Accountancy Cyprus - No. 134 - May 2019 by The Institute of Certified Public Accountants of Cyprus

No. 134 | march 2019

Creating st a 21 Century Tax Department Interview with Yiannis Tsangaris, Commissioner of Taxation

DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS

The Journal of the Institute of Certified Public Accountants of Cyprus

POSTAGE PAID LICENCE no.33 SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΡΟΜΙΚΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239

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contents

6 | THINKING AHEAD 8 | INSTITUTE NEWS

Opinion 20 | Interesting Times for International Tax By Kyriakos Iordanou

main story

26 | The Fight Against Fraud and Financial Crime Comes to Cyprus For over 30 years, the Association of Certified Fraud Examiners (ACFE) has been working across the world to detect and reduce cases of fraud and, in October 2017, the ACFE Cyprus Chapter was formed. George Zornas, President of the ACFE Cyprus Chapter and Group Internal Audit Director, Bank of Cyprus, speaks about its aims, while Board Members and others express their views in specially commissioned articles

ACCOUNTING & AUDIT

Issue 134 march 2019

36 | IFRS 9 for Corporates: Is the Grass Greener on the Other Side? By Stavri Frangou & Alexis Agathocleous 38 | IFRS 9 Financial Instruments: Applying the expected credit loss model to trade receivables using a provision matrix By Yiannis Leonidou & Christos Theodoulou 44 | Why Choose Accounting? By Marios Mortis 46 | Money Laundering Legislation in Greece By Yiangos Charalambous 48 | Continuous Professional Development By Spyros Yiassemides

ECONOMY TAXATION 84 | Substance: The Key to Success! By Pieris Markou

50 | Sustainable Finance Developments in Europe By Eleni Ashioti

86 | Pondering over VAT in Cuba By Alexis Tsielepis

52 | Home Ownership and Household Debt: Implications for Housing Policies By Renos Ioannides & Marios Kapnisis

88 | DAC 6: New Reporting Requirements By Savvas M. Klitou

54 | EU Sanctions: Implementation and Monitoring By Christos Demetriou

90 | NHS Tax Contributions in Cyprus By George Fysentzou

56 | Marathons and their Economic Impact By Constantinos Kypriotis 58 | The Cypriot Banking Sector in 2018 By George Theocharides

PROFESSIONAL SERVICES 92 | Promoting Cyprus in Europe Interview with Christodoulos Damianos, CEO, Eurofast Ltd.

MEET THE CFO 102 | Nicos Demetriades Interview with the Head of Finance & Risk Management at Purple Trading

ACCOUNTANCY CYPRUS

BUSINESS IN CYPRUS 94 | Education and Business Interview with Antonis Polemitis, CEO, University of Nicosia 96 | Make it Easy for Your Customers to Complain By Andrie Penta

ISSN 1450-2380 Editor-in-Chief Ninos Hadjirousos, FCA

98 | The Future of Jobs By Charalambos Constantinou 100 | Dividend Payments in Cyprus: The Legal Framework By Kyriacos Kourtellos & Iacovos Kouppas

ICT 108 | Blockchain Technology: Facts and Applications By George Prodromou

REAL ESTATE

The Institute Council Marios Skandalis (Chairman) Stavros Pantzaris (Vice-Chairman) Maria Pastellopoulou (Secretary) Members Nicos Chimarides, Odysseas Christodoulou,Â Pieris Markou,Â Gabriel Onisiforou, Petros Petrakis, Savvas Poyiadjis, Spyros Spyrou, Demetris Taxitaris, Demetris Vakis, Christos Vassiliou, Karlos Zangoulos General Manager Kyriakos Iordanou Address 11 Byron Avenue, 1096 Nicosia, Cyprus

106 | The Real Estate & NPL Market in Cyprus By George Mountis

special feature 59 | Technology for the Accounting Profession 12 companies present details of their products and services

PROFESSIONAL NEWS

OUT OF OFFICE

110 | IFAC: Accountants must seize opportunity to drive effective ERM; Will Botha appointed IAASB Technical Director; Tax Transparency, complexity, inequality and corruption are the greatest cause for concern in G20 countries; ACCA and IFAC launch global PFM series; new education standard focuses on professional development; ACCA backs Flag It Up campaign

114 | In The Swim Liakos Theodorou, Head of Assurance at PwC, has been a keen swimmer since childhood and, for the last 15 years, has made a point of swimming all year round and, if possible, every single day

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

Managing Director George Michail General Manager Daphne Roditou Tang Media Manager Elena Leondiou In-house Editor-in Chief John Vickers Coordination Pan Charalambous Art Direction Anna Theodosiou Design Alexia Petrou, Marios Kouroufexis Marketing Executive Kevi Chishios

COVER STORY Creating a 21st Century Tax Department Enormous efforts have been made to modernize and improve the operations of the Tax Department in what is still an ongoing process. Taxpayers will see and appreciate these changes, which will hopefully lead to a new culture as regards voluntary tax compliance, says Yiannis Tsangaris, Commissioner of Taxation.

Commercial Manager Neofytos Constantinou Contact us for advertising Pavlos Giorkas pavlos.giorkas@imhbusiness.com Tel: +357 22505555, +357 22505566, Fax: +357 22679820 Address 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus, P.O.Box 21185, 1503, Nicosia, Cyprus Accountancy Cyprus is published quarterly by the Institute of Certified Public Accountants of Cyprus and is sent 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 for 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.

THINKING AHEAD

Challenges and Opportunities for the Economy in 2019-2020 By Kyriakos Iordanou, General Manager, ICPAC

ollowing the predicament of 2013 and the subsequent successful completion of the Troika’s Economic Adjustment Programme in 2016, the economy of the country has enjoyed quite high growth rates, thus facilitating more vibrant economic activity. It is not easy, though, to preserve a steadily growing trend for long and it is inevitable that the growth line on the chart will reach a plateau at some point in time. I believe it is fair to say that 2019 is going to be a rather peculiar year for Cyprus. Its peculiarity rests on factors beyond our control that cause uncertainty (such as Brexit) as well as on domestic ones, the ultimate impact of which is yet to be seen (such as the National Health Scheme). Taking Brexit for instance, the UK is literally on the threshold, on its way out of the EU in a manner that has not yet been agreed upon. A “no-deal” Brexit is, of itself, a serious concern, which increases uncertainty in the surrounding business, legal and operational environment, not only in the UK but in all EU member states as well. Given that Cyprus has long and strong ties with the UK in many areas, it is reasonable to be concerned about what the outcome might be. On the other hand, in March we had the official commencement of the muchtroubled National Health Scheme. Its inauguration has been received by society in a rather mixed manner as, apart from the benefits that the scheme is expected to bring, it carries an economic

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burden for both employers and citizens, coupled with some uncertainty as to its eventual operation. At the same time, the banking sector still faces serious challenges, with non-performing loans – a topic that was actually discussed with the Troika in March – remaining at high levels and reminding us of the legendary Lernaean Hydra. The real economy continues to struggle, with unemployment and disposable income being serious concerns. The Government is, indeed, trying hard but the country’s reputation remains in the spotlight due money laundering, transparency and citizenship issues, as a result of the Citizenship by Investment (now renamed the Cyprus Investment Programme). It should not be forgotten that, before the end of the first semester, the country will be subject to some very important evaluations by international organisations on matters concerning antimoney laundering and terrorist financing, tax transparency and corruption. All of the above suggest that 2019 is going to be a year packed with challenges, the outcome of which will determine the route of the economy. Hence, both 2019 and 2020 should be years of consolidation of the previous continuous growth. It is imperative to move ahead with much-needed reforms and the restructuring of the public sector and of its processes, perceptions and culture, in order to reap the fruits of eveything that has been accomplished so far, and to build a more robust and sustainable future. The picture is not a completely gloomy

one. There are, of course, bright factors such as the recent discovery of additional reserves of hydrocarbons, though any real hands-on benefits will only be enjoyed in the depths of time. There has also been a notable influx of fresh Foreign Direct Investment. This year should also provide us with an opportunity to review the country’s current business model and adjust it to the prevailing international conditions and initiatives, thus maintaining Cyprus as an international/regional business centre of good repute. We should, therefore, reassess the whole framework, eliminating any activities that are now redundant, risky and not income-generating, whilst investing in a more diverse productive model, fostering sustainability and limiting our overdependence on 2-3 main economic sectors. Investing in both people and technology is fundamental. It is also extremely important to continue to focus on enhancing the country’s outward-looking economic diplomacy initiatives and, at the same time, concentrate on how to strengthen Cyprus’ business products and services portfolio and further develop its competitiveness and attractiveness. It is crucial to achieve balanced and sustainable economic growth. We at ICPAC maintain moderate optimism both for 2019 and 2020, provided that some of the above measures are adopted, and we reiterate that cooperation and collaboration between the private and public sector are a sine qua non for a fresh, determined and more dynamic kick-start of the economy.

THINKING AHEAD

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News from the Boardroom

he first quarter of the year found the Council and the management of the Institute handling various important issues. The Council met 4 times and its main focus was on the delegation agreement with the Cyprus Public Audit Oversight Board, Brexit, and preparations for the upcoming evaluation by Moneyval. In addition, insolvency matters were high on the agenda, together with examination of the possibility of introducing an alternative assurance procedure for very small entities. The main activities and decisions of the Council included the following:

Meetings with Officials The President, Council Members and the General Manager held a number of meetings with government, political, business and other officials including, inter alia, the following: – The Council and management spent considerable time and held a number of meetings with the Cyprus Public Audit Oversight Board (CyPAOB) for matters relating to the implementation of the Delegation Agreement for the regulation of the audit profession, pursuant to the Auditors Law of 2017. – Brexit and the possibility of ‘no deal’ were of serious concern to ICPAC and the Council. To this end, and in order to discharge its obligations under the Law, ICPAC sent letters to the President of the Republic, the Council of Ministers and CyPAOB regarding the possible consequences of Brexit on Cyprus and called for coordination as to how the professional qualifications and students will retain their recognition in the case of a ‘no-deal’ Brexit. – The Management of the Institute met on various occasions with representatives of the Ministry of Foreign Affairs and the Ministry of Labour in order to identify any potential risks, as well as to set down the steps to be followed, possibly including the amendment of all relevant legislation, in order to mitigate any risks and allow the normal continuation of current activities and practices. – The General Manager met with officials from the EU and the British High Commission to discuss Brexit-related matters. 29-30/01/2019: The President and the General Manager travelled to the UK and met with the CEOs of ACCA and ICAEW to discuss how ICPAC could continue to accommo-

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date and recognise the members and students of the UK’s professional accountancy bodies in the event of a ‘no-deal’ Brexit, and there was agreement on common ground for cooperation and coordination to that end. 30/01/2019: The President and General Manager of the Institute met with Simon Osborne, CEO of ICSA: The Governance Institute, to discuss cooperation on the potential reform of ICPAC’s overall governance structure, so that new governance policies and processes are based on the best global practices. – ICPAC also sent a letter to the Minister of Finance, suggesting possible tax relief as a counter-measure for the levies imposed by the Government as a result of the introduction of the National Health Scheme and increased social security contributions. 12/03/2019: The President and the General Manager of the Institute met with the Vice President of ACCA, Mark Millar, and discussed matters of mutual interest and the further development of the relationship between the two organisations. – An ICPAC delegation met with the Director-General and other officials of the Ministry of Energy, Commerce & Industry on several occasion to discuss matters relating to the regulation of Insolvency Practitioners and the potential transformation of the Insolvency Service. – ICPAC’s Head of Monitoring & Compliance participated in all the meetings and workshops held in preparation for the forthcoming evaluation of the country by Moneyval. This is an ongoing exercise throughout 2019.

Other important meetings and activities 24/01/2019: ICAEW organised its annual Graduation Ceremony for new Chartered Accountants in Cyprus. The President of ICPAC was among the speakers at the event. 6/02/2019: ICPAC participated in the 2st International Tax Conference organised by IMH. The conference was chaired by the General Manager whilst Council Members and members of the Tax Committee participated as panellists. 22/02/2019: The Limassol-Paphos Coordinating Committee

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organised a charity event with the well-known songwriter George Theophanous and his band on in Limassol. All net proceeds were donated to two charitable organisations. 28/02/2019: The President and the General Manager met with officers of the Ministry of Foreign Affairs to discuss matters relating to Economic Diplomacy. ICPAC participates as a member of the Steering Committee. 07/03/2019: The President and the General Manager met with the Commissioner for Data Protection to discuss matters of mutual interest, with special attention given to Brexit-related issues. 27/03/2019: The President and the General Manager met with the Chair and Vice-Chair of the Cyprus Securities and Exchange Commission (CySEC) to discuss matters of mutual interest, with special attention given to the possibility of introducing virtual assets, and to compliance issues. 13/03/2019: ACCA and ICPAC held the New Members Ceremony for newly qualified Certified Accountants, who completed the ACCAICPAC Joint Examination Scheme (JES).

– ICPAC’s representatives appeared before Parliamentary committees that dealt with matters that were relevant to the Institute. – Both the President, the General Manager and other ICPAC officials held various meetings with other government and private sector officials, stakeholders and MPs on issues relating to the Institute, the accountancy profession and the economy in general. – ICPAC officials and officers attended various business events and meetings of other related organisations and bodies in Cyprus.

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Institute Committees Update Administrative Services Committee During the first quarter of 2019, the Administrative Services Committee discussed the following areas, all aof which have a direct impact on Administrative Service Providers (ASPs): Revision of Practice Guide for Administrative Service Providers. After commenting extensively on the best practises that ASPs may consider and follow, the Committee reached consensus and prepared the final version of the Guide, which was subsequently forwarded to the management of ICPAC. This Guide aims to provide members with an overview of best practices when providing administrative services, in an effort to facilitate minimum service standards across the industry, aiming at elevating the image of Cyprus as an international corporate and trust services centre. Application of this Guide is highly encouraged, although not a regulatory requirement. In carrying out their practice, members must at all times ensure compliance with the directives and regulations issued by the Institute. Provisions of the amendments to the EU’s Anti-Money Laundering Directive (AMLD). The Committee continued to comment on the main provisions of the amendments to the EU’s Anti-Money Laundering Directive (AMLD), as published in December 2017 and due to be enacted into law by summer 2019. The Committee was forwarded the final draft of the Directive on Money Laundering and Terrorist Financing Activities for comments. Committee Members reviewed the Directive and concluded on comments that are being forwarded to the management of ICPAC. Action plan. The Committee prepared and sent a letter to the management of ICPAC summarizing actions that, if taken, will enhance the competitiveness of Cyprus as a sound International Business Centre. In particular, the Committee referred to the initiative for modernising the Trust Law, the creation of foundation legislation, the drafting of cell company legislation, the finalization of engagement and disengagement letters for the provision of administrative services and the facilitation of issues encountered by ASPs in their dealings with financial institutions in Cyprus. The Committee remains committed to pursue these issues further and will draw up an action plan in this regard. Costas Christoforou, Chairman

Accounting Standards Committee During the first quarter of 2019, the continued with the implementation of its action plan and dealt with the following: Projects in Progress and other actions

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IFRSs for SMEs: Gabriel Onisiforou (ICPAC Council member) was authorized by the Council to discuss with Committee members the implications of the full application of IFRSs in Cyprus companies (the current framework adopted by all Cyprus companies) in order to consider possible alternative model. Considering the complexity of the IFRS framework and a need to follow a more simplified financial reporting regime model in Cyprus, two possible options were discussed: (1) Adopting the IFRS for SMEs Standard, as issued by the IASB (with amendments to make it consistent with the requirements of the Accounting Directive) and (2) transposing the Accounting Directive. Committee members recognized the significance of this project and a decision will be taken on the matter during the next meetings in co-ordination with the Council of ICPAC. Impact of IFRS 9 on corporates: The implications of IFRS 9 on corporates were extensively discussed and the Committee recognized the need for taking certain actions to improve awareness among ICPAC members. Specifically, the following areas were identified: • Trade receivables • Cash and bank balances • Intra-group loans • Financial guarantees The following actions have been agreed to improve awareness among ICPAC members relating to the above standard: • Seminars • Articles in Accountancy Cyprus • Issuing of Technical Alerts by ICPAC in close cooperation with the Committee. Update on developments relating to IFRSs: The subcommittee updates Committee members on the latest developments relating to IFRSs on a monthly basis. During the meetings in the first quarter of 2019, discussions took place in respect of: • Updates regarding IFRS 17 • Deferred tax related to assets and liabilities arising from a single transaction • Lease incentives • Onerous contracts • Subsidiary as a first-time adopter • Taxation in fair value measurements • Updating a reference to the conceptual framework • Update regarding IFRS 9. Revision of Technical Circulars relating to IFRSs: A subcommittee has been formed to review and update, if needed, the Technical Circulars issued in the past by the Committee. Requirement for the presentation of the financial statements under a European Single Electronic format: The Committee is currently discussing the requirement of the European Transparency Directive for regulated companies to present their financial statements

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under a European Single Electronic format starting from 2020. Exception from preparation of a management report: Following a request by certain members of the Institute, a subcommittee has been formed to clarify whether there is a requirement by the Companies’ Law for the preparation by a company of a management report, even when that company meets the exception criteria of the aforesaid law for the preparation of this report. A formal consultation request has been sent to ICPAC’s legal counsel regarding this matter. Preparation of separate and consolidated financial statements and presentation to the Annual General meeting: Following the revision of the Cyprus Companies Law, the Committee has received a number of enquiries about whether separate and consolidated financial statements should be presented together at a company’s Annual General Meeting. A subcommittee has been formed to clarify this matter. A formal consultation request has been sent to ICPAC’s legal counsel regarding this matter. Accounting for GDPR and cryptocurrencies: The Committee discussed the accounting implications of the General Data Protection Regulation (GDPR) and cryptocurrencies and will consider further actions when an update is provided by the subcommittee, which has been formed for this purpose. Projects Completed Technical circulars 29 and 40: The subcommittee has completed the both the English and Greek versions of the combined technical circular, which replaces Technical Circulars 29 and 40 as a result of amendments to the Companies Law. The new circular will be sent to members. Restriction on distribution on development costs: The EU Accounting Directive, which has been transposed into the Companies Law, entails provisions based on which no distribution of profits takes place unless the amount of reserves available for distribution and profits brought forward is at least equal to the costs of development not written off and recognised under ‘Assets’. The Committee concluded that a legal consultation from the ICPAC lawyers need not be obtained. Revision of the Companies Law checklist: We have completed the English version of the updated Companies Law Checklist, which was amended due to recent amendments to the Companies Law, itself the result of the transposition of the EU Accounting Directive into domestic law. The updated Companies Law Checklist was sent to ICPAC and has been uploaded to the Institute’s website. Disclosure of non-financial information and diversity information by large undertakings and groups: The Committee Chairman held meetings with the Directorate-General for European Programmes Coordination and Developments regarding the application of amendments to the Companies Law as a result of the harmonisation of Cyprus’ legislation with European

Directive 2014/95/EU, relating to the disclosure of non-financial and diversity information by large undertakings and groups. A circular was prepared by another Institute Committee. Amendment to the Cyprus Companies Law for compliance with the Accounting Directive: The Committee submitted the proposed amendments to the Law (article 142) for compliance with the Accounting Directive. Yiannis Leonidou, Chairman

Public Sector Committee During the first quarter of 2019, the Committee held two meetings and carried out the following activities: The Chairman and the Vice Chairman of the Committee were invited to the ICPAC Council meeting to discuss the steps to be followed regarding developments on the issue of recognition of ICPAC membership in the public sector. As a result, the Council decided to undertake initiatives to protect the profession and to promote ICPAC membership recognition across the government. The Committee was informed about a letter sent by the General Manager of the Institute to the New Governance Team (NGT) regarding the comments of ICPAC on the draft Public Sector Governance Code prepared by the NGT. Marios Hadjidamianou, Chairman

Limassol-Paphos Coordinatng Committee From 1 January 2019 to 31 March 2019, the Committee carried out the following activities: 17.01.2019: The Committee coordinated a seminar on Benefits in Kind at Columbia Plaza, Limassol. 22.02.2019: The Committee organized a charity event at Notes Live, Limassol, with the net proceeds equally distributed between two charities: Love the Children Day and the George Psaras-Round Table Association for Children with Liver Diseases. 26.02.2019: The Committee coordinated a second seminar on Benefits in Kind at Columbia Plaza, Limassol. 06.03.2019: The Committee coordinated a seminar on Money Laundering, Terrorist Financing and Sanction Risk Management – A Practical Approach for Accountants, Auditors and Administrative Service Providers at Columbia Plaza, Limassol. Neophytos H. Neophytou, Chairman

ACCOUNTANCY CYPRUS

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a new circular clarifying specific cases involving the supply of undeveloped buildable land and rentals.

CFO Committee The CFO Committee of ICPAC continued to work towards achieving its aims, these being: • To promote ICPAC and the CFO Committee to individuals working as Finance Directors, CFOs, Financial Controllers, Finance Managers, Chief Accountants, etc. (“individuals acting in a CFO capacity”) • To create a channel of communication with individuals acting in a CFO capacity, who are members of ICPAC, and provide support for technical skills, soft skills, etc. • To promote and enhance the Committee’s LinkedIn page as a means of communication with individuals acting in a CFO capacity • To organize, in association with other Committees and bodies, seminars and presentations for individuals acting in a CFO capacity • To prepare and distribute relevant articles to individuals acting in a CFO capacity • To coordinate efforts with other ICPAC Committees on matters relevant to and affecting individuals acting in a CFO capacity To achieve these aims, the CFO Committee is spearheading the launch of a mentoring programme that will operate under the umbrella of ICPAC and offer mentoring services to members predominantly working in industry. The programme will be set up and run by a third party specialising in mentoring and will provide training to the selected mentors, members of ICPAC, with the appropriate attributes and extensive experience in industry. Through a number of mentoring sessions, mentees will be able to discuss their current work challenges and be supported on their career journey so as to fulfil their potential to the maximum. The programme will run on a trial basis for 6-12 months. Following the success of last May’s CFO conference in Limassol, organised by WTC in association with ICPAC, the CFO Committee is working on the second CFO conference which will be held in Limassol during the 4th quarter of 2019. George Hadjineophytou, Chairman

VAT Committee The Committee continued to deal with a number of outstanding issues as well as looking at new issues brought to its attention. It met twice with the Commissioner of Taxation and discussed a number of issues relating to the imposition of VAT on land and rentals, matters arising from a number of recently issued VAT circulars as well as other issues requiring clarification. The Commissioner advised that he intends to issue

ACCOUNTANCY CYPRUS

The Committee examined proposed amendments to the VAT Act which include: a. Increased penalties for not submitting VAT returns on time b. The introduction of penalties for not applying the reverse charge procedure c. The application of local reverse charge mechanism for the sale of mobile phones, tablets, laptops and game consoles; d. VAT treatment of vouchers. e. Registration of non-established persons making taxable supplies in Cyprus f. The Capital Goods Scheme for extension and renovation expenses in addition to the initial construction or acquisition costs of an immovable property. The proposed bills are expected to become Law in the following months. The Committee also reviewed the proposed Tax Procedures Law and submitted its comments to the Tax Department. Other issues already discussed with the Tax Commissioner and still outstanding are: • Various issues concerning administrators/liquidators. • The VAT treatment of services for the servicing of aircraft passengers (a new circular is expected to be issued on this matter) • Long-term and short-term rentals (the Commissioner is considering issuing a new circular on this matter) • Time of supply in the construction industry Finally, in cooperation with the Education Committee, the Committee will be organizing a number of VAT seminars for ICPAC members later this year. Haris Charalambous, Chairman

Larnaca-Famagusta Coordinating Committee During the first quarter of 2019, the Committee carried out the following activities: 13.02.2019: The Chairman attended the Careers & Educational Fair at the American Academy, Larnaca on behalf of ICPAC. He spoke to students and their parents about the audit profession in Cyprus. Participants were able to ask for information and clarifications regarding the profession. 20.03.2019: The Committee coordinated a seminar on Money Laundering, Terrorist Financing and Sanction Risk Management - A practical approach for accountants, auditors and administration service providers at the Golden Bay Hotel, Larnaca. As part of the Institute’s social responsibility programme, the Committee

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purchased specialist equipment worth €1,000, which was distributed to various charitable organisations. Christos Antoniou, Chairman

Education Committee During the first quarter of 2019, the Committee held three monthly meetings to discuss the organization of training seminars. During the quarter, it organized the following 11 seminars: Taxation of Benefits in Kind: This half-day training event took place in Nicosia and Limassol on January 16 & 17, 2019 respectively. IFRS 9 Financial Instruments for Non-Financial Sector Entities: This oneday seminar took place in Nicosia and Limassol on February 25 & 26, 2019 respectively. Sustainable Accounting: This 2-hour event, held in conjunction with ICAEW, took place in Nicosia and Limassol on March 5 & 6, 2019 respectively. Anti-Money-Laundering – A Practical Approach for Service Providers: This half-day seminar took place in Limassol, Nicosia and Larnaca on March 6, 13 & 20, 2019 respectively. Professional Liability and Cyber Hazard Insurance: This one-day training event took place in Nicosia on March 14, 2019. Liquidators – The Law and Practical Aspects: This half-day seminar took place in Nicosia on March 15, 2019. During the second quarter of 2019, the Committee aims to organize seminars on the following topics: 1. Practical aspects for Contributions to Health Insurance Organisation 2. Common deficiencies from Audit monitoring visits 3. AML Directive 4. EU Sanctions 5. VAT Basics 6. Tax Updates 7. The Funds Industry in Cyprus 8. Introduction to Transfer Pricing & Country-by-Country Reporting 9. VAT Reverse Charge Mechanism 10. International Tax Developments Alexis Avakian, Chairman

Taxation Committee The main activities of the Taxation Committee during the first quarter of 2019 were the following: 1. We met with the Commissioner of Taxation and discussed various issues

