxp/vk66hsify7qk. P. 4. 12 Germany will publish a discussion draft law for the introduction of mandatory B2B e-invoicing: Germany will publish a discussion draft law for the introduction of mandatory B2B e-invoicing - VATupdate 13 Belgium Steps Closer to Mandatory E-Invoicing: Belgium Steps Closer to Mandatory E-Invoicing - VATupdate 14 EUR-Lex - 52022SC0394 - EN - EUR-Lex. (n.d.). https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX%3A52022SC0394&qid=1673341443041 15 For the analysis of different approaches followed, please refer to: Luchetta G. et.al. VAT in the Digital Age Final Report Volume 2 – The VAT Treatment of the Platform Economy. Study prepared for the European Commission, 2022. P. 91-92 16 Judgment of 28/02/2023, Fenix International Ltd (‘Fenix’) v. HMRC, ECJ C-695/20, EU:C:2023:127. 17 C-62/19, Star Taxi App SRL v. Unitatea Administrativ Teritorială Municipiul Bucuresti prin Primar General and Consiliul General al Municipiului București, 3.12.2020. 18 C-390/18, criminal proceedings against X, interveners: YA, Airbnb Ireland UC, Hôtelière Turenne SAS, Association pour un hébergement et un tourisme professionnels (AHTOP), and Valhotel, 19.12.2019. 19 VAT in the Digital Age. Final Report (vol. I – III). Specific Contract No 07 implementing Framework Contract No TAXUD/2019/CC/150 20 In line with the Article 46 of the VAT Directive 21 Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age dated 08/12/2022. EUR-Lex - 52022PC0701 - EN - EUR-Lex (europa.eu)

Website Advertising Order Form

Year 2023

To: The Institute of the Public Accountants We wish to book an advertisement place on ICPAC WEBSITE:

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THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF CYPRUS 11 Byron Avenue, 1096 Nicosia P.O.Box 24935, 1355 Nicosia, Cyprus Telephone: +357 22 870030, Fax: +357 22 766360 info@icpac.org.cy www.icpac.org.cy

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| AUDIT & ACCOUNTING

New Horizons for Accountancy in a Nonlinear World

ompliance risk is an organization’s potential exposure to legal penalties, monetary fines, reputation damages and material loss, caused by a failure to act in accordance with government laws, industry regulations, or prescribed best practices. This type of risk is present for every type of organization – public, private, for-profit, nonprofit, state and federal.

The use of state-of-the-art technologies is crucial in enhancing compliance effectiveness and achieving sustainable compliance. Leveraging artificial intelligence and innovative technologies facilitates real-time analysis of vast amounts of data, enabling early detection of violations and breaches of rules. By embracing these technological advancements, companies can sustainably strengthen their compliance function and enhance their overall compliance effectiveness. Modern technologies such as compliance analytics and forensics have become indispensable for detecting non-compliant behavior, including identifying suspected money laundering cases. Effective analyzing and processing of relevant data enables the detection of violations and breaches of rules in a timely and relevant manner. Technology-enabled innovation in the financial sector is driving the emergence of new business models, applications, processes and products. RegTech uses software tools and open data for regulatory monitoring, reporting, and compliance. For most financial institutions, compliance cost as much as 10% of operating costs. RegTech will be focusing on how we reduce compliance costs and gain better insights from data analytics. Integrating compliance as an essential element of innovative business models has become increasingly crucial to ensure corporate responsibility is incorporated into all business activities. This approach not only secures market share, but also offers significant competitive advantage

without compromising business objectives. As meeting Environmental, Social, and Governance (ESG) regulations requires a paradigm shift in traditional entrepreneurship, companies must evaluate the contributions they can make towards creating a sustainable world. To achieve this objective, businesses must be open to exploring new and innovative ways to comply with regulations and enhance their compliance function. Rob Fauber, President & CEO of MOODY’s states that ‘The world has grown incredibly complex. Risk has grown more complex. Supply chain failures; cyberattacks; geopolitical tensions; sanctions and security issues; and extreme weather events – all playing out against a backdrop of economic uncertainty and social unrest. It’s clear: we’re now living in a new era the era of Exponential Risk. We’re linked by technology and trade, by culture and commerce. This means that risks no longer exist in isolation. As organizations and nations are linked, so too are the risks they face. For leaders, understanding the new era is imperative: resiliency and sustainable value creation depend on recognizing and adapting to exponential risk. And it’s an opportunity –not just to understand exponential risk, but to get ahead of it. The past 2+ years– with two long-tail events and more – have brought into focus how our interconnected world creates new, compounding risk.’ Exponential Risk is the integration of massive and diverse data sets, made simple and visible by predictive analytics that help to anticipate the effects of emerging threats, identify vulnerabilities,

22 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

Nikos Sikas Eleni For Ashioti New Horizons Accountancy Head of Technical In A Nonlinear World and Professional Matters of ICPAC

spot and seize opportunities, and support lasting competitive advantage. Building more agile and resilient organizations, economies, and communities –capable of anticipating and withstanding interconnected risk– is now essential to resilience. Nassim Taleb, in his book ‘The Black Swan – The Impact of the Highly Improbable’ indicates that ‘This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty […] Instead of trying to anticipate lowprobability, high-impact events and predict failure and the probabilities of disaster, we should instead focus on exposure to failure and reduce our vulnerability to them (be prepared) – making the prediction or non-prediction of failure quite irrelevant […] We can decrease exposure to a negative Black Swan by applying barbell strategy or hedging risk. If we cannot avoid exposure to a negative Black Swan –climate crises, economic crises, pandemics, physical catastrophes– we should increase robustness’. We live in a fat-tailed world. A fat tail is a statistical distribution that indicates a high probability of rare and extreme outcomes. Tail events are not measurable, but exposure to tail events is. We cannot calculate the risks of consequential rare events and predict their occurrence; but we can modify our exposure to them. Against this backdrop, I developed a new Innovation Model which poses a total of 115 new frameworks, mechanisms, tools, techniques, methods and standards that can help Public and Private Organizations modify their exposure accordingly in order to exploit positive asymmetries (be open to opportunities) and protect themselves against negative asymmetries (decrease exposure to catastrophic dangers). The detection and exploitation of positive

Nonlinear World

asymmetries captures exponential multiplicative returns whilst the avoidance of negative asymmetries lessens potential damage and eliminates the risk of ruin. This pioneering Resilience Toolbox is applicable in all sectors: Public Services, Local Government, Business (startups and large corporations), Academia, Health Practices and Products, Supply Chain Resilience, Space Economy, Risk Management, Sustainable Compliance, Competitiveness, Branding (Nation Branding, Place Branding, Tourist Destination Branding, Corporate and Product Branding, Branding of the Cyprus Presidency of the European Council 2026), Reputation Management, EU Resilience and Recovery Plan, UN Sustainable Development Goals etc. This unique Business Model can: 1. Help Organizations: a) Innovate under conditions of extreme uncertainty and b) manage known unknowns (currency risk, supplier default, accidents, fire,

bad weather) and unknown unknowns (terrorist attacks, pandemics, natural disasters, financial crises). 2. Build business and community resilience. 3. Strengthen competitiveness and promote resilient growth. 4. Accelerate public administration and local government reform. 5. Help Government and Parliament boost State Budget resilience in an age of uncertainty. 6. Maximize returns of public and private investments by detecting and exploiting exponential opportunities and mitigating risks. 7. Turn Cyprus into a Regional Innovation Hub (regulatory sandbox, test-bed for startups) and attract foreign investment. The new innovation System described very briefly above is presented analytically in a step-by-step practical Guide I have prepared titled ‘Toolkit for creating resilient innovations in a nonlinear world’.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| AUDIT & ACCOUNTING

