ACCOUNTANCY CYPRUS No.127 - JULY 2017 by The Institute of Certified Public Accountants of Cyprus

No. 127 | JULY 2017

THE NEW COUNCIL

A NEW VISION

AND MISSION

FOR ICPAC ANNUAL GENERAL MEETING 2017

DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS POSTAGE PAID LICENCE no.33

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SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΡΟΜΙΚΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239

EY celebrates 80 years in Cyprus

ACCOUNTANCY CYPRUS

C O N T E N T S SHARPENING YOUR DEFENCES By Theodoros Hadjistyllis

THE AUDIT PROFESSION: CHANGES AND CHALLENGES By Susana Poyiadjis

LEADING BY EXAMPLE By Hilary Lindsay

42 44 48

accounting & audit GREAT POTENTIAL FOR CYPRUS IN THE POSTBREXIT ERA Interview with Leandros Papaphilippou, Senior and Managing Partner at L. Papaphilippou & Co LLC.

54 56 60 62

professional services

PRIVATE DEBT IS THE PROBLEM By Savvakis C Savvides

COMBATING THE DANGER OF PROTECTIONISM By Tassos Anastasiades

INDIA AND CYPRUS: RESTORING RELATIONS By Philippos Aristotelous

LESS PUBLIC SPENDING MEANS MORE ECONOMIC GROWTH By Marios Mavrides MP

BREXIT, MACRON AND THE FUTURE OF THE EUROPEAN UNION By Yiannis Kitromilides & Michael Sarris

DEALING WITH DUTCH DISEASE

(;3$1',1* &<3586Â· (&2120,& HORIZONS

By Demetris Georgiades

By Dr. Iacovos Aristidou

HOW TO SOLVE A PROBLEM LIKE THE EU? By Christos Michaelides

THE DEVIL IS IN THE DETAIL

By Dr. Jim Leontiades

economy

EBRD ANNUAL MEETING IN NICOSIA

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06 THINKING AHEAD

COVER STORY A NEW VISION AND MISSION FOR ICPAC The I2017 Annual General Meeting, the views of the RXWJRLQJ DQG LQFRPLQJ 3UHVLGHQWV DQG KRZ ,&3$&Â·V partners and collaborators view the Institute.

ACCOUNTANCY CYPRUS | ISSUE 127 | JULY 2017

ISSUE 127 JULY 2017

COMBATING TAX EVASION By Lenia Georgiadou

taxation

By George Agathangelou

THE X-FACTOR By Demetris Stylianides

AND MISSION

FOR ICPAC ANNUAL GENERAL MEETING 2017

OUR MOST IMPORTANT ASSET? By Dr Aspasia SimillidouTheodosiou

BUSINESS ON THE GO

A NEW VISION

THE VALUE OF INDUCTION COURSES By Demetris Ergatoudes

management

By Dr Sotiroula Liasidou

100

By Antonis Loizou

PRESTIGIOUS PROPERTY By Panos Danos

business in cyprus

84 88 90

THE MiFID II METAMORPHOSIS By Demetra Kalogerou

“SELL IN MAY AND GO AWAY”

Interview with Kyriakos Kyriakou, General Manager of NCR Cyprus

104

By Antypas Asfour

PEOPLE, PROCESS, TECHNOLOGY BANKING ON BASEL IV

By Theodosis Theodosiou

108

By Michael Kronides

PROFESSIONAL NEWS

102

real estate SERVING THE CUSTOMER OF THE FUTURE

CLEANING OUT THE CLOSET

Nicosia Economic Congress and more

110

By Ioanna Markidou & Nicholas Roussos

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mnancial serWices George Papageorgiou, Marketing and Culture Commercial Manager at Public Cyprus, is also passionate about the theatre.

,1',$ 7+( :25/'·6 )$67(67 GROWING MAJOR ECONOMY

Interview with the Indian High Commissioner to Cyprus, Ravi Bangar.

SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΡΟΜΙΚΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239

ISSN 1450-2380

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Editor Tasos Anastasiades, B.Sc., M.A. (Econ) The Institute Council Marios Skandalis (Chairman) Stavros Pantzaris (Vice-Chairman) Maria Pastellopoulou (Secretary) Members Andreas Andreou, Demetris Vakis, Antonis Vasiliou, Christos Vasiliou, Karlos Zangoulos, Pieris Marcou, Philippos Raptopoulos, Spyros Spyrou, Demetris Taxitaris, Nicos Chimarides, Odysseas Christodoulou General Manager Kyriakos Iordanou Address 11 Byron Avenue, 1096 Nicosia, Cyprus Mailing Address P.O.Box 24935, 1355, Nicosia, Cyprus Tel: +357 22870030, Fax: +357 22766360 e-mail: info@icpac.org.cy www.icpac.org.cy The publication is prepared by

Managing Director George Michail General Manager Daphne Roditou Tang Media Manager Antonis Antoniou In-house Editor-in Chief John Vickers Coordination Voula Loizou Art Direction Anna Theodosiou Design Alexia Petrou, Marios Kouroufexis

CULTURE VULTURE

DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS POSTAGE PAID LICENCE no.33

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Editor-in-Chief Ninos Hadjirousos, FCA

FOOD FOR THOUGHT TOURISM: IMAGINATION IS THE KEY

No. 127 | JULY 2017

THE NEW COUNCIL

114

Marketing Executive Kevi Chishios Commercial Manager Neofytos Constantinou Contact us for advertising Erika Phylakti erika.phylakti@imhbusiness.com Tel: +357 22505555, +357 22505550, Fax: +357 22679820 Address 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus, P.O.Box 21185, 1503, Nicosia, Cyprus

INSTITUTE NEWS

Accountancy Cyprus is published quarterly by the Insti[\[L VM *LY[PÄLK 7\ISPJ (JJV\U[HU[Z VM *`WY\Z HUK PZ ZLU[ free to all members if 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

ACCOUNTANCY CYPRUS

INSTITUTE NEWS

NEWS FROM THE BOARDROOM Although the Council held its three regular meetings during the second quarter of the year, this period proved particularly busy for both the Council and management of the Institute. Matters high on the DJHQGD ZHUH WKH GHOLEHUDWLRQV IRU WKH ðQDOL]DWLRQ RI WKH QHZ $XGLtor’s Law, the preparation and holding of major events such as the APSF 2017 event in collaboration with ICAEW, the 7th Nicosia Economic Congress and the Annual General meeting of the Institute. The main activities and decisions of the Institute’s Council include the following:

MEETINGS WITH OFFICIALS During the second quarter of 2017, 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: • During the quarter, the President, Council members and the General Manager had a number of meetings with members and staff of the Cyprus Public Audit Oversight Board, to discuss bill for the new Auditors Law. Extensive commitment and preparatory work was required for the specific issue. • March-April 2017 ICPAC had various meetings with almost all parliamentary parties and held extensive discussions onthe new Auditors Law with the Speaker of the House of Representatives, the Chairmen of DISY, DIKO and the Citizens’Alliance as well as with Members of Parliament from AKEL and the Solidarity movement. • 30/3/2017 The President and Vice President of the Institute, accompanied by the Chair of the Insolvency Committee, met with a delegation of the Troika to discuss macro- developments, the business environment and the insolvency/foreclosure regimes. • 3-4/5/2017 The General Manager and Ninos Hadjiroussos, ICPAC’s representative to the FCM, attended the FCM’s General Meeting in Rome. • 21/4/2017 The General Manag-

er participated in a round table discussion organised by Lefteris Christoforou MEP on tax developments in the EU. • The Energy Committee of the Institute had a meeting with CIPA and the Cyprus Hydrocarbons Company to discuss issues pertinent to the sector. The General Manager attended the meeting and it was agreed to proceed with a round table discussion on the matter raised by ICPAC’s study inviting the Government and the operators to participate. • 4/5/2017 ICAEW and ICPAC hosted the Accountancy Profession Strategic Forum for 2017 in Nicosia with great success. The official dinner was offered at the Presidential Palace and the event was placed under the auspices of the President of the Republic, Mr Nicos Anastasiades. • 5/5/2017 ICPAC and ICAEW signed a Memorandum of Understanding that aspires to formalise the process by which members of one body gain membership of the other as well as practice and statutory audit rights in the partner country, providing they complete the professional and regulatory requirements. The agreement was signed by the President of the Institute, Demetris Vakis, and the CEO of ICAEW, Michael Izza. • 5/5/2017 The General Manager of the Institute participated as a panellist in the Corporate Governance Conference.

• 9/5/2017 The President and the General Manager met with the executive management of the OEB, led by Director General Michalis Antoniou, to discuss issues of mutual interest and explore ways of further enhancing their bilateral cooperation. • 9/5/2017 The President and the General Manager participated in a meeting organised by the CCCI and the Cyprus-UK Business Association to discuss the repercussions of Brexit on the Cyprus economy. • 10/5/2017 The General Manager met with the Director General of the Human Resource Development Authority of Cyprus to discuss the possibility of professional accountants, members of the Institute, becoming trainers certified by the Authority. • 12/5/2017 The General Manager met with the President of the Cyprus Fiduciary Association to explore ways of achieving a closer cooperation. • 22/5/2017 The General Manager participated in a round table discussion organised by Costas Mavrides MEP, which focused on the latest tax developments in the EU. • 31/5/2017 The Cyprus Public Audit Oversight Board met with ICPAC’s management and Audit Committee to present the results of its annual review of the Institute’s procedures and operations. • The President and General Manager met with a delegation of the Association of Cyprus investment Companies (CICs) to discuss matters of mutual interest, including the 4th EU AML directive and its transposition into domestic law. • 8/6/2017 ICPAC representatives led by the General Manager met with a delegation from the Department of Economic Crime of the Police, in order to examine potential ways of cooperation in terms of training, education and provision of technical assistance. • 10/6/2017 The President attended and addressed the 13th Accounting Olympiad award ceremony. • 23/6/2017 The General Manager and the Chair of the Economic Crime and forensic Accounting Committee participated as speakers at the conference organised by the Cyprus Police entitled “Major Policies in Dealing with Organised Crime and Corruption: The European and International Dimensions”. • The new ICAEW President, Nick Parker, visited ICPAC and met with the new President and Vice-President as well as with senior management staff of the Institute • May-June A number of meetings were held on the issue of the imposition of VAT on land. They included meetings with the Ministry of Finance, the Tax Commissioner, political party leaders and other stakeholders and affected business groups, as well as appearing before the Parliamentary Committee of Finance on many occasions. • During the quarter, the President and the General Manager attended various annual general meetings of affiliate associations, such as the OEB, the Cyprus Shipping Chamber, the Association of Cyprus Banks, the Cyprus Fiduciary Association and the Cyprus Institute of Internal Auditors.

MAIN COUNCIL DECISIONS • On 13/6/2017, the Council finalised and approved the following policies: Risk Policy, Conflict of Interest Policy and Anti-Bribery and Corruption Policy, thus adopting best practices. • The Council approved the Financial Statements and Annual Report of the Institute for 2016. • During the quarter, the Council looked at various ways to foster its effectiveness in dealing with the increasing volume of issues involving

ACCOUNTANCY CYPRUS

the Institute, as well as the new responsibilities assumed by ICPAC with the enactment of the new Auditors Law.

• On 13/6/2017, marking the start of the summer period, ICPAC invited its members, students and affiliates to a happy hour reception at the premises of the Institute.