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on the Committee’s agenda including: a. The swift release of the 2018 Company Income Tax Return (TD4). b. Progress on the publication of various new certificates to be issued by the Tax Department at the request of the taxpayer. c. The ability to submit revised Company Income Tax Returns (TD4). d. Progress on the automated issuance of tax assessments to the year 2015 based on submitted tax returns. e. The status of compliance in view of the forthcoming scheduled assessment of Cyprus by the Global Forum. f. The practical problem that has surfaced in the application of the DTT with Greece following the publication of the relevant circular in Greece relating to tax credits on dividends received from Cyprus companies by tax residents of Greece. g. Progress on addressing the problem arising following the Tax Department’s interpretation of article 5(2)(z) of the Income Tax Law. h. Progress on the publication of the Q&A paper on the Taxation of Benefits in Kind following the seminars that took place on the subject. i. The status of the English translation of the informative booklet on the Taxation of Benefits in Kind, prepared by the Committee and submitted to the Tax Department for publication. 2. We met with the Tax Department and the Health Insurance Organisation to discuss and resolve practical tax compliance issues relating the National Health Scheme. 3. We attended a meeting to discuss a draft Assessment and Collection Law by which every person with income falling under article 5 of the Income Tax Law, irrespective of the amount, should submit a tax return. Also, every business that collects from consumers should provide the option of payment by card. 4. We checked to see whether there has been any progress following the submission of our list of suggestions to the Ministry of Finance for improving our current tax regime. 5. We continued to work with the Ministry of Finance and the Tax Department on the preparation of Transfer Pricing legislation and regulations which are due to come into force in 2020. 6. We continued working with the Ministry of Finance and the Tax Department on the transposition of the provisions of Council Directive 2016/1164 (ATAD) into national legislation. We also attended parliamentary meetings on the discussion of the submitted tax bills. 7. We studied, submitted our comments when deemed necessary, and attended parliamentary meetings during which tax bills were discussed, the most recent case being the bill relating to bank loan restructurings. 8. We studied and commented on the draft legislation relating to the amendment to the notional interest deduction regime following the Code of Conduct Group’s report to ECOFIN on the matter. 9. Following the submission of our initial comments, we responded to questions on the draft Stamp Duty Law. 10. We continued to provide technical support on EU matters to the Ministry of Finance when requested. Examples of such support relate to ATAD2 and CCTB. 11. Committee Members continued their involvement in DTT negotiations. George Markides, Chairman

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5167

MARIA

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institute news

Sheer Driving Pleasure

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institute news

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ACCOUNTANCY CYPRUS

Reregistrations 2649

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Christou

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deregistrations

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Tax Facts & Figures 2019 - Cyprus The guide is available on our website

www.pwc.com.cy/tax-facts-figures

opinion

Interesting Times for International Tax By Kyriakos Iordanou, General Manager, Institute of Certified Public Accountants of Cyprus

t was my great pleasure and honour to chair the Cyprus International Tax Conference for a second consecutive year. Organised by IMH in Nicosia on February 6, 2019, this is a particularly important forum, that brings together government officials responsible for tax policy and compliance, experts from abroad and local professionals. This year’s conference was dedicated on the main challenges facing international taxation, as a result of the recent international and EU Directives and initiatives, such us the BEPS project and the Anti-Tax Avoidance Directive. Particular emphasis was also placed on the possible effects of a no-deal Brexit. The way business fluctuates gives rise to regulation, tax compliance tools, and businessenabling conditions, such as tax planning techniques. The opposite can also be true, with regulation shaping the way business is conducted. History shows how trade and business developed, from barter arrangements between two people into an international activity. It was probably started by the ancient Phoenicians, followed by the Greeks and Romans and, centuries later, by merchants in Genoa and Venice and then by the various empires established by Europeans across the world and, through the course of time, to today’s globalised system. This advancement of international trade and business also led to the corresponding development of the financial services industry to support and finance traders. Hence, over the last decades, we have seen the establishment of cross-border activities and the emergence of various international business hubs to facilitate them. One such hub or centre is, of course, Cyprus, which opted

ACCOUNTANCY CYPRUS

to take this route in the late 1970s. International business requires the free movement of goods, services, people, labour and capital, hence a number of conventions and treaties have been established to reduce and even remove any hurdles and barriers. An even greater expansion of international business and the movement of capital and services occurred during the early 1990s, after the collapse of the communist regimes in Eastern Europe. Today we live in an environment which is dependent upon globalisation and digitalisation. These two words are possibly the most important ones in the contemporary vocabulary. Inter alia, globalisation and digitalisation:

EU, etc., were established to address these issues. A system of double tax treaties has been introduced to enable economic activity between countries and avoid double taxation. Measures against protectionism and towards market openness have also been taken. Although international taxation was developed to facilitate international business and economic activity, it was also used as a mechanism to enhance the competitiveness and attractiveness of jurisdictions in their quest to attract foreign direct investment, funds and coveted taxable income. But globalisation and digitalization, as well as other behaviours outside norms and ethics, seem to have turned the focus of attention in the opposite direction. The current decade could be characterised • Diminish time and distances, rendering as the age of compliance and regulation. geography less relevant The ease of doing business internationally, • Remove physical barriers and bridge coun- in the way we know it, is changing fast. To tries and continents, cultures, civilisations start with, the free movement of capital is no and religions. longer particularly free, as verification of the • Convey information in real time. sources of funds and of the wealth of indi• Identify and meet the demand for products viduals is needed, coupled with information and services all over world. about where the funds will be directed. • Interact and do business for virtual Transparency is surging and adequate backgoods, using virtual money, in a virtual ground data must be kept about the true market, sometimes referred to as the Inter- owners of the business entities (UBOs), by net or the Cloud. applying KYC and due diligence procedures and through the appropriate keeping of reTo support and facilitate international trade cords. and business, a framework was required in So, anonymity and confidentiality, especially order to lay down rules and principles, as well in the financial services sector, are evaporatas to identify the best possible opportunities ing, particularly, after the introduction of the for entrepreneurs, including the development Common Reporting Standard and FATCA. and application of international tax. The in- Exchange of information between governternational tax framework adjusts and adapts ment authorities is peaking, with the estabas international business takes shape. Orlishment of multilateral agreements (MLI) ganisations like the OECD, GAAT, WTO, being the new trend.

opinion

Globalisation and digitalisation are possibly the two most important words in the contemporary vocabulary

Specific projects and regulatory tools have been devised by international organisations, such as the Base Erosion and Profit Shifting (BEPS) project of the OECD and the EU’s Anti-Tax Avoidance Directive and DAC 6 Directive, as well as the idea of imposing a Financial Transaction Tax and a common tax base/rate across the EU. One could argue that such measures might suggest a return to concealed protectionism, something which is actually evident in a number of countries lately, as suggested by the trade measures they have adopted. Moreover, anti-money laundering is becoming more and more important and playing an overarching role. Currently the 4th EU AML Directive applies to all EU Member States, with the 5th and 6th already on the way. There is also a far greater sensitivity to the possible financing of terrorism. A “blurred” agency concept greatly practised for many years in rather “notorious but convenient tax havens” is being challenged and replaced by substance and stricter rules of what constitutes physical presence and permanent establishment. Traditional tax planning practices are now heavily scrutinised, with the so-called “aggressive tax planning techniques” consid-

ered as money laundering offences. In addition, the development of technology and the spread of production and distribution lines present a greater challenge to classical tax questions such as where and when value is created, profits or taxable income are generated, goods/services are ultimately sold or enjoyed, and which jurisdiction has legal ownership of the tax revenue. This has also led to digital tax proposals. Hence, we observe conflicts between jurisdictions on the one hand, and conflicts between governments and corporations on the other, with each claiming its own fair share of tax. The latter situation has given rise to mistrust between governments and international companies, mainly multinationals. There is also the wishful intention of harmonizing tax practices, bases and rates within alliances of countries such as the EU, without the parallel consideration of a harmonized fiscal and budgetary policy. This is worrying as it may have an adverse effect on each individual country’s sovereignty and how it chooses to use national taxation to support the social policies it wishes to offer its citizens. Tax revenues define the extent of money allocated to defence, healthcare, education and general welfare.

We live in an interesting yet challenging era. There is uncertainty in the air about how things may evolve, with events like Brexit (with or without an agreement) making the situation even more complicated. So, the ways in which things are changing are forcing the current state of play in international business to adapt accordingly, thus affecting international tax matters as well. The conference highlighted all of the above and concluded that adherence to the action points of the BEPS project, EU Directives and overall compliance issues are the way forward. For Cyprus in particular, there is a recognised need to upgrade the Tax Department’s procedures and systems in order to bring it into the digital age. The main objective for the near future is to be able to interact via digital means with taxpayers in a holistic and responsive manner. The stake for Cyprus is to maintain and enhance its reputation and credibility, and this can be done by adhering to internationally applicable frameworks. At the same time, it is essential to foster its competitiveness as a regional business centre of choice. This dual objective requires careful treatment, planning and coordination.

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COVER STORY

Creating st a 21 Century Tax Department

photo by: emma louise charalambous

ACCOUNTANCY CYPRUS

Yiannis Tsangaris

COVER STORY

Enormous efforts have been made to modernize and improve the operations of the Tax Department in what is still an ongoing process. Taxpayers will see and appreciate these changes, which will hopefully lead to a new culture as regards voluntary tax compliance, says Yiannis Tsangaris, Commissioner of Taxation. When you were appointed, you famously compared the Tax Department to a ‘coffee shop’. How bad was it? When you refer to a ‘coffee shop’, you basically mean a place where anybody can enter, without any restrictions or having to inform anybody about the purpose of your visit and maybe you will sit down and have a chat with somebody. This was probably the norm, not only in the Tax Department but in the majority of the government offices and we are trying really hard to change this practice. We are in the process of strictly restricting access to offices in the Department and permit access only to the designated areas for taxpayers’ services. The intention of my comment was to point out the

unsuitability of the existing buildings to accommodate the newly integrated Tax Department and its technological infrastructure, and also to stress the inefficiencies of the existing processes and how they affect the quality of the everyday work of the organisation. We have to admit that, due to existing bureaucratic procedures, the technology and building infrastructure of both former tax services had been completely neglected, which adversely affected the quality of service offered and, generally, their credibility as tax authorities. Since then, the situation has gradually been changing and processes are improving in order to reverse the negative image towards a more positive one. Is it true that there were cases still pending more than 30 years later? When I was appointed as Commissioner of Taxation, I asked for a kind of a ‘stock taking’ in order to have a clear view of the ‘opening balance’ and not only of the existing backlog. Indeed, the stock taking revealed unsettled objections that had remained pending for years and a huge backlog of individuals’ and companies’ income tax returns pending for examination, all related to direct taxation. The shortage of staff, the existing legislative framework, as well as the dependence of the Department on third parties for the preparation of programmes needed for the processing of tax returns, all bore some responsibility for this chaotic situation.

Our priority was to design a project that aimed to bring the Department to normality, first by clearing out the majority of pending objections and proceeding with the processing of tax returns. At the same time, we submitted a change to the legislation, to amend the existing system into a fully self-assessed system. This will allow us to select tax returns for further examination based on a risk analysis.

The new integrated computerized system will reshape the operations of the Department How did you go about cleaning up this colossal mess? A project team was appointed to schedule and manage the settlement within a specified timeframe by giving the necessary instructions/ guidelines. Cases were allocated to dedicated staff who worked both during and outside normal working hours. Today, the vast majority of those older objections have been settled and work continues on issuing tax assessments for the years which are still outstanding. As mentioned

ACCOUNTANCY CYPRUS

COVER STORY

Since last year, more than half a million taxpayers have been filing their annual income tax returns online earlier, the legislative changes were needed to prevent the creation of such backlogs again. How do you view the consolidation of the Inland Revenue and VAT Department into todayâ&#x20AC;&#x2122;s Tax Department, which took place before your appointment? Has it been a success? Are there still things that need to be done? Consolidation is an ongoing process that has not yet come to an end. The accommodation of all District Offices under an integrated environment, the completion of the integration process as well as change management regarding the personnel are three of the most important factors that need to be taken care of. We must not ignore the fact that we live in a country where changes are not always welcome! We know this very well so we are proceeding with the necessary changes very carefully to ensure that everything works prop-

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erly. Changing the culture of an organisation can be a very difficult task but the staff of the Department now realise the benefits of an integrated Department and they are working hard to accommodate all the changes that are taking place. There has been a huge effort to secure new, modern buildings to host the integrated district offices and the process has been very time-consuming. It is only recently that we have seen some optimistic results. To be more specific, the Famagusta District Office was the first integrated office and it has been operating as such for two years now. The Larnaca District Office has only recently moved to new offices under an integrated structure. Currently, we are under discussions for the integrated Nicosia District Offices and stateowned land has been found for the construction of the integrated Limassol District Offices. The integrated Paphos District Office is a matter of reorganising the existing offices in the same building. The legislative framework has also changed in relation to the assessment of taxes and the Commissioner now has the power to raise an assessment on every return submitted rather than an obligation to do so. The new integrated computerized system, however, will reshape the operations of the Department. The invitation for tenders was published a few days ago and it is expected that, by the end of the year, the tender will be awarded to the successful

bidder. The new system will employ state-of-art technology and offer full automation of processes and full eservices to the public. This will not only increase the efficiency of the Department but will minimize the cost to the taxpayer. In addition, over the last two years, a risk management unit has operated for the identification, analysis and prioritisation of risks and proceeded to carry out targeted campaigns based on inside and third-party information received from government bodies and European/international sources, in order to increase tax compliance and, especially, to change the culture regarding voluntary tax compliance. How many people use the TAXISNet system for the online submission of tax returns? Since last year, more than half a million taxpayers have been filing their annual income tax returns online and more than 60,000 file their quarterly VAT returns via the system. TAXISnet has actually been available to the public since 2007, while for the last three years, its use has been compulsory for the filing of VAT returns. Companies and selfemployed individuals with audited accounts have been obliged to have their tax returns submitted online by their tax auditors since revenue year 2010 and all individuals are now obliged to file their income tax returns online since revenue year 2017. Employers have also filed their

COVER STORY

tax returns online since revenue year 2010 and companies withholding the special defence contribution from rental expenses have been doing this since revenue year 2011. You recently introduced new features to the system. What are they and what others are planned? Our aim is to maximize revenues at minimum cost and definitely not to transfer the cost to the taxpayer. Instead, we are aiming at simplifying the submission process for all types of tax returns, given the available technology and infrastructure. We have taken into consideration the frustration of individuals regarding the tax calculation and therefore, since online filing is now compulsory for everybody, we have put a lot of effort into automating the self-assessment process and the tax calculation in particular. Furthermore, income tax returns offer pre-populated fields based on previous submissions and provide clear instructions for every single field of the tax return. These developments have transformed online submission into a quick and easy process, saving a lot of time and effort from the individual’s perspective and reducing errors for auditing purposes on the Tax Department side. From the beginning of the year, the employer’s tax return is being submitted on a monthly basis, and this will contribute to timely tax compliance, the pre-filing of tax returns

and timely compliance recovery actions. You have previously described VAT as “the most important international development in taxation in the last 50 years”. How important is it to tax revenues in Cyprus? Figures show that income from VAT constitutes 50% of the revenues of the Cyprus Tax Department. In addition, VAT is a withholding tax, meaning that it costs less to the Government to be collected. Moreover, as the tax is a European tax, our legislation is in accordance with the European VAT Directive and thus leaves very little room for political intervention. You have also noted that the system throughout Europe is still open to fraud. How serious is the situation in Cyprus? Tax evasion is an international phenomenon that every tax authority needs to acknowledge and fight against. Various European and International Directives/Acts have been developed in order to prevent aggressive tax planning and enhance the exchange of information between tax authorities. We are part of the exchange process and, through our participation in various European Union meetings, we manage to remain in line with current developments. What are your short- and longterm plans for the Department?

During the last quarter of 2018, I presented to the personnel and selected stakeholders – including ICPAC members – the publicly available three-year strategic planning of the Cyprus Tax Department for 2019-2021, where challenges were acknowledged and specific strategic goals were set, together with related KPIs. In the short term, I am aiming to have integrated, well-functioning district offices, with more online services offered to the public and to keep the Department’s workload up to date. Our priority is to restore the credibility of the Department with the general public. In the long term, I visualise the Department functioning completely electronically, with staff who are well equipped with data analytical skills and specialised tax skills, operating based on risks and dedicated to taking proactive action, with an emphasis on educating taxpayers for easier tax compliance.

We have put a lot of effort into automating the self-assessment process and the tax calculation in particular

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main STORY

FINANCIAL CRIME

The Fight Against Fraud and Financial Crime Comes to Cyprus

hat is the ACFE and what prompted the formation of the Cyprus Chapter? The ACFE is the world’s largest anti-fraud organisation and a premier provider of antifraud training and education. It is based in Austin, Texas and was founded in 1988 by leading fraud expert Dr. Joseph T. Wells. Dr. Wells’ insight as an accountant-turnedFBI agent led to the development of the methodology that forms the core of fraud examination today. The ACFE numbers more than 80,000 members worldwide and, since its formation, it has been reducing business fraud and inspiring public confidence in the integrity and objectivity of fraud examiners across the globe. The mission of the ACFE is to reduce fraud and white-collar crime and to assist its members in detecting and deterring fraud. To accomplish its mission, the ACFE provides bona fide qualifications for Certified Fraud Examiners (CFEs), sets high standards for admission, including demonstrated competence through mandatory continuing professional education, and requires CFEs to adhere to a strict code of professional conduct and ethics. Furthermore, the ACFE serves as the international representative for CFEs to business, government and academic institutions and provides leadership to inspire public confidence in the integrity, objectivity, and professionalism of CFEs. The ACFE operates through Local Chapters, which are organised by members, who reside in a particular city or country and share an interest in the detection and deterrence of fraud. In the aftermath of the

Public perceptions and attitudes towards fraud and corruption are changing for the better

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After the 2013 fi nancial and bank ing crisis, it was on ly a matter of ti me before serious ca ses of fraud and corruption were uncovered. For ju st over 30 years, th e Association of Certified Fraud Examiners (ACFE) has been workin g across the worl d to detect and re duce cases of fr aud and, in October 2017, the ACFE Cy prus Chapter was form ed. George Zornas , President of the ACFE Cyprus Chap ter and Group Intern al Audit Director , Bank of Cyprus, speaks about its aims while Board Members and othe rs express their vi ews in specially commisioned arti cles.

financial crisis of 2013, a number of fraud and corruption cases, involving high ranking officials, came to light. These cases, which affected different organisations, departments, and aspects of public life, unequivocally demonstrated that fraud and corruption are very much a reality in Cyprus. The Cyprus Chapter of the ACFE was formed in 2017 in response to the need to raise public awareness of fraud and in order to improve the know-how and the methodology employed for detecting and handling cases of financial crime, fraud and corruption. The Cyprus Chapter, as the local representative of the ACFE, provides continuous support to its members, by offering networking and mentoring opportunities, timely, practical information and training on the latest fraud detection methods, in an effort to more effectively combat fraud. What does the ACFE Cyprus Chapter aim to achieve in the next five years? The overarching aim of the Cyprus Chapter is to become the leading anti-fraud organisation and premier provider of antifraud training and education in Cyprus. The goal is to become a point of reference for Cypriots in all matters relating to fraud and financial crime. More specifically, in the next five years, the Chapter aims to: – Promote education and disseminate the knowledge and skills of its members regarding fraud prevention, control and detection. – Represent CFEs in Cyprus and strengthen public opinion and confidence in the integrity, objectivity and professionalism of CFEs.

– Play a prominent and constructive role in efforts to identify and fight cases of fraud in Cyprus. – Promote the exchange of ideas amongst its members with regard to techniques, methods and approaches to solving fraudrelated problems. – Work with local agencies to promote fraud-examination procedures. – Make a decisive contribution in order to defend the rights of its members in the performance of their work. What has been done since the 2013 financial crisis in order to mitigate the risk of money laundering in Cyprus? Since 2013, significant steps have been taken towards raising public awareness regarding money laundering, as well as enforcing specific measures to reduce the risk of money laundering. Strict compliance practices have been enforced in the past few years, in both the private and public sectors, in order to protect Cyprus from money laundering practices. Specifically, the risk-mitigating factors adopted since 2013 include the enhancement of AML legislation and the empowerment of the competent supervisory authorities to take action against money laundering and terrorist financing. Additionally, the legal system has been improved in terms of Asset Recovery Laws (freezing and confiscation). Enhanced cooperation and coordination between the authorities and law enforcement

main STORY

It is what we do when no-one else is looking that truly matters in the effort to prevent fraud, corruption and financial crime

ge Geor as n Zor

agencies has also been promoted, not least through bilateral and multilateral relationships, as well as through the Advisory Authority, which is composed of representatives from different organisations, including the Unit for Combating Money Laundering, the Central Bank of Cyprus, the Ministry of finance, the Ministry of Justice & Public Order, the Police, the Association of Cyprus Banks and the Customs and Excise Department. Transparency on taxation, facilitated by the effective exchange of information with foreign tax authorities, as well as the availability of, and access to, overseas ownership information and bank account details, have all contributed to the reduction of the risk of money laundering as well. Bank of Cyprus’ closure of and/or refusal to open some 8,000 accounts between 2015 and 2017 is illustrative of the proactive, preventive measures that have

been taken against money laundering by the largest financial institution on the island. Specifically, as at 31/12/2017, the Bank had terminated around 5,000 customer accounts and rejected approximately 3,000 potential customers, exclusively on the grounds of KYC/AML compliance. Another positive development, as regards anti-money laundering efforts, was the November 2018 publication of the first Money Laundering/Terrorist Financing risk assessment undertaken by the Cyprus Authorities. The study, which was conducted using the methodology of the World Bank, mapped the measures already taken to mitigate the risk of money laundering, whilst highlighting areas where further improvement was needed. It is quite encouraging to observe that the Government, the relevant supervisory and regulatory authorities, as well as the financial institutions, are working together towards mitigating and minimizing the risks posed by money laundering in Cyprus. What are the main hindrances to the effort to tackle fraud, corruption and financial crime on the island? The main impediments in the effort to successfully deter financial crime and instances of fraud and corruption in Cyprus are the lack of an enhanced culture of risk awareness, coupled with a weakened internal control framework and a lack of good corporate governance in many Cypriot organisations, both public and private. For many years, especially during the decades leading up to the financial crisis of 2013, many areas of Cyprus’ social, economic and political life were characterised by tolerance towards cases of fraud, corruption, embezzlement and misappropriation

of funds. Nepotism, conflict of interest and cases of ‘revolving doors’ were also commonplace phenomena. The mentality that tolerated these incidents is a detriment to any efforts to tackle fraud and corruption. That said, public perceptions and attitudes towards fraud and corruption are changing for the better but there is still a significant way to go in developing a public culture of risk awareness. What has the impact of technology been on the fraud and financial crime landscape? As sophisticated technologies emerge on an almost daily basis, so does the complexity of financial crime and fraud schemes. Fraudsters have been very adept at employing innovative technologies for their own purposes and, as a result, cyber-security has been identified and remains to this day a high-risk factor. In addition to malware and ransomware attacks, which present a perennial threat to organisations, both the private and public sector are now faced with new threats from network-based ransomware cryptoworms, which make redundant the human element previously needed for successful attacks. The role of IT-based controls is of fundamental importance in an environment of technological innovation and the increasing utilisation of artificial intelligence algorithms. IT-based controls are useful, both in terms of identifying fraud and of mitigating emerging cybercrime risks. As fraudsters use technology to advance their schemes, so too do the control functions of organisations need to develop expertise in order to protect themselves against emerging threats. A robust and well-managed Information Security System is increasingly crucial for every organisation, in order to guard against security risks, to resolve security

ACCOUNTANCY CYPRUS

main STORY

FINANCIAL CRIME As sophisticated technologies emerge on an almost daily basis, so does the complexity of financial crime and fraud schemes

control weaknesses and protect it against fraud and financial crime. Is financial fraud more frequent in the public or private sector? If so, why? Allow me to answer this question by quoting some of the results of the Report to the Nations 2018 Study on Occupation Fraud and Abuse, published by the ACFE. The study looked into 2,690 real cases of occupational fraud in 125 countries in 23 different industry sectors and concluded that 42% of the frauds examined occurred in private companies, 29% in public companies and 16% in government organisations. As such, the question whether financial fraud is more frequent in the public or the private sector is one that has no straightforward answer. Fraud occurs in all sectors and across all industries. What determines an entity’s susceptibility to fraud is a combination of factors, such as its size, geographical location, organisational culture and risk awareness rather than solely its ownership status. For example, the size of an organisation can directly affect both the opportunity for fraud and the ability to take certain anti-fraud measures. Larger entities can dedicate more resources to their antifraud programmes and have greater ability to separate duties among staff members to help prevent fraud. However, as highlighted by the Report to the Nations, a large staff size can also mean more potentially dishonest employees who might attempt schemes and more complex processes and transactions, which can increase the risk of fraud. Additionally, entities that operate in the banking and financial services, manufacturing, and government and public administration

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sectors traditionally have to deal with more incidences of fraud, as the nature of their operations creates more opportunities and incentives for fraud. Furthermore, organisations that operate within a lax regulatory and compliance environment experience more instances of fraud than entities that are strictly regulated. Similarly, where practices of good corporate governance are implemented and where a robust system of internal control and high risk awareness are cultivated, the level of financial crime and fraud decreases exponentially.