Stocktaking: The Key to Profitability

Stocktaking, often overlooked but essential, plays a pivotal role in the efficient management of business operations. It involves the processes of recording, counting and verifying a company's physical inventory, providing a comprehensive and up-to-date database which can be used not only as a future reference, but also for planning and decision-making. While it may seem like a routine task, stocktaking holds profound implications for a company's profitability, customer satisfaction, and overall success. It is a crucial procedure for most industries, as it can transform their operations, making most of their internal processes significantly easier for them. Stocktaking ensures the accuracy of a company's inventory records, aligning financial data with physical stock levels. Discrepancies between virtual and actual stock levels can be considerable, with disparities of up to 25%, highlighting the need for regular stock audits to maintain financial transparency and prevent misreported profits or losses. Financial transparency is crucial for any business, not only because it ensures its smooth operations but also

Anna Ligouri Managing Director and Founder Inventus Services LTD AdHawk Greece because it protects its credibility. Effective stocktaking also aids in cost control, simplifying the calculations needed to monitor inventory. It helps us find the right balance between overstocking and understocking, optimizing working capital.

24 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

Overstocking ties up capital in unsold products, while understocking results in lost sales and general dissatisfaction, gradually harming a company’s reputation. When performed regularly and effectively, stocktaking also affects customer satisfaction. By preventing stockouts and ensuring product availability, companies are able to meet customer demands, an ability which gradually enhances their reputation. Ultimately, stocktaking acts as a protection measure by discouraging internal inventory loss or damage. The process of performing frequent inventory audits, ensures that discrepancies are investigated. This serves as a powerful deterrent against illegal behaviour, maintaining trust within the workforce and protecting a company’s assets. Inventory audit is a crucial process for any business which wants to ensure financial stability, efficient operations, and long-term success. Businesses in the pursue of profitability can use stocktaking as a guardian of their corporate and financial health. Reducing the disparity between virtual and physical stock gradually eliminates discrepancies which could otherwise slip through the cracks. Stocktaking is enhanced when entrusted to seasoned industry experts. Outsourcing to firms with extensive experience ensures precision and efficiency, optimizing inventory management and financial accuracy, a practice highly beneficial for the entirety of business operations.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| AUDIT & ACCOUNTING

Consumer Tracker – Confidence improves for a third quarter but are we there?

ver the past few years, there has been a noticeable shift in consumer behavior both in Cyprus and globally. Although the COVID 19 pandemic had an impact on consumer behavior from 2020 to 2022, the market seems to bounce back gradually starting from 2023.

Specifically recent data on consumer confidence indicates a positive trend that started in the last quarter of 2022 and continued through the second quarter of 2023. This is supported by one percentage point increase in the Deloitte Consumer Confidence Index, which moved from -17.5% in Q1 2023 to -16.3% during Q2 of 2023. Despite this progress, the index still remains below its average which suggests that consumers are still recovering from the recent economic crisis incurred due to both COVID-19 and the war in Ukraine. In this article, we will provide a brief analysis of factors and information that have contributed to the overall increase in the consumer confidence of Q2 2023. In addition, we will give an overview of the expectations for Q3 of 2023. Deloitte's overall confidence index combines six individual measures; disposable

income levels, debt levels, job security, job opportunities and career progression, children's education and welfare, as well as general health and wellbeing.

Yiannis Leonidou Eleni Ashioti Audit & Assurance Partner in Deloitte Head of Technical and Professional Matters of ICPAC

CONSUMER CONFIDENCE: In the second quarter of 2023, consumer confidence saw continued growth, marking the third consecutive quarter of improvement. This positive trend is the longest period of sustained progress since Q2 2018. The factors contributing to this improvement are likely a combination of real wage growth and a strong job market. Out of the six indicators used to measure consumer confidence, four have played a significant role in driving this improvement compared to the first quarter of 2023. Regarding debt, while there were some signs of improvement in consumer confidence about their debt levels during the

Nikolas Efstathiou Eleni AshiotiAssistant – Audit & Assurance Head of ManagerTechnical in Deloitte and Professional Matters of ICPAC

Individual measures of consumer

Q2 2023 net balances

% point change quarter on quarter

% point change year on year

Your children’s education and welfare

-6.5%

ν +1.5

ν +0.2

Your job security

-7.4%

ν +0.7

ν +1.5

Your job opportunities/career progression

-8.7%

ν -2.9

Your level of debt

-12.8%

Your general health and wellbeing

-22.9%

ν -2.1 ν +4.2

ν -2.1 ν +2.2

Your household disposable income

-39.7%

ν +5.7

ν +0.2

The Deloitte Consumer Confidence index

-16.3%

ν +1.2

ν +2.9

26 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

ν +15.0

Q2 2023

change compared with Q1 2023 39%

Try to reduce home energy consumption 32%

Spend less on clothes & shoes

31%

Switch to cheaper products

29%

Spend less on going out & leisure activities

29%

Take advantage of promotion/sales/ discounts

-1 -2

27% +1

Shop at cheaper stores Reduce the amount of food bought

29%

Reduce takeaway purchases

29% 23%

Spend less on personal care 18%

End payment towards subscriptions, delivery pass, etc. Sell my personal belongings on resale web platforms/apps

18%

Use my car less

17%

Buy second-hand/refurbished goods more than I used to

16%

Postpone a major planned purchase

15%

Use my savings to maintain my living standards

15%

Use my savings to pay for luxuries and non-essentials

14%

Reduce the amount/stopped giving to charity

13%

Shop around for fuel more than I used to

+2 -1

-1

-1 +1 -2

-1 -1

13%

Change my mobile plan to a cheaper tariff/handset

11%

Use public transport

11%

+1 -1

10% +1

Look for a better paid job Review my financial investments

Use a ‘buy now pay later’ service more than I used to

Reduce delivery charges by shopping less online than I used

-1 +2

Change my energy bills to a fixed rate tariff either with my...

Take on an additional job on top of my current job(s)

Negotiate a pay rise

Reduce use of ride hailing apps

Borrow more

3% -1

Think about acquiring an electric vehicle to reduce fuel...

2% +1

Reduce my property rent cost by relocating to a cheaper...

Sell property with view to relocate to a cheaper location/or...