OTHER IMPORTANT MEETINGS AND ACTIVITIES • During the quarter, ICPAC representatives appeared before Parliamentary mentary committees dealing with matters pertaining to the Companies Law, w, tax, VAT, the new Auditors Law, EU matters such as the Common Corporate porate Tax Base, the Panama Papers, etc. • There was significant activity around the revision of the anti-money laundering law. There have been many meetings and exchanges of comments on the proposed bill, which is expected to be submitted to Parliament soon. • Both the President and the General Manager had various meetings during the quarter with other officials, stakeholders and Members of Parliament on issues relating to the Institute and the profession

FROM THE ARCHIVES The More Things Change… In the June 1987 issue of Accountancy Cyprus, the subjects that were deemed relevant are very familiar to us 30 years later!

ACTIVITIES: Professional • On 22/3/2017, ICPAC in collaboration with ACCA, held a round table discussion on the subject of “Upcoming EU Developments on Tax Matters” Speakers were George Panteli, Director of EU Affairs at the Ministry of Finance, Nicos Chimarides, members of the ICPAC Council, Pantelis Christofides, lawyer, and Jason Piper, Senior Manager for Tax and Business Law at ACCA. The facilitator of the event was Kyriakos Iordanou, General Manager of ICPAC. • The Limassol-Paphos coordinating Committee of the institute organised on 29/3/2017 a dinner event with the Minister of Finance, Harris Georgiades, as guest speaker. The theme of his address was “Cyprus: The Start of a New Economic Era - One Year After the Exit from the Memorandum”. • On 25/4/2017, ICPAC in cooperation with IMH and GOLD magazine organised the Nicosia Economic Congress for the seventh consecutive year at the Hilton Cyprus in Nicosia with great success, focusing on the state and prospects of the Cyprus economy. • ICPAC and ICAEW hosted the Accountancy Profession Strategic Forum (APSF) 2017 in Nicosia on 4/5/2017. This was a unique and very successful event that brought together leaders of the accountancy and finance profession and was attended by professional accountancy organisations (PAOs) from Central, Eastern and Southern Europe. The official dinner of the event was placed under the auspices of the Republic of Cyprus and was offered at the Presidential Palace. Social events organised by the Functions Committee: • The Functions Committee of the Institute arranged to hand over the money collected from the ICPAC Regatta 2016 organised in October 2016 to the Association of Children with Liver Diseases – Round Table George Psaras. At the modest but moving ceremony on 25/4/2017, present were members of the Functions Committee, the Vice President and the General Manager of the Institute and the President, members and friends of the Association and the doctor of the unit. • On Sunday, 28/5/2017 a charity cycling event entitled “For a World Without Leukaemia” was organised in association with the Karaiskakio Foundation. Apart from great time enjoyed by the participants, all net proceeds will be donated to Karaiskakio Foundation.

… The More They Stay The Same!

ACCOUNTANCY CYPRUS

Institute Committees Update

SHIPPING COMMITTEE The Committee continued to participate in the Ministry of Transport Shipping Incentive Schemes & Ship Registry Pricing Policy Working Group, set up to develop a national shipping strategy. It also discussed industry issues such as freight taxes, tonnage tax payments, Department of Merchant Shipping (DMS) forms (MSTTs), the DMS restructuring, the creation of special types of shipping companies, the organization and delivery of shipping seminars, etc. The Committee also discussed the merits of establishing a Deputy Ministry of Shipping and presented its arguments in support of this before the Parliamentary Committee. Sylvia Loizidou, Chairwoman

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Christos Antoniou, Chairman

LIMASSOL-PAPHOS COORDINATING COMMITTEE During the second quarter of 2017 the Committee coordinated three seminars: â&#x20AC;&#x2DC;Update on common findings from AML Monitoring Visitsâ&#x20AC;&#x2122;, â&#x20AC;&#x2122;Tax updatesâ&#x20AC;&#x2122; and â&#x20AC;&#x2DC;Directorsâ&#x20AC;&#x2122; Responsibilities and Riskâ&#x20AC;&#x2122;, all of which were held at the St Raphael Resort in Limassol. Neophytos H. Neophytou, Chairman

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Charis Charalambous, Chairman

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EDUCATION COMMITTEE The Committee held three monthly meetings to discuss training seminars and organized the following 12 training events during the second quarter of 2017. The New Auditorâ&#x20AC;&#x2122;s Report: Half-day training events in Limassol, Nicosia and

ACCOUNTANCY CYPRUS

Larnaca on March 27 and 29 & April 3 respectively. AML on monitoring visits: Half-day training events in Nicosia, Limassol and Larnaca on April 5, 6 & 7 respectively. Public Sector Governance: Half-day training event in Nicosia on April 24. Tax Updates: Half-day training events in Nicosia and Limassol on May 9 & 11 respectively, Directorsâ&#x20AC;&#x2122; Responsibilities and Risk: Half-day training events in Nicosia and Limassol on May 30 & 31 respectively. Big Data Analytics: Turning Data into a Strategic Asset: Afternoon training event in Nicosia on June 27. Furthermore, the Committee plans to hold the following seminars during the third quarter of 2017: Electronic Invoicing: Limassol, Nicosia and Larnaca on September 11, 12 & 13 respectively. IFRS15 Revenue Recognition: Nicosia and Limassol on September 19 &22 respectively. Economic Sanctions: Nicosia on October 3. KYC â&#x20AC;&#x201C; Due diligence: Dates and venues to be announced. Akis D. Kolokotronis, Chairman

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Yiannis Leonidou, Chairman

ADMINISTRATIVE SERVICES COMMITTEE During the second quarter of 2017, the Committee carried out the following activities: Discussion on the implementation of the 4th AML Directive. The Committee was updated on the status of the finalization of the implementation of the 4th AML Directive and discussed extensively the UBO reporting technicalities of companies belonging to discretionary trusts and registries of trusts. The Committee provided valuable input by commenting on the provisions of the prospective legislation and participated in meetings. The final draft of the law is expected shortly. Drafting of a sample of an engagement letter for administrative services. The wording of an engagement letter that will cover the scope of provision of administrative services was completed and circulated among members for

further discussion and finalization. The final version will be made available to the management of ICPAC for further consideration and review. Discussion on the upcoming guidelines of the CRS decree. After a series of meetings on potential changes to the CRS decree guidelines, the Committee succeeded in persuading the task force set up especially for this project to make a small number of changes that will simplify the requirements imposed on Administrative Service Providers. The relevant announcement of the guidelines will be made shortly. Seminar. The Committee organized a seminar on the duties and responsibilities of Directors on May 30 & 31 in Nicosia and Limassol respectively. Investigation into the merits of Data Protection questionnaires. Further to the August 2016 letter from the

Data Protection Agency, requesting all Administrative Service Providers to provide the Agency with information by completing certain questionnaires, the Committee thought it proper to discuss whether indeed the providers had to adhere to the Agencyâ&#x20AC;&#x2122;s requirements. After investigating the matter in detail, the Committee concluded that it was obligatory for providers to fulfil the Agencyâ&#x20AC;&#x2122;s request. Evaluation of cooperation with the Cyprus Fiduciary Association (CFA). Efforts were made to rejuvenate cooperation between ICPAC and the CFA. Committee members drew up an action plan that will be brought to the attention of the Board of ICPAC for further consideration and action. Costas Christoforou, Chairman

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COMPLIANCE COMMITTEE PUBLIC SECTOR COMMITTEE During the second quarter of 2017, the Committee held three meetings and carried out the following activities: It met with Andreas Papaconstantinou, Senior Officer from the Health Insurance Organisation and exmember of the Committee, to be informed and exchange views and ideas on progress in the implementation of the National Health Insurance System (NHIS). It was a very good opportunity for the Committee to understand if and how this reform will affect the work of accounts departments in the wider public sector. The Committee had the opportunity to listen to a presentation by George Rokopou, Senior Officer at the Department of Social Insurance Services and current member of the Committee, and be informed about the developments on the discussions regarding the reform of occupational pension funds that the Ministry of Finance is promoting. The issue will be examined thoroughly by the Committee, when the Government’s final draft proposal is given to the

social partners for discussion. Representatives of the Committee had an initial meeting with the Budget Directorate of the Ministry of Finance, in relation to the initiative undertaken to address the need to harmonise the preparation procedures of the budget of public entities. In cooperation with the Education Committee, the Committee organised a Seminar in Nicosia on April 24 on “Public Sector Governance: Enhancing trust in the public and wider public sector”. The Committee was updated by its Chairman, a member of the Public Sector Committee of Accountancy Europe (formerly known as FEE), on recent developments regarding European Public Sector Accounting Standards (EPSAS) and International Public Sector Accounting Standards (IPSAS), as well as the other issues concerning public financial management. Marios Hadjidamianou, Chairman

ENERGY COMMITTEE During the second quarter of 2017, the Committee was engaged in the following activities: It attended meetings with the companies operating in the Oil & Gas industry in Cyprus to discuss the main challenges that they face. In addition, the creation of a Technocratic Team was discussed, consisting of representatives from these companies and from the Ministries as well as other government organizations. The main objective of the Technocratic team would be to conduct a series of round table discussions to address the major issues of the Oil & Gas industry and to suggest optimal solutions for both the industry and

the State. The Committee attended meetings with the Ministry of Energy to discuss the creation of the above-mentioned Technocratic team as well as the scheduling of the ÄYZ[ YV\UK [HISL KPZJ\ZZPVU The Committee communicated with CIPA and CIBA in order to coordinate their common efforts to promote and address issues facing the Oil & Gas industry, as documented in the Committee’s Report “Suggestions for Improving the Operating environment of the Oil and Gas Industry in Cyprus”.

Constantinos Taliotis, Chairman

In the 1st quarter of 2017, the Compliance Committee reviewed the draft CRS Guidance Notes and provided comments to ICPAC’s CRS Ad Hoc Committee. It organised a seminar in cooperation with MOKAS on suspicious transactions, it participated in a CIPA initiative to promote Cyprus as a competitive financial centre and, at the same time, build its reputation as a jurisdiction with a sound AML framework and controls, and it provided comments on the Consultation on the Proposed Amendments to the AML Law issued in May 2017. Niki Charilaou, Chairwoman

ECONOMIC CRIME AND FORENSIC ACCOUNTING (ECFA) COMMITTEE +\YPUN P[Z ÄYZ[ `LHY [OL *VTTP[[LL JHYYPLK V\[ the following activities: It held a meeting with the Attorney General and ^P[O [OL /LHK HUK :LUPVY 6MÄJLYZ VM [OL *`WY\Z Police Economic Crime Unit on June 8 to discuss closer cooperation between the Committee HUK [OL 7VSPJL VU [OL ÄNO[ HNHPUZ[ MYH\K HUK JVYY\W[PVU 0[ ^HZ HNYLLK HZ H ÄYZ[ Z[LW [V OVSK QVPU[ training workshops for ICPAC and the Police, in collaboration with the Cyprus Police Academy. It held a meeting with the ICAEW Members and Stakeholders Manager in the Europe Region and representatives of the Board of Directors of the ICAEW Fraud Advisory Panel UK on December 9, 2016, and agreed on a Memorandum of *VVWLYH[PVU MVY JSVZLY JVVWLYH[PVU PU [OL ÄNO[ against fraud and corruption. We also liaised with the olice and the ICAEW Fraud Advisory Panel UK, for the Panel to participate as main speakers in the Police’s 2nd International Conference on “Major Policies in Dealing with Organised Crime and Corruption: European and International Dimensions” on June 22-23 2017. The Committee met with the Management and :LUPVY 6MÄJLYZ VM [OL *`WY\Z :[HUKHYKZ 6YNHUisation (CYS) on June 6, 2017, with regard to the discussion of the ISO 37001 Anti-bribery Management Systems and ISO 27001 General Data Protection Regulation. It was agreed to