It is the responsibility of all of us, as active members of Cypriot society, to fight all cases of financial crime To what extent can fraud, corruption and financial crime ultimately be prevented? Fraud and corruption can and should be prevented. It is the responsibility of all of us, as active members of Cypriot society, to fight all cases of financial crime. After all, the tolerance that society as a whole demonstrates towards fraud and corruption is one of the best measures of that society’s moral calibre and standing. As such, it is pivotal that appropriate measures are in place, in order to combat fraud and corruption in all areas of public life. The development of an ethical mindset is the bedrock upon which any effort to prevent fraud and corruption must be founded. In order to effectively tackle financial crime, business ethics must come to the foreground of any discussion regarding fraud preven-

tion. Although appropriate policies and procedures are necessary, it is the ethical standards by which one abides that dictate the actions one takes both individually and collectively. And it is what we do when no one else is looking that truly matters in the effort to prevent fraud, corruption and financial crime. Beyond the establishment of high ethical standards in the way we act and contact business, in order to adequately prevent fraud, entities – private, public and governmental – need to have in place a transparent organisational structure with clear reporting lines, a robust framework of internal controls, based on the model of the three lines of defence for the management of risks and a culture of enhanced risk awareness. Additionally, an ethical code of conduct, by which employees should abide, must be in place. Moreover, given that tipoffs are by far, as per the ACFE’s Report to the Nations, the most common method of detecting fraud, a clear whistleblowing policy should be implemented in every organisation. Furthermore, a strict regulatory and legal framework should be enforced, both as a preventive mechanism against cases of fraud and corruption, but also in order to prosecute such cases when they occur in a timely and effective manner. It should also be noted that a corruption watchdog will be formed in Cyprus, as per the Ministerial decision of February 2019. This is very encouraging and it represents a step in the right direction. The watchdog will be tasked with investigating cases and coordinating efforts in the public and private sectors as regards tackling corruption. The watchdog will promote an enhanced framework against financial crime and will strengthen pub-

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Contextualising Fraud and Corruption Maria bia Kram is rd Kapa

lic trust by demonstrating the willingness of the Government to take drastic measures towards preventing fraud and financial crime. With Cyprus becoming an increasingly popular international headquartering hub for investors, do you expect to see a corresponding rise in financial crime on the island? Cyprus’ popularity as an international hub for investors is growing. The tax incentives, combined with a number of competitive advantages offered to foreign entities, have made Cyprus an attractive destination for many international companies. This has created unique opportunities for the Cypriot economy, as well as new threats. It is unquestionable that the boost to the economy, led by foreign investment, is more than welcome, especially in the aftermath of the 2013 financial crisis and in the light of the intense international competition that Cyprus is now facing. However, exposure to international companies with complicated structures and augmented complexity in their transactions increases the risk of financial crime and fraud. It is evident that the fast pace of business transactions within a diverse financial environment, with corporations of different origins and sizes, is conducive to fraud. However, recent policy changes and awareness-raising activities on behalf of the regulatory authorities combined with many corporations’ own strong internal control framework, have increased risk awareness and accountability and, in turn, mitigate financial crime and fraudrelated risks.

n comparison with other countries, concern about fraud and corruption in Cyprus is fairly recent. The first international conference on economic crime in the country was organised in December 1998 by the University of Cyprus. Following increased interest by technocrats, police, accountants and lawyers, the conference organisers proceeded to edit a book entitled Economic Crime in Cyprus in 2001, with chapters contributed by academics, accountants, lawyers, IT experts, bankers, police investigators and an ex-Minister of Finance. Almost 20 years later, demand for forensic accountants and fraud auditors, as well as discussion of fraud and corruption in the country, is increasing. Fraud is sometimes described as an ‘invisible crime’ since the victims are often unaware of it and consequently do not report it. Fraud is an offence that is not only difficult to detect but also difficult and complex to investigate and prosecute. In addition, there is limited political will to address this type of crime and very rarely do election promises touch on it. Contrary to the popular belief that white-collar crime does not cause any ‘real’

By Maria KrambiaKapardis, Associ ate Professor in Accounting, Cyprus University of Technology (responsible for training member s of the ACFE Cypr us Chapter)

harm like conventional crime, it can, and in fact does, result in physical harm, including work injuries, illnesses and even death, as well as psychological harm, with victims at risk of developing anxiety and depression. Furthermore, it is now also well-established that certain fraud offenders not only resort to violence but also commit homicide to prevent their crimes from being discovered. Such offenders have been termed red-collar. In addition, as a consequence of a major fraud, an employer may be forced to retrench employees or reduce their salaries. Offenders’ family members may also feel a psychological burden and humiliation and may leave a marriage or the household or even commit suicide. The consequences of fraud are thus not only financial but also social and psychological, and these latter consequences are often ignored. Generally speaking, white-collar offenders do not consider themselves criminals. A distinction needs to be made between fraud committed by an individual in the context of his/her occupation and cases in which fraud occurs in the context of a “criminogenic corporation”. Unsurprisingly, a number of factors facilitate fraud and, since the advent of the Internet and now Artificial Intelligence, committing fraud remotely has become relatively easy. So what is the motivation? An offender’s motivation to commit fraud was emphasized by Donald Cressey in 1953 in an article on “the criminal violation of financial trust” in which he discussed the concept of the “non-shareable problem” among embezzlers, a factor that underpins the decision to resolve a problem (e.g., fi-

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FINANCIAL CRIME The consequences of fraud are not only financial but also social and psychological

Figure 1: The ROP model. nancial distress, loss of status) through theft. Cressey’s proposition became known as the ‘fraud triangle’, which was later developed to comprise the components of pressure, opportunity, and rationalization to account for fraud. Although Cressey’s fraud triangle has been adopted in auditing standards as a useful framework to analyze fraud risk and to prevent and detect fraud, it cannot be said to provide a profile of fraud offenders per se. An adequate explanation for why fraud occurs has to incorporate the fact that the person must be capable of recognizing an opportunity to commit the crime. This author (2001) reported an improvement to the fraud triangle with the introduction of the ROP fraud model which consists of three components: (1) Rationalizations, (justifications for one’s criminal behaviour), (2) Opportunity (in terms of situational factors and company characteristics), and (3) Person (crime-prone in terms of being motivated to commit fraud, having the capability to do so, and feeling under pressure). The concept of a crime-prone personality is essential because not all people under the same criminogenic environment decide to commit fraud and go through with it; in other words, a model of fraud has to account for individual differences. The ROP model is illustrated in Figure 1. In my 2001 book Enhancing The Auditor’s Fraud Detection Ability: An Interdisciplinary Approach. I note that the two necessary components for the fraud opportunity to exist are: 1. Situational factors: collusion opportunities; absence of capable guardians; auditors rely excessively on management’s representations; senior audit partners are spread too thin; perception of low risk of being apprehended for fraud; and perception of lenient sentence if convicted; and

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2. Organizational characteristics: collusion opportunities; lack of adequate control procedures that prevent fraud; lack of code of conduct; and criminogenic corporate culture. Given that the individual is a key component in the study of the aetiology of fraud, it goes without saying that the individual ought to be a key variable in the fraud prevention model (Figure 2). In this model I argue that individuals ought to have moral fibre. This can be achieved through a moral character that includes the core values of integrity, honesty, fairness, authenticity, moral courage. Individuals then ought to illustrate ethical behaviour by doing the right thing, showing vulnerability, mentoring and practice ethical decision-making through fair treatment, making social ethical choices and being accountable for their actions. These moral values ought to be embedded in individuals from a very young age. As Aristotle, the first philosopher to write ethical treatises, argues, the correct approach for studying such controversial subjects as ethics ought to start with a person’s good upbringing and experience in life, and to work from there to a higher understanding and consistent discussion and practice on ethics. The second component of the model is the corporation. The business entity ought to ensure that, not only it has introduced a code of conduct but it has a toxic-free environment where compassion and empathy permeate its decision making models. This will ensure that its mission and vision are not only profit but the environment, its employees and generally all its stakeholders and, thus, it is socially responsible. At the same time, the corporation ought to embrace governance through the lenses of not

only legal but ethical compliance as well. At the societal level, the Krambia-Kapardis model asserts that it is essential that there be meaningful civil society participation, political accountability and institutional integrity. At the same time, the Government ought to encourage the teaching of ethics in the curriculum of primary, secondary and tertiary education, while promoting a culture of zero tolerance of corruption. Political accountability is established when there are good practices, such as coolingoff periods for elected and appointed officials to avoid the ‘revolving door’ phenomenon, asset declarations of all elected and appointed officers, a regulatory framework to ensure ethical and transparent lobbying, and an ethics programme for parliamentarians (e.g. Code of Conduct, Disciplinary Procedures, etc.). Institutional Integrity relates to the institutions of a country (legislative, law enforcement, media, ombudsman, etc.) and maintaining a high level of integrity. The integrity of institutions in many countries has been declining and Cyprus is no exception. In conclusion, more can be done to reduce fraud and corruption in Cyprus. What is called for is the will to do it. As individuals, companies and the State, let us answer the call to action.

Figure 2: Corruption & Fraud Prevention Model

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The Role of Business Ethics in an Anti-Fraud Environment

raud in general poses a significant threat to organizations in all industries, in both the public and private sectors, worldwide. Between the various kinds of fraud that organizations might be faced with, occupational fraud is likely the largest and most dominant threat. Occupational fraud is defined as the use of one’s occupation for personal enrichment, through the deliberate misuse or misapplication of the employing organization’s resources or assets. In accordance with the Report to the Nations: 2018 Study on Occupation Fraud and Abuse, published by the ACFE, which has looked into 2,690 real cases of occupational fraud in 125 countries in 23 different industry sectors, the total loss caused by the occupational fraud cases included in the study, exceeded US$7.1 billion. Victim organizations ranged from small local businesses to multinational corporations with thousands of employees. These frauds were committed by individuals from entry-level employees to C-suite executives. Based on this, we can conclude that there is no ‘one size fits all’ approach when organizations are called to fight fraud. Therefore, the greatest challenge for an organization today is to develop a customized approach to preventing and detecting fraud. It is almost impossible to predict whether an individual will be inclined to commit fraud. However, the environment in which an employee works can be controlled by a company’s leadership in both formal and informal ways to make fraud more difficult. It is up to the company to establish a robust internal control framework, backed with a strong organisational culture and to promote ethical behaviour by its executives, managers

and employees. In their effort to achieve this, the following should be taken into consideration:

By Marios Skandalis VicePresident and founder member, ACFE Cyprus Chapter

Right Tone at the Top: Is That Enough? The Board has the ultimate responsibility for setting the organisation’s core values and principles through an effective tone. However, this is not enough. If the right mood is not set by senior management through their action plans and daily activity which will reflect this tone, then this will not bring the right buzz to the bottom levels of any organization. A key value that should be embraced is the expectation that staff act with integrity (i.e. doing the right thing) and promptly escalate observed non-compliance within or outside the organisation (i.e. ‘no surprises’ approach). Therefore, the tone at the top must be communicated frequently, openly, honestly and put into practice by every individual within the organization on a daily basis. Develop a Compliance and Ethics Programme Senior management must ensure that adequate compliance and ethics policies are in place. Policies such as a Code of Ethics and Business Conduct, Whistleblowing, Anti-Fraud policy and Conflict of Interest must be tied to the organization’s mission statement and core values and clearly articulate management expectations. Organizations need to ensure that their employees understand their roles and responsibilities under these policies and are aware that they are held accountable for their actions. In other words,

all members of organizations should collectively change their mindset and set compliance on a different basis – not on the basis of conduct and discipline assurance but on the basis of right behaviour and guidance. And if we are to set it in the right corporate terminology, compliance should be viewed as a worthwhile investment. Whistle-blowing: Promote Reporting Mechanisms In accordance with the aforementioned ACFE report, the leading detection method of occupational fraud is through tipoffs. Active cultivation of tipoffs and complaints, such as the promotion of fraud hotlines, is often geared primarily towards employees. However, this report suggests that organizations should also consider promoting reporting mechanisms to outside parties, especially customers and vendors. Whistle-blowers often have a fear of being identified or retaliated against, which is why it is important that they are able to make reports anonymously. A robust whistle-blower programme is essential to creating an environment in which a fraudster will fear exposure; without adequate protection for a whistle-blower, the programme will be useless. Business Ethics Training Business ethics training should be an in-

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FINANCIAL CRIME

It is almost impossible to predict whether an individual will be inclined to commit fraud

Conflict of Interest: Can Corruption Exist Without It? By Agis Taramides, Treasurer , ACFE Cyprus Chapter

tegral part of the overall employee education programme. It is vital for employees to understand the importance of ‘doing the right thing’ and behaving ethically in a business context, as well as their responsibility to recognise and prevent unethical conduct. Business ethics education must be transformed into everyday practice. In addition, a business ethics code must be integrated into the company’s culture and staff must use what they have learned from training in every aspect of their business. Organizational Culture The culture in an organization arises from the repeated behaviour of its members. These behaviours are shaped by the underlying values, beliefs and attitudes of individuals, which are partly inherent but are also themselves influenced by the prevailing culture in the organization. Culture is more than a statement of values; it relates to how these translate into concrete actions. The Board and senior management have the prime responsibility for defining the desired organizational culture, by promoting the values and the behaviours they wish to see across their organizations. Ethics is not a science but simply the branch of philosophy that studies the difference between what is behaviourally right and what wrong. In other words, it aims to apply a cultural framework rather than simply a regulatory one when it comes to conduct. However, although easy to comprehend, it is a rather difficult task to implement in a corporation. Actually reaching the ideal ethical level is not a real attainable objective and, therefore, ethical aspects should always be at the top of the Board’s agenda.

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ds corruption Corruption bree t with as little and it can star rns vour, which tu as one small fa .. d. an r he d anot into another an another. can organisations in Corruption the , ys wa of riety appear in a va of ct li nf co g e bein most common on interest. g g and resolvin in fy Identi ns io at tu si rest conflict of inte ce an rn ve go od is crucial to go trust in any g in in ta and main rience However, expe organisation. t to can be difficul shows that this y practice. achieve in dail

Definitions The Organisation for Economic Cooperation and Development (OECD) states that: “Conflict of interest occurs when an individual or a corporation (either private or governmental) is in a position to exploit their own professional or official capacity in some way for personal or corporate benefit.” According to the World Bank, corruption is defined as “the abuse of public office for private gain”. This definition can be equally applied to the public sector and the private sector. Comparing the two definitions, conflict of interest is when an individual could abuse his/her position and Corruption is when an individual does abuse his/her position for personal gain. Some conflicts of interest are obvious, e.g. public officials who award contracts to themselves, members of

their family or friends; public officials who personally, or through close relations, hold shares in companies with which they are contracting, etc. Some other conflicts of interest are not so obvious.

Corruption Corruption cannot exist without conflict of interest, as every corrupt act is driven by an underlying conflict. Apart from the natural desire to avoid being a victim of corruption, organizations and their management need to demonstrate their financial integrity in an era in which compliance and regulation are more urgent than ever before. It can be important to take active measures to guard against corruption perpetrated or assisted from within. Understanding the relationship between conflicts of interest and corruption can lead to new ways to deter and detect misconduct.

As conflicts of interest erode the public’s trust, they must be avoided In the private sector, there has been a long history of concern about integrity in business and, in particular, about protecting the interests of shareholders and the public at large. Recent scandals have drawn attention to the importance of avoiding conflicts of interest, which can become an issue when, for example, a public official leaves office for employment in the business or NGO

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A Tar gis ami des

How Rapid Changes in Technology Affect Fraud

T sector, or an accounting firm offers both auditing and consulting services to the same client, or a regulatory agency becomes too closely aligned to the business entities it is intended to supervise. Establishing an efficient and effective programme for managing conflicts of interest is the first step towards mitigating the impact around this very real threat. The cost of implementing a streamlined (and automated) solution is minimal compared to the high price of charges for non-compliance and failure to disclose conflicts of interest. A final word It takes skill and good judgment to recognise that one is in a conflict of interest situation. This is because private and personal interests can cloud a person’s objectivity. Individuals must carefully consider all the circumstances surrounding the offer of a gift or an incentive, including the purpose of the donor, how the transaction may be viewed by impartial observers and the potential impact on the practice of their profession. Individuals must also be aware of ways in which their personal and family relationships, and other close personal associations, may potentially bias their judgment. Preservation of the highest ethical standards is vital in the conduct of independent judgment and professional practice. As conflicts of interest erode the public’s trust, they must be avoided. When they cannot be avoided, they must be managed with transparency.

he digital revolution has transformed the corporate landscape and accelerated the process of globalization, linking businesses and individuals, irrespective of time and location. This digital revolution has opened the doors to new and more pervasive forms of fraud. As technology becomes more advanced, fraudulent schemes become more complex and sophisticated. The same digital channels that are used for services and operations are also manipulated by fraudsters and well-organised crime rings, that use technology to increase the efficiency and magnitude of their fraudulent schemes. Refined technology-based methods for cybercrime have provided fraudsters with increased efficiency and a broader level of affected victims and businesses. The following are examples that show how rapid changes in technology affect fraud: Digitalisation There is an international shift from hard-copy filing to the electronic storage of data with options ranging from internal and external hard-drive devices to cloud networks. In Cyprus, while bureaucracy is still practised by many organizations, especially in the public sector, there seems to be a dynamic need, a will and a movement towards digitalisation. While this can benefit the cost-effectiveness, efficiency and eco-friendly stance of businesses, fraudsters don’t necessarily need to physically appear to steal the secure information they are after, but can plan their battles and execute their plans from the comfort of their

By George Yiallo uros Board Member, ACFE Cyprus Chap ter

own laptop or phone from miles away. Security Breaches Despite best efforts to secure organizations, websites, individual privacy and well-being, both virtually and physically, criminals will continue to seek ways to break through. With the high level of technological progress, cyber fraudsters have developed an equally high level of skills while discovering ways to breach and crack the security systems of organizations through corporate or personal electronic devices, including smartphones, which nowadays are made to store an abundance of information. Identity Theft Social media usage continues to be an increasing trend for the majority of the Cypriot population. Online platforms like Facebook, Instagram, LinkedIn, Twitter, etc. often provide hackers with the perfect opportunity to take action. A typical user shares his/her personal information on these sites, including a name, gender, e-mail, birthday, birthplace, family members and hobbies. Other users, even though it is a bit less common, share even more private information including phone numbers, home addresses, holiday vacation details, and updated locations. All these details give fraudsters easy access to identity theft opportunities and furthermore,

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FINANCIAL CRIME Employee Fraud By John Yiannis FCPA GAICD FGIA

usage of them to gain or open bank accounts as well as other endless crimes through impersonation. Spear Phishing Similar to normal phishing emails, the purpose of spear phishing is the theft of personal information. The difference, however, is that spear phishing targets specific individuals, as opposed to random people, who receive the scam e-mail supposedly from a colleague within their work environment, allowing hackers to gain access to their ultimate goal of retrieving businesses’ confidential data. This has naturally led to the need for developing innovated technology-based defence mechanisms and, furthermore, more sophisticated software applications for the tracking, analysis and prevention

of fraud to combat the fraudsters’ best efforts. It is now easier to integrate fraud prevention controls and systems that are preventive, adaptive and effective into each business process and transaction. It is not enough for companies to only invest in hiring suitable, skilled individuals while creating effective policies and hands-on security protocols; efficient technology adaptations are also essential. A blend of modern systems, an adequate policy framework and specialised individuals/teams is the key in the effort to combat fraud. As the landscape of fraud continues to shift, business leaders must be aware of trends and predictions that will allow them to implement internal and external controls and systems to help reduce the risk of fraud and keep them from becoming another statistic. This can be achieved through: – Media coverage raising general public awareness of cybercrime. – Companies providing advanced training for all their employees. – A government push for development of new and stricter laws against fraud. In conclusion, while rapid changes in technology have made it easier for the “bad guys” to plan and commit fraud, it has also given an equally greater power to fraud fighters.

George Yiallouros

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As technology becomes more advanced, fraudulent schemes become more complex and sophisticated

What is fraud? Fraud can be defined as “the gaining of financial advantage by a person who deliberately deceives another person or business”. In a business or accounting context, falsifying business records such as timesheets, travel claims, expense claims, invoices or financial statements is an example of fraud. Another example of fraud is using company or client assets such as funds, physical assets or information/intellectual property for private benefit.

The fraudster thinks that the company or organisation is making a lot of money so a few thousand won’t be missed Why do employees commit fraud? Individuals perpetrate fraud against their employer or organisation for several reasons. These can include: 1. Incentive or pressure experienced by the fraudster. These may include the following drivers: a. Personal issues: i. Peer/family pressure. ii. Gambling and other habits. b. Unhappiness with current employment situation. c. Pressure to meet financial goals/ targets. d. Pressure to meet personal bonus or incentive targets. 2. Attitude rationalisation in the

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The Fraud RED Flags may be an indication of fraud in the organisation

John Yiannis

mind of the fraudster: a. The company or organisation is making a lot of money so a few thousand won’t be missed. b. It is not the fraudster’s money, it is the company’s money, therefore the theft is justified. c. The fraudster has not received a pay increase in two years so he is entitled to steal from the company or organisation. 3. Opportunity: a. Poor control environment. b. Poor security practices. c. Poor human resource processes. The above is often reflected in the following diagram:

Fraud Red Flag

Reason for Red Flag

Management Dominance

Dominant Management may force employees to cover up or make wrong decisions

High turnover of key staff particularly in accounting or finance positions

High turnover of key staff may be an indication that staff are feeling uncomfortable with the culture in the organisation

Poor control environment including inadequate segregation of duties

Inadequate segregation of duties may be an indication that employees are exerting control of end to end processes within an organisation

Employee lifestyle at odds with known sources of income

May be an indication of employees defrauding the business or organisation

Excessive hours worked by key staff or a lack of delegation of apparently mundane tasks

May be an indication of employees controlling end to end processes

Missing documentation or non-standard documentation replacements (invoices are copies, duplicates on plain paper not letterhead)

May be an indication of fraud as fraudsters are falsifying records

Failure to take holidays at key times

Employees not taking vacation at key times such as month end and year end for fear of the fraud being uncovered

Poor vetting practices for applicants

Inadequate vetting practices may lead to individuals with unscrupulous backgrounds being recruited

What not to do in relation to fraud: The Fraud Don’ts What Fraudsters love (the Don’ts)

Impact

Confronting the employee or individual suspected without expert assistance

Suspected employee may cover their tracks, destroying vital evidence

Jump to conclusions by assuming the outcome of any investigation

Risk of not discovering the entire magnitude of the issue

Trying to conduct the investigation yourself (always engage the correct expert assistance)

Risk of not discovering the entire magnitude of the issue

Conduct searches of property, computer equipment, and other physical evidence

Lack of expertise – may corrupt or tamper with information

Tamper or compromise potential evidence

Evidence lost

Deal with the outcomes without expert assistance

Overlooking crucial aspects that may comprise the long-term outcome

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ACCOUNTING & AUDIT

IFRS 9 for Corporates: Is the Grass Greener on the Other Side? By Stavri Frangou, Senior Manager, Risk Advisory &

Alexis Agathocleous, Partner, Financial Services Industry Leader, Deloitte Cyprus

IFRS 9

, the new financial instruments reporting standard, is widely recognised as having a profound impact on banks. But what about corporates? There is a common misperception, that, IFRS 9 will have little or no impact. This is not the case! An entity may have to face significant changes and challenges with its financial reporting, IT systems, processes and controls as a result of applying this standard. This is certain to be the case for intra-group loans, equity and debt securities, or even financial guarantee contracts. It might even be the case for those holding short-term trade and intra group receivables. It all greatly depends.

is for non-hedging derivatives, which are, and credit exposures for which there has been a significant increase in credit risk since initial forever will be measured, at FVTPL. recognition, a loss allowance is required for credit losses that result from all possible Impairment When it comes to impairment, IFRS 9 brings default events over the expected life of the about wholesale changes, as it moves from an financial instrument, irrespective of the tim“incurred loss” to an “expected loss” impairing of default i.e. a lifetime ECL or Stage 2 or ment model. The standard follows a forward- 3 (Figure 1). Apart from the general model of impairment, looking approach, and companies will have to recognise immediately a certain amount of there are simplification options available expected credit losses (ECL). This is because, which are applicable to trade receivables, conevery receivable, loan or other financial asset, tract assets that do not contain a significant financing component (see IFRS 15) and lease carries a certain risk of default. Every such receivables (see IFRS 16). The simplified apasset, inevitably, has an ECL attached to it, from the very moment of its origination until proach does not require tracking the changes in credit risk, but instead requires the recogits final maturity. Consequently, the impact nition of lifetime ECLs at all times (Figure of IFRS 9 impairment requirements will Classification & Measurement vary between companies, across portfolios as 2). For trade receivables or contract assets, IFRS 9 has a more simplified approach for well as be subject to more stringent data and entities are required to apply the simplified classifying and measuring financial assets, approach. methodology requirements. compared to IAS 39. However, the fact Further to Deloitte’s publication Applying the Under the general model of impairment, that the approach is described as simplified Expected Credit Loss Model to Trade Receivaentities must recognise ECL in two stages. doesn’t necessarily mean that it is simple. bles using a Provision Matrix, one may use it For credit exposures for which there has Entities will now be required to assess under not been a significant increase in credit risk as a practical expedient to determine ECL which business models they manage their since initial recognition, entities are required for trade receivables. The provision matrix financial assets and understand the character- to provide for those credit losses that result follows an approach based on the entity’s istics of the contractual cash flows they collect from default events which are possible within historical default rates over the life of its trade from those assets. Determining whether the receivables and thereafter adjusted with forthe 12 months after the reporting date, terms governing loans and receivables are ward-looking information. The use of such a i.e. 12-month ECL or Stage 1. For those “in accordance with a basic lending arrangement”, in order to justify measurement at either amortised cost or fair value, can be a real challenge in practice. Although the new requirements can lead to similar measurement categories as per IAS 39, one cannot presume that this will always be the case for every single financial asset. The only time, one can safely assume the classification and measurement of a financial asset will always be the same as with IAS 39, Figure 1

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ACCOUNTING & AUDIT

Figure 2

tool provides some relief from the need to track changes and, most importantly, offers the ability to entities to apply their ECL methodology consistently. Furthermore, IFRS 9 eliminates the need for an impairment assessment for equity instruments and establishes a new approach that is based on measuring equity instruments purely at fair values. An irrevocable election can be made, at initial recognition, to measure equity instruments that are not held for trading at FVOCI. Therefore, although the IFRS 9 model is simpler than IAS 39, it comes at a price, the inherent threat of volatility in profit or loss from moving to a fair value approach.

The impact of this standard goes well beyond a simple technical change in accounting policy Modification of financial instruments Contrary to widespread belief, the modification of financial instruments is an area that, if not carefully considered, may cause unpleasant surprises to profit and loss. When the terms of a financial instrument are modified, entities need to consider whether the modification is substantial. If the modification is considered substantial, the original financial instrument is derecognised and a new financial instrument is recognised at fair value. The process of assessing whether a modification to the terms of a financial instrument is substantial is the same under both IAS 39 and IFRS 9. However, the treatment of a non-substantial modification is different.

Previously, there was some ambiguity around the accounting treatment for a non-substantial modification of a financial instrument. Deloitte’s publication, Impact of Transition from IAS 39 to IFRS 9 on the Exchange of or Modification of Financial Liabilities, clarifies that, under IFRS 9, a gain or loss should be recognised at the time of a non-substantial modification and, for this reason, modifications of financial instruments are particularly important under IFRS 9.

modelling tools, in order to prepare for the inevitable organisational and governance changes to come.

So, is the grass greener on the other side for corporates? IFRS 9 will affect almost all entities and not just large financial institutions. Where entities have material trade receivables, contract asset and lease receivable balances, special attention is required to ensure that an appropriate process and Final thoughts methodology is put in place to calculate The impact of this standard goes well beyond the expected credit losses. a simple technical change in accounting Moving to IFRS 9 will likely have some policy. It requires coordinating multi-discisignificant upsides as it creates significant plinary effort from various functions within opportunities for corporates to get their an organization, from Risk and Finance to IT accounting more aligned with how they and Business. manage risk. Risk is a key investor focus, so IFRS 9 will eventually change the way en“telling the risk management story” better, tities manage risk, as its impact could be will align any organisation’s communicasignificant in terms of capital and business tion strategy with investors’ expectations. model management. The impairment model With careful planning, the changes inis likely to have a negative impact on equity troduced by IFRS 9, might prove to be a and bottom line profit but it is also likely to great opportunity for balance sheet optigenerate more volatility when it comes to im- mization. Left unattended for too long, pairment. These consequences may persuade IFRS 9 may hide some nasty surprises. Eiorganizations among others to review and ther way, there’s enough at stake already, rethink their current risk management strate- and entities that haven’t begun assessing gies, business models, the financial instruthe standard’s implications, will have to ments they use to manage financial risks and beat the ticking clock. restructure, divest and reposition themselves All in all, corporates can accept reality in other market segments. for what it is, embrace this opportunity Data availability is pivotal to successful IFRS to develop, improve and leverage on the 9 application. Issues around data quality, changes that IFRS 9 brings to their busiavailability, appropriate format and eventual ness. So, is the grass greener on the other collection are likely to be at the forefront of side for corporates? Rather than simply the implementation efforts for IFRS 9. It is stating that the grass is always greener on therefore essential to plan the implementathe other side, we would say that the grass tion ahead of new systems, processes and is greenest where it is watered.