Take out an unexpected loan

Reduce childcare cost

Take a regular debt repayment holiday

Hire more goods instead of purchasing them outright

-8

-2

Source: The Deloitte Consumer Tracker

first quarter of 2023, this trend did not continue into Q2 (with a decline of 2.1 points). There is still concern about high levels of borrowing through credit cards and various types of loan, which result in higher interest rates to manage inflation. The outlook for health and household disposable income is positive, which is a good indication. This positive sentiment has remained consistent for four quarters, suggesting that financial pressure on households has reached its peak and is now starting to ease. Furthermore, the increase in withdrawals from personal savings during the second quarter of 2023 indicates that some individuals are maintaining their standard of living through past savings. This helps explain the slight decrease in the household savings ratio, even though higher interest rates should be encouraging people to save in the future.

CONSUMER SPENDING: When it comes to consumer spending, inflationary pressures on expenses have led to a decrease in non-essential expenditures. However, consumers confidence towards spending remains unchanged. To maintain their standard of living, consumers have been increasing their spending. Although, the main driving force behind this is the rise in prices rather than the increase in the quantity of goods purchased. In order to cope with inflation, consumers have adopted various strategies. For example they are reducing energy consumption, cutting back on expenses related to clothing and leisure activities and taking advantage of promotions and discounts. Below are some examples of the consumers behavior in relation to their spending. Looking ahead to the third quarter of 2023,

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| AUDIT & ACCOUNTING % saying it will increase

% points diff v. previous quarter -7%

My overall outgoings

-1 -12% -1 -1

Spending on day to day Buying supermarket brands to save money

39% 32%

-3%

29%

-4%

29%

Making use of loyalty schemes/vouchers/coupons to save

-3%

Buying groceries in several supermarkets to reduce overall food bills

-4%

24%

-4%

23%

-1

Repairing / fixing items and not buying new equivalent

-1

My annual earnings

-1 -2

The amount of money I am putting into savings Total amount of money I plan to spend on holidays

-2

Spending on things other than day to day

-4

-5%

13%

+1 -22%

11%

-2

10% +1

-28%

10% -10%

Shopping in store for things other than groceries hopping online for things other than groceries

+1 -17%

The number of holidays in the UK

-18%

Spending on things related to being healthier

+1 -2 8% +1

-13%

-8% -6%

Using an app to get early/exclusive access to products/experiences -21%

-6% -22% -25%

+1 -34%

Sharing my personal data to receive a more personalised shopping service The amount of money I borrow through a personal bank loan

-1

7% 6%

Spending on things that help reduce my energy costs

-1

Shopping online for groceries The number of holidays abroad

10%

-10%

-15%

Buying more sustainable products and services S

Making large purchases

-10 +2

13%

-40%

Ability to pay for unexpected large expenses

+1 +1

14%

-29%

Purchasing products or services on credit

Going out to restaurants and bars

15%

-12%

The number of loyalty/brand schemes/apps I use

Money left at the end of each month

17%

-8%

Shopping in store for groceries

27%

-4%

Buying second-hand/refurbished products

-5

31% +1

-3%

Buying goods on discounts/sale

Buying groceries from cheaper supermarkets

-11

16%

% saying it will decrease

-1 +1

-2

-11%

4% +1

+1 -7% 4% +1

Buying goods or services I was made aware of on a social media platform

-13%

3% +1

Buying goods or services from a social media platform

-11%

3% +1

Source: The Deloitte Consumer Tracker

it is anticipated that both essential and discretionary spending will show an upward trend considering overall expenditure since it is expected that inflationary pressures will further ease up next quarter.

RETAIL SECTOR UPDATES: The rise in sales can be attributed to various factors, including inflation, summer holidays and the prevalence of promotions and discounts. These are some ways that consumers are coping with increasing prices.

Despite facing challenges, businesses consistently observe that online sales make up around 25% of their total sales. Given the upward trend in input costs and the scrutiny faced by pure online models, adopting an omnichannel approach seems more feasible from a financial standpoint. Consumers are demonstrating loyalty by favoring specific brands or stores when managing their household budgets. This has resulted in a noticeable increase in the popularity of store brand products. In fact, own label brands have experienced

a growth rate of 13.5% compared to the previous year. However, retailers face difficulties capitalising on growth opportunities and shifting their focus towards profitability. This is primarily because the impact of inflation and the increasing price sensitivity among consumers are posing challenges for retailers. As a result, retailers are expected to adopt Artificial Intelligence (AI) technologies in their operations to enhance productivity and operational efficiency. Conclusion:

To summarise based on the available data, there is growing consumer confidence that will eventually influence their spending intentions in Q3 2023.This indicates a positive change in the consumer products industry, as consumers show their willingness to spend more in different areas. To succeed in the business world, companies in the consumer sector should focus on achieving profitable growth. This means finding the right balance between investing in engaging with consumers and improving productivity to protect profit margins. Implementing effective strategies like adjusting sales and marketing tactics, putting more technology in the game, prioritising sustainability despite difficulties and optimising the supply chain can help accomplish these goals. The article is based on Deloitte's Consumer Tracker report – Q2 2023

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MENTORS' PROGRAMME ICPAC, always a pioneer and close to its members, is continuing with great success to offer the Mentors' programme. This innovative, professional development programme, assists in offering different perspectives in our challenging profession, enables new opportunities to be explored and builds strong relationships amongst members. Through participation in this programme, both Mentors and Mentees will gain great benefits. 26 experienced Mentors from the profession in various industries are participating in the programme and will be happy to share their knowledge, expertise and support to Mentees who register. The Mentors' programme is offered to ICPAC's members for FREE. For more information and registration, please scan the QR code below:

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| BUSINESS & ECONOMY

Big on big issues 1 and small on small issues

A Christina Argyrou Manager, Financial Accounting and Advisory Services, EY Cyprus

re you tired of scrolling and reading throughout long and multiple pages filled with every single detail of each accounting policy your entity of interest is using the last couple of years, only to find what really matters for you in page 25? Don’t get me wrong! I do that for living.

But it wasn’t long ago, that the International Accounting Standards Board (IASB or the Board) discussed this matter. After all, this is an attempt to simply enhance communication in financial reporting. Investors have told the IASB that it can be difficult and time-consuming for them to find useful information because IFRS financial statements are often poorly presented2. To achieve this effectiveness of financial information for main users, the “Disclosure Initiative” project was established. The Board launched the “Better Communication in Financial Reporting” initiative several years ago, highlighting the importance and common themes of a

number of projects. One of those projects is the amendments to IAS 1 Presentation of Financial Statements and to IFRS Practice Statement 2 Making materiality Judgments (the PS)3. The overall idea, that the amended standard reinforces, is that entity-specific information is generally more useful to users than standardised information which simply repeats what the applicable IFRS accounting standard requires. The following table identifies the principles of effective communication that the Board introduced in its paper “Better Communication in Financial Reporting - Making disclosures more meaningful”.

Entity-specific

Tailoring information to a company's own circumstances.

Simple and direct

Using simple descriptions and sentene structures without omitting useful information.

Better organised

Ranking pieces of information to help users of financial statements understand their importance.

Better linked

Linking information to help users of financial statements understand the relationships between pieces of information.

Better formatted

Selecting a suitable format for the type of information companies provide.

Free of duplication

Avoiding unnecessary duplication that obscures communication.

Enhanced comparability

Disclosing information in a way that enhances comparability among companies and across reporting periods without compromising its usefulness.