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coorganise a training seminar between ICPAC and CYS, for ICPAC to support the CYS International Conference in September 2017, for ICPAC to communicate to all its members of the aforementioned ISOs and for a formal letter from ICPAC to be sent to CYS requesting that the ISO 37001 Anti-bribery Management Systems be registered as a Cyprus ISO (this is a standard ISO PU[LYUH[PVUHS YLX\PYLTLU[ MVY H ZWLJPĂ&#x201E;J 0:6 [V IL registered in a local country). The Committee met with the Management of the Association of Cyprus Banks on March 16, 2017, to discuss the signing of a Memorandum VM *VVWLYH[PVU VU JSVZLY JVVWLYH[PVU PU [OL Ă&#x201E;NO[ against fraud and corruption. It was agreed that a follow-up meeting would be held with the Associationâ&#x20AC;&#x2122;s Board in September 2017, to agree on the details of the proposed Memorandum of Cooperation. A meeting took place with representatives of the Boards of Transparency International â&#x20AC;&#x201C; Cyprus HUK [OL (ZZVJPH[PVU VM *LY[PĂ&#x201E;LK -YH\K ,_HTPULYZ (ACFE) â&#x20AC;&#x201C; Cyprus Chapter on February 10, 2017, and agreement was reached on the signing of a trilateral Memorandum of Cooperation for closer JVVWLYH[PVU PU [OL Ă&#x201E;NO[ HNHPUZ[ MYH\K HUK JVYY\Wtion. The Committee is one of the founding memILYZ VM [OL *`WY\Z (ZZVJPH[PVU VM *LY[PĂ&#x201E;LK -YH\K ,_HTPULYZ (*-, *`WY\Z *OHW[LY The Committee met with the Chairwoman and representatives of the Board of Directors of the /LSSLUPJ (ZZVJPH[PVU VM *LY[PĂ&#x201E;LK -YH\K ,_HTPULYZ /(*-, VU 4HYJO [V YL JVUĂ&#x201E;YT [OL signed 2016 Memorandum of Cooperation and agree on joint efforts and an action plan for 2017 MVY JSVZLY JVVWLYH[PVU PU [OL Ă&#x201E;NO[ HNHPUZ[ MYH\K and corruption. The Committee met with Academic Institutions and Universities in Cyprus on May 3, 2017, to discuss the potential for economic crime and forensic accounting courses to be included in their main degree syllabuses. It was agreed that a detailed proposal will be jointly prepared on the proposed structure and content of such courses in line with similar courses currently offered by International Universities. A number of further meetings are planned for ^P[O [OL ;H_ (\[OVYP[PLZ [OL *`WY\Z :LJ\YP[PLZ HUK ,_JOHUNL *VTTPZZPVU *`:,* [OL (\KP[VY .LULYHSÂťZ 6MĂ&#x201E;JL [OL /V\ZL VM 9LWYLZLUtatives and other key stakeholders involved in the Ă&#x201E;NO[ HNHPUZ[ MYH\K HUK JVYY\W[PVU Committee members participated as main speakers in the Conference held in Cyprus on December 8, 2016 on â&#x20AC;&#x153;Re-Enforcing the AntiFraud Infrastructure: Best Practice Initiativesâ&#x20AC;? for the implementation of the European Programme â&#x20AC;&#x153;Hercules III â&#x20AC;&#x201C; Financial Investigation Coordination in Cyprusâ&#x20AC;?, supported by the European *VTTPZZPVUÂťZ (U[P -YH\K 6MĂ&#x201E;JL 63(- ;OL

Committee was invited to participate both in the thematic planning of the Conference and also in a round table discussion on â&#x20AC;&#x153;How to improve the Cypriot anti-fraud infrastructureâ&#x20AC;?, which also included the Auditor General of the Republic, the Commissioner of Internal Audit of the Republic, [OL /LHK VM 462(: HUK V[OLY :LUPVY 6MĂ&#x201E;JLYZ from the Cyprus Police, the Greek Investigations Planning Directorate of the Financial and EcoUVTPJ *YPTL <UP[ :+6, [OL ;H_ +LWHY[TLU[ [OL *\Z[VTZ HUK ,_JPZL +LWHY[TLU[ HUK [OL Treasury Department. The Committee will also be actively involved in this Conference in 2017. The Committee participated in a training seminar on â&#x20AC;&#x153;Investigative Interviewing of Suspected Fraud Casesâ&#x20AC;? on April 12, 2017, organized by Transparency International â&#x20AC;&#x201C; Cyprus and with the participation of the Attorney General, the Auditor General and the Chief of Police. Committee members were invited to participate as main speakers in the Cyprus Policeâ&#x20AC;&#x2122;s 2nd International Conference on â&#x20AC;&#x153;Major Policies in Dealing with Organised Crime and Corruption: European and International Dimensionsâ&#x20AC;? on June 22- 23, 2017, on â&#x20AC;&#x153;Fighting Fraud and Corruption: The Role of the Audit Professionâ&#x20AC;?. The Committee was invited to participate in a training seminar on â&#x20AC;&#x153;Ethics and Integrityâ&#x20AC;? to be coorganised in Cyprus by ICAEW UK and ICAEW Cyprus Chapter on September 27-28, 2017. It was also invited to the thematic planning meeting for the training seminar on June 20, 2017. The Committee is currently actively involved in the support and establishment of guidance and procedures for an Anti-bribery Regulation, the National Anti-Fraud Strategy Against Corruption and a Whistleblower Internal Procedures Programme implementation. Committee members regularly author articles on the topics of fraud and corruption that are published in â&#x20AC;&#x153;Accountancy Cyprusâ&#x20AC;?.

Yiannis Pettemerides, Chairman

AUDITING STANDARDS COMMITTEE During the period January-June 2017, the Committeeâ&#x20AC;&#x2122;s activities included the following: The Committee completed its review of the New Auditing Standards (ISAs) in

relation to the new Audit Report which are applicable for accounting periods ending on or after 15 December 2016 (ISAs 700, 701, 260, 570, 705 ÎşÎąÎš 706). The new audit report illustrations were issued in the form of a Technical Circular addressed to ICPACâ&#x20AC;&#x2122;s members on February 3, 2017. In the context of the presentations organised by ICPAC in February 2017 entitled â&#x20AC;&#x153;False Assuranceâ&#x20AC;? and the Directors changing responsibilities, the Chairman presented the key changes arising from the enhanced new auditorâ&#x20AC;&#x2122;s report. In relation to the new auditorâ&#x20AC;&#x2122;s report, the Committee co-organised with the Education Committee training seminars on March 27 & 29 and April 3, 2017 in Limassol, Nicosia and Larnaca respectively. In the context of the ongoing cooperation between the Superintendent of Insurance Companies and ICPAC in relation to the Solvency II requirements and audit reporting requirements, the Committee Chairman participated in various meetings held with the Superintendent of Insurance Companies, the Association of Insurance Companies and ICPACâ&#x20AC;&#x2122;s Insurance Working Group. The subject of these meetings was the scope and extent of the external audit requirements in relation to Solvency II reporting requirements by insurance companies primarily in relation to the Solvency and Financial Condition Report (SFCR). The Auditing Standards Committee issued an illustrative audit report on the annual audit of the SFCR in the form of a Technical Circular addressed to ICPACâ&#x20AC;&#x2122;s members on May 9, 2017 Following the vote in the House of Representatives on May 19, 2017 and the publication in the Official Gazette of the Republic on June2, 2017 of the Auditors Law 2017, the Committee issued revised illustrations of the auditorâ&#x20AC;&#x2122;s report 7 in the form of a Technical Circular on June 8, 2017. The affected sections of the auditorâ&#x20AC;&#x2122;s report were the â&#x20AC;&#x153;Report on other legal requirementsâ&#x20AC;? and â&#x20AC;&#x153;Other mattersâ&#x20AC;?. George C Kazamias, Chairman

ACCOUNTANCY CYPRUS

INTERNATIONAL BUSINESS AND FOREIGN INVESTMENT COMMITTEE On the basis of the Action Plan drawn up by the Committee during the period JanuaryMay 2017, regular meetings were held and members were informed of recent developments affecting the provision of professional services to international clients. In particular, the following were discussed: Âˇ ;OL PZZ\L VM H\[VTH[PJ L_JOHUNL VM PUformation (Common Reporting Standard) under the recommendations of the Organization for Economic Cooperation and Development. Âˇ ;OL PTWHJ[ VM )YL_P[ VU *`WY\Z HZ HU International Financial Centre. Âˇ The enactment of the Fourth European +PYLJ[P]L VU 4VUL` 3H\UKLYPUN PU[V UH[PVUHS SH^ :WLJPĂ&#x201E;JHSS` [OL *VTTP[[LL discussed what the minimum rate should IL MVY PKLU[PĂ&#x201E;JH[PVU VM [OL ILULĂ&#x201E;JPHS V^Uers (UBOs) and the Central Registry for UBOâ&#x20AC;&#x2122;s of Companies and Trusts. Âˇ Practical problems the profession is facing with the implementation by the banking sector of the new Central Bank directive on the â&#x20AC;&#x2DC;Know Your Clientâ&#x20AC;&#x2122;. On this issue, a meeting was held between members of this Committee and the Compliance Committee. Âˇ Reference was made to judicial decisions in Russia for cases which disregarded the legal status of Cypriot companies, for ^P[OOVSKPUN [H_ W\YWVZLZ VU KP]PKLUKZ and interest. Âˇ The postponement of the Protocol between Cyprus and Russia changing Article 13 on Capital gains. Âˇ ;OL TVKPĂ&#x201E;JH[PVU VM [OL SLNPZSH[P]L MYHTLwork for the submission of reports by country (country by country reporting). Âˇ The framework of cooperation between Cyprus and South African businesses HUK [OL YLSH[LK ILULĂ&#x201E;[Z [H_ HUK I\ZPness). Âˇ ;OL UL^ KPYLJ[P]L VU JHSJ\SH[PUN WYVĂ&#x201E;[ margins associated with related party Ă&#x201E;UHUJL Âˇ 5L^ KV\ISL [H_ HNYLLTLU[Z HUK VY L_P[ from the black list of certain countries. The committee gave its written recommendations to the Registrar of Companies and 6MĂ&#x201E;JPHS 9LJLP]LY VU [OL YLKLZPNULK MVYTZ VM

companies. Also, the Chairman and other members of the Committee met with representatives of the Cyprus Investment Promotion Agency (CIPA).

Christos Odysseos, Chairman

TAXATION COMMITTEE The main activities of the Taxation Committee during the second quarter of 2017 were the following: We met with the Tax Department and discussed various issues. Some have been resolved. Our list includes, inter alia, the following: â&#x20AC;˘ Release date of the return TD4 for 2016. â&#x20AC;˘ Introduction of the agreed updated tax residency and other certificates. â&#x20AC;˘ Finalisation of the circular for the taxation of benefits in kind. â&#x20AC;˘ Publication of the guidelines relating to the law on settlement of overdue taxes and entry in to force date. â&#x20AC;˘ Agreement and circulation of the clarified fiscal memories guidelines. â&#x20AC;˘ Tax deductions for medical scheme contributions. â&#x20AC;˘ Clarification of the tax circular 2012/15 on leases registered at the Land Registry Department. â&#x20AC;˘ Deduction of 10% additional tax for deemed distribution purposes. â&#x20AC;˘ Finalisation of the circular on exempt employment income as per articles 8(21) and 8(23). â&#x20AC;˘ Audited financial statements by individuals whose annual income exceeds â&#x201A;Ź70.000 and derives from interest, dividends and rents Following the technical support offered to the Ministry of Finance and the Tax Department in relation to the preparation of transfer pricing guidelines which are intended to be effective as from 1.7.2017, we remain available for the finalisation of the guidelines and their circulation.