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IFRS 9 Financial Instruments: Applying the expected credit loss model to trade receivables using a provision matrix By Yiannis Leonidou, Partner, Audit & Assurance, Deloitte, Chairman, ICPAC Accounting Standards Committee, &

Christos Theodoulou, ACA, BFP, BA, Assistant Manager, Audit & Assurance, Deloitte

IFRS 9

Financial Instruments, effective for annual periods beginning since 1 January, 2018 introduces a new impairment model based on expected credit losses. This is different from IAS 39 Financial Instruments: Recognition and Measurement, where an incurred loss model was used. Many assume that accounting for financial instruments is an area of concern only for large financial entities like banks. This is not the case. Almost every entity has financial instruments that it needs to account for. In particular, almost every entity has trade receivables and the new financial instruments standard changes the way entities must think about impairment. In this article, we focus on the new impairment requirements in IFRS 9 and specifically on applying the simplified approach using a provision matrix for trade receivables, contract assets recognised under IFRS 15 and lease receivables under IAS 17 (or IFRS 16).

allowance for lifetime expected credit losses is recognised for a financial instrument if there has been a significant increase in credit risk (measured using the lifetime probability of default) since initial recognition of the financial asset. If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, a loss allowance for 12-month expected credit losses is recognised. In other words, the ‘general approach’ has two bases on which to measure expected credit losses; 12-month expected credit losses and lifetime expected credit losses. However, it is not practical or of any benefit to require entities to apply the general approach for short-term receivables. Consequently, IFRS 9 allows entities to apply a ‘simplified approach’ for trade receivables, contract assets and lease receivables. The simplified approach allows entities to recognise lifetime expected losses on all these assets without the need to identify significant increases in credit risk.

What has changed? IFRS 9 introduced a new impairment model based on expected credit losses, resulting in the recognition of a loss allowance before the credit loss is incurred. Under this approach, entities need to consider current conditions and reasonable and supportable forward-looking information that is available without undue cost or effort when estimating expected credit losses. IFRS 9 sets out a ‘general approach’ to impairment. However, in some cases, this ‘general approach’ was overly complicated and therefore some simplifications were introduced. Under IFRS 9’s ‘general approach’, a loss

What accounting policy choices are available when using the ‘simplified approach’? The table below summarises the available accounting policies:

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Applying the ‘simplified approach’ using a provision matrix For short-term trade receivables, e.g. trade debtors with 30-day terms, the determination of forward-looking economic scenarios may be less significant, given that, over the credit risk exposure period, a significant change in economic conditions may be unlikely and historical loss rates might be an appropriate basis for the estimate of expected future losses. A provision matrix is nothing more than applying the relevant loss rates to the trade receivable balances outstanding (i.e. a trade receivable aged analysis). For example, an entity would apply different loss rates depending on the number of days that a trade receivable is past due. Depending on the diversity of its customer base, the entity would use appropriate groupings if its historical credit loss experience shows significantly different loss patterns for different customer segments. Although it is a simplified approach, care should be taken in the following areas: • Determining appropriate groupings. • Adjusting historical loss rates for forward looking information. Below we provide a stepped approach for applying a provision matrix.

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Step-by-Step approach Step 1 Determine the appropriate groupings There is no explicit guidance or specific requirement in IFRS 9 on how to group trade receivables. However, groupings could be based on geographical region, product type, customer rating, collateral or trade credit insurance and type of customer (such as wholesale or retail). To be able to apply a provision matrix to trade receivables, the population of individual trade receivables should first be aggregated into groups of receivables that share similar credit risk characteristics. When grouping items for the purposes of shared credit characteristics, it is important to understand and identify what most significantly drives each different groupâ&#x20AC;&#x2122;s credit risk. In our example we consider a telecommunication company that sells both handsets and network access on 24-month contracts. It might group receivables from wholesale customers and retail customers separately because they have different credit risk characteristics. Furthermore, it might group receivables related to handsets (representing a receivable due over 24 months) separately from receivables related to month-to-month network access charges because the risk characteristics related to the period of credit exposure will be different. It could then group each of the above sets of receivables by geography if it was relevant to do so. On this basis, it might determine that a provision matrix is appropriate for only the trade receivables related to the month-tomonth network access and that a different approach is needed for the trade receivables

related to handset sales (which reflects a receivable over 24-months). Furthermore, assume that two relevant geographical areas have been identified each with their own credit characteristics. That would result in eight sub-groups with shared credit characteristics for the telecommunication company in this example.

(i.e. a loss rate for balances that are 0 days past due, a loss rate for 1-30 days past due, a loss rate for 31-60 days past due and so on). To do so, entities should determine the historical loss rates of each group or sub-group by obtaining observable data from the determined period. IFRS 9 does not provide any specific guid-

Step 2 Determine the period over which observed historical loss rates are appropriate Once the sub-groups are identified, historical loss data needs to be collected for each sub-group. There is no specific guidance in IFRS 9 on how far back the historical data should be collected. Judgment is needed to determine the period over which reliable historical data can be obtained that is relevant to the future period over which the trade receivables will be collected. In general, the period should be reasonable - not an unrealistically short or long period of time. In practice, the period could span two to five years. Step 3 Determine the historical loss rates Now that sub-groups have been identified and the period over which loss data will be captured has been selected, an entity determines the expected loss rates for each subgroup sub-divided into past-due categories.

ance on how to calculate loss rates and judgment will be required. Continuing with the telecommunications company example from Step 1, letâ&#x20AC;&#x2122;s consider network charges for retail customers in geography 1. How would this entity go about calculating a loss rate? Step 3.1 Determine the total credit sales and total credit loss over the selected historical period Once an entity has selected the period over which it will collect data, it should identify the total credit sales made and the total credit losses suffered on those sales. The data captured over the relevant period should be

Almost every entity has financial instruments that it needs to account for

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Step 3.2 When was the cash received?

Sales that reach the ageing grouping

Amount received during the ageing grouping

Sales that reach the next ageing grouping

0 days overdue

$10,500,00

$5,000,000

$5,500,000

Between 1 and 30 days past due

$5,500,000

$2,750,000

Between 31 and 60 days past due

$2,750,000

$1,350,000

$1,400,000

Between 61 and 90 days past due

$1,400,000

$750,000

$650,000

Later than 90 days past due

$650,000

$525,000

$125,000

Never paid (written off)

$125,000

(written off)

combined and averages should be calculated. However, for simplicity the example used reflects information obtained for one financial year. For example, assuming the telecommunications company used the data from its 2017 financial year, it determined the following: • Total credit sales recorded in 2017: $10,500,000 • Total credit losses relating to those sales: $125,000 Once the total credit sales and credit losses are known, the relevant ‘ageing’ needs to be determined. An entity will need to analyse its data to determine how long it took for it to collect all of its receivables (i.e. migration of balances through the ageing bands) and to determine the proportion of balances in each past-due category that was ultimately not received. To put it another way, what proportion of debtors that reach each pastdue metric were ultimately collected? The reason this is done is to determine an expectation based on past history of the proportion of receivables that “go bad” once they get to a specific point past due. The analysis will require an accounting system to identify when a customer paid their credit sale invoice. This information is then sorted into the different timeframes as indicated in the table below.

Step 3.2 When was the cash received? Once the cash receipts have been analysed and the balances outstanding have been grouped, the historical loss rates should be calculated. The historical loss rate is calculated below by taking total credit loss and dividing it by the credit sales amounts that reach each ageing grouping. Step 3.3 Determine the historical loss rate The logic for dividing the total credit loss by the outstanding balance at each age band can be explained by following the loss allowance as it moves through the different ageing bands. Applying the loss rates calculated above to the outstanding credit sales at any point in time results in a loss allowance of $125,000 being the lifetime expected loss on the total credit sales of $10,500,000. The calculation performed above follows one year’s credit sales through the different ageing bands to serve as an indicator of historical losses. At a reporting date, the trade receivable age analysis is a summary of how credit sales have progressed through the ageing bands. In other words, it is a snapshot at a moment in time. Consequently, the historical loss rates calculated above serve as a good starting point for the estimate of expect-

ed credit losses under IFRS 9. The telecommunications company will have to repeat this exercise for each one of the sub-groups it identified in Step 1 for which it is appropriate to use a provision matrix to measure the expected credit losses. Step 4 Consider forward looking macro-economic factors and conclude on appropriate loss rates The historical loss rates calculated in Step 3 reflect the economic conditions in place during the period to which the historical data relates. While they

IFRS 9 does not provide any specific guidance on how to calculate loss rates and judgement will be required are a starting point for identifying expected losses they are not necessarily the final loss rates that should applied to the carrying amount. Using the same example that we have used throughout, the historical loss rates were calculated from the 2017 financial year. However, what if at the 2018 reporting date, information was available that in one specific geographical region unemployment was expected to rise because of a sudden economic downturn and that increase in unemployment was expected to

Step 3.3 Determine the historical loss rate

0 days past due

30 days past due

60 days past due

90 days past due

More than 120 days past due

Balances outstanding

$10,500,000

$5,500,000

$2,750,000

$1,400,000

$650,000

Total credit loss

$125,000

Historical loss rate

19%

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Determine the expected credit loss

0 days past due

30 days past due

60 days past due

90 days past due

More than 120 days past due

Balances outstanding at reporting date

$875,000

$460,000

$145,000

$117,000

$55,000

Expected credit loss rate

1.2%

2.4%

10.8%

22.8%

Expected credit loss allowance

$10,500

$11,040

$8,700

$12,636

$12,540

The new impairment requirements will affect almost all entities and not just large financial institutions result in increases in defaults in the short term? In this circumstance, the historical loss rates will not reflect the appropriate expected losses and will need to be adjusted. In this will be an area of significant judgement and will be a function of reasonable and supportable forecasts of future economic conditions. To illustrate the need to update the historical loss rate, we refer back to the historical loss rates calculated in Step 3. The last time that there was a significant downturn in employment in the specific region, trade receivable losses increased on average by 20%. This could be based on an analysis of historical loss patterns compared to points in time in the economic cycle. It is worth noting that the increase of 20% may not necessarily be the same across all bands. For the purpose of this example we assume it is. Consequently, the historical loss rates would have to be increased by 20% to reflect the current economic forecast.

For illustrative purposes, there is only one adjustment to the loss rate to reflect the higher risk of credit losses arising from higher unemployment. Multiple adjustments may be needed to reflect the unique characteristics of the credit risk environment at the reporting date compared to the average historical loss rates in Step 3. Once the rate is determined in Step 3 and adjusted accordingly in Step 4 for forward looking macro-economic factors, the rate then will be used to measure the expected credit loss in a manner that is consistent with the groups for which the rates were determined. Step 5 Calculate the expected credit losses The expected credit loss of each subgroup determined in Step 1 should be calculated by multiplying the current gross receivable balance by the loss rate. For example, the specific adjusted loss rate should be applied to the balance of each age-band for the receivables in each group. Once the expected credit losses of each age-band for the receivables have been calculated, then simply add all the expected credit losses of each age-band for the total expected credit loss of the portfolio. If we assume a trade receivable balance outstanding at the reporting date of $1,652,000 and an age analysis as detailed below, the expected credit loss would be calculated at $55,416. The table below illustrates

Total

$55,416

how the ultimate expected credit loss allowance would be calculated using the loss rates calculated in Step 4. Final thoughts The new impairment requirements will affect almost all entities and not just large financial institutions. Where entities have material trade receivable, contract asset and lease receivable balances, care is needed to ensure that an appropriate process is put in place to calculate the expected credit losses. Furthermore, the effort required to implement the enhanced disclosure requirements related to credit risk in IFRS 7 Financial Instruments: Disclosures should also not be underestimated. Entities should consider what level of disclosure will be required, especially in the first year of applying IFRS 9. It will be important for users of the financial statements to understand any increases in impairments, accounting policies applied and significant areas of judgment applied in adopting IFRS 9.

Entities should consider what level of disclosure will be required, especially in the first year of applying IFRS 9

Updating historical loss rates for forward looking information

Current

30 days past due

60 days past due

90 days past due

Later than 90 days

Historical loss rate increased by 20%

1.2%

2.4%

10.8%

22.8%

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Why Choose Accounting? There are many reasons why the profession continues to be attractive and sustainable in Cyprus

By Marios Mortis, BSc, MSc, ACCA, Trainer and Accountancy Programme Leader, EIMF

ccountants will always needed in Cyprus. In this day and age, as the island witnesses a steady growth in tourism, the continuous provision of professional financial and fiduciary services, and the emergence of the FinTech industry and an inspired start-up world, accounting and bookkeeping will be in high demand as these sectors expand their operations alongside a rapidly recovering economy. There is plenty of potential for growth and stability in the accounting industry in Cyprus. According to the statistics portal Statista, revenue from accounting activities in Cyprus has grown steadily over the past decade, climbing from roughly €340 million in 2010 to a predicted €520 million in 2020. Additionally, given its privileged geographic location, stable political environment, low tax rate and educated workforce, Cyprus will continue to serve as a gateway to Europe for Russia, the countries of the Middle East, North Africa and beyond, attracting new businesses that will undoubtedly require accounting services. As Helen Brand, CEO of the Association of Chartered Certified Accountants, said during a visit to Cyprus in 2015, the accounting profession “can play an important role, particularly either in business or as advisors to small businesses, who will always be the backbone of generating jobs and economic growth for countries like Cyprus.” It is vital to make an important distinction regarding the accountancy profession: one of the first questions asked by those interested in pursuing accounting careers concerns the difference between an accountant and an auditor. An audit and an accounting process share differences and similarities, al-

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daily, whereas auditors usually perform though many use the two interchangeably. quarterly or annual audit work. Auditors are The two words involve separate processes often brought into a company to perform that a company can use to prepare and an annual audit of financial statements. monitor its financial data. Relying on both • The work performed by accountants is processes to ferret out questionable procegoverned by international accounting standures builds public trust in a company’s dards, but auditors’ work is regulated by financial statements, such as those involving auditing standards. the sale of stock. • Accountants are generally needed for Accountants or accounting technicians a business but hiring an auditor is a legal take care of the daily financial transactions obligation. for a company or business. Their duties • Accountants create year-end financial cover various tasks that range from bookstatements for the company. These statekeeping, the preparation of management ments create a picture of the financial stabilreports, budgets and financial analysis to the ity of the company. An auditor will look preparation of statutory year-end financial over the financial statements and determine statements. their accuracy. On the other hand, an audit All this then begs the quesinvolves the review of a comThere is tion: Why choose a career pany’s accounting books. An plenty of in accounting? audit may be done through potential for Here are some of the forensic accounting or main reasons! growth and conducted by an indestability in the pendent audit firm. The Always accounting audit process is an in-depth in Demand industry in examination of each financial As the market ebbs and Cyprus transaction made by a company flows, one thing will always and encompasses the total year-end remain certain: a company’s accounts. Upon completion of the indeneed for an accounting department. Rependent audit, the books and accounting gardless of a company’s area of activity, size procedures are verified as accurate. or level of success, accountants and bookHere are some of the most important differ- keepers will always play a fundamental ences between the two: role in its day-to-day • Accountants are usually employees of the operations. company for which they work, whereas, auditors are often hired from an outside firm to verify the accuracy of the accountant’s work. Although not always the case, an auditor generally has no financial connections to the company. • The work of accountants is done

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This is one position a company would be hard-pressed to eliminate given its importance in keeping tidy records of all financial transactions, balancing the books, and providing management with an overall picture of the organization’s financial health. Accounting Equals Stability Considering that all companies need an accountant, pursuing a profession in this field will reward you with long-term professional stability. There is a never a day when accountants can be found out looking for a job. They will always have ample professional opportunities available. Higher Salaries Salaries in the field remain constant and are generally above average at a starting level. Salary Explorer, for instance, calculates that the average annual salary for an individual in the accounting and finance sector in Cyprus is €25,000 and €18,500 for an accountant starting his/her career. Plenty of Flexibility Crunching numbers will always be at a premium, regardless of the industry. Established firms, start-ups, family-owned businesses, NGOs and non-profit organizations in all walks of life need accountants. Hence, accounting professionals can work in a wide array of sectors and

of advanced technological debe selective when it comes to deciding where they would like to ply velopments, the accounting their trade. So, if you have a industry is constantly on particular interest in envithe move and changing Many of the ronmental causes, sports, skills acquired the way it does busifood and beverage, fashion by accountants ness. Hence, accounor real estate, you can altants must always stay can be readily ways look for accounting up-to-date with the applied to other jobs in these specific sectors latest trends, regulaindustries and work for an industry tions and technological you’re passionate about. advancements. For example, the rise of cloud accountAccounting Skills ing platforms, software that allows Translate to Other Industries for automation and artificial intelligence, Many of the skills acquired by accountants has encouraged accountants to acquire can be readily applied to other industries. new skills and expand their pool of First of all, in today’s data-driven society knowledge. Likewise, the growing imwhere statistics are relied upon for soluportance of social media has led people tions on a continuous basis, the strong in this industry to start interacting with mathematical and financial skills that are their colleagues and clients online, honfundamental to an accountant’s role are in ing their communication, public relavery great demand. Furthermore, accountions and marketing skills. Finally, as we tants would have a tough time delivering move towards a business world that calls results and keeping a business afloat without for greater disclosure and financial transsolid organizational and time management parency, accountants must work with skills. Meticulousness and the delivery of compliance officers to fall in line with financial statements and other reports in these new regulations and avoid being a timely fashion are both skills that are penalized by the authorities. crucial to many other industries. Finally, adaptability, combined with innovation or creativity, is paramount for an accountant to succeed. In this high-flying technological era, an accountant must be able to adapt to rapidly evolving situations and seek creative solutions to problems that might arise on the go. Accountants Are Always Learning As with everything in this era

The European Institute of Management and Finance (EIMF) offers a variety of learning and development opportunities in the field of Accounting, including the Association of Accounting Technicians (AAT) Accountancy and Bookkeeping Qualifications. For additional details on these programmes and other accountingrelated offerings, contact 22274470 or e-mail info@eimf.eu

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Money Laundering Legislation in Greece By Yiangos Charalambous FCCA, former Technical Consultant, UHYAxon Chartered Accountants S.A, Deputy Senior Partner, KPMG, Senior Vice Chairman, Hellenic Capital Market Commission

he duties imposed on auditors, as set out in ISA 250, include the examination of issues relating to corporate governance and identifying whether management and officers charged with governance have implemented the relevant procedures and controls, which ensure that the entityâ&#x20AC;&#x2122;s operations are conducted in accordance with the relevant laws and regulations, particularly those relating to fraud and money laundering and those that determine the reported amounts and disclosures in the financial statements. Auditors operating in Greece prior to 30 July, 2018 were compliant with the legislation provisions of the Money Laundering Law 3691/2008. In addition, in compliance with the regulations of the Hellenic Accounting and Auditing Standards Oversight Board, each firm was obliged to prepare and submit an AML manual. The above legislation was replaced by Law 4557/2018 (Government Gazette 139/Î&#x2018;/30.07.2018), which incorporated the provisions of Directive 2015/849/EU. Applying the provisions of the new law within an audit firm require time for

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compiling appropriPOL/1189/2018 ate audit material, that relates to the developing tools Notifications of There is plenty of and training staff. the provisions potential for growth Building case studof the Law, inies on money launtended to inform and stability in the dering practices and civil servants of accounting industry showing how such the appropriate in Cyprus cases are treated by departments, and auditors adds to the POL/1204/2018, costs of the audit which sets out the firm. provisions to be apPreventing and detecting non-complied under the new law, which brings pliance is a function that falls within administrative changes, the most imthe responsibilities of management, portant of which are set out below: which is expected amongst others to 1. Supervision of obligated (or inmonitor the legal requirements applisider) persons is transferred from cable to the company and ensure that the Tax Administration Directorate operating procedures were designed to (GDFD) to the Independent Revenue meet the requirements of the law, to Authority (AADE) (article 6). institute and operate appropriate sys2. Supervision of lenders is transtems of internal control, to develop, ferred to the Financial Police and publish and following a code of conProsecution of Cybercrime (article 6). duct and to ensure that employees are 3. Auction properly trained to understand it. houses Appropriate government departments are also affected by the new law on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and other provisions (Law 4557/30.07.2018). The new law resulted in the issue by the Tax Authority of two Circulars:

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and dealers in high value goods and auctioneers are grouped into a single category (article 5). 4. POL/1204/2018 also lists obligated (or insider) persons in various categories, the first of which includes external accountants/tax consultants, accountants, persons offering taxation and auditing services, as well as individual auditors. 5. Dealers in high-value goods and auctioneers are subject to investigation for transactions of at least €10,000, regardless of whether such a transaction is completed in one or in several operations which seem to be linked. Such a case was reported recently in the Greek press. 6. Minimum limits of financial penalties, as provided in the previous law, have been removed and only the maximum amounts of financial penalties are defined (article 46). The definition of money laundering is included in article 2 of Law 4557/2018, which quotes directly from Directive 2015/849/EU: This Directive aims to prevent the use of the EU’s financial system for the purposes of money laundering and terrorist financing. Member States shall ensure that money laundering and terrorist financing are prohibited. For the purposes of this Directive, the

following conduct, when committed intentionally, according to the provisions of the new legislation is regarded as money laundering: (a) the conversion or transfer of property, knowing that such property is derived from criminal activity or from an act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an activity to evade the legal consequences of that person’s action; (b) the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that such property is derived from criminal activity or from an act of participation in such an activity; (c) the acquisition, possession or use of property, knowing, at the time of

Many of the skills acquired by accountants can be readily applied to other industries

receipt, that such property was derived from criminal activity or from an act of participation in such an activity; (d) participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions referred to in points (a), (b) and (c). Money laundering shall be regarded as such even where the activities which generated the property to be laundered were carried out in the territory of another Member State or in that of a third country. For the purposes of this Directive, ‘terrorist financing’ means the provision or collection of funds, by any means, directly or indirectly, with the intention that they be used or in the knowledge that they are to be used, in full or in part, in order to carry out any of the offences within the meaning of Articles 1 to 4 of Council Framework Decision 2002/475/JHA (1).

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Continuous Professional Development By Spyros Yiassemides BA, MSc, FCA, Partner Yiassemides & Co

o the journey is over, the books are in the bag and the latter back in the closet. Congratulations – you are now a qualified accountant, and you have earned the right to attach the coveted acronym, either ACA or ACCA, next to your name. The ON/OFF regime that applied to college and work is now over, with the work switch turned permanently ON and that of college flicked to OFF. Or so you thought! Completing your professional exams only marks the end of your academic studies; you still need to study on an almost daily basis if you want to keep up with your work requirements, perform to the best of your abilities and ensure that you keep up to date with all pertinent developments in our chosen line of business. There is a name for it too – Continuous Professional Development (CPD for short) – and, since you are a qualified accountant, it is obligatory too, if you want to maintain your hard-earned professional title. So, what exactly is CPD, apart from an acronym on a declaration form that you need to complete and submit on an annual basis? In the words of ICPAC, it involves the activities that must be undertaken by qualified accountants so as to ensure that ‘they maintain and develop the knowledge and skills needed to succeed in today’s dynamic and demanding business environment’. ICPAC has a CPD unit route, meaning that you must complete 40 units of CPD in a year in order to be CPD-compliant. This includes 21 verifiable units that must be obtained through structured training in the form of seminars/workshops that issue official certificates for attendance – 1 hour of

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training equals 1 CPD unit. The other 19 units can be obtained through own developmental activities – anything from reading business journals to undertaking e-learning ticks the CPD box and, again, 1 hour of such activities earns you 1 CPD unit. The maths is quite straightforward. Some employers are “ACCA Approved Employers”. If you work for such an organisation, you can forget all about ICPAC’s CPD unit route, as your company is responsible for your professional development, ensuring that your CPD quota is met each year – and then some. You tick the relevant box in your ICPAC annual CPD declaration and there you have it – CPDcompliant in a jiffy! If you work solo, however, or for an employer that is not ACCA-approved, it’s a different story – the pursuit of CPD is your own responsibility and you must go after it as if your (professional) life depends on it. Which it does. Doing your own CPD does not necessarily mean that you need to attend numerous (costly) seminars in a given year in order to pile up CPD units. Whether you belong to the ICAEW or the ACCA, you are free to choose from a variety of constructive activities that count as CPD. ICAEW argues that they ‘recognise that people learn in different ways, through several different channels’ while ACCA sets forth several activities that are acceptable to them for CPD purposes, such as ‘work-based learning, coaching, mentoring, e-learning, networking, discussion groups, reading and undertaking research’. And the good news is that, if you are either an ACA or an ACCA, then your professional body is a member of the International Federation of

Having an up-to-date knowledge of all things affecting the profession is essential

Accountants (IFAC), which basically means that, if you are complying with said body’s CPD requirements by carrying out a combination of the aforementioned activities, then you are good with ICPAC as well. A different tick in a different box of ICPAC’s CPD declaration and voila – CPD-compliant again! Professional compliance aside, there are many benefits to be enjoyed when sticking religiously to a CPD protocol, eight of which are set forth below: 1. Keeping up with the (professional) Joneses: The accounting profession is constantly evolving. New Standards are being introduced (e.g. the new IFRS 9 that will phase out IAS 39), new tax facts come into play (e,g. the latest Informative Guide published by the Tax Department on Benefits in Kind) and the competition from other tax-friendly jurisdictions becomes fiercer by the minute. Having an up-to-date knowledge of all things affecting the profession is essential. 2. Gaining more confidence: When your technical knowledge is contemporary, you can talk your way through everything – a professional exposition, a business symposium, even your boss’ cocktail party. And that extra confidence stands you

ACCOUNTING & AUDIT

in a good stead when the time is right for you to knock on your boss’ door, stand before her and ask for a raise. 3. Becoming more competitive: When you are an expert in your field, always keeping abreast of new developments, you tend to stand out from the crowd consisting of your peers. This means that you are more likely to get a promotion over your colleagues who have fallen behind with their CPD requirements or be headhunted for a dream job over other, less-knowledgeable candidates. 4. Evolving into a better professional: When you are about to start your career, you are the equivalent of (knowledge) PlayDoh – you have a crude shape to work with and, from there on, according to the actions taken and the force exerted, you can give it any form you desire, certainly one that is better from the one you started with. The same holds true for your professional self – you can shape it any way you like, according to the (CPD) actions that you take and the (study) efforts that you make. 5. Maintaining interest in what you do: Knowing at any given time what is going on in your line of business (all those interesting tax facts and IFRS developments) ensures that you remain interested in your profession of choice, a by-product of feeling comfortable and confident with the tasks that you perform and the appreciation that you receive from your clients for furnishing them with the best service possible. 6. Removing stress and uncertainty

from your professional life: Another byproduct of your up-to-date knowledge that furnishes you with the confidence required to be the best you can be, professionally. A professional who fails to follow CPD in a successful manner will find himself, more often than not, in doubt when called to give business advice or take an important work-related decision, leading to increased stress and a general sense of uncertainty. A well-taught qualified accountant will be in the opposite state of mind. 7. Mingling with like-minded professionals: If you follow a structured route to CPD, meaning that you attend seminars and workshops, then you will have opportunities aplenty for networking with peers from the same or similar corporate ponds. Who knows, you may even stumble upon your next career opportunity! 8. Improving your quality of life: Take all of the above, blend them together, and the resulting concoction will do your life a world of good, from elevating your job morale to earning you a higher salary to allowing you to get off work early due to increased troubleshooting capacity, compliments of your wealthy knowledge bank! I still vividly remember the transition from the plastic desks of the University of Nicosia to Deloitte’s wooden ones once the last exam of the ICAEW (the notorious ACS) was taken. I remember thinking to myself that I wouldn’t have to open another accountancy or tax book in my life, only to be confronted shortly thereafter with the IFRS Red Book, affectionately

known as “The Technical Bible”! Since obtaining my ACA qualification, I have attended a plethora of professional seminars, gone through countless hours of on-the-job training/development, and sparked up the occasional work-related conversation with a colleague or two, all counting towards my CPD quota. Some years down the road, I stopped counting my CPD units, as the process of carrying out my CPD became automatic, effectively embedded in my daily work routine. These days, every time I attend an IFRS update seminar or read the latest circular by the Tax Department, I don’t even pause to think whether it counts as CPD – I know it does, every little bit of knowledge acquired, every single day. After all, being a conscientious qualified accountant means that CPD becomes second nature, an innate part of one’s professional self.