Better Communication in Financial Reporting – Making disclosures more meaningful (here)

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Specifically, the amendments aim to help entities provide accounting policy disclosures that are more useful to their intended users (being, existing and potential investors, lenders and other creditors). Feedback on the IASB’s March 2017 Discussion Paper Disclosure Initiative – Principles of Disclosure4 suggested that further guidance, with materiality as a basis, should be developed to help entities provide more effective accounting policy disclosures since some entities find it difficult to assess whether an accounting policy is “significant”. This calls for replacing the requirement for entities to disclose their “significant” accounting policies with a requirement to disclose their “material” accounting policies. Of course, this change and its application won’t be an easy task for the preparers and

by extension for the auditors. But before we all start feeling hopeless, note that the Board also added guidance and illustrative examples on how entities apply the concept of materiality in making decisions about accounting policy disclosures. Let’s kick it off with the key concepts. Materiality lies at the heart of Corporate Reporting5.

MATERIALITY “Material” 6 is a defined term in IFRS and is widely understood by the users of financial statements, compared to the term “significant” for which no definition was ever written. As per the amendments and the concept of materiality, an accounting policy information is material if, when considered together with other information included in the financial

statements, it can reasonably be expected to influence decisions that the primary users make. Accounting policy information would rarely be assessed as material when considered in isolation since accounting policy information on its own is unlikely to influence decisions that the primary users make based on the financial statements. In this assessment, entities need to consider both the size of the transactions, other events or conditions and the nature of them. This assessment involves judgement and requires consideration of both qualitative and quantitative factors and could result in additional discussion and consideration by management. Diagram 2 of the PS, presented below, illustrates how entities should incorporate the different factors in the assessment of the materiality and apply judgment.

Is the transaction, other event or condition to which the accounting policy information relates material in size or nature, or a combination of both?

Accounting policy information that relates to Immaterial transactions, other events or conditions is immaterial and need not be disclosed (paragraphs 117A and 117D of IAS 1).

Yes

Is the accounting policy information that relates to material transactions, other events or condition itself material to the financial statements (paragraphs 117A and 117D of IAS 1).

Immaterial accounting policy information that relates to material transactions, other events or donditions need not be disclosed (paragraphs 117A and 117D of IAS 1).

Yes

Material accounting policy information shall be disclosed (paragraphs 117 and 117C of IAS 1).

Note: an entity's conclusion that accounting policy information is immaterial does not affect the related disclosure requirements set out in other IFRS Standards (paragraph 117E of IAS 1).

Diagram 2—determining whether accounting policy information is material (here)

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| BUSINESS & ECONOMY Although a transaction, other event or condition to which the accounting policy information may be material, it does not necessarily mean that the corresponding accounting policy information is material to the entity’s financial statements. On the other hand, the amended IAS 1 highlights that, other disclosures required by IFRS may be material despite the corresponding accounting policy information being immaterial. The amendments do not relieve an entity from other disclosure requirements within IFRS literature. For example, if an entity determined that accounting policy information for income taxes is immaterial to the financial statements, other disclosures required by IAS 12 Income taxes may be material. In addition, it’s important to note that the amended standard implicitly acknowledges that is not prohibitive disclosing immaterial accounting policies, although it is not required. If the entity decides so, it needs to ensure that this immaterial information does not obscure material information. The Board noted that standardised information could be, sometimes, material in specific circumstances.

THE SHIFT As previously mentioned, the general idea and aim by the Board with the latest amendments is the shift to a more entity-specific information in the financial statements rather than standardised information. For some this will “shake” their financial reporting. It’s admittable that is more valuable and useful to provide information that reflects an entity’s own specific circumstances, rather than repeating what the thousands of pages of IFRS literature. Primary users are considered to have a reasonable knowledge of business and economic activities and to review and analyse the information included in the financial statements diligently, therefore the material and entity specific information is more relevant and therefore

more influential, even if they are lesser than what it used to be before the amendments. As the Former President of the European Commission said, Mr. Jean-Clause Juncker, “sought to be big on big issues and small on the small ones”. Tailoring accounting policy information is particularly relevant when judgement is applied. With the amended PS, the Board provides two examples to illustrate this difference between making materiality judgments by focusing on entity-specific information, while avoiding standardised (boilerplate) accounting policy information and providing accounting policy information that only duplicates requirements in IFRS.

THE CHALLENGE Not only the preparers of the Financial Statements, who will be the first to face the challenges of these amendments, but of course our profession. The avalanche of the new requirements, and thus of new ways of thinking will very soon by on our doorstep. Allow me to clarify that these amendments apply to full financial statements but not condensed interim financial statements and

President Juncker announced the creation of the Task Force in his State of the Union address, on 13 September, saying: "This Commission has sought to be big on big issues and small on the small ones and has done so. To finish the work we started, I am setting up a Subsidiarity and Proportionality Task Force to take a very critical look at all policy areas to make sure we are only acting where the EU adds value." Source: Future of Europe: President Juncker creates Task Force on 'doing less more efficiently' (europa.eu) 2 Source: Better Communication—making disclosures more meaningful (ifrs.org) 3 IASB press release for issuance of narrow-scope amendments to IFRS Standards at IFRS - IASB amends IFRS Standards to improve accounting policy disclosures and clarify distinction between accounting policies and accounting estimates. 4 Discussion Paper – Principles of Disclosures (DP/2017/1) at Discussion Paper:

32 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

are becoming effective on or after 1 January 2023. First things first, grasp the relevant requirements of the amendments and start revisiting accounting policy information disclosures in light of these amendments. Entities can enhance the usefulness of their financial statements by making accounting policy information disclosure more entityspecific and reducing the disclosure of immaterial and standardised accounting policies. This exercise can start early and in cooperation with the different parties involved in the financial reporting process. The EY publication7, “Applying IFRS: Disclosure of accounting policy information”, provides relevant guidance, including more practical examples. We are always a phone call away to support you, plus our tool, EY Atlas Client Edition (here) is available for free to everyone and offers access to EY interpretations and thought leadership content. The views expressed in this article represent the personal opinions of the author and not necessarily the official position of EY.

Disclosure Initiative—Principles of Disclosure (ifrs.org) and the respective Comment letters are publicly available at IFRS - Discussion Paper and comment letters— Disclosure Initiative—Principles of Disclosure. 5 Corporate Reporting, which encompasses financial and non-financial information, has become an important area of development for various organizations. 6 As per IAS 1.7 “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of generalpurpose financial reports make on the basis of those financial statements, which provide financial information about a specific reporting entity.” 7 The publication “Applying IFRS: Disclosure of accounting policy information”, in English, is accessible at Applying IFRS: Disclosure of accounting policy information | EY - Global.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| BUSINESS & ECONOMY