We provided support to the Ministry of Finance in relation to CCTB and IRD which are discussed on a European level. We studied, submitted comments and attended parliamentary meetings during which tax bills were discussed. We also examined the tax aspects of the draft bills on Funds and continued working with STEP Cyprus on the improvement of the taxing environment of trusts. We attended a meeting organised by the Cyprus office of the International Monetary Fund, we organised tax update seminars with the Education Committee, and continued providing technical support to the Ministry of Finance when requested. Committee Members also continued their involvement in DTT negotiations. George Markides, Chairman

LISTED COMPANIES AND CAPITAL MARKETS COMMITTEE During the second quarter of 2017, the Committee met three times and the main issues discussed were the following: Committee members attended a number of parliamentary committees for discussions on a number of issues, such as the definition of the legislative framework for the recovery and reorganization of credit institutions and investment firms. On May 9, 2017 the Committee met with the Chairwoman and other representatives of CySEC. Some of the matters discussed included the potential listing of UCITS and companies that participate in crowdfunding, clarifications on matters related to Corporate Governance and the new Companies Law and the identification of Cypriot Companiesâ&#x20AC;&#x2122; obligations regarding which titles are listed in EU member states. We informed our members on various issues of paramount importance that have emerged during the period, such as developments regarding the new Auditorâ&#x20AC;&#x2122;s Law and the new Audit report. Panayiotis Peleties, Chairman

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INSTITUTE NEWS

NEW MEMBERS During the period April - June 2017, the following persons were accepted as New Members of the Institute