Being a conscientious qualified accountant means that CPD becomes second nature, an innate part of one’s professional self

ACCOUNTANCY CYPRUS

economy

Sustainable Finance Developments in Europe By Eleni Ashioti, Technical and Professional Matters, ICPAC

Source: European Commission

overnments around the world are looking how to make the planet and the economy more sustainable. At the end of 2015, the Paris agreement on climate change was signed, as was the UN 2030 Agenda for Sustainable Development. Since then, sustainability has been listed as one of the policy priorities of the European Commission. Embedding sustainability in today’s economy could help the financial system regain credibility and trust. Sustainable finance is the provision of finance to investments, considering environmental, social and governance (ESG) factors. In December 2016, the European Commission established a High-Level Expert Group (HLEG) to build a comprehensive sustainable finance strategy for the EU. On 31 January 2018, the HLEG delivered its final report, which highlighted the urgent need for a long-term policy framework to build a sustainable financial system, and made several recommendations. The HLEG’s recommendations provide the basis of the Action Plan on sustainable finance adopted by the

ACCOUNTANCY CYPRUS

Commission in March 2018. The Action Plan has three objectives: • To re-orient capital flows towards sustainable investment, to achieve sustainable and inclusive growth. • To manage financial risks caused by climate change, natural disasters, environmental degradation and social issues. • To foster transparency and longtermism in financial and economic activity. The Action Plan includes a timetable for all actions that will be rolled out by the second quarter of 2019. Its key actions include:

Embedding sustainability in today’s economy could help the financial system regain credibility and trust.

• Establishing an EU classification system – or taxonomy – for sustainable activities. This will create a common language for all actors in the financial system. • Establishing EU labels for green financial products. This will help investors to easily identify products that comply with green or low-carbon criteria. • Incorporating sustainability in EU prudential rules for banks and insurance companies. This means including climate risks into financial institutions’ risk management policies. • Clarifying asset managers’ and institutional investors’ sustainability duties. • Encouraging long-termism and strengthening the transparency of companies on their ESG policies. The Commission will evaluate the current reporting requirements for issuers to ensure they provide the right information to investors.

Steps taken so far In May 2018, the Commission adopted a package of measures implementing several key actions announced in its action plan on sustainable finance. The package included: • A proposal for a regulation on the establishment of a framework to facilitate sustainable investment – to establish the conditions and the framework to create a unified classification system (‘taxonomy’). • A proposal for a regulation on disclosures relating to sustainable investments and sustainability risks – to introduce disclosure obligations on how insti-

economy

Source: European Commission

tutional investors and asset managers integrate ESG factors in their risk processes. • A proposal for a regulation amending the benchmark regulation – to create a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks, which will provide investors with better information on the carbon footprint of their investments. In June 2018, the Commission set up a Technical Expert Group (TEG) on sustainable finance to assist in developing its legislative proposals. The TEG issued its first report on climate-related disclosures in January 2019 to help the Commission in its revision of the current non-binding guidelines of the Non-Financial Reporting Directive (NFRD) governing disclosure of ESG

It has been argued that IFRS 9 may disincentivize long-term investment which could, in turn, limit financing for sustainable projects

related information. As part of the Commission’s actions to strengthen accounting rule making, a fitness check of EU legislation on public corporate reporting was

launched to assess whether public reporting requirements for companies are fit for purpose. The Commission has also asked the European Financial Reporting Advisory Group (EFRAG) to investigate the potential effects on long-term investment of IFRS 9 ‘Financial Instruments’ requirements on accounting for equity instruments and consider alternative accounting treatments. This is because it has been argued that IFRS 9 may disincentivize long-term investment which could, in turn, limit financing for sustainable projects. In addition, the Commission has sought feedback on amendments to delegated acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive to include ESG considerations in the advice that investment firms and insurance distributors offer to individual clients. The Commission has also asked the European Insurance and Occupational Pensions Authority (EIOPA) for technical advice on sustainability within Solvency II. We anticipate the results of the Commission’s efforts for transition to a low-carbon, more resource-efficient and sustainable economy. Orienting more private capital flows towards sustainable investment will certainly contribute to closing the yearly €180 billion gap of additional investments needed to achieve the UN 2030 Sustainable Development Goals and the objectives of the Paris Climate Agreement. The European Commission, however, cannot achieve this on its own. A corresponding global effort is needed.

ACCOUNTANCY CYPRUS

economy

Home Ownership and Household Debt: Implications for Housing Policies By Renos Ioannides, Principal, &

he percentage of home ownership in Cyprus is 70.7%, compared to the Eurozone average of 65.9% (Eurostat). With the rebound of the Cypriot economy in recent years, one of the main pillars of GDP, the real estate sector, has exhibited signs of notable improvement. Even though the sector has been exhibiting improvement in recent years, the supply of new residential units declined from 17,795 in 2008 to very low levels of 2,455 units in 2016 (CyStat). The increase seen in 2017 and 2018 in the licensing of new residential units will have tangible results in terms of supply only after some years. At the same time, there has been an increasing demand for properties, mainly for residential units (purchase and rental), fuelled by both local and foreign buyers/tenants, but also by students, short-term rental platform users, etc. These circumstances have considerably raised the capital and rental value of residential properties. Indicatively, it is reported that the average house price has risen by 6.2%, year on year, as of the second quarter of 2018 (RICS). Even more remarkable is the annual increase in rental rates, which range between 8.4% and 30.4% (RICS) depending on the reporting town (with a national average increase of 17.8%). According to IMF data, households in Cyprus (along with the Netherlands) maintain the highest debt in relation to the country’s GDP, while a survey by the European Central Bank indicates that the average borrowing of domestic households owning a dwelling is the highest in the euro area, both in absolute terms and in relation to the average income of households. Excessive borrowing is reflected in the percentage of nonperforming household loans, which exceeds 50%. In addition, according to Housing Europe, a particularly high percentage of the population in Cyprus has gone into ar-

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Marios Kapnisis, Assistant Manager, KPMG Limited

rears with mortgage or rent payments. Cyprus also has the second highest percentage of citizens (after Bulgaria) who are unable to keep their house warm, based on the Severe Material Deprivation Indicator (SMD), which is significantly higher (11.7% in 2017) than the European average (6.7%). The combination of all of these factors has led to major challenges and also to market distortions. It is, therefore, necessary to implement an integrated and targeted housing policy, characterized by both a shortterm and a long-term horizon and a strategy that involves a multi-faceted and innovative approach, with an integrated partnership between the Government, the various state authorities (e.g. town planning authorities) and the private sector. The strategy should provide, inter alia, for some form of protection for distressed households, that are unable to service their borrowing which is collateralised on their primary residence. The implementation of the ‘Estia’ scheme will definitely facilitate a large number of borrowers but it is a fact that certain borrowers may be judged as non-viable and will, therefore, not be able to join the scheme as their debt is deemed to be unsustainable. There are a number of models that have been successfully applied overseas to mitigate such problems. In the short-term, the ‘Mortgage to Rent’ scheme could be adopted as an immediate remedy to the distressed households mentioned above, which would enable families to continue living in their home surroundings, albeit in a rented state, without the psychological turmoil and social stigma that a forced house move would typically entail. In the event that an Estia-eligible but adjudged non-viable household decides to sell the home in order to move to more affordable premises, a loan write-down of the difference between the outstanding loan balance and the selling

price could be also granted along the lines prescribed by the Estia scheme. Last but not least, a State subsidy to eligible borrowers of the cost of obtaining expert advice from licensed insolvency counsellors would go a long way towards assisting them in effectively managing their financial affairs. Arguably, a longer-term vision of affordable housing is also needed, as is the case in many European countries. For example, the Netherlands has the largest share of social housing in the EU, accounting for 32% of the housing stock and about 75% of the rental stock. In France, social housing accounts for about 17% of the housing stock. In England, social housing accounts for 17.5% of the housing stock and is controlled by councils and housing associations. Under the Housing Act of 1980, tenants of social housing can buy the property they occupy under the ‘Right to Buy’ scheme at a large discount. In addition to centrally regulated housing policies, the private sector has a major role to play in increasing the supply of affordable housing through various schemes and measures in the form of town planning incentives, again taking the lead from our European counterparties: for instance, the obligation to build affordable housing as a criterion for the licensing of specific projects. According to Housing Europe, in Paris, in an effort to increase social housing, there is an obligation for at least 30% of dwellings to be social housing in all projects by private developers covering >800 sq.m. Ultimately, social housing policies have many social and economic benefits, improving in particular the well-being of vulnerable sections of the population. The right to housing should be, invariably, extended to all members of the society.

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CITY HOME 97 Cyfieldâ&#x20AC;&#x2122;s New Business Centre A new generation office complex is ready to house the most demanding firms in a prime location in Nicosia At the junction of Strovolos Avenue and Athalassa Avenue in Nicosia, a new business centre is being created by Cyfield Group. A modern office complex suitable for professionals who want to accommodate their business in a contemporary designed space with all modern comforts. The ground floor features a large showroom/ office with a mezzanine floor. The rest of the

building, with its own entrance, reception and lift, consists of 5 floors of comfortable office space, which can be divided according to the needs of each company. For smaller businesses, the first two floors can be separated into two sections. All floors have kitchens and toilets as well as a veranda. The work space can be divided as desired by the owners thus to accommodate offices, conference rooms and reception

areas. The building is equipped with raised floors, suitable for structured cabling, and drop ceilings with climate control units. The purchase of a business property is an important investment that gives prestige and status to any business. Cyfield provides real added value by offering excellent location, quality construction, reliability in delivery and secure title deeds.

CONTACT INFORMATION Headquarters: Cyfield Tower, 132, Limassol Avenue, 2015 Nicosia, Cyprus

Tel: 80005757

Tel. from abroad: (+357) 22427230

Fax: (+357) 22495203

e-mail: Website: sales@cyfieldgroup.com http://cyfieldgroup.com

ACCOUNTANCY CYPRUS

economy

EU Sanctions: Implementation and Monitoring By Christos Demetriou, Director, APC Audit Tax Advisory Ltd, Vice-Chairman, Ethics and Institutions Specialised Working Group, ICPAC

restrictive measures and sanctions are used by the member states over other countries which are violating international law. The EU implements all sanctions imposed by the United Nations and, in addition, may reinforce them by applying stricter and additional measures. Where the EU deems it necessary, it may decide to impose its own sanctions. The EU imposes sanctions via regulations and each Member State implements such sanctions without further legislation being required. Each Member State is responsible for the enforcement and administration of EU sanctions and for implementing penalties for their breach. Thus, it is not known to what degree they are implemented or whether they actually succeed in reaching the desired objective.

Imposition and Enforcement EU restrictive measures are imposed by a Council decision, through the Common Foreign and Security Policy (CFSP). The sanctions decided by the Council in relation to arms embargoes, travel bans, asset freezes and export bans are binding and are implemented directly by the EU member states. The sanctions are published in the EU official gazette and become effective on the day following their publication.

Measures The measures adopted in each specific situation depend on the objectives and the effectiveness in achieving these objectives. The most common measures are the following:

ACCOUNTANCY CYPRUS

Arms Embargo An arms embargo normally covers the sale, supply, transfer or export of arms and related materials of all types which are included on the latest EU common military list. The provision of technical assistance, brokering services, financing or financial assistance in relation to military activities, is also prohibited and included in the ban. In addition, the sale, supply, transfer or export of internal repression materials, which are not covered by the EU common military list, may also be prohibited.

Asset Freeze An asset freeze concerns funds, economic resources and other financial assets which are owned or controlled directly by targeted individuals or entities, or indirectly by persons acting on their behalf or at their direction. The freezing of assets means that funds such as cash, cheques, bank deposits, stocks, shares, financial instruments, etc., may not be accessed, moved or sold and any other tangible or intangible assets, such as real estate, intellectual property, etc., cannot be sold or rented. The provision of services, supply of goods, execution of payments and carrying out of business transactions by EU persons or companies with persons or companies whose assets have been frozen is prohibited. National authorities, in certain situations, are permitted to lift the ban under specific exemptions.

Visa or Travel Ban Persons who are subject to sanctions, restrictions and measures are not al-

lowed to cross EU borders. Entrance to member states by persons who are subject to measures will be denied. Member State nationals who are subject to measures are not refused entry to the country and EU sanctions will not force the member state to refuse such entry.

Exports and Imports Ban A ban on exports and imports is a new economic weapon for EU member states and other countries. The export or import of various products and the rendering or receiving certain services between the EU member states and the affected third countries is prohibited. Another way of imposing measures on third countries is to increase import charges on certain products, which are vital for the economic survival of such third countries.

Where do EU sanctions apply? EU restrictive measures and sanctions apply only in the EUâ&#x20AC;&#x2122;s territory and

EU member states have no procedures in place for monitoring the implementation of sanctions

economy

They can also challenge the measures before the General Court of the EU.

A ban on exports and imports is a new economic weapon for EU member states and other countries

Sanctions Implementation and Monitoring EU member states have no procedures in place for monitoring the implementation of sanctions. In addition, each member state differs in terms of size, population, economic status and resources available, in order to implement and monitor the sanctions imposed by the EU. The EU needs to evaluate the economic effects for each EU member state

separately, regarding sanctions imposed on third countries and how these sanctions affect the economic status of each EU member state, according to its size and economic dependency. The EU and its member states need to establish a better monitoring system regarding the implementation, impact and effect of sanctions, which will allow them to be implemented and monitored efficiently and effectively, at little cost and with few resources and, if deemed necessary, revised or corrective action can be initiated by the EU.

jurisdiction and are designed to have a political impact on third countries. More specifically, the EU measures apply as follows: • within EU territory • within EU airspace and territorial waters; • to EU nationals • to companies and organisations incorporated under the law of a member state • to companies’ branches incorporated under the law of a member state and they are situated in third countries • to any business exercised in the EU

Legal Decisions Persons or entities, on which restrictive measures have been imposed by the Council, are notified accordingly and specifically about the measures taken against them. At the same time, it brings the available legal remedies to their attention. They can ask the Council to reconsider its decision, by providing observations on the listing.

ACCOUNTANCY CYPRUS

economy

Marathons and their Economic Impact By Constantinos Kypriotis, Senior Manager, KPMG Limited

he organisation of a marathon and its accompanying races of other distances is becoming a massive trend for many destinations around the world. Marathon runners are not professional athletes anymore but amateur runners who have set themselves the goal of completing these demanding 42.195 kilometre races. Over the last few decades, marathon running has become a dynamic ‘commercial product’, transformed from a primarily competitive sport into a lifestyle activity. The economic impact on host cities and local communities is significant. Participants tend to maximise their experience and often stay longer and spend more than a typical guest during such an event. This trend has led marathons to become tourism-related sports events, thereby remarkably increasing the tourism demand and the tourism product, especially during low seasons. Marathons are usually organised annually in different cities, often in the same country, and they therefore have an economic impact on both a local and national level.

Last November, more than 55,000 runners participated in the Athens Marathon, breaking every previous record. Of these, more than 11,000 runners travelled to Greece from 122 different countries. There was also a significant boost to inland tourism, as more than 5,000 runners arrived from destinations outside the Attica prefecture. The estimated economic impact of the event was more than €27.5 million, with the average visitor (including escorts) spending around €1,000 to the benefit of the local economy. The organisation of a marathon is usually the responsibility of the host city, but many more stakeholders are involved in the decision-making process: (1) the local authorities, who provide the facilities and permission to use public spaces, roads and stadiums for the event (2) the organising committee, which is usually a nongovernment and non-profit entity and (3) most importantly, the sponsors, who provide the necessary funding, advertising exposure and other essential facilities.

3. Advertising and promotion. 4. Facilities provided to the runners including water, food and other amenities. 5. Medical staff, expenses and equipment. 6. Facilities provided to volunteers. 7. Race timing systems. 8. Insurance coverages. 9. Police and other security expenses.

The Athens Marathon The Athens Marathon is a typical example of a sports event with major economic benefits, locally, nationally and internationally. It attracts thousands of runners every year and is marketed as “the authentic marathon”, due to its historic ties with the ancient classical route from the town of Marathon to the centre of Athens, following the footsteps of Pheidippides.

The Economics The economics of organising a successful marathon event play a vital role that the host city and other committees need to take into consideration. On one hand, the costs of a marathon event usually include the following:

Marathon running has become a dynamic ‘commercial product’, transformed from a primarily competitive sport into a lifestyle activity

ACCOUNTANCY CYPRUS

1. Authorisation and other necessary permits from the cities involved. 2. Certifications of the route.

On the other hand, the biggest source of revenue derives mainly from the participation fee. The bigger the participation, the greater the revenue. The popularity of the host city is

economy

another determining factor for the amount of revenue. For example, the New York Marathon had an economic impact of $340 million in 2010, while the entire Boston region benefited from more than $201 million in 2018 from the organisation of its city marathon. The beneficial impact extends to hotels and restaurants, small and medium-size businesses, institutions and museums, while stakeholders involved in accommodating the influx of visitors are affected positively. The impact on VAT revenue and income tax returns can be significant, while the

increase in exports from the demand for local and other products is also worth noting. In addition, the country itself may well pass a message to the investment community that foreign capital investments are also welcomed. Cyprus Over the last decade, Cyprus has identified the economic opportunity that marathons offer and their impact on the local economy. In 2018, around 8,000 runners from 66 countries took part in the Limassol Marathon, some 3,000 from 50 countries ran the Paphos Marathon and Larnaca,

with only its second marathon, hosted more than 3,000 runners from 40 countries. Nicosia and other smaller municipalities have also recognised the importance of organising similar events and intend to follow the trend. Consequently, the increase in tourist arrivals and the potential for foreign investment, as a result of a marathon, can provide a significant boost to local economies. Therefore, marathons ought to be organized on the basis of a strategic plan with long-term prospects. As such, they will certainly produce positive results for local communities and the economy in general.

ACCOUNTANCY CYPRUS

economy

The Cypriot Banking Sector in 2018 By George Theocharides, Associate Professor of Finance at Cyprus International Institute of Management (CIIM) and Director of the MSc in Financial Services

ssessing the state of the Cypriot banking sector in 2018, one could say that it was a year in which substantial progress was achieved yet major problems remained. The way this progress was achieved may not have been as expected but, objectively, the banking system was more resilient, strong, and solid at the end of the year than it was at the beginning. Undoubtedly, the closure of the stateowned Cooperative Central Bank (CCB) was the major event of the year. After a history of almost 100 years, its license to operate as a commercial bank was withdrawn at the end of the summer, its ‘good part’ transferred to Hellenic Bank the ‘bad part’ remaining in the hands of the Government and managed through the establishment of a National Asset Management Company (NAMA). Although most people knew that the CCB was going through a difficult transitional period, the manner and speed of its closure took many by surprise. However, was this really such a bad scenario? The Coop had suffered a lot in recent years, mainly because of the complete lack of oversight, regulation, or proper corporate governance prior to 2013, which led to a staggering amount of Non-Performing Loans (NPLs) on its balance sheet after the crisis. Furthermore, the nature of those loans (primarily housing loans) and the overprotection offered by the state for such types of loans, meant that the recovery rate was extremely low. There was added pressure by the European regulators and the

ACCOUNTANCY CYPRUS

Single Supervisory Mechanism (SSM) for substantial and fast improvements to the handling of the NPLs. Finally, the overall project of merging hundreds of separate cooperative institutions into a single one and transforming that institution into a commercial bank (which involved a complete transformation of the culture within the organisation) made the situation even more difficult. Yes, the state lost out on its investment – mainly the €1.7 billion injected to recapitalize the failing organisation and take control of it at a time when the only alternative option was a haircut of uninsured depositors at the Coop as well. But the state is not alone. If we look at the loss from investment in the other major commercial banks (Bank of Cyprus, Hellenic Bank) for those institutions that invested in them in the last few years, that is in the range of 60%-70%! Furthermore, the remaining cash injection by the state (close to €3.5 billion) was to take ownership of a portfolio of assets with a nominal value of more than €8 billlion and create the NAMA to handle them. With the proper management, the Government may be able to recover this initial investment with a profit.

The banks’ main objective now is to start creating profits for their shareholders

The deal with Hellenic Bank, the creation of the NAMA, improvements to the foreclosure law that were approved by the House of Representatives in the summer, as well as the ability of the banks to sell assets to third parties, led to a massive reduction of the NPL portfolio and an improvement and stabilization of the banking system. NPLs in the banking system have gone down dramatically, capital adequacy is sufficient, and there is ample liquidity. Furthermore, corporate governance has improved as well as regulation. The banks’ main objective now is to start creating profits for their shareholders, which would be good for all stakeholders (employees, customers and the general public). This has been a major issue in the last few years. Low profitability has to do with the structure and quality of the loan portfolio and the low net interest margin due to ECB policies, as well as the inability to find high-quality projects (positive NPV) to invest in/ lend to, and also high operating costs. For some years now, the banks have been mainly preoccupied with dealing with the problems of the past (problematic loans), rather than concentrating on the future and how to create long-term value for their shareholders. I believe it is time for this trend to change. The banks need to concentrate on generating more revenues from their customers by offering them better and more diverse services and, at the same time, control operating costs by better utilizing technology. I believe the combination of the two will bring back profitability and thus add value to their shareholders.

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Technology for the

Accounting Profession AMS ADVANCED MANAGEMENT SOLUTIONS - 60 CMS SYSTEM SOLUTIONS - 62 DEXTERITY SOLUTIONS - 64 DIORATIKI IT SOLUTIONS - 66 E-SOFT SOFTWARE SOLUTIONS - 68 INTELISOFT - 70 iSPIRAL IT SOLUTIONS - 72 MOEBIUS - 74 PROADCO - 76 SOFTONE TECHNOLOGIES - 78 S.KANIKLIDES (CYPRUS) - 80 SUPERNOVA CONSULTING - 82

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Technology for the Accounting Profession

Advanced Management Solutions Ltd

Advanced Management Solutions (AMS) is a business and information technology-consulting firm, established in Cyprus on February 2001, aiming to provide quality SAP® services to the local and overseas market. SOLUTIONS WE PROVIDE • SAP® Business Objects Business Intelligence • SAP® Cloud for Customer • SAP® ERP • SAP® BW/4HANA • SAP® S/4HANA • SAP® SuccessFactors HCM • SAP® Payroll • SAP® Analytics Cloud • SAP® Cloud Platform HIGHLY SKILLED CONSULTANTS We believe that one of the key success

factors for any consulting organization is the “Skilled Consultant-Power”. Advanced Management Solutions has experienced and knowledgeable consultants with extensive IT and business background. Our consultants are skilled in offering help and guidance in designing, implementing and managing competitive business processes within SAP. SUCCESSFUL PROJECTS AND CONTINUOUS SUPPORT Advanced Management Solutions consultants have been involved in more than 100 successful implementations in various industries in Cyprus, Greece, US and Middle-East. Our consultants provide solutions to help your company meet its business goals and objectives through every phase of the SAP business processes implementation.

CONTACT INFORMATION Advanced Management Solutions Ltd 27, 25th Martiou Street, D. Michael Tower 23, Office 206, 2408 Engomi, Cyprus Tel.: +357 22 818185, Fax: +357 22 680707 www.ams.com.cy

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QUALITY SERVICE AND COMMITMENT We at Advanced Management Solutions are committed to provide quality service. Our quality service is not only derived from our skilled consultants but also from our complete commitment and dedication to our projects. We are committed to the project from the Initiation to the Go-Live and Post-Live Phases of the project. ACHIEVEMENTS • SAP Gold Channel Partner • SAP Certified Partner Center of Expertise (PCOE) • SAP Quality Awards, Bronze Winner Greece & Cyprus - implementation partner • SAP Cyprus Outstanding Revenue Contribution Awards

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Break free from limitations of the past with SAP S/4HANA® Τhe Next Generation ERP Call us now to find out more at 22 818185 Visit our website www.ams.com.cy SAP® Solutions and SAP logos are the trademarks or registered trademarks of SAP SE in Germany and in several other countries.