Cyprus Property Market Outlook The real estate market in Cyprus has retain its dynamics and has proven to be resilient despite certain significant challenges that both, the real estate market and the economy in general, are currently facing, such as the increase in interest rates, the global energy crisis and the high inflation rates. This is mainly attributed to the high levels of foreign demand for properties that has accelerated, initially during the post-covid period, unleashing pend-up demand and consequently following the war in Ukraine which had caused a number of Ukrainian as well as American companies that had been based in Russia to relocate their operations to Cyprus. In addition, certain incentives offered by the government in order to attract foreign companies mainly through tax incentive schemes for headquartering of large organizations, caused a massive influx of foreign workers to search for properties, pushing prices and rental values to unprecedented levels, with Limassol being the focal point. There is also increased demand by foreign investors, from Israel and the Middle East who invest mainly in the coastal cities. Some of these investors are involved in larger scale projects such as ports, marinas, hotels and hospitals, contributing to the economy and creating employment opportunities. All these above factors, in conjunction with the increased number of international students that have chosen Cyprus as their study destination, is causing a backlash as rental rates and

property prices have reached levels that seem to be above the financial capabilities of many locals who are in general paid much lower salaries compared to foreigners who generate much higher income and are essentially unaffected by interest rate increases, having the capability to rely more on equity capital and less on financing. This is creating a significant socioeconomic issue on which the government should act on through various policies and legislations. The policy of subsidizing alone is not adequate and the whole issue should be tackled based on an organized and holistic approach. Policies should also aim at increasing supply of housing through various planning and taxing incentives. Policies such as the build-torent scheme, incentives given for renovations of units that will enter the rental market, subsidies for purchases of prime residences, increases in the building density for developments that will be completed within the next two years, decrease in the minimum areas required for dwellings, as well as anti-incentives for withholding undeveloped land, especially in areas with high building densities. Regarding the real estate outlook over the next couple of years, it is expected that demand for properties in the coastal cities will continue its increasing trend, pushing prices further up, with the largest increase expected in Limassol which holds the lead in the total number of transactions, a rate of over 35%. In contrast, in Nicosia, which is dominated by the local market, we are expecting to see a stabilization

34 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

Polys Kourousides MA ,MRICS Chairman of Cyprus Property Valuers’ Association in demand and in property values. Regarding, other types of properties, agricultural property values will face further downward pressures, mainly due to the high levels of available supply, which is expected to increase further, given the number NPLs referring to similar types of properties, that have been acquired by investment funds and will be released into the market. Grade A offices are expected to retain their rental rates and their capital values, while investment assets will face somewhat downward pressures, as the increased interest rates cause investors to require higher yields, causing thus a reduction in values. Some of the trends that are expected to dominate the real estate market in the future include a more energy efficiency oriented approach by developers and a tendency towards smaller dwellings much more environmentally friendly. The focus will be on utilizing natural resources and integrating renewable materials into the constructions, in order to benefit from the decreased operational expenses, something that is pursued by both investors and tenants. Finally, the role of the property valuer is of exceptional significance to various aspects of the economy and it should be closely working with governmental departments and other associations such as The Institute of Certified Public Accountants of Cyprus, in solving various socioeconomic issues such as affordable housing, suggestions regarding old and dated legislations and in general suggestions regarding the improvement and upgrading of the real estate market in Cyprus.

The Rise of Corporate Employee Ambassadors on LinkedIn: Is Cyprus Ready to Lead? As social media platforms like LinkedIn become central to the professional world, companies globally are recalibrating their strategies to include their employees as brand ambassadors. While companies like Cisco Systems, United Airlines, and Ericsson have already adapted to this change, one can't help but wonder, is the corporate world in Cyprus ready for this innovative approach?

ANTIGONI MARINOU FCA GCDF CT CSMM MSc BA(Str)

THE SHIFT IN CORPORATE THINKING GLOBALLY The hashtag #CorporateLinkedIn has garnered significant engagement, mirroring the trend seen with #corporatetiktok, which has amassed over 3 billion views, illustrating how job seekers and employees use social media to share work experiences and seek job opportunities. Internationally, corporations are moving from rigid, top-down messaging to a more authentic narrative crafted by their own employees. This approach has proven effective, especially among companies with healthy corporate cultures.

IS CYPRUS CORPORATE-READY? The question then arises, is Cyprus prepared for this new wave of corporate engagement? Despite its small size, the Cypriot corporate sector is agile and quick to adopt global trends. Implementing an 'employee as an ambassador' strategy could not only serve as a potent tool for recruiting and retaining top talent domestically and internationally but also as a powerful magnet for attracting new clients. Increasingly, clients are resonating more with relatable employee ambassadors than with corporate logos or brands, making this strategy even more crucial for Cyprus-based companies looking to solidify their market presence.

IMMEDIATE ACTIONS FOR CYPRIOT COMPANIES CREATING CORPORATE AMBASSADORS: SUPER-EASY AND SIMPLE Training Programs: Similar to Cisco’s strategy, HR departments should offer training programs by professional career coaches, that teach employees how to optimize their LinkedIn profiles and become brand ambassadors. Content Creation: Marketing teams can collaborate with employees and career coaching companies to create authentic content.

Antigoni Marinou FCA GCDF CT CSMM MSc BA(Str) CEO of Rokket by Antigoni Marinou A bespoke Coaching & Training House This could range from a d' ay in the life' video to showcasing behind-the-scenes operations. Legal and Ethical Guidelines: Consult with legal teams to establish what employees can and cannot say online to prevent the inadvertent sharing of confidential information.

CALL TO ACTION Call a professional today and look into this so simple yet so important strategy. Be one of the first to penetrate talent and clientele with this revolutionary approach before anyone else. Be the leader! Get help from a professional career coaching team who are positioned to help you navigate this new landscape efficiently and effectively. To begin a chat about this opportunity in creating corporate ambassadors, connect with us today on LinkedIn. In summary, as the world moves toward more authentic forms of corporate engagement, Cyprus has the opportunity to lead by example. The benefits are compelling and the steps to get there are simple once you collaborate with fast moving associate who will automate this process and generate action seamlessly (without constantly take away your much precious time!). Now is the time for Cyprus companies to seize the opportunity and lead the way in innovation. Two years from now corporate ambassadors will be a crowded place. Now No. Act now!

CEO of Rokket by Antigoni Marinou A bespoke Coaching & Training House A Certfied Career Coach, experienced Sales trainer and Keynote speaker in international conferences and notable Corporations. With more than 20 years of experience in the Business Development, Accountancy, Academia and Coaching C-Level and Sales teams, she understands what we all do; that every day we all sell, either ourselves, our services and our ideas. She is passionate about turning complicated notions into practcal actions and systems of work. She offers actionable advice and insights that stem from experience as opposed to the much familiar text-book approach. Trusted by the major Insurance Companies, World renowned and Award Winning Real Estate Companies, the Financial Services Industry, International Health Care Organisations and prestigious Ministries. They all collaborate with her through the years regarding confidental projects and areas that drive profitability, talent retention and results. She is a Keynote Speaker and an Investor, with a career in Europe and Middle East. Connect with her on LinkedIn for more actionable insights and critcal thinking around seemingly conventonal topics to elevate your career and sales.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| BUSINESS & ECONOMY

Analysis of data for more efficient use in reporting exceptions

he increased access to many forms of information in a digital form and inherent businessrelated limitations, like skills, resources and time, often generate the question if adopting a more sophisticated operational model would actually benefit their small firm. Will it make everyday tasks easier or just invest time and money into a project with no guaranteed real value and tangible benefit? While the answer to some may seem obvious, others may struggle to understand the positive impact of the change mainly because of the limited visibility of the actual deliverable. Most prefer to maintain the way things are done in their business until something else forces them to progress onto the next step.