4334

FLORINA

VLAD CHRISTODOULOU

ACCA

4335

MARIA

MILTIADOU

ACCA

4336

MARIA

TOMAZOU

ACCA

4337

SOCRATES

SOCRATOUS

ACCA

4338

ANDREAS

ODIATIS

ACCA

4339

GIANNIS

ARGYRIADES

ACCA

4340

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DEMETRIOU

ACCA

4341

KYRIAKOS

KASIOULIS

ACCA

4342

KYRIAKOS

KENEVEZOS

ACCA

4343

GEORGIOS

SAVVA

ACCA

4285

PANAYIOTA

MICHAEL

ACCA

4344

MARIOS - NIKOLAOS

CHARALAMBOUS

ACCA

4286

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CHRISTOFOROU

ACCA

4345

HERODOTOS

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ICAEW

4287

CHARA

ZAMPA

ACCA

4346

GEORGE

TSANGARIDES

ICAEW

4288

ELENA

HADJIPANAYI

ACCA

4347

CHRISTOS

CHRISTODOULOU

ICAEW

4289

MELANTHI

PAPAIOANNOU

ACCA

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ICAEW

4290

KALLIOPI

MICHAEL

ACCA

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XENIA

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ICAEW

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ACCA

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CHARALAMBOUS

ICAEW

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ICAEW

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LAPPAS

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PAVLIDOU

ICAEW

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ILIAS

BATZIOS

ACCA

4353

MARIA

DEMETRIOU

ICAEW

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PANAYIOTIS

NIKOLAOU

ACCA

4354

MARIA

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ACCA

4296

GIORGOS

SAVVIDES

ACCA

4355

YULIYA

VUSIK SOCRATOUS

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NIKOLAS

SYRIMIS

ACCA

4356

MICHAELA DIANA

ISAIA

ICAEW

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STAVROS

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4357

ALEKSANDRA

FEOKTISTOVA

ICAEW

4299

NICOLAS

SHIAMISHIS

ACCA

4358

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ICAEW

4300

PASCHALIS

KAGIAS

ACCA

4359

MARIA

JOSEPH

ICAEW

4301

MARIA

PATSIA

ICAEW

4360

CHRYSANTHI

SCHIZA

ICAEW

4302

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CHARALAMBOUS

ICAEW

4361

MARIA

CHRYSOSTOMOU

ICAEW

4303

MARINA

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ICAEW

4362

MARIOS

TSIAILIS

ICAEW

4304

ARGYRO

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ICAEW

4363

CHRISTINA

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ICAEW

4305

STEPHANIE

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ICAEW

4364

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KASPARI

ICAEW

4306

EVGENIOS

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ICAEW

4365

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ICAEW

4309

SOTIRIS

ANASTASIOU

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4368

LOUISA MARIA

HADJIVASSILIOU

ICAEW

4310

MILTIADES

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ICAEW

4369

MARIA

MICHAEL

ICAEW

4311

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IAKOVOS

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FRANGOU

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4322

CHRISTINA

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4372

PHIVOS

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4321

MAROULLA

HADJIANTONI

ACCA

4373

NICOLAS

CHRISTOFOROU

ICAEW

4333

MICHALIS

PRODROMOU

ACCA

4374

EVANGELIA

PAPAGEORGIOU

ICAEW

4332

MARIA

PISSIDOU

ICAEW

4375

MICHALIS

NICOLAIDES

ICAEW

4331

DESPINA

KOUSIAPPA

ICAEW

4376

ANTHI

LAZAROU

ACA

4330

NICOLAS

IACOVIDES

ICAEW

4377

ALEXANDRA

IOANNOU

ICAEW

4329

PANTELIS

DIMITRIOU

ICAEW

4378

NICOLETTA

PSYLLIDOU

ICAEW

4328

NIKOS

TIMOTHEOY

ICAEW

4379

ELENI

CHRISTOFOROU

ICAEW

4327

RENOS

PHOTIADES

ICAEW

4380

IOANNA

KYRIAKIDOU

ICAEW

4326

FEDONAS

ARGYROY

ACCA

4381

CHRISTOS

ALEXANDROU

ICAEW

4325

PANAYIOTIS

PITRAKKOS

ACCA

4382

CHRISTODOULOS

METTAS

ICAEW

4324

MICHAEL

TSIAPINIS

ACCA

4383

GEORGE

CONSTANTINIDES

ICAEW

4323

PETROS

ARCHONTIDES

ACCA

4384

AMALIA

MYRIANTHOUS

ICAEW

4320

CRISTINA

KYPRIANOY

ACCA

4385

MARINA

VAKANA

ICAEW

4319

CONSTANTIA

LOIZOU

ACCA

4386

AVGOUSTINOS

ATHIAINITIS

ICAEW

4318

STELLA

ORFANOU

ACCA

4387

ANASTASIA

PAPAEFTHYMIOU

ICAEW

4317

NICOLINA

STYLIANOY

ACCA

4388

MARIA

ACHILLEOS

ICAEW

4316

MARINA

POHANI

ACCA

4389

ANNA

PANAYIOTOU

ICAEW

4315

MARIA

ZENONOS

ACCA

4390

MARIOS

PHILIPPOU

ICAEW

4314

ELENA

CHRYSOSTOMOU

ACCA

4391

ELENA

GEORGIOU

ICAEW

4313

CHARALAMBOS

CHARALAMBOUS

ACCA

ACCOUNTANCY CYPRUS

Building a strategy today can empower your tomorrow

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ACCOUNTANCY CYPRUS

4392

MEROPI

KYRIAKIDOU

ICAEW

4449

ANTROULA

LAZAROU

4393

AIKATERINI

SERKOUTANIDOU

ICAEW

4450

PAVLINA

ANDREOU

ACCA

4394

ZOE

PRODROMOU

ICAEW

4451

ANTRI

THEODOROU

ACCA

4395

IOANNA

HADJIMICHAEL

ICAEW

4452

MARIANNA

GEORGIOU

ACCA

4396

CHRISTOS

CHRYSOSTOMOU

ICAEW

4453

STELLA

MANTI

ACCA

4397

IOANNIS

CONSTANTINOU

ICAEW

4454

MARIOS

PROTOPAPAS

ACCA

4398

NIKI

HADJIGEORGIOU

ICAEW

4455

KATERINA

ASLANI

ACCA

4399

DEMETRA

THEODOTOU

ICAEW

4456

NICHOLAS

MICHAELIDES

ACCA

4400

ELENI

SOLOMONIDOU

ICAEW

4457

ATHINA

LOIZOU

ACCA

4401

CHRISTIANA

PANTELI

ICAEW

4458

VALIA

VASILOPOULOU

ICAEW

4402

MARIOS

STEFANOU

ICAEW

4459

XENIA

XENOFONTOS

ICAEW

4403

CHRISTOFOROS

PANAYI

ICAEW

4460

YIANNIS

KEFALAS

ICAEW

4404

ZENA

TSOUKKA

ICAEW

4461

KATIA

SOLEA

ACCA

4405

CHRISTOPHOROS

PAPACHRISTOPHOROU

ICAEW

4462

MYRIA

ERGATIDOU

ACCA

4406

SOPHIA

ECONOMIDOU

ICAEW

4463

MARIA

ANTZOULI

ACCA

4407

CONSTANTINOS

TSIOLIS

ICAEW

4464

PANTELITSA

PAPOULA

ACCA

4408

CHRISTOS

PIERIDIS

ICAEW

4465

FILIO

NIKIFOROU

ACCA

4409

PHIVOS

KYRIAKIDES

ICAEW

4466

ELENI

MOUSKOU

ACCA

4410

MARGARITA

KOURSARI

ICAEW

4467

MARINOS

XANTHOU

ACCA

4411

MARIA CHRISTINA

CHRISTODOULOU

ICAEW

4468

ANTONIS

THEODOROU

ACCA

4412

EVGENIA

NICOLAOU

ICAEW

4469

ANDREAS

ZISSIMOS

ACCA

4413

XENIA

PAPAPHILIPPOU

ICAEW

4470

ANDREAS

LEONIDOU

ACCA

4414

GEORGIOS

PANAYIOTOU

ICAEW

4471

ANNA

HADJIPHANI

ICAEW

4415

DIMITRIS

CONSTANTINIDES

ICAEW

4472

ANGELINA

PANAYIDOU

ICAEW

4416

ANTONIS

HADJICOSTAS

ICAEW

4473

NICOLE

HERACLEOUS

ICAEW

4417

CONSTANTINOS

ZARNAS

ICAEW

4474

RAMI

AMIREH

CIMA

4418

NIKOLETTA

NEOFYTOU

ICAEW

4475

ANA

VASILITA

ACCA

4419

CHRYSOVALANTO

KASPARI

ACA

4476

ANTHI

VIOLARI

ICAEW

4420

MICHELLA

CONSTANTINOU

ACA

4477

ANDREAS

KYRIACOU

ACCA

4421

CHRYSOVALANTIS

LIMISIS

ICAEW

4478

LEONTIOS MICHAEL

BOTSARIS

ACCA

4422

GEORGIA

THEODOROU

ICAEW

4479

ARETI

FAKONTI

ACCA

4423

CHRISTINA

FORADARI

ICAEW

4480

MYRTO

PAPAEFSTATHIOU

ICAEW

4424

GEORGE

CHRISTODOULOU

ICAEW

4481

SOFIA

HADJIGEORGIOU

ICAEW

4425

ANNA

FORADARI

ICAEW

4482

ANDRIA

ANTHOUSI

ICAEW

4426

ANTONIS

FRANGOS

ICAEW

4483

LEONI

KYPRIANIDOU

ICAEW

4427

ZENONAS

IOANNOU

ICAEW

4484

ANGELOS

SKLAVOS

ICAEW

4428

GEORGIA

SAMPSON

ICAEW

4485

MARIA

TEMENOU

ACCA

4429

KATERINA

KYRIAKIDOU

ICAEW

4487

GEORGIA

FRANTZI

ACCA

4430

TASOS

CHRYSOSTOMOU

ICAEW

4488

MARINELLA

GEORGIOU

ACCA

4431

ANASTASIA

TSENTAS

ICAEW

4489

LOUKAS

LOIZOU

ICAEW

4432

KATERYNA

TAUSHAN

ACCA

4490

ELENA

SOCRATOUS

ICAEW

4433

VADIMS

SADIKOVS

ACCA

4491

EVI

THEODOTOU

ICAEW

4434

TATSIANA

BALASHEVICH

ACCA

4492

GEORGIA

ANGELIDE

ICAEW

4435

IRINA

BELICOVA

ACCA

4493

CHARIS

ERACLEOUS

ICAEW

4436

ROSEMARIE

AJAMIAN

ACCA

4494

PANAYIOTIS

KYRIAKIDES

ACCA

4437

ALEKSANDRS

SPELKOVS

ACCA

4495

NATALIA

GLEBOVA

ACCA

4441

ZOE

DEMETRIOU

ACCA

4496

EFTYCHIA

TRIANTAFYLLIDOU

ICAEW

4438

IVAN

BABUSHKIN

ACCA

4497

PETROS

METAXAS

ICAEW

4439

MICHALIS

MENIKOS

ACCA

4499

VASILIS

COSTA

ACCA

4440

RAFAELLA

GROUTIDOU

ACCA

4498

MIKAELLA

MICHAIL

ACCA

4442

CHARALAMBOS

CHRISTODOULOU

ACCA

4500

CHRYSOVALANTI

FENGARA

ACCA

4444

SOPHIA

THEODOSIOU

ACCA

4501

DOVILE

ZAMOKAITE

ACCA

4443

REVEKKA

NICOLAOU

ACCA

4502

ANASTASIA

ALEXANDROU

ACCA

4445

ANDRIA

CHRYSOSTOMOU

ACCA

4503

NICHOLAS

KOTZAKOLIS

ACCA

4446

ANDREAS

CHARALAMBOUS

ACCA

4447

DEMETRA

OLYMBIOU

ACCA

4448

ELENI

PRODROMOU

ACCA

DEMETRIS

TSAGGARIS

ACCA

Removals 3937

ACCOUNTANCY CYPRUS

INSTITUTE NEWS

ICPAC AND ICAEW HOST ANNUAL FORUM ON THE FUTURE OF THE ACCOUNTANCY PROFESSION AND PLEDGE ONGOING COOPERATION Leaders of the accountancy and finance profession gathered in Nicosia for the 5th Accountancy Profession Strategic Forum (APSF) 2017 on Thursday 4 May. The annual meeting was organised by ICAEW in cooperation with the Institute of Certified Public Accountants of Cyprus (ICPAC) and attended by professional accountancy organisations (PAOs) from Central, Eastern and Southern Europe. The APSF was initially conceived by ICAEW in 2012 following discussions with a number of the professional accountancy organisations in attendance this year. It aims to enable member bodies to identify common

challenges, share experiences and strategic thinking, and cooperate through working group and network initiatives. The round table format is designed specifically to encourage active engagement by all participants. The APSF is co-organised each year with a partner PAO. APSF 2017 was opened by ICPAC President, Demetris Vakis, ICAEW Chief Executive, Michael Izza and Andreas Zachariades, Deputy Accountant General, Treasury of the Republic of Cyprus and Vice-Chairman of the Cyprus Public Audit Oversight Board. Networking opportunities and discussion sessions took place throughout

the day, which tackled subjects such as “Strategies Following EU Audit Reform Implementation” and “Technology: What Can and Should Professional Accountancy Organisations Do For Their Members?” The forum closed with an opportunity to discuss final views on the key topics and insights heard in the discussions and on potential APSF priorities for the future. A formal dinner was later held at the Presidential Palace in Nicosia, addressed by Finance Minister Harris Georgiades. Following the APSF, a Memorandum of Understanding (MoU) was signed on Friday 5 May between ICAEW and

ICPAC. The agreement continues the successful cooperation between the two professional bodies for the advancement of accounting knowledge and professional and intellectual development. The MoU will formalise the process by which members of one body gain membership of the other as well as practice and statutory audit rights in the partner country, providing they complete the professional and regulatory requirements. Both ICPAC President Demetris Vakis and ICAEW CEO Michael Izza were delighted to sign this MOU and are confident that the agreement will bring value to members of both professional bodies and to the profession.

ICPAC President Demetris Vakis and ICAEW CEO Michael Izza

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ANNUAL GENERAL MEETING 2017

A NEW VISION AND MISSION FOR ICPAC Karlos Zangoulos

Pieris Marcou

Andreas Andreou

Philippos Raptopoulos

Antonis Vasiliou

Nicos Chimarides

Christos Vasiliou Stavros Pantzaris

Maria Pastellopoulou Demetris Taxitaris

Marios Skandalis

Kyriakos Iordanou

Odysseas Christodoulou

Spyros Spyrou

ΦΩΤΟΓΡΑΦΙΑ: EMMA LOUISE ΧΑΡΑΛΑΜΠΟΥΣ

Demetris Vakis

ACCOUNTANCY CYPRUS

IN RESPONSE TO ANTICIPATED FUTURE CHALLENGES AND TO THE NEW OBLIGATIONS THAT THE INSTITUTE IS BEING CALLED UPON TO UNDERTAKE, ICPAC HAS REVIEWED AND REDEFINED BOTH ITS ROLE AND ORGANISATIONAL STRUCTURE.

n his address to the 56th Annual General Meeting of ICPAC, the outgoing President of the Institute, Demetris Vakis, spoke about today’s rapidly changing global financial, institutional and social environment and the need for constant vigilance. He noted that, “In this era of globalization, a country’s borders are now nothing more than geographical delineations; they do not prevent or provide protection against incursions from abroad. The new rules of the game – international commercial, tax and regulatory rules – are now implemented universally. Consequently, they concern all of us.” The AGM, which took place on Wednesday, June 21 at the Filoxenia Conference Centre in Nicosia, was attended by the Speaker of the House of Representatives, Demetris Syllouris, Ministers and Government officials, political party leaders and representatives, Members of Parliament, representatives of financial and business institutions and members of ICPAC. Finance Minister Harris Georgiades addressed the gathering on behalf of the President of the Republic, while Demetris Vakis was the keynote speaker. In his address, he referred to the fact that, in response to anticipated future challenges and the new obligations that the Institute is being called upon to undertake, ICPAC has reviewed and redefined its role and organisational structure as part of its new three-year strategy for 2017-2020, which is based on the following four strategic pillars: 1. Reinforcing the Institute’s organisational structure and effective operation. 2. Reinforcing the Institute’s role, status and credibility.

3. Strengthening the accounting profession in Cyprus and abroad. 4. Strengthening the country’s economy and its reputation as a leading business centre, Moreover, ICPAC has adopted a new vision and mission, based on its long-established values. Demetris Vakis stressed the need to draw up a national strategic plan for the economy that looks ahead at least a decade hence and will identify how the economy is expected to be in 10 years’ time and what its key sectors will be. As he noted in his address, “Timely national planning and targeting is a key component of the long-term viability of the entire economy.” He went on to emphasise the fact that we live in the era of globalization, remote business, digitalization, virtual markets and the removal or downgrading of natural borders. “As a consequence,” he said, “the potential of Cyprus to act is not restricted by narrow geographical boundaries, its coastline or its Exclusive Economic Zone. It has the potential to go as far as technology allows.” A digital transformation is required, he said, via which e-governance becomes a key aspect of all state services and transactions. In his address, Mr. Vakis also referred to the new Auditors Law of 2017, which recently came into force, and urged the Minister of Finance to deal with all outstanding issues as soon as possible so that the law is able to function properly. He noted that, “ICPAC views it as both a challenge and an opportunity so that, with its implementation, the law will become more effective, reliable and strengthened.” At the same time, he spoke about the increased compliance measures required

by professionals and companies and about forthcoming legislative changes, such as those relating to money laundering and new regulations governing personal data protection. Commenting on the economy, he noted that the indicators are particularly encouraging but more work is required for sustainable growth to occur, especially in view of the unresolved problems of unemployment and non-performing loans. He stressed the absolute necessity of completing the public sector reform process as soon as possible if chronic malaises are to be eradicated. Particular mention was made of the services sector, which continues to spearhead the economy, and the fact that all necessary measures must be taken if Cyprus is to establish itself as reputable international business centre. Mr. Vakis referred to the longstanding cooperation between ICPAC and the state and to the support and assistance that the Institute provides, as well as to the technical and training support given to its members. He described as noteworthy the effort that ICPAC is making to forge alliances with respected professional organizations abroad, thereby acting as an ambassador for the country. There followed a presentation on “Digital Transformation” by guest speaker Marios Issaris, Marketing & Operations Director, Microsoft Greece, Cyprus & Malta, who explained the benefits and advantages of digital technology. The meeting ended with the presentation of the 2017 ICPAC Member’s Valuable Contribution Award to the President of CIBA, Frixos Savvides.

ACCOUNTANCY CYPRUS

INTERVIE W

CYPRUS AND ICPAC FACING CHALLENGES TOGETHER Interview with Marios Skandalis, new President of ICPAC

As the newly elected President of ICPAC, how would you describe the importance and the role of ICPAC in the accountancy profession over its 50+ year history? ICPAC’s development over time travels hand in hand with that of the accountancy profession. Back in 1961, a small group of visionary professionals laid down the foundations of what we know today as a fullyfledged accountancy profession, which has grown together with the economy of the country. Going through the early stages of the Institute, the same challenges were faced by the country as well, climaxing in 1974 and the ordeal caused by the Turkish invasion of the island. ICPAC was there to provide every assistance to the Government as well as to produce fresh ideas, in order to develop economic activity. Gradually, the emphasis was on rendering Cyprus an international business centre, bringing about the relevant tax arrangements. Through its memberships and affiliations with international accountancy bodies like

IFAC and FEE, ICPAC established the benchmark for the professional accountants, at the same time giving credibility and stability to the country’s financial system. The dawn of the 21st century finds ICPAC as the self-regulating body for the accountancy profession in Cyprus. That was a turning point in the life of the Institute, as things have taken a different course. ICPAC, although a private organisation, became by virtue of law the only recognized accountancy body in Cyprus and a competent authority, responsible for its members. ICPAC today licenses, trains, educates, updates and disciplines its members, provides technical support and guidance for a range of professional activities, maintains via a cooperation with ACCA a joint examination scheme for students who wish to complete their studies from Cyprus, and much more. At the same time, ICPAC has opened new doors to professional activity for its members (such as audit, accounting, provision of administrative and insolvency services, fund administration services, compliance and anti-money laundering, internal audit and financial management), and succeeded in rendering ICPAC membership the criterion for obtaining a job as

an accountant in the Government service. Given all this, I think I can safely and modestly argue that ICPAC is the accountancy profession in Cyprus and vice-versa! ICPAC has a solid presence in the economic and social life of Cyprus. How important has ICPAC’s contribution been to the Cyprus economy and to society overall? I must confess that ICPAC, through the hard work, expertise, objectivity and professionalism of its members, has eventually gained a presence everywhere, as far as the financial services sector is concerned. Apart from the attraction of international businesses and companies to Cyprus and servicing them from here, ICPAC has worked in harmony with the Ministry of Finance, the Ministry of Commerce, the Tax Department and other Government bodies for many years now. One of ICPAC’s most frequent tasks is to provide its input and expertise for various bills and pieces of legislation. Apart from with the Government, the Institute maintains excellent relations and cooperates brilliantly with the other productive bodies of the economy such as the CCCI, OEB, CIPA, the Cyprus Shipping Chamber, the Association of Cyprus

ACCOUNTANCY CYPRUS

arios Skandalis is a fellow member of the Association of Chartered Certified Accountants (UK), a licensed member of the Association of Certified Fraud Examiners (US) and a Certified Financial Consultant. He is a Fellow member of the International Compliance Association of the UK and a member of the Society of Corporate Compliance and Ethics of the USA. Today he is Director of the Group Compliance Division of the Bank of Cyprus Group. His professional career began in 1995 when he served as an Audit Supervisor and a Senior Management Consultant with Ernst & Young in the SouthEastern European region. In 2000 he moved to the Bank of Cyprus Group and was Chief Financial Officer of General Insurance of Cyprus for over a decade. He was then appointed Manager of the Bank’s Overseas Operations until 2013 when he was made Legal Representative and Head of Bank of Cyprus’ operations in Greece. Mr Skandalis is the Executive Vice-Chairman and founder member of Transparency International (Cyprus) and Vice-President of the Association of Certified Fraud Examiners (Cyprus). He is an active anti-fraud/corruption and compliance professional and chairs or participates as keynote speaker in international conferences/forums in Europe. Mr Skandalis was named 2016 Banker of the Year Award – Cyprus by AI Magazine in the UK. He is married to Nicola and has one son.