ACCOUNTANCY CYPRUS

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ACCOUNTANCY CYPRUS

Technology for the Accounting Profession

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ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

Priority

The Software Priority Software is recognized by top industry analysts for its product innovation, empowering thousands of organizations with comprehensive, flexible, and scalable ERP solutions. More importantly, Priority improves business efficiency and the customer experience, providing real-time access to business data and insights. Priority is available on premise, in the cloud and on mobile. ERP Should be Easier Priority’s mission is to make ERP easier: easier to use, easier to implement, easier to maintain and enhance. Priority offers a refreshing alternative to traditional overcomplicated ERP solutions, meeting the real needs of organizations who are ready to grow, increase profitability, and improve efficiency. Lower TCO Our TCO is dramatically lower than traditional ERP solutions, because Priority is so much easier to use, maintain and enhance. Many of our clients have successfully reduced their TCO by up to 70% compared to competing ERP solutions. All-in-One Solution Priority offers an all-in-one and modular solution to manage the entire organisation, from finance to the production floor, from the sales team to the warehouse, from human resource management to project management. Priority’s functionality covers all the core elements of ERP packaged in a modern platform

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with cross-functional capabilities, such as graphical Business Process Management, Mobile Applications, Open APIs, and more. Global Reach With offices in Israel, USA and UK and a global network of business partners, Priority enables 75,000 companies in 40 countries to manage and grow their business. Priority Software is used by companies in: manufacturing, import and distribution, retail, professional services, financial services, healthcare, technology, and many more industry sectors. Local Support Priority has been powering some of the most successful companies in Cyprus since 2001 and offers all the necessary localisations for efficient operations in Cyprus and internationally. Professional services are offered by the experienced and dedicated team of Dexterity Solutions Ltd, the authorized partner in Cyprus who specialises in the implemen-

tation, customisation, integration and technical support of Priority. Dexterity Dexterity Solutions Ltd is based in Nicosia and offers technology consulting, software development and business solutions to clients who want to use technology to gain a competitive advantage. In addition to Priority, we work with: – Omnitracs Roadnet (route optimisation for delivery trucks and sales reps) – Practi POS (retail and hospitality point-of-sale software) – Chronos (timesheet and invoicing software) – Dcoya (phishing simulation and training) – Rescana (third-party cyber risk assessment and mitigation) We also develop tailor-made solutions to solve difficult problems and implement a variety of Business Intelligence platforms covering all budget levels.

CONTACT INFORMATION Dexterity Solutions Ltd 195-197 Limassol Avenue, Dali Industrial Area, Nicosia 2540 +357 22 282930 info@dexterity.com.cy www.dexterity.com.cy www.priority-software.com.cy

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ERP Should Be Easier Priority is a leading ERP software solution for thousands of companies worldwide, offering them a comprehensive, flexible, and affordable way to manage and grow their business.

Dexterity Solutions Ltd 195-197 Limassol Avenue, Dali Industrial Area, Nicosia 2540 +357 22 282930 | info@dexterity.com.cy | www.dexterity.com.cy

www.priority-software.com.cy

Authorised Partner for Cyprus

ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

dioratiki advanced software solutions to achieve your highest potential With thousands of clients under our belt and over 25 years in operation, we are here to help you take your firm to the next level of efficiency!

Our Business Software Our product range includes solutions for small, medium and large organisations. Whether you are a wholesale or a retail company, whether you are in the service sector or in the construction industry, our software ensure that we can work with you to provide solutions. which match your unique requirements.

Our Software Brands Intact ERP Accounting & Business Software for medium/large organisations QuickBooks Desktop & Online Accounting & Business Software for small & medium companies EspritBooks Online Accounting & Business Software for freelancers & small companies CyPay Cyprus Payroll System WebsiteX5 Website Design Software

Our Services A software house is all about the service. A full collection of customer-focused services that take an already exceptional product line and turn it into the total solution! Via telephone, email, remote connection and onsite visits, our software engineers are striving to offer the best assistance to our customers.

visit us at: www.dioratiki.com

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Accountant edition Experience more power, speed and simplicity with software designed specifically for accountants. Specific auditor/accountant features: Unlimited companies/clients Multi currency Multi level accounts structure Multi level cost centre structure Batch entering transactions for faster bookkeeping Automatic recurring journals Auditor adjustments entries Auditor adjusted trial balance report On screen working trial balance Batch reclassify transactions Batch fixing of unapplied payments and credits Automatic end of year process Set closing date on accounts All financial/management reports Employee time tracking & automatic clients billing Keep track of client data review tasks Easy entry corrections External document attachments To Doâ&#x20AC;&#x2122;s & reminders and many moreâ&#x20AC;Ś

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Technology for the Accounting Profession

Automated Accounting It does the accounting for you Save at least 80% booking effort, time and cost.

E-soft presents CloudFin Automated Accounting. CloudFin is a web based application that can process scanned documents in PDF or image form, such as Purchase and Sales invoices as well as bank statements. By using sophisticated OCR (Optical Character Recognition) the information on the documents is successfully read, validated and saved as text ready for processing. Using an intelligent API, the E-Soft accounting software automatically connects to CloudFin and imports the processed documents as saved transactions, by doing the double entry as well. The interface can also be done with the E-

Soft Stock software to import for example purchase invoices by item line recognizing item codes and filling quantity, price, amount, discount and vat amount information. CloudFin is a Cyprus based company with cutting-edge technology in web-based development and finance automation software. Major projects in Greece are PWC and Mazars. Intracom is among others, partner of CloudFin in Greece. Official presentation will take place in Nicosia on the 24th of May 2019 (location will be announced later). To attend the event and for more information, please find our contact details below.

CONTACT INFORMATION E.C.S. E-Soft Business Software Ltd Tel: +357 22446633 Fax: +357 22463894 www.e-soft.com.cy info@e-soft.com.cy

CONTACT N IO INFORMAT

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ierSoft Ltd A. V. Prem 818929 7 Tel: +35 25 383138 25 Fax: +357 oft.com.cy rs ie m re .p www .cy iersoft.com info@prem

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ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

InteliSoft

Since its establishment in 1997, IntelisoftCy Ltd has had its feet firmly on the ground in the business software development sector. Based in Cyprus with over 20 years’ experience in accountancy software, Intelisoft has an accountant network of over 1,500 professionals and approximately 25,000 companies base their financials on its products. In this fast-paced and dynamic environment, Intelisoft’s team of experienced developers have worked closely with accounting professionals to create a state-of-the-art business software. Intelisoft’s solutions are fit for modern business economics, designed to make the accounting process a lot smoother and easier for small and large businesses as well as accounting individuals. With the constant developments in the business landscape and changes in regulations in our employment environment, Intelisoft offers a flexible system with modules that are configurable according to clients’ unique needs. The Professional Accountant’s Choice With its main field being business software development, Intelisoft specialises in Bookkeeping, Payroll, Invoicing, Timesheet billing and customised solutions. This modernised and constantly updated software that targets accounting professionals allows them to access, monitor and update their clients’ finances from wherever they are, at whatever time they please, in an accurate and efficient manner. Productive Accounting with Aphrodite Software One of Intelisoft’s standout features is the

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Aphrodite Accounting software. This system makes it quick, smooth and easy for accounting firms to manage their clients’ bookkeeping. With powerful features like multi-currency, automated entries, ease of use, modern user interface and client data synchronisation, this pioneering system has given clients the opportunity to engage in revolutionary accounting. Accurate Payments with Intelisoft’s Payroll System Intelisoft’s constantly transforming payroll software has been built to help businesses perform their payroll accurately and on time. Import your clients’ employee working hours, calculate payslips and tax forms quickly and efficiently, and review KPIs for employee performance, per employee expenses and profitability. There is also the ability to benefit from automated calculations of health and social insurance, including GESY/NHIS, IR7, IR59 and IR63. Intelisoft’s payroll system delivers payslips for clients’ employees in a fast, smooth and efficient manner using encrypted email delivery. Keep on Track Using Jobs Timesheet Keep tabs on employee activity using Intelisoft’s Jobs Timesheet system. Monitor how much time your employees are spending on clients and projects, know your most valuable clients, when client jobs are completed, whether they’re profitable or not, and generate billable invoices in just a few simple steps. Access reports including outstanding jobs, completed jobs, billed jobs, job costs and many more and help your business identify any issues before they become problems.

Effortlessly Manage Cashflow with the Collectibles System Intelisoft’s Collectible management system enables account departments, managers and team leaders to effortlessly manage their cash flow by keeping track of every promise of payment. Decisions can be made in a faster and more accurate manner, helping provide for more productivity throughout the process. Invoicing Made Easy and Efficient Intelisoft’s Invoicing system enables professional accountants to bill their hours accurately and effectively. Combined with jobs timesheet module, each client job is billed on time. With features such as recurring invoicing, job costing distribution, multiple currency bills, proforma to cash or credit conversion and EU goods imports and exports, Intelisoft’s invoicing system makes way for a smart and automated accounting process. Smooth and Secure Functionality In today’s day and age, businesses want to know that their accounting activities are in safe hands. Intelisoft utilises one of the most robust online security in the market, making sure client business operations are kept protected and secured. Clients get to enjoy a powerful technology that has little/zero downtime and no disruptions during your day-to-day activities. Equipped with a support team made up of accounting experts, developers and IT professionals, Intelisoft is able to offer supreme service and solutions to its client-base.

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20+

Years in Business

3,500+ Happy Clients 300+

Accountants

25,000+ Businesses on

Intelisoft Software

1,500+

PROFESSIONAL ACCOUNTANTS USE INTELISOFT SOFTWARE

The QuickEntry System makes it quick and easy when handling your clientsâ&#x20AC;&#x2122; bookkeeping. Export reports in Excel or upload reports for your clients online and securely, within seconds.

The Favourites Menu allows you to customise your favourite features from the start.

Join the 3500+ Satisfied Clients Now!

CONTACT INFORMATION Headquarters address: 30A Ayias Zonis, Fantaros Court, Office 101, 3027, Limassol, Cyprus Tel: +357 25 355 005, +357 99 520 498 Fax: +357 25 355 006 Website: www.intelisoftcy.com E-mail address: info@intelisoftcy.com

InteliSoft has the Right Solution for You.

ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

THE FUTURE OF ACCOUNTING: THE ISSUES & THE SOLUTIONS As the business and finance industry moves rapidly into the future, organisations which can’t adapt are being left far behind. This is particularly important to professionals operating in areas such as accountancy, a sector which requires the latest in technological solutions to make sense of increasingly large amounts of data and ever-changing rules and regulations. Without the benefit of these technological solutions, accountancy professionals operate at a huge disadvantage: running the risk of non-compliance, falling prey to mounting regulations, and increasing their workload by adhering to traditional, time-consuming practices. Amongst the myriad of issues faced by accountancy firms today, the following four are by far the most pressing. 1. Α new business model Today, professionals in the accountancy sector must provide a full spectrum of financial management and consultancy services, taking on a much wider advisory role while developing complex and flexible accounting systems to facilitate these new responsibilities. Switching from the provision of straightforward tasks to the function of knowledge consultant is a must for firms wishing to survive and thrive. 2. Increasing regulatory challenges Gatekeepers for their clients’ organisations, accountancy professionals must emplace systems and controls able to assess risk, perform due diligence, monitor existing clients and maintain correct records. Subject to stringent AML regulations, they must also be

ACCOUNTANCY CYPRUS

mindful of all money-laundering regulations and requirements - including the new regulatory requirement which compels every firm to implement and document a ‘whole-firm’ risk assessment. 3. A changing approach to profitability & pricing As technology evolves, accountancy firms must embrace value-pricing models. Transitioning from the traditional time-hoursrates system of pricing services to a system which benefits from the use of technological solutions and advances will – in the future – mean the difference between failure and success for those in this sector. 4. Adapting to technological developments As the profession adapts to developments in digital solutions, firms which are unable to keep pace with technological advancements will soon fall far behind their rivals. In the coming years, it’s those organisations best able to harness these advancements which will see the most progress and expansion. Your complete solution The four issues above merely touch on the myriad of problems faced by those in the accounting sector. Fortunately, solutions to these many issues exist. Amongst these is iSPIRAL’s Velos Software

CONTACT INFORMATION iSPIRAL 178, Omirou, 1st Floor, 7102 Aradippou, Larnaca - Cyprus T: 00357 24 531975 E: info@i-spiral.com W: www.i-spiral.com

Platform, a dynamic and comprehensive tool which delivers effortless solutions through a series of flexible, tailored modules. Designed to ensure your organisation remains ahead of compliance requirements while streamlining your most costly and time-consuming processes, the Velos Software Platform is a holistic tech-based solution. Providing a one-stop automated solution for those in the accounting sector, the platform manages a variety of necessary processes, including KYC/AML, Corporate Administration, CRM, Transaction Monitoring, Legal Practice Management, Time Management, Billing, Payroll, Advanced Task Management, Immigration, and GDPR. iSPIRAL also provides a complete iKYC platform: a comprehensive, automated solution with endless applications for those in accountancy sector. Together with the Velos software Platform, this ensures that iSPIRAL remains the most trusted software partner for all those in accountancy.

iSPIRAL delivers innovative solutions that resolve all your KYC, AML, and Governance, Risk & Compliance challenges. A leading boutique style Regulatory Technology company that targets innumerable industries, providing tailored, one-stop software to comprehensively address the compliance objectives and obligations set by regulators worldwide. iSPIRAL’s expertise combines global partnerships, machine learning technology, real-time activity monitoring, and data analysis to ensure that the organization consistently delivers exceptional flexibility, efficiency, and quality.

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ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

MOEBIUS

All your business activities within one secure software Moebius Software comprises of a range of modules, each module carefully crafted to deliver practical solutions for specific business needs based on expert industry feedback. Moebius is designed to deliver efficiency for accountants, business service providers and lawyers, while the philosophy behind its deployment is that clients can choose their modules depending on their specific business needs. Our years of experience have demonstrated that there are multiple benefits to our integrated modules approach, keeping all business activities and data within one software that can successfully satisfy all business needs. Benefits: • Increase efficiency by reducing data capture time and improve data quality, promoting collaboration between different teams and departments. • Keep all data in one software and benefit from enhanced data analytics and reporting, and in turn, meet deadlines, effortlessly satisfying regulatory requirements and providing a better and more professional client experience. • Make well-informed business decisions using daily business intelligence reports customized to the needs of your business. • Whether you need to comply with Data Protection Laws, or wish to keep certain business information confidential, Moebius’ security tools help you protect your data with restrictions and rules defined by you.

Powerful and flexible security tools provide the means for you to control access to your data, documents and system modules, as well as organising your personnel into workgroups with specified system access. Moebius’ modules include: Moebius Compliance A powerful solution for compliance professionals comprising a fully customizable Risk Rules Engine combined with integrated background checks (using NameScan or a licenced version of World Check or Lexis Nexis), ready-togo reports for regulators, and Document Management for secure filing of client and confidential documents. Moebius Compliance helps you consistently comply with regulatory requirements with ease by comparing data across departments, generating alerts for suspect transactions and expiring KYC documents, flagging companies nearing limits or exceeding turnover thresholds, and producing regulatory reports and business structures on demand. The Risk Rules Engine provides predefined Risk Rules that satisfy all relevant requirements of the 4th AML Directive on the Prevention of Money Laundering and Terrorist Financing.

Contact us for more information, to organise a system demonstration or to request a free trial. Tel: +357 22 275 190 Email: sales@moebiussoftware.com www.moebiussoftware.com

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Moebius Document Management Reduce time searching for and managing documents, minimise document errors and improve collaboration across your business. Moebius’ document management promotes team and departmental collaborations by using customisable workflows and document version control, while improving efficiency by using customisable templates to generate everyday business documentation. An easy-to-use affordable and scalable solution suitable for any size or type of business. Moebius Corporate Management A fully integrated solution for fiduciary companies offering company and capital management, corporate registers, registrar’s forms and contact management. Moebius provides enhanced data checks and validations to ensure minimal duplication and accurate up-to-date records. Report on business structures by directly exporting customisable structure charts of any complexity. Time and Billing Easy-to use tools for capturing time and expenses, then generating invoices based on hourly rates, fixed fees or flexible scales. Manage your business capacity and productivity with contractual hours, leaves and public holidays. Deploy workflows and approval paths, and manage your billing activities – from the issuing of invoices to receipt of payments – with the option of integrating to your existing bookkeeping software.

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ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

Web Services Web Development We design beautiful web development solutions to help you achieve your business goals and launch the best web projects possible.

Domains The ﬁrst step to starting your website is registering your domain name. It’s important to lend your site a professional look and establish your online brand!

Hosting

About Proadco

Why go with Proadco? Because we know that even the best technology is only as good as the people behind it. That’s why we are devoted to technology in order for us to be able to provide our clients with the best solutions to date.

Call Us:

77 77 66 99 https://proadco.net ACCOUNTANCY CYPRUS

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Some Key Features Preparation of Financial Statements according to the International Accounting Standards (IAS) and International Financial Reporting Standards

Dynamic, friendly and simple user Interface Bilingual. Switch language with a click of a button and prepare Financial Statements in Greek and in English

AUDITLETTERS Automatic preparation of Audit letters and reports  Balances confirmation letter for debtors, creditors and directors  Bank authorities letter  Legal - general enquiry letter  Representation letter  Audit negligence letter  Engagement letter  Annual general meeting letter and other ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

SoftOne Technologies SoftOne Technologies is one of Europe’s most dynamic business software vendors, focusing in the development of ERP, CRM, innovative Cloud Services and Enterprise Mobility solutions that help companies change the way they perform their business operations.

anywhere, via any smart device.

innovative Cloud ERP solution. Engineered to augment human effectiveness through an extensive array of technologies, Soft1 Cloud ERP Series 5 delivers value that opens up the space for true digital transformation. Introducing pioneer Cloud technology, intelligent process automation, machine learning and AI, innovative integration options and endless mobile capabilities, Soft1 Cloud ERP Series 5 sets the pace for a faster, smarter and more cost-effective operational model.

SoftOne’s product portfolio includes a wide range of comprehensive solutions that fully address real business needs, across different types of industry, supporting all core business functions: Accounting and Financials, Commercial Activity, Supply Headquartered in Athens, Greece and operating subsidiaries in Cyprus, Chain Management, HRM & Payroll, Wholesale & DistribuRomania and Bulgaria, SoftOne delivers both on-premise and SaaS tion, CRM Sales & Services, Production, Retail Management. business solutions to midsize and large organizations, having earned numerous awards for market lead- Digital Transformation, LIVE An all-in-one Financial Manageership and innovation. Since 2016, Counting more than 3,500 cloud SoftOne has been a member of the installations, Soft1 technologies have ment solution Soft1 Cloud ERP Series 5 protruly revolutionized the way busiOlympia Group of Companies, vides accounting firms with ness is done, helping enterprises do an international investment group powerful functionality that drives with a strong presence and 5.800+ more with less. From Cloud ERP inefficiencies and complexity out and CRM to online Accounting, employees in 10 countries. of their entire operation, enabling EDI and E-Invoicing, Soft1 Cloud Services enable any company to run them to create new ways of delivAddressing real business needs ering value to customers. With more than 18,000 customers every part of its operations better, in several international markets and experiencing reduced operating SoftOne’s solution incorporates costs, increased business efficiency a wide (>300) Channel Partners a comprehensive accounting Network, SoftOne provides enter- and better customer service. suite that assists accountants prises in SEE with top-quality busiand accounting firms optimize ness software and services that stand Having been amongst the first all of their processes (including out for their innovation, reliability vendors – globally – to offer Payroll), ensuring significant time its software as a Cloud Service, and effectiveness. and cost savings as well as ongotoday SoftOne leads business ing compliance with any existing transformation in the SEE marSoft1 solutions are powerful, ket. SoftOne helps any enterprise regulatory and corporate policies. intuitive and simple. They unify fully leverage the opbusiness operations across the enportunities of digital terprise, using a single integrated technologies by utilizing platform, thus enabling any comCONTACT an intelligent business pany to streamline its workflow, INFORMATION automate functional processes and transformation platform Address: Archbishop Makarios III Avenue & increase cost efficiency, while ensur- that incorporates all the 2, Nikolaou Gyzi Street, Olympia Business experience of the most ing real-time access to data from Center, 1st Floor, 3060 Limassol, Cyprus Tel: (+357) 25561356 Fax: (+357) 25561359 e-mail: info@softone.com.cy Website: www.softone.com.cy ACCOUNTANCY CYPRUS

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Cloud

SERIES 5

ERP

Change the way you do business

Manage your financial operations with a true Cloud ERP solution Soft1 Cloud ERP provides your business with an all-in-one financial management solution, enabling you to fully automate every part of your financial operations. Soft1 Cloud ERP also features an advanced accounting suite that assists you streamline all accounting processes, offering significant cost and time savings as well as ensuring full compliance with regulatory and corporate policies.

Financial Management

Accounting

www.softone.com.cy

Payroll

ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

kaniklides

Kaniklides was founded in 1959. Initially it operated as a stationery and bookstore and eventually expanded its activities in the wider sector of trading stationery and paper. In 2000 the company was renamed as S. Kaniklides (Cyprus) Limited, increasing the range of its products and services on a Cyprus-wide scale. The Stationery department offers a wide variety of top brands and high-quality products. The company’s long experience qualified it as a pioneer in the local market, ensuring unrivalled customer service. As of 2008, Kaniklides is the official distributor of Eastpak in Cyprus. Eastpak is a wellknown American brand that boasts its portfolio and includes collaborated efforts with designers such as Jean Paul Gaultier, Kenzo, Tim Coppens and House of Hackney. In 2009 Kaniklides operated its new state-ofthe-art facilities and started offering Secure Document Management Services. The new facilities are equipped with the latest technology for fire protection and are fully compliant with demanding Regulations such as EU 305/2011, the Construction Products Regulation 2013/130(I), the Road and Building Law (2016) and Regulations (2017), and the Directives on Fire Safety. The facilities can cater for all storage needs with same day access. Since 2017, the company offers services in Records Management and Data Protection (outsourcing of Data Protection Officers) – in order to comply with the Data Protection Regulation; Cyber Security Services (2018)

– Network security from malicious Attacks; and Document and Content Management Services.

their life-cycle, form creation to disposition and these include creation, classification, registration, storage, protection, access transfer, disposition and destruction. By choosKaniklides is constantly evolving and expand- ing to implement a Records Management ing by investing in both technical and human Programme, your organisation will assure resources, monitoring developments in the compliance with the General Data Protection field and evaluating the constantly increasing Regulation (GDPR), improve its efficiency needs of its customers for their digital transand effectiveness, reduce operating costs and formation. operational risks. All this can be handled for your organisation by Kaniklides. Kaniklides is renowned for the successful implementation of projects of major complexity Last but not least, Kaniklides takes security that require ad-hoc Project Management, very seriously and now ranks as the biggest in for example the Digitisation of the Archive its field organisation and the only one - posof Trademarks and Industrial Designs of the sibly European-wide - with 8 ISO CertificaRegistrar of Companies of Cyprus, a project tions. Kaniklides is also a member of two very for the which the Republic of Cyprus and the high-profile organisations, PRISM InternaDepartment of Registrar of Companies and tional (Professional Records & Information Official Receiver received a European honor- Services Management) and IRMS (Informaary distinction. tion and Records Management Society) of Great Britain. The company’s very successful course in the Cyprus market in recent years is firstly attributed to its flexibility and ability to adapt quickly to the operational needs of its customers, secondly to assign timely the necessary resources for the implementation of the projects it undertakes and thirdly to continually invest in the development of human resources and its expertise. Every organisation must be aware that Records Management offers a systematic management of records throughout CONTACT INFORMATION S. Kaniklides (Cyprus) Limited 4 Platonos Street, 2200 Geri, Nicosia, Cyprus 70001133 +357 22507510 kaniklides@kaniklides.com www.kaniklides.com

ACCOUNTANCY CYPRUS

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ACCOUNTANCY CYPRUS

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Technology for the Accounting Profession

Are your ready for your Cloud ERP? Kyriacos Stylianides, Managing Director, Supernova Consulting.

Companies have been implementing ERP1 (Enterprise Resource Planning) software for more than twenty years. Their ultimate goal – to better manage their resources, on a single platform that integrates business processes and functions including accounting, supply chain, procurement, production, customer services, human resources and corporate governance. According to research groups, small and medium sized enterprises (SMEs)2 should use below criteria and in the following order when selecting an ERP: 1. Implementation partner 2. Software vendor 3. Business requirements support 4. Ease of use and implementation time 5. TCO (total cost of ownership) During the last few of years, cloud ERP is becoming more common than ever before. More companies implement Cloud ERP or some type of cloud deployment. As a result ERP vendors offer different deployment options and have been investing in Cloud rather than the traditional on-premise technologies. This makes the ERP decision making process more complicated because companies not only need to decide which ERP better fits their business but also the deployment method. The purpose of this article is to help you understand your ERP deployment options during your decision making process. The decision can only be yours. 1. On-premise This is the traditional model most companies currently still run; especially those that have implemented an ERP system, at least a few years ago. As a company, running your ERP or other business software on-premise, you

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are solely responsible to maintain the hardware infrastructure and software including below internal and external partners costs: – Deploy and maintain the hardware infrastructure – Backups, failover and disaster recovery plans – Security – Software updates That means you have complete control of your on-premise deployment and flexibility to customize your own, not necessarily industry or best practices, processes. More customization results in longer implementation duration, effort and costs. The on-premise deployment approach is not flexible when your company needs to scale the ERP system and hardware infrastructure up or down. Companies are required to invest in upfront high capital expenditure hardware infrastructure, often not fully utilized. The on-premise option maybe a better fit for larger enterprises that usually have the required resources and relevant expertise to maintain while they run more mature business models with core business processes well defined.

When enterprise software vendors or their implementation partners, host legacy, onpremise software on data centers and rebrand it as cloud software, this is called ‘Cloud Washing’4. Often companies using ERP software confuse the Hybrid with Cloud deployment. The latter is only possible with a true cloud software also called native cloud application (NAC), described below. For companies looking for higher ERP flexibility and lower infrastructure cost, the Hybrid deployment could be the preferred option.

3. Cloud This is a public cloud service5, called SaaS (Software as a Service)6. Your software vendor offering this service is responsible for the ERP software and physical infrastructure maintenance. A Cloud ERP system may only be categorized as a native cloud application when: – It is designed specifically for a cloud computing architecture. – Offered as a service, on-demand – It comes with regular, usually quarterly, 2. Hybrid updates that include latest innovations and Hybrid ERP deployment combines oncompliance updates, such as GDPR and premise ERP software technology and IaaS3 IFRS. (Infrastructure as a Service). IaaS providers – It runs through web browser, offers mobile such as Amazon AWS, Microsoft Azure apps and is platform independent (runs on and Google manage the servers, hard drives, desktop, tablet or mobile). networking, virtualization, and storage. With – Hosted and managed on the software venthis option, your company is still responsible dor’s public cloud. to maintain ERP software and outsource Cloud ERP is offered with subscription-based hardware infrastructure, the physical layer. licensing. That means no need to purchase Running on-premise software technology on hardware, minimal up-front investment and a data center or IaaS cloud infrastructure does predictable costs that can usually be accounted for as an operating expense rather than a not make your ERP a true cloud software.

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On-Premise

Hybrid

Cloud

On-Premise

√

Native Cloud Application (NAC)

√

Buy License

√

Buy Service

√

IaaS Vendor

√

Customer

√

Software Technology

Software

Infrastructure managed by Software Vendor

Software Updates (innovation, compliance) Quarterly

Customer Decision

√

Quarterly by Vendor

√

Customer Decision

√

Standardized, Best Practices

√

Customized

√

Maintenance Services

Business Processes

capital expenditure. Cloud software means standardization, enabling your business to implement best practices, streamlined processes across every business function. Growing SMEs can leverage on best practices supported by Cloud ERP with faster adoption to support their business – time to value – as opposed to costly and time-consuming redesign and reinventing activities to organically grow internal business processes. This makes the Cloud ERP deployment option more attractive for SMEs – that is 99.89% of Cyprus registered entities7. Summary Companies nowadays have different deployment options when it comes to selecting an ERP system according to their company’s size, industry and buying preferences. Should these be the only selection criteria during your ERP selection and deployment option decision-making process? How about the ability to: – Interact with your organization in real time from anywhere, anytime and any device with real time analytics?