36 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

Most accounting firms have already adopted automated systems for their accounting, auditing and tax computational needs. These are fed with their own and client data and produce specific outputs streamlining the procedural steps and work deliverables. The first challenge to consider is to identify all digitised data in the firm’s systems and whether these can be combined and put through an automated series of logical tasks, to produce seamlessly, in real-time, meaningful information for the firm. Nowadays most of the data is digitised but is not necessarily in a numerical format. So, if we need to have insight into the areas in which our firm’s payments were made, we can think about the data to extract from the systems and how to logically combine such data, to get the desired analysis. A tricky part is to find the required data as these may be scattered in numerous systems. Assuming the data set is collected, an analysis can be performed in MS Excel. However, such analysis is simple, static and ad hoc. Next, we can add the logic, which will combine two or more pieces of data already in our database to produce more meaningful information. This is where the business expertise and the professional judgement come into play and the scope of using the data is endless. It requires good knowledge of the business objectives and the available data sets and being in a position to clearly define a logical rule or a set of rules that, when applied, will provide a meaningful result. For example, one may wish to have a real-time match of the suppliers’ list with the names on the invoices paid so that payments to entities, not in the approved suppliers’ list, can be flagged out (the logic) and further investigated. A further enhancement to the above simple model is to consider the use of external sources’ data. The trend now is the ability to collect data from an Application Programming Interface (API). In this case, one has to know that the data is available via an API and be able to import the information into the model. By adding this feature, an accountant: • Via the bank’s API, can automatically bring all client bank transactions into a database • Can then automatically match the payments with the payments recorded in the client’s system • Consider additional features, like importing a published list of authorised suppliers and comparing it with the suppliers with whom the client had business dealings. Putting the above in the context of internal and external fraud in an entity, automated procedural logic (algorithm) can be developed

Christos Skapoullis AshiotiCrime ICPACEleni Economic of Technical andHead Forensic Accounting and Professional CommitteeMatters of ICPAC with having regard to behaviours that may indicate that something does not look right and raise a flag for closer review. For example, in an internal fraud scenario that involves market transactions incorrectly priced to benefit from the difference between the booking and market price, one may ask the algorithm to check continuously all transactions, compare the booking price with the market price and flag out any deviations greater than 5%. A more sophisticated scenario would involve further analysis per system user and introduce exception reporting analysis, such as the flagging out of transactions outside normal working hours and transactions with specific

internal or external counterparties with which no transactional activity is expected to be logged by a specific group of users. Further enhancement can be made by incorporating data available from the internet or external data to confirm the validity of the entries. The more data that is meaningfully blended into the scenario, the more effective the model will be in identifying abnormal patterns that may warrant further investigation. As one may expect, algorithms can be applied to all areas, not necessarily incorporating numbers. Nowadays, as aforementioned, many forms of data is now available, from geopositioning devices to time-logging devices, relevant information from social media and so on. That may assist to gather additional relevant information to expand the data sets, introduce more logic and end up with a state of art continuous exceptions reporting tool. The main benefit of starting the set-up of a data analytics process is that it will not be done once but whenever there is the need to have the information needed in real-time. While it may vary from a simple to a complex setup, it is of paramount importance to ensure that proper data governance is in place. Data experts may assist with properly setting up the data-gathering process, organising the data, ensuring that it can be trusted and avoid collecting too much data as this may be confusing and costly. Data-driven decisions give better insight into managing business risks and concerns. With small steps, one can start their own firm’s data analytics journey and, the more the data analytics process is understood, the more it will be appreciated.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| BUSINESS & ECONOMY

Stock Exchange - It is time for the country's business community to make the most of it

tock markets in economically developed countries offer specific advantages and are a key choice and a financing tool for businesses to attract new investments. The main objective of the Markets is to contribute, in an effective way, to the growth of their country’s businesses and economies in general.

Markets are extremely important on a global scale. This becomes even more evident in times of crisis and disruption, through their impact on developments and existing prospects. In Cyprus, the Stock Exchange was adversely affected in relation to both its operations and further growth prospects, mainly as a result of the stock market crisis of 19992000. The financial problems, primarily in the banking sector, which culminated in 2013, had an additional negative impact on the Stock Exchange. This was followed by new successive shocks that also affected our Market, as well as the economy at large, further to the adverse effects of the Covid-19 coronavirus pandemic and the war between Russia and Ukraine that started in 2022. In this essentially difficult and volatile environment, over the last two decades the Stock Exchange was unable to be used to the advantage of our country’s business community and therefore contribute, in a meaningful way, to corporate and economic growth, as would be desirable. Through its operation, the Stock Exchange offers significant safeguards in ensuring adequate levels of transparency and rational price formation of listed securities. These are factors that add value to the companies listed on its Markets, as acknowledged by both domestic and international investors. The listing of companies on a Stock Exchange provides them with substantially improved visibility and added value, which ultimately impacts their commercial transactions and the activities they provide. With regard to the Market supervision framework, it is noted that under the Laws and Regulations, which also incorporate corresponding European Directives / Regulations, investors operating

Nicos Trypatsas Eleni Ashioti Acting General Manager Head of Technical of the CSEMatters and Professional of ICPAC on the CSE are currently thoroughly assessed by Market intermediaries, who are accredited by the Authorities and required to apply, amongst others, comprehensive and due diligence rules, as well as carry out checks on the origin of the funds invested. Moreover, investors are required to obtain advisory services for their investments only from duly certified investment advisors. In order to best serve Market participants, the Stock Exchange, provides an extended range of markets, products and services to cater for different needs. Nonetheless, even to this day, almost 25 years after the 1999-2000 period, negative perceptions towards the Stock Exchange continue to persist, as a result of the effects of the stock market crisis during that time. A new more positive approach towards the

38 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

stock market and investments should prevail. This will have substantial and positive effects in achieving the rational exploitation of the advantages it offers. Historically and over time, several Markets across the world have experienced stock exchange crises. However, the Markers and economies affected by these crises have long since turned the page, looking forward with a vision, and therefore capitalising on the advantages that Markets offer. In this current period of time when all stakeholders in Cyprus are seeking a new model of sustainable medium to long-term economic growth and financing, the Stock Exchange could undoubtedly undertake this role. This could be achieved either on a complementary basis or in addition to the main traditional form of financing in Cyprus, namely through financial institutions. Our aim going forward should be to encourage businesses to raise the funds they need also through the CSE Market, therefore helping to allocate the necessary resources to our country’s most productive investments. It is also important to note that had investments in the CSE markets been considered “eligible investments” under the various investment schemes implemented over the last decades to attract foreign investments in Cyprus, significant problems that have occurred in the services/investment sector might have been avoided, or at least minimised. In the modern and dynamic ecosystem in which companies now operate, it is appropriate to include in their strategic plans, as yet another option for growth, the option of listing on the Cyprus Stock Exchange. Through the CSE, they will gradually be able to grow and strengthen their capital base, while

broadening the range of investment options on offer. By way of indication, the following entities could, amongst others, obtain a listing on the CSE: • Companies - partnerships or schemes that promote large infrastructure works and developments in our country (e.g. in the energy sector, tourism infrastructure, marinas, casinos, etc.), in order to attract through the Market, eminent institutional and retail investors, both at the initial stage and on an ongoing basis. Also, private universities, large pharmaceutical industries and private hospitals could capitalise on the advantages of the Stock Exchange through their listing, to achieve further growth. • Semi-governmental organisations and local self-government authorities, through the issuance of bonds for financing purposes, as is the case internationally. • Banks, insurance companies and other related organisations, in which savers and insured citizens entrust their savings/ funds, could also use the CSE, through the listing of their securities. In my view, this should be made an imperative requirement and be seen as an essential strategic choice for such organisations, given the specificity/nature of their operations.