IT IS CRUCIAL FOR THE COUNTRY TO PRESERVE ITS GOOD REPUTATION, AVOID THE MISTAKES OF THE PAST, MINIMIZE BUREAUCRACY AND FOSTER MUCH-NEEDED REFORMS

ACCOUNTANCY CYPRUS

INTERVIE W

ICPAC HAS BEEN AT THE FOREFRONT OF THE COUNTRY’S ECONOMIC DEVELOPMENT FOR MANY YEARS Banks and, of course, the Cyprus Bar Association. This allows us to have a network of associates that take care of the whole of the economy. In addition, the accountancy sector underwent significant growth during the last 1-2 decades, rendering the accountancy firms employers of choice, employing hundreds of professionals even during the recent financial crisis. ICPAC has been at the forefront of the country’s economic development for many years and, at the same time, backstage providing all necessary support. What are the current challenges facing the accountancy profession and how can ICPAC help its members deal with them? One of the major challenges to the profession is the enactment of the new Auditors Law of 2017, which, in essence, revokes the self-regulating system of the recent past and discriminates between auditors of public interest entities and other companies. The Law was eventually enacted on 2 June 2017 and ICPAC will provide all the necessary training and explanations as soon as the agreements for the delegation of certain tasks are signed with the new ultimate competent authority, the Cyprus Public Audit Oversight Authority. The second main challenge relates to anti-money laundering and compliance regulations, which have been tightened up significantly during the last years. This has resulted, on the one hand, in a rise of overheads and responsibilities and, on the other, in significant delays and obstacles caused by cumbersome and strict procedures. The Institute is carefully dealing with the issue, striving for a balanced regulation versus business.

What do you see as the main opportunities and challenges for the accountancy profession in the next 3-5 years? As we stand today, the challenges to the country are closely linked to those facing the accountancy profession. The course of the economy underlies that of the profession too. So, it is crucial for the country to preserve its good reputation, avoid the mistakes of the past, minimize bureaucracy and foster much-needed reforms. Being the two sides of the same coin, the way the state operates is crucial to private sector progress. One of the most important challenges is to be able to visualize the course of the economy and the nature and type of professional services that will be relevant. This is, of course, hugely linked to the digital transformation of the economy, in order to render Cyprus a functioning, real-time, effective, flexible and efficient professional business centre. Hence, there is a particular need to develop a fresh set of skills and competencies and a new culture! How do you see the role of ICPAC evolving, both for the accountancy profession and the Cyprus economy? ICPAC is growing. More professional activities fall under its umbrella, thus adding more responsibilities and placing a greater onus on the Institute. The various needs of the members are also increasing. To address these, as well as our inherent bonding with the economy, the Council has set out four strategic pillars for the period 2017-2020. Similarly, new vision and mission statements have been adopted, to better reflect the Institute’s strategy. Our aspiration is for ICPAC to be “a model professional body, recognised by the state and society as the primary stakeholder for the accountancy profession and the economy in general, instilling confidence, credibility and value”. Capitalizing on the values and ethics of our profession, ICPAC and its members look after the public interest, in addition to their clients. We commit ourselves in doing our job to the best of our ability and will not be afraid

to take up new challenges and more functions. After all, the accountancy profession is an integral part of the economic activity of the country. What do you think that you personally can bring to ICPAC in your role as President? Have you drawn up a list of goals and priorities? Firstly, allow me to mention that I am not a freshman at the Institute. I have been a Council member for many years now and I served on other committees in the past. Furthermore, ICPAC’s Council maintains a smooth rotation process and allows for continuity, hence the strategic plan for 2017-2020 is at the top of my agenda. My commitment to the Institute is to work hard to further enhance ICPAC’s reputation and capabilities, maximising the benefits for our members and students, whilst continuing to contribute towards the common good. One of the areas on which I would place particular emphasis is the improvement of the image and visibility of the Institute, by enhancing its outwardness and providing real-time communication channels with our members and the public in general. I am also a strong supporter of international affiliations, hence we will continue to engage in bilateral collaboration agreements with credible foreign professional organisations like Transparency International, the International Compliance Association, the Institute of Chartered Secretaries and Administrators, the Association of Certified Fraud Examiners, etc. Such affiliations offer immense benefits for the Institute and the country, as they contribute to introducing fresh and new sources of knowledge and business activity for our members and reinforcing the image and of our country as a credible financial business centre.

ICPAC IS THE ACCOUNTANCY PROFESSION IN CYPRUS AND VICE-VERSA!

ACCOUNTANCY CYPRUS

56th ANNUAL GENERAL MEETING OF ICPAC Harris Georgiades, Minister of Finance

Demetris Vakis, Outgoing President, ICPAC

ACCOUNTANCY CYPRUS

Filoxenia Conference Centre, Nicosia, June 21, 2017

ACCOUNTANCY CYPRUS

COVER STORY

THE IMPORTANCE OF ICPAC AND THE ACCOUNTING PROFESSION TO CYPRUS’ PROFESSIONAL SERVICES SECTOR ON THE OCCASION OF THE 56TH ANNUAL GENERAL MEETING OF THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF CYPRUS, WE ASKED SOME OF ICPAC’S CLOSEST COLLABORATORS FOR THEIR VIEWS ON THE INSTITUTE AND ITS MEMBERS TO THE PROFESSIONAL SERVICES SECTOR AND, BY EXTENSION, TO THE ECONOMY.

HARRIS GEORGIADES Minister of Finance

“Since its establishment 56 years ago, ICPAC has become one of the most significant professional bodies in Cyprus, with an invaluable contribution to the growth of the professional services sector. During this time, Cyprus has evolved into a significant international business

services centre and, as such, has become increasingly reliant on the credibility and expertise of the accounting profession. In this respect, the role of ICPAC has been instrumental. ICPAC has been at the forefront of the effort to enhance its members’ competence, knowledge, ethical standards and professional development. ICPAC has also been a valued partner

for successive Cyprus governments and for the Parliament, in shaping policies and legislation. Through the close collaboration of government and industry, the Cyprus tax and administrative framework has remained credible and attractive, offering certainly and transparency and, thus, facilitating foreign investment and local business. Special reference should be made

ACCOUNTANCY CYPRUS

to the contribution of ICPAC and its members to the recovery effort, following the financial and economic crisis of our recent past. ICPAC has been instrumental in restoring the island’s good reputation as a business centre, whilst the accounting profession has played a key role in expanding the prospects of the financial and business services sector, which has spearheaded the recovery. ICPAC is presently the Recognized Body of Auditors in Cyprus and is faced with supporting its members as they face the challenges brought by the new supervisory framework, following recent legislative reform. I am sure that this is a challenge which ICPAC will meet, as it has always done over the years. I extend my sincere appreciation to ICPAC for the excellent cooperation we have enjoyed and I express my gratitude to its members for their valuable contribution to the recovery of our economy.”

GEORGE GEORGIOU

Outgoing President, Association of Cyprus Banks

“ICPAC is well-established as one of the most consistent and constructive professional organizations in the local business and financial community. It is helpful and productive for the Association of Cyprus Banks to collaborate with such a high-calibre organization, which provides deep

insights into specific topics and is made up of good professionals. It is also, widely accepted that ICPAC played a decisive role in helping the country out of the dramatic consequences of the 2013 crisis.”

THOMAS KAZAKOS

Director-General, Cyprus Shipping Chamber

CHRISTODOULOS ANGASTINIOTIS

Chairman, Cyprus Investment Promotion Agency (CIPA)

“The Institute of Certified Public Accountants of Cyprus (ICPAC), established in 1961 as the only recognized body of accountants in Cyprus, has a long and distinguished heritage in setting high standards and drawing up a code of ethics to regulate professional conduct in the accounting and auditing profession. ICPAC has constantly contributed to the sustainable development of Cyprus as an important and respected global business and financial centre, thus enhancing the prospects of Cyprus economy. The Cyprus Investment Promotion Agency (CIPA) and ICPAC cooperate closely in order to bring practices in line with international standards, adopt international benchmarks and adapt to new realities. The local and international business community expects ICPAC to continue to support Cyprus’ role as a global financial centre and endorse the core values of expertise, professionalism and integrity.”

“Since its establishment in 1961, the Institute of Certified Public Accountants of Cyprus (ICPAC) has managed to successfully promote its principal aims and objectives. Through the establishment and implementation of a strong Code of Ethics, the Association has enabled the sector to raise its standards and advance its services on issues relevant to accounting, auditing and other business matters. The Cyprus Shipping Chamber, as the trade association of the shipping industry in Cyprus, places particular emphasis on the close and mutually beneficial relationship that exists between our association and ICPAC. It has brought positive results since, many times, both organisations have been called upon by the State and Parliament to attend meetings on topics of mutual interest and, through a joint coordinating strategy, we have been able to make strong representations, which are highly valued, and reflect our opinions in the decision-making process. In a challenging role, the Institute has kept a sharp focus on meeting mission deliverables and, through effective communications, professionalism and expertise, has played an instrumental role in ensuring the provision of high-quality accounting and reporting standards. In our joint efforts to reshape the economy and create an improved and more diverse

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COVER STORY

economic model that is more solid, more resilient and flexible, we recognise the Institute’s determination to attract new investors to Cyprus by promoting significant medium- and long-term opportunities. Undoubtedly, for the Cyprus Shipping Chamber, the Institute is a key stakeholder in the development of a sustainable economy of our country, playing a vital role to establish and maintain Cyprus as an international business centre of repute.”

CHRISTOS MICHAELIDES

Chairman, Cyprus Employers & Industrialists Federation (OEB)

PHIDIAS PILIDES

President, Cyprus Chamber of Commerce and Industry

“As the competent body to regulate and supervise the accountancy profession in Cyprus, the Institute of Certified Public Accountants has become, over the years, a significant, credible and wellrespected entity on the economic and business scene of the country. Given that Cyprus’ economy is profoundly based on the provision of professional services, accountants play a strategic role in driving recovery and economic growth. ICPAC and its highly skilled members are greatly enhancing Cyprus’ reputation as a quality international business centre and a regional hub, adhering to the highest standards of ethical and professional matters.”

“The Cyprus Employers and Industrialists Federation (OEB) and the Institute of Certified Public Accountants of Cyprus (ICPAC) have established a long-lasting relationship because we share a common vision for a productive and business-friendly environment for the benefit of the country’s economy. The accounting profession is crucial for supporting business enterprises, the professional services sector and the economy in general. Thanks to the wide range of services they offer, Certified Public Accountants are an integral part of the business community. ICPAC, as the competent authority for the licensing of accounting professionals, has an important role in attracting foreign investors and promoting our country abroad. The goal of promoting Cyprus abroad is also a major OEB priority, so we must continue our joint coordinated efforts aimed at promoting the competitive advantages of investing in Cyprus as a thriving business hub. ICPAC should continue its admirable actions, always aiming at the provision of a high level of services. OEB will always be a close partner.”