– Integrate internal business processes across your organization’s borders with external partners or an entire ecosystem through an intelligent data platform? – Leverage on intelligent technologies such as AI (Artificial Intelligence), ML (Machine Learning) and IoT (Internet of Things) to enable greater productivity and profitability? If the answer is yes to one or more of the above then your business may be in need for an Intelligent ERP (or Intelligent Enterprise)8 to transform their business and be fundamentally different. While larger enterprises have implemented some form of cloud intelligent enterprise technologies, if you are running an SME then an intelligent cloud ERP should certainly be considered. About Supernova Consulting Ltd Supernova Consulting is a leading consulting, technology and

outsourcing services firm serving clients in more than 30 countries. Combining unparalleled industry experience with leading technology offering, together with its clients, Supernova Consulting creates and delivers business and technology solutions that fit their needs and drive the results they want. For more than fifteen years, Supernova Consulting has built a firm to help its clients accelerate business performance and realize their most important goals.

CONTACT INFORMATION +357-25-817880 kds@supernova-consulting.com www.supernova-consulting.com

Kyriakos Stylianides

1. https://en.wikipedia.org/wiki/Enterprise_resource_planning 2. https://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en 3. https://www.gartner.com/it-glossary/infrastructure-as-a-service-iaas/ 4. https://www.cio.com/article/3072650/cloudwashing-what-it-is-and-how-to-avoid-it.html 5. https://www.gartner.com/it-glossary/public-cloud-computing/ 6. https://www.gartner.com/it-glossary/software-as-a-service-saas/ 7. http://www.mof.gov.cy/mof/cystat/statistics.nsf/All/A2963B819A1B7864C22583590036966F/$file/ ENTERPRISES_NACE2_SIZE-2017-041218.pdf?OpenElement 8. https://www.idc.com/getdoc.jsp?containerId=US43262918 ACCOUNTANCY CYPRUS

taxation

Substance: The Key to Success! In the post-BEPS era, businesses must be encouraged to set up real presence and conduct real operations in Cyprus

By Pieris Markou, Partner, Tax & Legal Services Leader, Deloitte Limited

. Never has such an acronym BEPS captured the interest of the business world so much! Base Erosion Profit Shifting (BEPS) was first introduced in the OECD’s report published on 12 February, 2013 and refers to tax planning strategies that exploit gaps and mismatches in tax rules in order to artificially shift profits to low or no-tax locations where there is little or no economic activity. Following the introductory report by the OECD, its working groups produced numerous reports and discussion papers, and their final deliverables were presented in October 2015. The deliverables consist of 2,000+ pages presented in 15 Action reports. Today, these reports are at various stages of implementation in a continuous public consultation, aiming to formulate changes amongst not only the OECD member states but globally in more than 150 countries. In all these hundreds of pages, what I find fascinating is the fact that the whole essence of the BEPS project is captured in the opening paragraph that appears in every single one of the fifteen reports produced under the BEPS work streams: “International tax issues have never been as high on the political agenda as they are today. The integration of national economies and markets has increased substantially in recent years, putting a strain on the international tax rules, which were designed more than a century ago. Weaknesses in the current rules create opportunities for base erosion and profit shifting (BEPS), requiring bold moves by policy makers to restore confidence in the system and ensure that profits are taxed where economic activities take place and value is created.” Fifteen deliverables and three and a half years of work to date and the most important statement from the BEPS initiative can be found in this very first paragraph of every

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single deliverable produced by the OECD under the BEPS initiative: the objective to “ensure that profits are taxed where economic activities take place and value is created”. This is a very strong message and businesses must start to rethink their approach to a redefined global tax strategy, having regard to the shifting international tax landscape. The BEPS project has introduced tighter regulations to the international tax arena as a whole, with more focus on real economic activity and value creation. This has made it clear that establishing appropriate levels of economic substance in jurisdictions where there has previously been a limited presence will become a must for all businesses with international reach. In addition, businesses may look to rationalize the number of entities that they have globally and concentrate certain activities in jurisdictions which are conducive to the establishment of fully operational business presence. In view of this, a number of challenges need to be addressed, which will impact on the way business is carried out. Tax Residency and Treaty Benefits Given the global trend to tighten the criteria on eligibility for treaty benefits under BEPS and other unilateral and multilateral initiatives, a company should have sufficient substance and be in a position to demonstrate that it is the beneficial owner of its income in order to mitigate the risk of challenges to the claiming of tax treaty benefits. Companies will need to demonstrate that their principal purpose for setting up operations in a specific location was based on commercial criteria and not just tax criteria. Governments are becoming stricter about confirming tax residency in the fear of being accused of promoting unjustified tax privileges.

Transfer Pricing It will be important for companies to have the capability to demonstrate that they have the substance in place to perform the required functions and control risks, in order to account to the tax authorities from a transfer pricing perspective. Greater transparency, as a result of Country by Country Reporting, means that this is a key area that companies will need to focus on. It is no surprise that four of the fifteen BEPS reports concentrate directly on Transfer Pricing and many of the rest highlight its importance. CFC and Other Anti-Avoidance Provisions in Other Jurisdictions As countries around the world are introducing or strengthening Controlled Foreign Company (CFC) rules and other antiavoidance rules, it’s becoming increasingly important for subsidiaries of multinational groups to enhance substance in their place of operation and thus mitigate the risk of being caught by CFC and anti-abuse rules of other jurisdictions. Exchange of Information As exchange of information between jurisdictions is increasing under various developments in the global tax arena, it should be ensured that there is sufficient substance to be able to support the genuine business activities carried out and mitigate the risk of challenges by foreign tax authorities. Cyprus in the Post-BEPS Era Cyprus’s strategic location and full EU membership have, for many years, played an important role in the development of the island as an ideal location to establish a business presence. In light of this shifting international tax scene, businesses are cautiously considering the jurisdictions they operate

taxation

Businesses are investing in technology and they expect the same from the Government

from in order to safeguard their interests. Cyprus should take advantage of these developments and, in conjunction with its experience in serving international investors, reestablish itself as the ideal location to set up business. Cyprus offers an enviable combination of climate, business and culture with many key benefits to foreign investors and their dependent family members, who are looking for a jurisdiction that offers financial stability, a gateway to Europe and a quality standard of living for their families. With one of the highest percentages of foreign citizen residents in the EU, Cyprus has a large expatriate community which is catered for from sunrise to sunset and beyond. Leveraging on its well-established tax regime both for corporations and individuals, an advanced economy and a high human development index (HDI), with regard to living and quality of life, it is time to redefine the country’s strategy in the new environment. This can only be achieved through the joint collaboration of the public and private sectors. In the post-BEPS era, businesses are looking to set up real presence and conduct real operations. Tax incentives are important and are high on the C-suite agenda but they may no longer be the deciding factor. Yes, we do still need to revisit our tax laws to ensure these are modernized and do not create obstacles to encouraging business growth. This, however, should be an easy task, given the existing framework and experience. Consolidating laws in a

much simpler and user-friendly legal framework and abolishing laws that are based on the business practices of our ancestors is a priority and must be implemented now! What is becoming more and more important, however, is that, in addition to the well-developed legal and tax systems, well-educated workforce and business-friendly environment, Cyprus must become an easier place to do business. Technology should be high on the Government’s agenda, ensuring efficiency and transparency. Businesses are investing in technology and they expect the same from the Government, which has the responsibility to lay the foundations for those businesses to flourish and not to be an obstacle to their operations. As the third largest Island in the Mediterranean, Cyprus is one of the most attractive tourist destinations in the region but don’t be misled: when you’re next on the beach, have a closer look at those enjoying the sun. They are most likely on their lunch break or, in the afternoon, enjoying after-work drinks with colleagues or maybe even preparing for a conference call with HQ in New York and a law firm in London. The challenge is to keep them working and enjoying the benefits of Cyprus and not to just have them back as tourists!

Cyprus should re-establish itself as the ideal location to set up business

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taxation

Pondering over VAT in Cuba By Alexis Tsielepis, Managing Director, Chelco VAT Ltd

am writing this article in Havana, Cuba, where I am already enjoying a Habanos, a coffee, a bright blue sky and the mystic history of this town that seems to fill every breath I take. You know how it is when you look into the little window on a washing machine and, between turns, you may catch a glimpse of a specific item of clothing? Well, in a similar fashion, my thoughts this morning, between turns, stopped at a specific part of the VAT legislation. The conceptualization of the European VAT system is attributed by many to the Frenchman Maurice Lauré. At the start, in the late ‘60s, the focus of the taxing point for VAT was the origin of a transaction, where the supplier was established. This was not a problem, given that the emphasis at the time was on the supply of goods. The supply of services, as we know them today, was not prominent. This basis for a taxing point rolled over into the late ‘70s, when the Sixth Directive was published. Tracking the supply of goods for VAT was not difficult, as local supplies in a Member State followed local rules, while exports and imports were controlled by Customs. But on 1 January 1993, the borders of the EU were removed. Europe decided to create a single market to compete mainly against the powerful market of the United States. Yet removing borders presented the problem of how to track the supply of goods across Member States, as these goods no longer passed through national customs. The solution they came up with was to create a new type of transaction – the ‘intra-community acquisition’ – which is the receiving end of an intra-community business-to-business supply of goods. So the supplier would not charge VAT and the customer would have

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to discharge the VAT obligation. The monitoring of goods was undertaken through Intrastat and VIES. But there was another problem: this new type of transaction was not an origin-based principle, which was the basis of the VAT definitive scheme that existed at the time. Given the time constraints of having to solve this, they decided to put the definitive scheme on hold and enter into a temporary transitional scheme. The fact that this transitional scheme was only meant to be in place for a few years (but still exists today, 26 years later, despite the recast of the VAT Directive in 2007) provides an insight into how dysfunctional the EU really is. The Member States simply could not agree. More importantly, Maurice Lauré was alive in 1993 and he warned against putting the I/C acquisition in place, as he believed it would open the floodgates to fraud. It was a prediction worthy of Nostradamus himself. VAT fraud today is estimated to cost the EU €50 billion annually. To my description of the EU as ‘dysfunctional’, I would add ‘naïve’. Either that or ‘delusional’. With the explosion of internationalization and the Internet, which aided the expansion of the supply of services, the origin-based principle was no longer practical. In 2010, the VAT Directive was amended regarding the place of supply of services, moving largely to a destination-based principle. VAT would be discharged in the Member State where the customer existed. Given that VAT is a consumption tax, having it imposed where consumption takes place is logical and fair. But the supply of I/C goods still presents a problem. The European Commission is now championing a solution that entails the removal of the

The fact that this transitional scheme was only meant to be in place for a few years (but still exists today, 26 years later) provides an insight into how dysfunctional the EU really is I/C acquisition as a type of transaction. So far so good. The practical workings, however, may raise an eyebrow or two. The idea is to have the supplier charge VAT on his invoice when selling goods to a business customer established in another Member State, and those goods cross borders. But this hybrid solution of origin-destination-based principles has the supplier charging not the VAT rate of his own Member State but that of the customer’s Member State. So, for example, a Greek supplier supplying Greek business goods to a customer in Germany would charge German VAT. The German customer would pay the German VAT to the Greek supplier. The Greek supplier would then pay over that German VAT to the Greek Department of Taxation, which in turn, through a clearing system, would pay it over to the German Department of Taxation. Admittedly, for such a system to work, a high degree of trust would need to exist between Member States and, undeniably, such trust is low to non-existent, particularly between the two countries in the above example. As such, it will be interesting to see how this idea and its underlying controls progress. No doubt we will have the opportunity to smoke many more fine cigars while following this development!

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taxation

DAC 6: New Reporting Requirements By Savvas M. Klitou, Manager, Tax Advisory Services & Regional Coordinator, Baker Tilly Klitou & Partners Ltd

ax transparency has been a hot topic on the agenda of governments worldwide following the introduction of anti-avoidance and transparency measures within the European Union. The first step was the introduction of Common Reporting Standards (CRS) which changed the worldwide landscape, allowing for the exchange of information with taxpayers and tax advisers required to devote time and resources to providing information to tax authorities. The EU Economic and Financial Affairs Council (ECOFIN) reached an agreement in March 2018 on the final draft of Council Directive EU 2018/822, which amends Directive 2011/16/EU on the mandatory automatic exchange of information regarding reportable cross-border arrangements. According to the Directive of Administrative Cooperation (DAC), cross-border arrangements will be reportable if they fall within one of a number of “hallmarks” and must be reported as of July 2020. It is important to note that the Directive provides for notifications to be made in respect of arrangements dating back to 25 June 2018. These hallmarks are broad categories which bear the characteristics of potentially aggressive tax planning. They are: • Commercial characteristics seen in marketed tax avoidance schemes • Structured arrangements seen in avoidance planning

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• Cross-border transactions • Arrangements which challenge tax reporting and transparency • Transfer pricing arrangements which are not at arm’s length The first three above will apply only in the case when the “main benefit” test threshold is met and obtaining the tax advantage constitutes the main benefit or one of the main benefits derived from the arrangement. The reporting obligation falls on intermediaries and, in some cases, on the taxpayer with all information being provided to the competent authority of each member state. An intermediary is anyone who has some connection with the EU and has designed, marketed, organized or implemented the arrangement. This could be a consultant, tax advisor, accountant, lawyer or bank. It is clear that a number of chal-

It is clear that a number of challenges arise under the new reporting obligations

lenges arise under the new reporting obligations. The main one, for both taxpayers and tax advisers, stems from uncertainty from a regulatory perspective, as the Directive has not yet been implemented in any EU member state and hence local idiosyncrasies are still unknown. This is coupled with the fact that the tax profession is not regulated in Cyprus, hence it is will be extremely difficult for the authorities to monitor compliance. Moreover, it is evident that the hallmarks are considered to be very wide with the detail left to each EU member state to implement into law and provide guidance. This means that DAC 6 may be applied in an inconsistent manner across the EU. An another key challenge arises from the way in which the Directive was drafted and relates to the fact that standard transactions with no specific tax motive will be reportable, as there is no safe harbour for arrangements which have an underlying commercial purpose. There is an increased risk that the volume of reportable arrangements will be of such an extent that this, in some way, might defeat the purpose of identifying the comparably small number of truly aggressive arrangements. Concluding, the new reporting requirements introduced under DAC 6 will add an additional reporting burden to tax advisors and taxpayers and an additional risk of penalties in an ever-changing international tax scene.

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NHS Tax Contributions in Cyprus By George Fysentzou, Principal, KPMG Limited

ately, there has been much debate about whether the Cypriot National Health Scheme will finally be implemented or not. Nevertheless, the Government seems determined to promote and implement it because, as officials often repeat, “Upgrading public health is of paramount importance; citizens are entitled to equal access to a holistic health care system and will enjoy upgraded health services”. One thing we know for sure, as it has been already officially announced, concerns employee and employer contributions relating to the implementation of the NHS. Under the National Health Scheme Law of 2001 (89(I)/2001, contributions started from March 1, 2019 and the obligation to pay the contributions is defined and calculated as follows: a. Every employee: 1.70% of own emoluments (2.65% from 01/03/2020). b. Every employer: 1.85% on the emoluments of each employee (2.90% from 01/03/2020). c. Every self-employed person: 2.55% of own income (4.00% from 01/03/2020). d. Every pensioner: 1.70% of the pension amount (2.65% from 01/03/2020). e. Any individual holding or exercising office: 1.70% of remuneration (2.65% from 01/03/2020). f. Any individual earning rental, interest, dividend or other income: 1.70% on these incomes (2.65% from 01/03/2020). g. The Republic’s Consolidated Fund: 1.65% on the emoluments and pensions of the people mentioned in (a), (c), (d) and (e) (4.70% from 01/03/2020). Where the annual sum of a contributor’s emoluments, pensions and income mentioned in paragraphs (a), (c), (d), (e) and (g)

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is more than €180,000, it is capped and contributions are paid only on the amount of €180,000). The order relating to the sum for the calculation of €180,000 is emoluments first (a), (b), (c) (as defined in the definition of “emoluments”), followed by pensions and finally other income. Example: • An employee has annual work emoluments of €60,000 • Rental income of € 35,000 • Dividends from a private company of €100,000 • Interest on deposits of €15,000 The amount to be calculated as NHS contribution is 1.70% of the total income (€60,000 + € 35,000 + € 100,000 + € 15,000). Due to the capped contribution for amounts over €180,000, the maximum payable amount is €3,060. If a contribution is paid on an amount in excess of €180,000, the contributor may require the Health Insurance Organization to reimburse it by submitting a request. While the above information concerns NHS contributions, we also need to look at what is tax exempted from these contributions. Article 14 (6) states that, in order to detect taxable income, any individual who has paid a contribution under the National Health System Law in force in the Republic of Cyprus will receive a deduction equal to the annual sum of the contributions or insurance premiums paid by that individual or any other deduction equal to the amount of contributions or insurance premiums, depending of the case. It should be stressed that the total amount of contributions for the current year for Life Insurance, Social Insurance,

National Health System, pension fund plan, medical fund plan and provident fund should not exceed one-sixth of an individual’s chargeable income. Example: If an individual has a total taxable income of € 75,000, then the above amounts referring to contributions should be limited to one-sixth, e.g. € 12,500, regardless of whether the contributions exceed € 12,500 for the particular year. As far as employers are concerned, the contributions paid will be deducted as an expense from the company’s taxable income. NHS regulations describe in detail all the procedures to be followed until the final payment of the contributions to the Health Insurance Fund, including all necessary data that should be submitted to authorities, where deemed necessary.

The total amount of contributions for the current year for Life Insurance, Social Insurance, National Health System, pension fund plan, medical fund plan and provident fund should not exceed one-sixth of an individual’s chargeable income

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Promoting Cyprus in Europe

How would you describe the present state of the Cyprus economy and what are your predictions regarding GDP growth in 2019? Cyprus is at a very critical turning point. The financial services sector is shrinking and, at the same time, the oil and gas industry is developing and a number of international companies are entering the Cyprus market. My prediction is that, even at this crucial point, the overall performance of the economy will be positive in terms of GDP growth. How much does the broader professional services sector contribute to the economy of Cyprus and to society as a whole? The Ministry of Finance has stated that the services sector contributes over 80% of GDP. The professional services and financial sectors make a significant indirect contribution because its benefits reach the whole of society – all the people of Cyprus. What are the main challenges facing the sector and, in particular, services to international investors and High Net Worth Individuals? What steps are being taken to overcome these? An undeclared war is currently being waged against low-tax countries. There are numerous EU initiatives and pieces of legislation which negatively affect Cyprus, including the Base Erosion and Profit Shifting (BEPS) initiative, the Multilateral Convention to Implement Tax Treaty Related Measures the and the Anti-Tax Avoidance Directive (ATAD). These are recent initiatives which have driven many corporations to look for alternative jurisdictions. On the other hand, Cyprus has not yet taken many

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A r ur is c t l i ns aga

Christodoulos Damianou, CEO of Eurofast Limited, talks about the problems currently facing the island’s important professional services sector and what needs to be done if Cyprus is to maintain it in the face of mounting pressures.

will really invest in Cyprus, set up their offices and infrastructure on the island without choosing Cyprus simply because of its tax advantages. Given growing global objections to tax avoidance schemes, how important is it for Cyprus to insist on issues of transparency and compliance so that it maintains its good reputation and the trust of clients? Transparency, AML and compliance issues have already entered our business lives. As a small country which depends so much on the financial sector, I believe that we not only have to implement this transparency and compliance but we should implement even more than other countries so that we change once and for all the negative perception that some international investors have of Cyprus. Although the Cyprus Investment Programme (Citizenship by Investment) has been successful, the European Commission and the European Parliament are trying to persuade member states to give up such schemes. What is your opinion of the CIP and do you think it is sustainable? The CIP, like similar investment programmes in other countries, is changing almost every two years. I think the European Commission will continue to pressure investment programmes in the short term until they are all cancelled completely. Despite their efforts, the banks still face a major problem with NPLs. Are you opti-

n a en undec red w la o t ed w ly bei -ta ng wag steps to attract international investment x co funds and medium and large companies that untries

mistic that they will be able to resolve this issue in the near future? I wish I could be optimistic! However, NPLs are a heavy obstacle in front of the banks. I really hope that they will manage to overcome this problem because a country trying to attract investment funds needs a secure banking system. As of March 2019, Cypriots began contributing to the National Health Scheme (NHS). What changes and challenges will this bring to the Cypriot economy in your opinion? I don’t see any reason to worry about the implementation of the NHS from a financial point of view. I do believe, however, that from a social point of view, this is a great development because it will especially benefit older people and those who cannot afford decent health treatment. Finally, the implementation of the NHS will greatly reduce tax evasion in the health sector. What are your expectations for Eurofast in the next 3 years? Eurofast differs from every other Cypriot advisory firm in that it is located in 19 different jurisdictions, with its own real offices and employees on the ground. We are unique in that our firm is continuously recording double-digit growth, while promoting our own Cypriot brand and not any other international name. We are really proud of our Cypriot origins and of the fact that we have managed to build a Cypriot brand in South East Europe.

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Education and Business Cyprus has tremendous potential as a destination for high-quality, university-level education, says University of Nicosia CEO Antonis Polemitis.

How important is it for University of Nicosia (UNIC) to cooperate with the local and international business community? It is critically important that UNIC maintains close cooperation with the local and international business community because employers are increasingly demanding that graduates are able to quickly and effectively contribute as employees in their new jobs. International employers are the biggest challenge and opportunity for UNIC. Any UNIC graduate in 2019 will be expected to collaborate with, buy from and sell to colleagues from other countries throughout the course of his or her career. Given this, we are continuously revising our degree programmes to bring in input from global, as well as local, employers, to ensure that our graduates can be successful in a global work environment. Of course, local companies employ a very high percentage of our graduates and have supported the university for decades with their advice and counsel. Given this, we are in constant contact with both individual employers and industry associations to ensure that we are working in a manner consistent with their future direction. Businesses around the world often complain that graduates are not fully prepared for the world of work. How does UNIC deal with such opinions? In many cases, this employer viewpoint is correct. Traditionally, many universities and many degree programmes have evolved at a less rapid rate than societal and industry changes and, as such, mismatches can be created between university curricula and what employers consider relevant. While

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there is always a balancing act in learning, between theory (that is foundational for the long-term) and practical applications (which might be more useful to employers in the short-term), our faculty are nonetheless sensitive to employer feedback. We strive to incorporate such feedback using multiple methods: applying problem-based learning in many of our programmes; encouraging student internships; establishing industry advisory councils for our programmes and schools; and offering ongoing professional programmes that can be more targeted to practical skills than core degree programmes can and should be. UNIC has already gained a reputation for its forward-looking policies, such as offering courses related to cryptocurrencies. How important is this approach? We believe that we are entering a period of rapidly accelerating technological development, which will have significant implications for society, industry and individuals. At each level â&#x20AC;&#x201C; national, organisational or individual â&#x20AC;&#x201C; those who align their actions with these coming structural changes will have much more successful outcomes than those who do not. In this light, we consider it critical to position UNIC at the forefront of exploring technological change, its application and its implications, and to incorporate our learnings in our research, in our teaching and even in our own operations. These areas are complementary. For example, our faculty developed the worldâ&#x20AC;&#x2122;s first technological solution for authenticating academic certificates on a blockchain, which we used for our own certificates and diplomas. In this way, we learned from our own usage, incorporated our learnings

from this exercise in our teaching and, more recently, spun off this technology into a company (Block.co). Cyprus has long aspired to become a centre for international education. What role does UNIC play in this effort? We believe that Cyprus has tremendous potential as a destination for high-quality, university-level education, with strong and rapidly improving universities and an appealing, safe environment for students in which English is widely spoken. In many ways, UNIC was the first university in Cyprus to demonstrate that it is possible to attract meaningful numbers of high-quality international students to a Cyprus university. Some notable initiatives include: our Medical School, where the majority of students are from the United States, Canada, the UK, Australia, New Zealand, Israel and Lebanon; our joint degree programmes in Greece, offered in collaboration with the leading public universities in Greece, that attract academically excellent Greek students; and our world-leading blockchain/ cryptocurrency programmes that primarily attract students from North America and Western Europe. In aggregate, over the last 10 years, our student base has evolved from over 90% Cypriot to less than 40% Cypriot, as these initiatives have flourished. UNIC has, we

Establishing the country as an important global destination for higher education is a viable and appealing objective

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In our rapidly changing technological and economic environment, graduates should expect to change careers at least 10 times during their lifetime

Antonis Polemitis

believe, the most international degreeseeking students of any university in Cyprus by a wide margin. This should give great confidence to us, to other universities, and to decision-makers and stakeholders in Cyprus, that establishing the country as an important global destination for higher education is a viable and appealing objective. One aspect that is perhaps surprising is that our second largest international student cohort (after Greece) is from the United States and our third largest from the United Kingdom. How does UNIC differentiate itself and its offering from other local, and indeed, foreign universities? I think our biggest differentiator at UNIC, relative to local universities, is our intense focus on internationalization and innovation. Our goal is to benchmark ourselves at the European and international level across three dimensions: (1) Are we cultivating in students the skills needed to succeed in a global workforce at a time of rapid technological change? (2) Is our research on cutting-edge topics having a positive impact on society? (3) Are we providing on-campus students with an attractive and appealing

campus and student experience and distance learning students with the tools to succeed in their studies? While it is common for many universities to favour internationalisation, we are proud to be succeeding at it. We have bachelor and master degree-level partnerships with many leading international universities (e.g. St. George’s University of London, Aristoteleion University of Thessaloniki, Karolinska Institute, University of Patras, MGIMO, University of Padova, Zagreb University, Western Sydney and so on). We have thousands of international students, which is a mark of confidence in UNIC, and a constant opportunity for us to adapt and respond to their needs. We are linked with remarkable employers, particularly in medicine and blockchain, from the US, the UK and Western Europe, who are aggressively recruiting our graduates. We therefore provide a very appealing university environment for Cyprus students as well, where they can attend a university in their home country that pursues international standards across the board. Relative to foreign universities, I think our key differentiators are similar but with a different orientation: (1) our focus on the rapidly changing technologies of the 4th Industrial Revolution (blockchain, AI, virtual reality, etc.); (2) our ability to partner successfully with extremely prestigious universities for teaching and research; (3) our student-centric orientation; and (4) the affordability of our total cost of attendance, relative to our peer universities

in the United States, Canada, the UK, Australia and New Zealand. 20 years ago, a university degree was considered enough to ensure a successful career. Today, many employers prefer to recruit staff on the basis of a candidate’s personality rather than academic qualifications. How does UNIC deal with this situation? A university degree is only a starting point for a successful career, either today or in the past. Universities can help students acquire the knowledge, skills and competences/ capabilities needed to start a career successfully. After that, however, a person’s career trajectory is dependent on their motivation, level of effort and willingness to continue to learn, adapt and develop. Practically speaking, we do not believe much has changed in this regard; for the overwhelming majority of students, attending university is an excellent life decision in developmental, career and financial terms. The latest studies, most recently from the United States, show that the value and “return on investment” of a university degree in terms of future career prospects remain very high and are probably growing in quantitative terms, which is to be expected in a knowledge economy. Furthermore, in our rapidly changing technological and economic environment, graduates should expect to change careers at least 10 times during their lifetime. This means, if anything, that there will be more demand for education, in the context of “lifelong learning” and continued professional development. Helping our alums stay ahead professionally over the course of their career is one of the big challenges and opportunities for UNIC.