• Companies in the innovation sector, SMEs, technology, shipping and ship management companies, start-ups, etc., could also make use of the CSE Market by listing their securities on it. Considering the current structure of the Cypriot economy, with the vast majority of businesses being small and mediumsized and family-owned, the institution of the stock market should be a top choice for entrepreneurs, as it would assist them, amongst others, to achieve a more rational management of succession issues in their business, from one generation to the next. It is particularly important that increased liquidity compared to current levels is invested through the CSE Market. Market intermediaries, such as investment advisors, security listing advisors, investment firms, etc., have an essential role to play in reaching this goal, through intensifying their activity and that of their clients on the Cyprus Stock Exchange. Moreover, in this context and in view of achieving the objectives mentioned above, the following measures should be taken: • Promote the grant of tax incentives, as is the case in other countries, in order to encourage the listing of new companies, as well as investment activity in the CSE (it is worth mentioning in this regard that similar plans are being promoted in

Greece, addressed both to companies, to encourage their listing on the stock exchange, and to investors - savers, to encourage them to invest). • Growth through the Stock Exchange should now become a priority for the State and be duly considered in its plans for our country’s further economic growth. But this requires a vision in that direction. • Complete, as a matter of utmost importance and priority, the process that has already begun to privatise the CSE. The ultimate aim should be to attract a strategic partner - a stock exchange of renowned reputation and expertise which will further develop CSE in today's modern environment. This will be made possible through the implementation of an ambitious growth-oriented business plan to be executed by the strategic investor. • To expand the secondary market for Bonds (Government and Corporate) on the CSE, in view of developing this essential market in Cyprus. As part of a sustainable growth policy, the international community is currently attaching particular importance to “Green Bonds”, for the listing of which the CSE has made special arrangements. • Market participants, Banks and other Organisations need to staff and/or remobilise their stock exchange services in a more active manner, as this is vital for the development of the Market. Cyprus can only be established as a developed regional financial hub in an effective, credible and transparent manner, through vision and the adoption of substantial measures. There is no doubt that this goal can only be achieved through the development of the Stock Exchange and the exploitation of the advantages it offers. The current status quo must therefore change. The fact that significant amounts of foreign direct investments made daily in Cyprus are directed to foreign Markets or stock exchange products is not, in my opinion, a constructive practice for the development of our economy. Concluding, I consider that it is now imperative that new, financially sound and promising companies with good prospects be listed on the CSE, to ensure the further development of our capital market. The dynamic business sector in Cyprus, that executes modern and new innovative ideas on a daily basis, amongst others from start-ups, should look to the CSE in order to reap the positive benefits offered through our Market.

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| IFAC NEWS

IFAC Latest Activity IFAC’S NEWS PAGE IFAC’s News Page: Please save for your continuous reference IFAC’s news page. The news page will feature the latest updates and publications released by IFAC. IFAC’s Global Knowledge Gateway: Please save for your continuous reference IFAC’s Global Knowledge Gateway for insights, resources, and tools from leading voices in accountancy and business. New articles on the Gateway this month: • United Nations Raises Ambitions for Sustainable Development Goals • Achieving Investor-Grade GHG Reporting: Climate Week NYC 2023 Recording & Resources

• Building Trust in Tax for a Sustainable Future • Women Take the Lead: Get to Know

Accounting's Changemakers o Interview with Accounting Mentor Isabelle Tracq-Sengeissen and Mentee Yingying Liu • Working Together for Sustainable and Inclusive Growth: G20 Call to Action 2023 • Here’s What Seven Young Professionals Had to Say About the Accounting Talent Pipeline • Strengthening Confidence and Trust: IAASB Proposes New Standard for Sustainability Assurance • What Accountants Need to Know About Carbon Offsetting • Sustainability & Education: What’s New— and What Hasn’t Changed

INTERNATIONAL ETHICS STANDARDS BOARD FOR ACCOUNTANTS® (IESBA®) News • Now Available: IESBA Handbook 2023 Edition — IESBA released the 2023 Handbook of the International Code of Ethics for Professional Accountants (including International Independence Standards). This handbook replaces the 2022 edition and incorporates the following revisions: revisions relating to (a) the definition of engagement team, and (b) group audits; and the upcoming expiry of the “jurisdictional provision” addressing long association of personnel with an audit client. These changes are effective beginning on December 15, 2023. • The back of the 2023 Handbook contains the IESBA-approved revisions to the Code, which are not yet effective. These revisions will become effective in December 2024 and include: revisions to the definition of a public interest entity (PIE); changes to the definitions of “audit client” and “group audit client” in the Glossary arising from the approved revisions to the definitions of listed entity and PIE; and the technology-related revisions. • APESB And IESBA Staff Jointly Issue Guidance Illustrating Application of IESBA Code to Technology-Related Services Provided by Auditors — Rapid advances in technology are transforming the way professional accountants conduct their work. To assist them in ethically navigating the challenges and opportunities brought by these advances, the Staff of the Australian Accounting Professional & Ethical Standards Board (APESB) and the Staff of

the International Ethics Standards Board for Accountants (IESBA) today jointly released Applying the Code's Conceptual Framework to Independence: Practical Guidance for Auditors In Technology-related Scenarios. The publication describes key technologyrelated provisions of the Code and provides auditors with three practical examples involving technology-related non-assurance services to illustrate how to apply the Code's requirements with respect to independence. • Joint Statement From The IAASB And IESBA Chairs On IOSCO’s Endorsement Of The IFRS Sustainability Disclosure Standards — The IAASB and IESBA applaud the efforts of the International Sustainability Standards Board (ISSB) and today’s International Organization of Securities Commissions (IOSCO) endorsement decision of the ISSB’s recently issued IFRS Sustainability Disclosure Standards S1 and S2. • IESBA Staff Releases Database Of Public Interest Entity Definitions By Jurisdiction To Support Local Adoption And Implementation Efforts — IESBA released a database of Public Interest Entity (PIE) definitions by jurisdiction (jurisdictional PIE database) to further support the adoption and effective implementation of the revisions to the definitions of listed entity and PIE (PIE revisions) in the Code. The IESBA Staff has developed the jurisdictional PIE database as a resource to assist regulators, national standard setters, and other relevant bodies in developing or revising their definitions of PIE at the local level based on the IESBA’s PIE definition. • IESBA staff released a questions and answers (Q&As) publication on the