NEW COUNCIL At its first meeting after the 56th Annual General Meeting of the Institute of Certified Public Accountants of Cyprus (ICPAC), the Council elected Marios Skandalis as its new President for 2017-2019 and Stavros Pantzaris as Vice-President. The new Council is made up as follows: President: Vice-President: Secretary: Members:

Marios Skandalis Stavros Pantzaris Maria Pastellopoulou Andreas Andreou Demetris Vakis Antonis Vasiliou Christos Vasiliou Karlos Zangoulos Pieris Marcou Philippos Raptopoulos Spyros Spyrou Demetris Taxitaris Nicos Chimarides Odysseas Christodoulou

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INTERVIE W

EBRD ANNUAL

MEETING IN NICOSIA

Suma Chakrabarati

his year’s Annual Meeting and Business Forum of the European Bank for Reconstruction and Development (EBRD) was held at the Filoxenia Conference Centre in Nicosia from May 9-11, on the theme of “Targeting Green and Inclusive Growth: Meeting Regional and Global Challenges”. It was the first-ever annual conference of an international financial institution to be held in Cyprus. One of the most popular meetings during the event was the Host Country Investment Outlook Session, organised by the Finance Ministry with the support of the Presidency of the Republic the Cyprus Investment Promotion Agency

(CIPA). Entitled “Cyprus in the Eastern Mediterranean Region: Attractive Investment Opportunities within a Secure Business Environment”, it focused on current economic developments, the opportunities and challenges facing the business environment and the experience of investors active here. Addressing the session, Finance Minister Harris Georgiades outlined Cyprus’ comparative advantages as a business centre and the progress made in ensuring sustainable economic growth. EBRD President Suma Chakrabarti and RCB Bank CEO Kirill Zimarin both referred to the fact that the Cyprus economy has managed to overcome the many challenges it faces in a difficult international environment.

Zimarin noted that the main lesson learned from the 2013 financial crisis was that proper governance and sometimes unpopular Government decisions are the basis for success. Pointing out that the worst is now over, he spoke about investment opportunities, which are necessary to “support the growth and structural improvement of the economy”. Referring to major reforms made by the Government in the areas of public finance, the banking sector and the labour market, Zimarin said that the results of these reforms were reflected in the country’s exit ahead of schedule from the Economic Adjustment Programme and in a number of sovereign rating upgrades.

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“The Cyprus economy is developing,” said RCB Bank’s CEO. “This development is not only quantitative but qualitative. It reflects all six characteristics, defined by the EBRD for a modern economy: competitive, well-governed, green, inclusive, resilient and integrated. Cyprus has made real progress in support of innovation, green energy and the improvement of business climate”. Taking part in the round table discussion that followed was Energy, Commerce, Industry & Tourism Minister Yiorgos Lakkotrypis, Eni’s Executive Vice-President for International Relations, Lapo Pistelli, the President of Columbia Shipmanagement Ltd, Mark O’ Neill, the Director-General of the European Fund and Asset Management Association (EFAMA), Peter de Proft, and the founder of the German Oncology Centre, Dr Nikolaos Zamboglou. The Minister stressed the business opportunities offered by Cyprus’ energy and tourism sectors and said that the Government will continue to support entrepreneurs who choose to invest here. Drawing on their experience of working in Cyprus, the investors on the panel explained why they had included Cyprus in their business operations and highlighted the opportunities that Cyprus offers to international investors. On behalf of Eni, Pistelli expressed his conviction that Cyprus could become an energy hub for the wider region, as it offers a viable model that combines natural gas with other renewable sources of energy. For his part, O’Neill referred to Cyprus

as “a location both compelling and relevant for regional headquarters”. Furthermore, he cited infrastructure, the specialised workforce, a competitive tax system, an effective judicial system and the geographic location of Cyprus as the decisive factors that led the company to establish its headquarters on the island and expand its operations here. De Proft of EFAMA stressed the importance of promoting the investment fund sector and commended the efforts being made by the Cyprus Investment Funds Association (CIFA), which is a member of EFAMA. De Proft also announced that EFAMA’s 2018 Annual Meeting will be held in Cyprus. Finally, Zamboglou of the German Oncology Centre spoke about the prospects of the medical services sector, noting that Cyprus has a high quality work force and can offer innovative, high standard health services.

CHAKRABARTI: EBRD STILL HAS A LOT TO DO IN CYPRUS The European Bank for Reconstructionand Development has still a lot of work to do in Cyprus, according to EBRD President Suma Chakrabarti. The EBRD has been operational in Cyprus since 2014 and has so far invested

€225 million in acquiring equity stakes in the island`s two largest banks, implementing a Trade Finance Programme and investing in renewable energy. “We think there is still a lot to do in Cyprus in the remaining years of our mandate,” Chakrabarti said, during a joint press conference with Chairman Pierre Gramegna. He noted that the mere fact of the bank’s decision to holds its annual meeting in Nicosia was a reflection of Cyprus’ economic recovery. Gramegna said the EBRD Annual Meeting in Nicosia was “a symbol of the renaissance of the economy of Cyprus that we have all witnessed in the last three years.” Suma Chakrabarti had what he described as “an excellent meeting” with President Nicos Anastasiades, during which the two men discussed the future of Cyprus and the EBRD. He stated that, “We have some more years of good investment ahead of us, so we think the prospects are great”. As for the Annual Meeting in Nicosia, he said that it was “a great opportunity to showcase the wonderful economic recovery which is taking place on this island. It was a very positive meeting about the present but also about the future of this island”.

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INTERVIE W

INDIA: THE WORLD’S

FASTEST-GROWING MAJOR ECONOMY FOLLOWING THE SIGNING OF A REVISED DOUBLE TAX TREATY, RELATIONS BETWEEN CYPRUS AND INDIA ARE BACK ON TRACK. PRESIDENT ANASTASIADES RECENTLY VISITED INDIA, ACCOMPANIED BY SEVERAL MINISTERS, AND INDIA΄S MINISTER OF STATE FOR EXTERNAL AFFAIRS, M.J. AKBAR, HAS HELD TALKS ON THE ISLAND. HERE, THE INDIAN HIGH COMMISSIONER TO CYPRUS, RAVI BANGAR, SPEAKS TO ACCOUNTANCY CYPRUS EDITOR TASSOS ANASTASIADES.

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ow would you describe economic and commercial relations between India and Cyprus? India enjoyed warm and friendly relations with Cyprus even prior to independence in 1960. These ties have since grown and expanded into many areas. The two countries have signed around 20 bilateral agreements and Memoranda of Understanding. FDI equity flows from Cyprus to India between April 2000 and March 2017 amounted to US$9.156 billion, which makes Cyprus the 8th largest investor in India. The signing of the revised Double Tax Treaty between India and Cyprus last November and the removal of Cyprus from the Notified Jurisdiction list are very positive developments, providing greater transparency and predictability, and they are expected to further enhance investment and trade ties between the two countries. I consider that there is also significant potential to expand and deepen ties in the areas of healthcare, pharmaceuticals, energy, environment, wellness tourism and human resource development. What is the present state of India΄s economy? Macro-economic stability has clearly improved in the last three years, along with a rise in the country’s growth rate, despite subdued global economic conditions. India’s GDP growth rate has risen from 6.5% in 2013-14 to almost 7% in 2016-17, despite the dampening effect of demonetisation on the economy. The country’s competitiveness also witnessed a sharp jump, as evidenced by the Global

Competitiveness Index (GCI) prepared by the World Economic Forum. Among 138 nations, India’s GCI ranking has risen from 60 to 39 in the last three

THERE IS SIGNIFICANT POTENTIAL TO EXPAND AND DEEPEN TIES IN THE AREAS OF HEALTHCARE, PHARMACEUTICALS, ENERGY, ENVIRONMENT, WELLNESS TOURISM AND HUMAN RESOURCE DEVELOPMENT years. India is Asia’s third largest economy and it expanded by 7.1% year on year in January-March 2017, just up from 7.0% in the previous quarter and ahead of China’s 6.9% growth rate. India is the fastest growing large economy, with GDP growth of 7.2 %. This is being achieved against the global headwinds of rising protectionism and increasing competition. In its recent report, the World Bank projects economic activity in India to accelerate to 7.2% in 2017-18, just ahead of the Government’s own estimate of 7.1%. Growth is projected to accelerate gradually to 7.7% by 2020, underpinned by a more meaningful recovery in private investment following the recent push to accelerate infrastructure spending, concerted efforts to improve the business climate and (eventually) a less leveraged corporate and financial balance sheets “crowd” in the private sector. The financial markets are soaring. Both key stock market indices (Sensex and Nifty)

have reached record highs, triggered by the positive sentiment. How successful was the visit to Cyprus of India΄s Minister of State for External Affairs, M.J. Akbar? The main objective of the visit was to review the state of India-Cyprus relations in all fields and rejuvenate the historic friendly relations between the two countries. The visit provided an excellent opportunity to exchange views on bilateral matters as well as on regional and international developments of mutual interest. The Minister met with President Anastasiades, Foreign Minister Kasoulides, the Speaker of the House of Representatives, Demetris

INDIA ADDED 9.1 MILLION NEW TAXPAYERS IN 201617, AN 80% INCREASE OVER THE TYPICAL YEARLY RISE, HIGHLIGHTING THE IMPACT OF ITS DEMONETISATION OF HIGH-VALUE BANKNOTES Syllouris, and the Chairman of the House Foreign & European Affairs Committee, Yiorgos Lillikas. The Minister delivered an address entitled “A new era for business between Cyprus and India” to the Cyprus Chamber of Commerce & Industry in Nicosia and lecture on “Balance of Power vs Pendulum of power” at the University of Nicosia. He also inaugurated the Konark Wheel sculpture, gifted by India to Cyprus, at the Ministry of Foreign Affairs in Nicosia.

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INTERVIE W

How would you assess the visit of President Anastasiades to India? This was his first visit to India, although he had held substantive meetings with Prime Minister Modi on the sidelines of the UN General Assembly in New York in September 2015. During the visit, they reaffirmed their traditionally close and time-tested friendship and underlined their mutual commitment to further strengthen and diversify this relationship. Both leaders agreed that such cooperation would help address concerns related to global energy security, environmental protection and sustainable and equitable development. Prime Minister Modi reiterated India’s unwavering and consistent support for the independence, sovereignty, territorial integrity and unity of the Republic of Cyprus and President Anastasiades briefed him on the current state of play in the ongoing efforts to reunify Cyprus. The Prime Minister further commended President Anastasiades for taking several important foreign policy initiatives and thereby enhancing Cyprus’s profile in the international arena. Did they spend a lot of time on business issues? Yes. They emphasized the need for a comprehensive expansion of mutually beneficial contacts between the business communities of the two countries. President Anastasiades briefed Prime Minister Modi about the plan for developing the high-tech

sector as the third pillar of the Cyprus economy and, in light of India’s wellestablished capabilities in the fields of IT, Biotechnology and R&D, both sides identified these as potential areas for future cooperation. They also noted other areas, arising from Cyprus’ expertise in financial and legal services, investment banking and merchant shipping. They consider the energy sector as a top priority area and discussed possible long-term collaboration in promoting innovative renewable energy applications and the environmentally friendly use of energy. The two leaders also discussed IndiaEU relations and President Anastasiades reiterated his support for the strengthening of the India-EU Strategic Partnership. Both men agreed that India and the EU should work together closely on combating terrorism, dealing with climate change and promoting sustainable development. Both Leaders discussed the need for reform of the United Nations Security Council, and President Anastasiades re-affirmed Cyprus’ support for United Nations Security Council expansion with India as a permanent member. During the visit, bilateral agreements on Merchant Shipping and Civil Aviation were signed, as were the Work Plan on agricultural cooperation and the Executive Programme for Cultural, Educational and Scientific Cooperation Why did India decide to scrap its 500 and 1,000 rupee banknotes, which made up 86% of all the rupees in

circulation? What were the objectives of the decision and how successful has it been? It was a bold step by the Government of India, addressing corruption, ‘black’ money, counterfeit currency and terror financing. The globally acclaimed French economist Guy Sorman described it as a “successful political coup”, heavily applauded by a majority of the Indian people because, in this way, the Government showed that it is serious about corruption. The macroeconomic impact of demonetisation has been relatively limited. Any adverse effects were short-lived and remonetisation helped the economy recover quickly in the fourth quarter. India added 9.1 million new taxpayers in 2016-17, an 80% increase over the typical yearly rise, again highlighting the impact of its demonetisation of high-value banknotes. What can you tell us about the idea of replacing a large number of welfare schemes with a “universal basic income”?