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Make it Easy for Your Customers to Complain By Andrie Penta, Marketer and Corporate Trainer

here are no faultless businesses on we can make it easier for our customers the planet and the sooner we realise to express their feelings when they are that, the sooner we can start workdissatisfied with something: ing on gaining long-term client trust. The deepest level of trust is achieved when we 1. Encourage feedback by e-mail stop focusing on transactions and start conProvided that we have the customer’s concentrating on relationships. Relationships sent to communicate with them by e-mail are built when our emphasis is on the client (or other means), we can send a friendly and not on our own business objectives. message asking them to rate their overall If we examine what successful businesses experience with us. This would be a good do well, we will see that one of the primary opportunity to also ask whether they would secrets to success is the way that they have be keen to recommend us to a friend or made the complaints process easy for their relative. This type of direct interaction also customers and how they deal with them gives the opportunity to the customer to when a complaint is made. Customers provide some honest feedback and to raise often say that their experience with a firm any issues that he/she may have faced while or brand very much depends on the way it doing business with us. handles a complaint if and when it arises. Complaints handling needs respect, speed 2. Follow up by phone and objectivity, from acknowledgement to A phone call, just to ensure that a customer resolution. A growing number of organisahas had a positive experience with our tions track the complaints that they receive firm, is an incredible way of gaining trust, and the amount of time taken to handle leaving him/her with a good impression and resolve them. However, all businesses and establishing a personal connection. need to be aware that not all customers Through a direct chat, we can encourage complain. According to Lee Resources Int., customers to bring any complaints to the for every customer who does, there are 26 table. A phone conversation will give us acwho say nothing (but switch to a competicess to the customer’s emotional state (tone tor instead). of voice, speed of talking), which can Most of us are scared of help us create context around the complaining, as if we customer’s experience. are doing something Most of us wrong. I strongly be3. Conduct a survey are scared of lieve that companies Short surveys, which can complaining, as be carried out by the should encourage and if we are doing assist their customers company or through a something to complain more, research organisation, can wrong as it will help them give an overall impression improve the overall cusof how our customers feel tomer experience. about us. Questions can be taiHere are a few ways in which lored to obtain answers on specific

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issues of concern, such as overall satisfaction, speed of service and level of professionalism. It is very important to make the questions clear and concise. 4. Accept complaints online A live chat or an easy-to-complete online form are two ways in which we can receive feedback via our website. Live chat is immediate, allowing us not only to deal with complaints in real time but also to enhance the overall customer experience. 5. Embrace Social Media According to BrightLocal, some 93% of consumers use reviews to determine if a business is good or bad. Also, 41% of consumers say that, by replying to reviews, companies make them believe that they really care about their customers (Bazaarvoice). The trick is to provide an easy, transparent way for customers to voice their opinions and issues and to be available and engaged on social channels. Social Media listening is a great way of receiving immediate customer feedback. Monitoring and responding to customer feedback daily can save us the trouble of having to deal with an escalating problem, some days later. Facilitating customer complaints, and responding quickly in a caring and constructive way, shows that even on our worst day, our customer service is the best. The trick is to be proactive rather than reactive and anticipate the coming complaint, in order to make the absolute best of a bad situation. Don’t forget: many customers will do business with a company again after a negative experience if their issue has been dealt with smoothly.

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Marios Kalochoritis

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BUSINESS in cyprus

The Future of Jobs By Charalambos Constantinou, Partner, Head of Advisory Services, EY Cyprus

o one doubts that we have entered a period of drastic transformation and disruption of the world economy and society in general. These changes will also substantially impact the future of jobs. According to the “Future of Jobs Report 2018” by the World Economic Forum, six major trends are collectively shaping a future for jobs that is quite different from what we know today: 1. Companies will adopt technologies in an accelerated manner. The catalyst for change is the fourth industrial revolution, with its focus on digital technology. Four factors in particular, related to digital technology are driving business transformation: cloud technology, artificial intelligence, the spread of Big Data and the widespread use of high-speed Internet through mobile telephony. According to the report, 70% of companies say they intend to expand the adoption of new technologies such as artificial intelligence, the Internet of Things (IoT) and cloud computing, while 85% will use Big Data Analytics. 2. We will experience a shift in the geography of production and distribution of products (companies will move to where skilled resources exist). Adopting new technologies is expected to lead businesses to drastic changes in the production and distribution of products, as recognized by 59% of the companies surveyed. At the same time, it is expected to drastically change the global geographical distribution of economic activity: three out of four companies say they will base their decision of location on the availability of skilled local labour. This figure is significantly higher than the 64% of companies reporting labor costs as their key criterion.

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3. A change in employment types is expected. Many of the traditional tasks done today by workers will be eliminated, with half of the companies surveyed expecting to reduce the number of employees due to automation. At the same time, 38% expect to extend their workforce to meet new needs. However, even for jobs that will remain, it is estimated that 42% of the required skills will change by 2022. At the same time, flexible forms of work will be strengthened, with 48% of companies predicting that they will resort to contractors for specific tasks to be carried out at a distance from their business premises.

The jobs of the future will be significantly different from those of today 4. Re-skilling and upskilling will also take place. According to the report, 54% of workers will need to be retrained for between six and over 12 months. The need for retraining involves not only specialized technical skills but also soft skills such as critical thinking, creativity, flexibility, emotional intelligence, and the ability to solve complex problems. 5. A new human-machine frontier within existing tasks will be developed. For existing jobs, the distribution of work between humans and machines will change, as the share of task hours to be performed by machine and algorithm operations is expected to reach 42% in 2022, from 29% today.

It is worth noting that the substitution of humans by machines will be extended to areas that may now be considered overwhelmingly human, such as communicating and interacting (30%), advising (29%) and even decision-making (27%). 6. A positive impact on jobs is expected with significant transformation of existing roles as well as emergence of new ones. This transformation is expected to lead to the loss of a large number of jobs due to automation and substitution of tasks. However, at the same time, new jobs will arise, either in existing roles for which demand is increasing (data analysts, developers, e-commerce and social media specialists) or new emerging roles (specialists in artificial intelligence and machine learning, robotics, big data, blockchain etc.). According to some estimates, the global economy (excluding agricultural production) will see a reduction of 75 million jobs by 2022, while another 133 million new jobs can be created. The above estimates should be treated with caution since analysis is based on certain assumptions and extrapolations from a limited sample. What one should seriously consider from the above findings, however, is that the jobs of the future will be significantly different from those of today. For the final impact to be positive, all stakeholders – including governments, policy makers, businesses and the educational community – should be mobilized. Otherwise, we risk ending up in economies and societies characterized by rising unemployment, the creation of a new class of ‘non-employable’ workers and a war to attract talent that will be in short supply.

BUSINESS in cyprus

Auditors in Cyprus need to be proactive and set out a vision for the future of the profession.

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BUSINESS in cyprus

Dividend Payments in Cyprus: The Legal Framework By Kyriacos Kourtellos, Advocate, Manager &

t is important to note that the Companies Law Cap. 113 as amended (“Companies Law”) is silent as to the payment of dividends by private companies, save in the case of Part 1 of Table A in the First Schedule of the Companies Law (which applies to all companies limited by shares. unless excluded from their articles of association), which expressly provides that no dividend shall be paid otherwise than out of profits. However, the concept of “profits” is not defined in the Companies Law and, therefore, the question to be considered is how are profits defined and what profits may be distributed to a company’s shareholders by way of dividends. In answering the above question there are some basic rules that should be considered by the directors of the Company, subject, of course, to specific facts applicable. These considerations would be as follows:

a. It is for the company to determine what sort of profits are available for dividends. In determining what sort of profit may be paid out of dividends, the company must conform with the overriding principle that dividends must not be paid out of capital (as payment out of capital is ultra vires) or out of borrowed money. b. Dividends should not be paid if such payment would result in the company having insufficient funds to pay its debts. In making their decision the directors should take into account the overall financial and cash position of the company. c. There is nothing in the Companies Law which prohibits a company from operating at a loss or obliging the company to make good on any prior year losses before distributing a dividend from current year profits. Importantly, while the Companies Law does not explicitly and exhaustively provide the level of

The Companies Law imposes a fiduciary duty on directors to act in good faith in what they consider to be the best interests of the company

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Iacovos Kouppas, Manager, EY Law, Prountzos & Prountzos LLC

duty of care and skill and diligence upon which the directors must perform their duties it is commonly accepted throughout case law that directors owe fiduciary duties toward the company to which they are providing their services. Some of these duties have been classified as a duty to act in good faith to the best interest of the company, a duty to avoid conflicts of interest, a duty not to profit from their offices, and a duty of care and skill. These are enshrined in the common law rules and equitable principles and in the Companies Law. The Companies Law imposes a fiduciary duty on directors to act in good faith in what they consider to be the best interests of the company and in accordance with the company’s constitution. There is no need to stress the importance attached to the requisite considerations prior to the distribution of any dividend payments.

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Auditors in Cyprus need to be proactive and set out a vision for the future of the profession.

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meet the cfo

nicos Demetriades

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meet the cfo

There have been numerous reports over the last 2-3 years which suggest that the role of a company’s Chief Financial Officer (CFO) is changing rapidly. Is this your experience? The CFO’s roles and responsibilities are non-standard amongst companies. The

C-level executive wears many hats. One of the main challenges is adapting to various levels of change deriving from the industry, workforce, technology and law. The regulated financial services sector, in which we operate, is a high-tech, highly regulated environment and promoting complex products comes with significant challenges, often on a daily basis. The response will most certainly involve some level of change. Moreover, being an executive manager and the ultimate decision-maker, the CFO might find it hard to adapt or steer the team in a new direction. It is commonly believed that accountants are backward-looking, risk averse people who are used to crunching numbers and historical information in order to report to stakeholders; this is long gone! On the contrary, the role of the CFO is growing into a more proactive and forward-looking one. We often experience changes to regulations or the competitive environment that force us to evolve the operating model and the usual modus operandi. This requires a great deal of persistence, problem-solving skills and adaptability. The latter, especially, is one of the greatest skills that a CFO should have in the modern workplace.

Qualified professionals should view regulation and compliance in a positive way

It has been suggested that the CFO is perhaps the one person in an organisation who sees the ‘big picture’. This suggests that the roles of CEO and CFO are growing closer. Would you agree? The CFO is usually the ‘numbers person’, able to set, monitor and evaluate KPIs of both a quantitative and qualitative nature. Imagine the CFO as a pilot sitting in the cockpit with the instrument

Although the Chief Executive Officer (CEO) of a company or organization is the person with ultimate responsibility for ensuring that it functions properly and implements the strategy set out by the Board, the Chief Financial Officer (CFO) is becoming increasingly important and powerful. We spoke Nicos Demetriades, Head of Finance & Risk Management at Purple Trading.

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panel in front of him. He knows where he is, what the instruments show and the final destination; then he takes or assists in taking all the necessary actions to go from A to B. CFOs with vision and leadership skills are often leading the way and eventually become CEOs. However, I would say that personal qualities and leadership skills are more important to the CEO role. From my point of view, the CEO has a vision and shows the way; he looks out and visualizes the destination while the CFO sees the instrument panel with an inward view and supports the safe journey until landing. Have you had to develop certain new skills for your position in today’s changing corporate world? In a fast-changing world where, every day, nothing remains the same, we must adapt to changes on both a personal and a professional level. Being able to self-develop is what separates high achievers that constantly seek to grow and adopt new skills from thos that choose a troublefree life within their comfort zone. Apart from specialist technical skills, such as risk management and CySEC regulatory framework knowledge, I also had to develop personal skills, the most important being emotional intelligence and peoplemanagement, in order to cope with the different personality types, backgrounds and cultures in the office. Change and self-improvement is a lifelong commitment for me. Technology is changing business in many ways. Has it had a direct impact on your work as CFO? The Forex industry would definitely not

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meet the cfo

exist without technology. I am a protechnology person and use it to improve my daily life and work. It has directly impacted my work in a positive manner by removing many manual tasks and allowing me to collaborate with everyone, mostly remotely. To be more specific, the main tasks that used to involve paper submission or in-person meetings – i.e. interacting with colleagues, business partners, the regulator, the tax authorities – can now be performed online. Technology has also provided us with great opportunities, such as the tools to work with anywhere and without restrictions. At Purple Trading, working remotely is not only allowed but actively promoted. Many of our colleagues choose to work from home or abroad for days or even weeks without the distance impairing their responsibilities or deliverables. In theory, I could move with my wife to Italy for one month and work remotely from my laptop while exploring the country. This adds a freedom and happiness element that is quite special and it would not be possible without technology. Furthermore, technology is disrupting industries and, with the 4th industrial revolution underway, we have not yet experienced the biggest change that is closing in on our profession. It is estimated that once algorithmic automated accounting software becomes mainstream and the majority of clerical tasks such as data input, posting of entries, etc., start being performed automatically, most entry level accounting jobs will be lost. On the other hand, a new field of expert accountant/programmer vacancies will be created, leading to a higher calibre of professionals. Every coin has two sides

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and we should choose to place ourselves on the bright side. How much pressure is placed on the CFO these days due to stricter regulation and compliance requirements? Regulation and compliance have become stricter and more demanding in the Financial Services world. This is both a threat and an opportunity. It’s a threat as the CFO needs to be constantly up to date, operating as Compliance Officer for finance matters, and thus the underlying responsibility is huge. Moreover, we see the cost structure rising significantly due to the required changes. In the forwardlooking strategic role, expected changes need to be studied in advance, be analysed and decisions need to be made proactively to steer the company into the most favourable position. The risk of wrong reporting or incorrect decision making is always adding pressure on the CFO. On the other hand, this is a mandatory step forward that works to improve the status quo. It’s obvious that many people are seeking to exploit legal gaps or the absence of restrictions to achieve monetary benefits. This is done, of course, at a cost, usually against other people, privacy or the environment. Legislators intervene to implement policies within a certain “spirit of the law”. I strongly believe that this is the only way that industries will mature and the real winners will thrive by offering products and services with a real value. The challenge is to implement those changes and adjust the company’s strategy to be compliant with the law and, simultaneously, serve clients profitably. Qualified professionals should view regulation and compliance in a positive way

Many of our colleagues choose to work from home or abroad for days or even weeks without the distance impairing their responsibilities or deliverables

as it’s the main driving factor for hiring skilled professionals such as qualified accountants and expert consultants. In your personal role at Purple Trading, are there aspects of the work that are very specific to the company and the sector or is a CFO doing pretty much the same thing in any company or organisation? Nowadays the CFO job description has become more dynamic and evolving than ever. There is no “one fits all” approach. Mostly this is driven by the dynamics, knowledge and skillset that the management team possesses. Operating in the financial services sector, the CFO’s role is quite sector-shaped and comes with a great deal of responsibility. At Purple Trading, there is a unique, pleasant and supportive work environment. Specifically, the recruiting department does an amazing job, hiring people who are in line with the company’s values. The people employed by Purple Trading are highly motivated, knowledgeable and adaptable, along with a sense of independence. Therefore, being responsible and self-motivated tends to move projects forward and close any gaps that may arise.

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real estate

f o r e c lo

sure

The Real Estate & NPL Market in Cyprus By George Mountis, Managing Partner, Delfi Partners & Co.Â

yprus is considered an attractive destination for foreign investors, both private and institutional, looking to invest in distressed real estate and Non-Performing Loans (NPLs). The large percentage of Cyprusâ&#x20AC;&#x2122;s NPLs offers great opportunities in terms of returns for investors. After the organic decline of NPLs, mainly on corporate exposures, in recent months we have seen the intensification of loan package sales. In the banking sector, it has been realized that the most effective way to handle NPLs is either to sell them as a portfolio or to manage portfolios from loan servicers. Although the banks have made tremendous progress in developing in-house expertise and tools to address the problem, the implementation of best practices by external companies specializing in this sector has made a significant contribution to reducing NPLs. Almost all the banks have assigned their real estate portfolios (REOs) to specialized real estate management companies. Delfi Partners & Co. has worked on multiple projects in Greece & Cyprus with both banks and investors. We can safely say that outsourcing to international real estate portfolio management companies is one of the most effective solutions. At the same time, the banks on their side have invested in the best possible solution for non-performing loans, with the goal of sustainable restructuring to be implemented. It is notable that overall investments in Cyprus have recently increased. Due to the infrastructure and systems of these companies and the incentives they provide to their staff, they contribute to the efficient and fast management of such loans. Consequently, the drastic reduction of NPLs will undoubtedly come from sales and proper management. Through these tools, support will also come from the substantial organic and regulatory restructuring of both

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the internal processes and the legal and regulatory framework of the financial sector. Banks have already achieved significant reductions to their NPLs but it will take 4-5 years to make the results visible. Investors who buy these loans will, as a next step, have to restructure or sell the mortgaged assets of these loans. Difficulties will arise in the process and banks and investors need to move quickly. Delfi Partners & Co. currently manages over 3,500 properties in Greece, Cyprus and the Balkans, with the primary goal of marketing them and improving their efficiency through various optimal management strategies. The important thing now is that there is a revised institutional framework, both from the supervisory point of view and from the state side. At the same time, banks have invested in best practices for dealing with NPLs, with the ultimate goal of sustainable restructuring, which takes time to agree and materialize. A key factor in the success of these restructurings is for the Cypriot economy to continue on its present positive course, without rising unemployment or income cuts. In any case, attracting investment is a very important factor for the future; investing and creating jobs in various sectors of the economy, such as tourism and energy, will help stabilize and meet the goal of solving the problem of servicing loans. Cyprus has a large portion of bad loans backed by real estate. It is evident that in the past few years, there has been an increase and interest in residential real estate for home ownership, as this asset can be used for income-generating purposes. The financial crisis of 2008 dealt a severe blow to the real estate market, resulting in many estates being left for a long time and burdening the owners and banks. Through platforms such as Airbnb, Homeaway and Booking, owners

are now able to rent their properties for short periods of time, earning incomes of which they would otherwise be deprived and, at the same time, to operate positively for the economy and society. New ways of renting property are now part of the modern way of operating the market, offering impressive benefits to tourism and the establishment of a sound legal framework that can benefit all the market parties. Nowadays, home owners can benefit from renting and thus be in a position to repay their obligations to the bank. This cycle has had a positive impact since it has created a lot of jobs and a large number of social groups are employed in services resulting from short-term rentals. It is important to note that, due to the financial crisis, the supply of new real estate is still at a low level since the construction industry has recently only recovered. Noticeably, there seems to be a trend towards high and commercial real estate as well as the short-term lease of Airbnb in 2019. This trend is being seen not only in Cyprus but in the wider region of Greece, Israel and the Middle East. Since 2018, there has been a significant increase in the listing of accommodation on the Airbnb platform as well as other rental platforms and the corresponding positive response of tourists. In 2017-18, property sales doubled compared to 2013, when Cyprus experienced a deep economic crisis. In view of all the above, we expect to see positive growth in the economy of the island, with the management and disposal of NPLs. This will also benefit the real estate market, outsourcing more properties for sale and enhancing the investment dynamic of Cyprus. In the long run, this effect will shine upon the banks and society as a whole, bringing solid economic growth, translating into more jobs and a boost to the property market.

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ict

Blockchain Technology: Facts and Applications By George Prodromou, Board Member, KPMG Limited

In 2018, seven southern EU members agreed to promote the implementation of Distributed Ledger (better known as Blockchain) technology. Although largely associated with the usage of cryptocurrencies, this new generation technology has already found many other applications. To understand what it means in simple terms, imagine a registry, in which various types of information/data are recorded and stored. This data is classified, embedded in an encrypted block, creating an information/ data chain. Any modification to the data recorded in the block affects all subsequent data entries. Each block contains a cryptographic hash of the previous block and a timestamp. The difference between a Blockchain record and other registers as we know them today is based on the fact that responsibility for updating/maintaining the block does not lie with a central authority but with the block users themselves, who have installed and use the relevant software. The users update the block at the same time as a transaction of data occurs, so that all block users have the same status of the block at all times. This implies that the block is kept by more than one user. This decentralisation helps in keeping the block transparent, in a sense, while any transaction can be verified at any time. In practice, information is stored on a Blockchain platform, using algorithms and produced numbers, which integrate a transaction’s data (including the “access key” of each user). The cryptographic elements of each transaction are further encrypted in every two or more transactions, so that a final number is created referring to the particular block of transactions. In order to integrate a block into the block chain, complex mathematical work and maths puzzle

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solving is required (coupled with a powerful specific-related software). The completion of the above task requires the collection/use of data derived from a previous block that has been created, thus reaching the first transaction. The interconnection of the block with elements from the previous block is important, because any malicious attempt to modify previous transaction data would result in a different block/record, resulting in the encryption of all subsequent transactions being different. This would create a discrepancy that could not be implemented/enforced, as block users/ computers participating in the transaction as stakeholders would have different data from the transaction itself. Thus, the consensus required by the parties involved in order to be able to modify the data would not be reached. The security of information provided by Blockchain is one of its most important advantages. In summary, some of the most important advantages of this technology are the following: (a) The block/record is kept by a number of users and not a central authority. (b) Unilateral modification of data for recorded transactions is extremely difficult, as user consensus is required, thus ensuring the information’s security. (c) Block users can verify any transaction in their record at any time, something that embraces confidence and transparency.

the money (which takes some time), it can be verified by users, while the record is updated simultaneously. (b) In the case of transactions involving owner titles, in which a number of different entities act as stakeholders up to the settlement of the transaction (such as custodians, brokers), entities that are able to conduct transactions may register these transactions in Blockchain (instead of each holding its own records), so that there is single common record that everyone can access at any time. This will drastically reduce the time it takes to complete and record a transaction, while significantly reducing the cost for all stakeholders. Anyhow, one of the main goals of Blockchain technology is to eliminate the need for intermediaries. (c) Auditing transactions performed by the auditors or the users or the company will be easier and more efficient since they will be able to access the block in which the transactions recorded have already been agreed between the parties (once the “consensus” among users that is required to enter the transaction record is reached), without the capability of modifying/falsifying the block information. (d) In relation to digital assets, it is sometimes very difficult to prevent the use of such data by simply producing copies, without finding a way to publicly verify the transfer of such data to a particular entity.

Blockchain Technology in Practice

In conclusion, the growing use of this technology will improve the knowledge around it, with more and more businesses perceiving the advantages and added value it entails. There is no doubt that Blockchain technology will be heavily applied and utilised in the near future, while extending to many areas of our daily lives.

Below are some examples of how this technology can be applied in practice.

Financial Sector (a) Transferring money from one company to another. Instead of waiting for the bank’s confirmation for transferring

and imports is a new economic weapon for EU member states presents the and other countries

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SAVE THE DATE #CFOconfcy

Thursday, 20 June 2019 | 15:30 Hilton Park Hotel, Nicosia

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professional news

IFAC: Accountants Must Seize Opportunity to Drive Effective ERM Professional accountants have a meaningful opportunity to enable more effective Enterprise Risk Management (ERM) within their organizations, according to a recent report by the International Federation of Accountants (IFAC). Businesses face rapid change and increasing uncertainty driven by a myriad of factors, including geopolitical events, volatile financial markets, technology developments, cybersecurity, data privacy concerns, and climate change. According to the report, professional accountants can play an amplified role within their organizations to identify, measure and mitigate emerging risks through robust ERM practices. The report underscores the reality that risk management remains underdeveloped in many organizations. A survey of mainly US-based organizations, conducted by North Carolina State University and the American Institute of CPAs, found that less than 20% of organizations view their risk process as being integrated with strategy and objectives, and 69% of organizations do not have a comprehensive ERM process in place. To drive more effective ERM, management must draw upon the Chief Financial Officer and finance function to ensure risk management practices provide a holistic understanding of opportunity and risk linked to objectives and value creation.

Willie Botha Appointed IAASB Technical Director After an extensive global search, the International Audit and Assurance Standards Board (IAASB) has appointed Willie Botha as the Board’s Technical Director. In this role, Botha will lead a team that works closely with the IAASB and its Chair to advance the international audit and assurance standard-setting programme and engage with key stakeholders to heighten audit quality worldwide and enhance credibility and trust in external reporting.

Tax Transparency, Complexity, Inequality and Corruption are the Greatest Cause for Concern in G20 Countries The newly published sequel to the 2017 G20 Public Trust in Tax report by the Association of Chartered Certified Accountants (ACCA), CA ANZ and IFAC (the International Federation of Accountants) reveals a high level of distrust among the public in politicians and non-government organisations (NGOs) when it comes to tax systems. The new report also shows that public trust in professionals, such as accountants and lawyers, remains high by comparison. When it comes to evaluating their tax systems, respondents across G20 nations are most concerned about transparency, complexity, inequality and corruption in tax systems. Respondents’ concerns about inequality stem from the perception in English-speaking countries that high income earners and multinationals are treated better by tax systems than average or low income earners. Respondents in China, Indonesia and India had high levels of trust in tax authorities, politicians and accountants, reported efficient tax filing, and supported tax competition to attract multinational business.

ACCA and IFAC Launch Global PFM Series At a time when public sector spending, government accountability and financial sustainability are in the spotlight, the Association of Chartered Certified Accountants (ACCA) and the International Federation of Accountants (IFAC) are launching a global series that will identify, document and share success stories in public financial management (PFM). Strong public financial management processes and systems are essential for effective and efficient delivery of public services, transparent public finances, and trust between government and citizens. ACCA and IFAC are keen to showcase how such strong systems make a difference when public sector spending is under intense scrutiny. The series includes videos and written case studies, showcasing stories through their network of global experts. Public sector finance leaders from Tanzania, Australia and Canada have already shared their stories in videos which are available online: https://www.ifac.org/global-knowledge-gateway/business-reporting/ discussion/showcasing-good-public-financial-management ACCOUNTANCY CYPRUS

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#wealthconfcy Thursday, 30 May 2019 | 15:30 Hilton Park Hotel | Nicosia

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