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revisions to the definitions of listed entity and public interest entity (PIE) in the Code. The Q&A publication is designed to highlight, illustrate or explain aspects of the PIE revisions in the Code and is intended to complement the Basis for Conclusions for the final pronouncement. Effective Dates • IESBA Strengthens and Clarifies Independence Requirements for Group Audits — IESBA released final revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) to address holistically the various independence considerations in an audit of group financial statements. The pronouncement will be effective for audits of financial statements and group financial statements for periods beginning on or after December 15, 2023, with early adoption permitted. • Global webinar recording with the IESBA Engagement Team – Group Audits Independence on the revisions is now available. • Public Interest Entities (PIE) related revisions

— this pronouncement will be effective for audits of financial statements for periods beginning on or after December 15, 2024. Early adoption is permitted. Visit IESBA’s dedicated Strengthening International Independence Standards webpage for further guidance and resources on NAS, Fee-related, and PIE revisions! • IESBA Strengthens Global Ethics Standards To Respond To Transformative Effects Of Technological Innovation — IESBA released final revisions to further increase the Code’s robustness and expand its relevance in a world being fundamentally reshaped by rapid technological advancements and accelerating digitalization. The revisions will guide the ethical mindset and behavior of professional accountants in both business and public practice as they take advantage of the opportunities created by technology and adapt to new technology. Revisions will be effective as of December 15, 2024. Early adoption is permitted.

Upcoming Meeting • December 4—8, 2023

INTERNATIONAL AUDITING AND ASSURANCE STANDARDS BOARD (IAASB) News • IAASB Launches Public Consultation On Landmark Proposed Global Sustainability Assurance Standard — IAASB issued its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. With its focus on assurance on sustainability reporting, ISSA 5000, when approved, will be the most comprehensive sustainability assurance standard available to all assurance practitioners across the globe. ISSA 5000 is a principles-based, overarching standard suitable for both limited and reasonable assurance engagements on sustainability information reported across any sustainability topic. The IAASB drafted the standard to work with sustainability information prepared under any suitable reporting framework. The standard is profession agnostic, supporting its use by both professional accountant and non-accountant assurance practitioners when performing high quality sustainability assurance engagements. The IAASB encourages all stakeholders to submit their comments electronically using the Response Template or the stakeholder survey to share their feedback by December 1, 2023. • New ISSA 5000 Developments: Engage, Learn, and Share Insights — The IAASB is holding a range of engaging webinars and events to enhance understanding of the newly proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements—and encourage participation in the public consultation. For further details on the events and updates, visit the IAASB website: iaasb. org/ISSA5000 • What You Need to Know About International Standard on Sustainability Assurance 5000 — When approved, ISSA 5000 will be the most comprehensive sustainability assurance standard available to all assurance practitioners across the globe. It will apply to sustainability information reported about any appropriate sustainability matter and

prepared under any suitable framework. It will also apply for both limited and reasonable assurance engagements. • To help PAOs communicate about the proposed standard to your stakeholders, including your members, IAASB created a Communications Toolkit (attached as PDF). In it, you will find the launch release, key takeaways, statements of support from global leaders, links to resources, an FAQ (which was also published publicly on the IAASB website) and social media content. • Joint Statement From the IAASB and IESBA Chairs On IOSCO’s Endorsement Of The IFRS Sustainability Disclosure Standards — The IAASB and IESBA applaud the efforts of the International Sustainability Standards Board (ISSB) and today’s International Organization of Securities Commissions (IOSCO) endorsement decision of the ISSB’s recently issued IFRS Sustainability Disclosure Standards S1 and S2. Open for Comment • IAASB Launches Public Consultation On Landmark Proposed Global Sustainability Assurance Standard — IAASB issued its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. The IAASB encourages all stakeholders to submit their comments electronically using the Response Template and/or stakeholder surveyto share their feedback by December 1, 2023. Effective Dates • IAASB Quality Management Standards — effective date was December 15, 2022. Explore more on the Quality Management Standards by accessing IFAC’s dedicated Quality Management page to view articles, webinars, videos, implementation guides and more resources! • International Standard on Auditing 600 (Revised) — effective for audits of group financial statements for periods beginning on or after December 15, 2023. The Basis for Conclusions and a Factsheet are availableto support implementation. Upcoming Meeting • December 11—14, 2023

ACCOUNTANCYCYPRUS | NOVEMBER 2023 |

| IFAC NEWS INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS BOARD® (IPSASB®) News • IPSASB eNews: September 2023 • IPSASB Announces 2024 Board Appointments and Chair Extension Through 2025 — The new IPSASB appointees have been selected following a rigorous nominations and interview process involving the IFAC Nominating Committee and IPSASB leadership, overseen by the Public Interest Committee and approved by the IFAC Board. The 2024 Board will continue to be a diverse, woman-majority group, with exceptional public sector accounting experience from around the world. Scott Showalter of the USA has been reappointed as IPSASB Deputy Chair for 2024 and the tenure of the IPSASB’s independent Chair, Ian Carruthers, has been extended for a final year through 2025. • IPSASB Begins Development of ClimateRelated Disclosures Standard for The Public Sector — The IPSASB has announced that it will move ahead with the development of the first sustainability reporting standard for the public sector. Respondents to IPSASB’s May 2022 consultation paper on Advancing Public Sector Sustainability Reporting agreed that the public sector urgently needs its own sustainability reporting standards and that the IPSASB, with its 25 years of standard setting experience, should lead their development. Following a scoping and research phase, the IPSASB has decided to move forward with the development of a public sector specific Climate-Related Disclosures standard and has published a project brief for this major new piece of work. Reporting on climate change is one of the most important issues in sustainability reporting, which also encompasses environmental, social and governance issues.

Open for Comment Effective Dates • International Public Sector Accounting Standard® (IPSAS®) 47, Revenue; effective January 1, 2025(Earlier application is permitted) • IPSAS 48, Transfer Expenses; effective January 1, 2025 (Earlier application is permitted) • International Public Sector Accounting Standard® (IPSAS®) 45, Property, Plant, and Equipment, effective January 1, 2025 (Earlier application is permitted) • IPSAS 46, Measurement, effective January 1, 2025 (Earlier application is permitted) • IPSAS 44, Non-current Assets Held for Sale and Discontinued Operations — Effective: January 1, 2025 (Earlier application is permitted) • IPSAS 43, Leases — Effective: January 1, 2025 (Earlier application is permitted) Upcoming Meeting • December 5—8, 2023

IFRS Foundation View the IFRS Foundation’s monthly summaries here.

www.ifac.org, www.ipsasb.org

42 | ACCOUNTANCYCYPRUS | NOVEMBER 2023

MARCH 1982, No. 1

The Journal of the Institute of Certified Public Accountants of Cyprus

Το 1ο τεύχος του περιοδικού του ΣΕΛΚ Από το 1982 ενημερώνουμε τα μέλη μας

Τρεις από τις σελίδες που δημοσιεύθηκαν στο 1ο περιοδικό του ΣΕΛΚ που εκδόθηκε τον Μάρτιο του 1982

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