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The 2017 Economic Survey prepared by Ministry of Finance advocated the concept of a Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty. It noted that the two prerequisites for a successful UBI are: (a) functional JAM (Jan Dhan, Aadhar and Mobile) system, which ensures that the cash transfer goes directly into the account of a beneficiary and (b) CentreState negotiations on cost-sharing for the programme. UBI would cost 4-5% of GDP How will the state finance the UBI? This is still under discussion. Another ambitious plan is the enactment of a unified Goods & Services Tax (GST). What does this radical tax measure entail? The GST is a comprehensive indirect tax levy on the manufacture, sale and consumption of goods and services at national level. It will replace all indirect taxes levied on goods and services by India’s central and state

governments. The World Bank has said that the implementation of a multitier GST, starting on 1 July, will play an important role in transforming the Indian economy and lead to substantial economic gains. Let me quote what it has stated: “The fact that India can achieve a major reform of indirect taxes without increasing the burden on the poor is in itself an achievement. Adding to this, the efficiency gains that the tax will achieve and the fact that the information generated through the GST on spending patterns will facilitate enforcement of personal and corporate income taxes, the impact of the GST introduction on equity and poverty should be positive.” How serious is the problem of India΄s nonperforming bank loans? Is there a plan for setting up a ‘bad bank’? The proportion of Non-Performing Assets (NPAs) in banks has been rising steadily over the years, with gross NPAs representing almost 12% of gross advances for public sector banks at the end of September 2016.

That being said, the NPA to loans ratio suggests that the current crisis is considerably less severe than that of the late 1990s. The 2017-18 budget provided for 100 billion rupees for the recapitalisation of India’s banks. Direct intervention by the Reserve Bank of India (RBI) will expedite the decisionmaking process of banks and help them with the early resolution of distressed assets. The 2017 Economic Survey proposed transferring NPAs to a Public Sector Asset Rehabilitation Agency (PARA) which could eliminate most of the obstacles to loan resolution and solve the coordination problem, since all debts would be centralised in one agency. The scheme to provide each of India’s 1.3 billion citizens with a unique biometrically verifiable identification number has been described by World Bank Chief Economist Paul Romer as “the most sophisticated ID programme in the world”. What can you tell us about it? The Unique Identification Authority of India (UIDAI) is a new central government agency and it has issued a unique 12-digit identity number to each resident on the so-called Aadhaar card. This is considered the world’s largest national identification number project and the card serves as a proof of identity and address, anywhere in India. Any individual, irrespective of age and gender, who is a resident of India and satisfies the verification process, can apply for Aadhaar.

ACCOUNTANCY CYPRUS

ACCOUNTING & AUDIT

SHARPENING YOUR

DEFENCES THE ROLE OF INTERNAL AUDIT IN CYBERSECURITY By Theodoros Hadjistyllis, Assistant Manager, Risk Advisory, Deloitte Ltd

hreats of cyber-attacks are amongst the most complex and rapidly evolving issues facing companies nowadays, irrespective of size, region and industry. Many Audit Committees and Boards have high expectations of Internal Auditors since they view cybersecurity as a top risk, underscored by recent media headlines and increased governmental and regulatory focus. The latter is evident from the recent US Securities and Exchange Commission (SEC) guidance regarding disclosure obligations relating to cybersecurity risks and incidents. Given recent high profile cyber-attacks and data breaches and the increased expectations of regulators, it is critical for Internal Audit to evolve and play a far more substantial role in Cybersecurity than is often the case today.

15 BUSINESS IMPACTS OF A CYBER-INCIDENT There are many ways a cyber-incident can affect an organization, and the impacts will vary depending on the nature and severity of the event. Direct and well known costs 1. Customer breach notifications 2. Monetary loss 3. Post-breach customer protection 4. Regulatory compliance (fines) 5. Public relations/crisis communications 6. Attorney fees and litigation 7. Cybersecurity improvements 8. Technical investigations Indirect and less visible costs 9. Increased insurance premiums

10. Higher interest rates for borrowed capital 11. Operational disruption or destruction 12. Decrease/Loss of customer trust 13. Value of lost contract revenue 14. Devaluation of brand/trade name 15. Loss of intellectual property (IP) One of the most notable data breaches in recent history is that of Sony’s PlayStation Network which has already cost the company more than $171 million in cleanup costs and it is estimated that further costs – i.e. investigations, compensation, lost business, etc. – could push the total figure into billions of dollars. Another notable data breach was that of Mossack Fonseca, the Panamanian Law firm associated

with the renowned ‘Panama Papers’ case. Although the cost of the data leakage is yet to be estimated, the damages that Mossack Fonseca might face could be similar to the repercussions Sony experienced. However, despite all the increased attention around data security, the risk of breaches is only likely to get worse, perhaps much worse. So how can you safeguard your organization against this threat?

THE THIRD LINE OF DEFENCE Effective risk management is the product of three lines of defence, with Internal Audit being an essential piece of the jigsaw.

Given recent high profile cyber-attacks it is critical for Internal Audit to evolve and play a far more substantial role in Cybersecurity

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First line of defence Management should have the ultimate ownership, responsibility, and accountability for assessing, controlling, and mitigating Information Security risks. Second line of defence Facilitate and monitor the implementation of effective risk management practices ces by management, and help risk owners in reportingg adequate risk-related d information. However, increasingly, many companies are recognizing the need for a third line of cyber defence. This is where Internal Audit it comes in. Third line of defence At regular intervals, the Internal Audit function performs a comprehensive cyber threat risk assessment to identify and analyze relevant risks that may temper the achievement of the organization’s objectives. Internal Auditors should be able to understand the cyber risks identified and be prepared to address the questions and concerns expressed by the Audit Committee and the Board. A by-product of the cyber threat risk assessment is an Internal Audit plan which usually addresses the areas of cyber risk for the organization over a single or multi-year audit period. The Internal Audit plan for cybersecurity should not be set in stone. The plan should be dynamic and adjustments should be made, based on the emergence of new risks, changes in the relative intensity and importance of existing threats and other organizational developments. Through the Internal Audit plan, Internal Audit can independently review the design and implementation as well as the operating effectiveness of cybersecurity controls and provide objective assurance to the Board and

executive management on how effectively the organization assesses and manages its risks, including the manner in which the first and second lines of defence operate. In addition, the Internal Audit function can conduct reviews around cybersecurity controls to ensure that they are up to date on the latest developments and provide the organization with a roadmap for short short- and long long-term remediation activities activities.

RE REENGINEERING IINTERNAL AUDIT’S ROLE IN CYBERSECURITY The role of Internal Audit is also pivotal during cyberincident response. In particular, the Internal pa Audit function can Aud evaluate the processes and technologies h l in place to perform incident management and response, malware analysis and cyber forensics in an effective and consistent way. It can also evaluate processes and procedures in place to restore the capabilities or critical infrastructure services that were impaired through a cybersecurity incident. In the area of vulnerability & patch management, the Internal Audit function can assess the organizational controls’ capabilities in detection and stopping malware threats, including e-mail security, web security, IDS/IPS, AV and advanced malware detection

1st Line of Defence

The Internal Audit function represents the last but strongest line of defence against cyber-attacks. and interception technologies. Internal Audit’s role in cybersecurity becomes even more important when an organization is ready to roll out a new business process, product or information system since the function can use various simulation techniques to construct different scenarios in order to identify possible risks that may impact the organization. Given recent high-profile cyber-attacks, data losses, and regulators’ expectations, it is critical for Internal Audit to raise its game with new skills and tools for making sure that organizations are safeguarded against existing and emerging cyber threats. The Internal Audit function, due to its unrestricted access to management information, the functional reporting line to the Board and its committees and, often, its unrestricted scope, represents the last but strongest line of defence against cyber-attacks.

2nd Line of Defence

3rd Line of Defence

Financial Controller Security Management Controls Internal Control Measures

Risk Management Quality Inspection Compliance

Internal Audit

ACCOUNTANCY CYPRUS

ACCOUNTING & AUDIT

THE AUDIT PROFESSION:

CHANGES AND CHALLENGES By Susana Poyiadjis, Senior Partner, Nexia Poyiadjis

he main changes to the audit process are the New and Revised Auditor Reporting Standards and Related Conforming Amendments. The Auditor’s Report is the key deliverable addressing the output of the audit process and while users of financial statements have signalled that the auditor’s opinion on those statements is valued, in the wake of the financial crisis many have called for the auditor’s report to be more informative and relevant. The new and revised Auditor Reporting standards comprise: • ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements • New ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report • ISA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report • ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

• ISA 570 (Revised), Going Concern • ISA 260 (Revised), Communication with Those Charged with Governance; • ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information • Conforming amendments to other ISAs For Special Purpose Financial Statements: • ISA 800 (Revised), Special Considerations –Audits of Special Purpose Financial Statements and Specific Elements, Accounts or Items of a Financial Statement • ISA 805 (Revised) Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement] The International Audit and Assurance Standards Board (IAASB) intends for its New and Revised Auditor Reporting Standards to result in an auditor’s report that increases the confidence in the audit and the financial statements, which is in the public interest. In addition to the increased transparency and enhanced informational value of the auditor’s report, changes to auditor re-

porting will also have the benefit of: • Enhanced communications between the auditor and investors as well as between auditors and those charged with governance • Increased attention by management and those charged with governance (e.g., the audit committee) to the disclosures in the financial statements to which reference is made in the auditor’s report, and • Renewed focus of the auditor on matters to be reported, which could indirectly result in an increase in professional scepticism.

KEY AUDIT MATTERS (KAM) In the Revised Audit Report, the auditor should communicate Key Audit Matters (KAM) to the users of the financial statements in order to provide them with additional information about those matters that, in the auditor’s professional judgment, are of most significance in the audit of the financial statements of the current period. In fulfilling this requirement, the auditor is always required to explicitly consider: • Areas of higher assessed risks of material misstatement, or significant risks.

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Stakeholders have called for increased focus on GC matters by management and auditors

• Significant auditor judgments relating to areas in the financial statements that involved significant management judgment, including accounting estimates that have been identified as having high estimation uncertainty. • The effect on the audit of significant events or transactions that occurred during the year. One of the greatest challenges is achieving an appropriate balance between the need for prescription in the standard to promote consistency in which matters are determined and communicated as KAM, and the need to allow for auditor judgment to ensure that the KAM communicated in the auditor’s report are as entity-specific and relevant as possible. Care will also be necessary so that the language used in the KAM description: • Relates the matter directly to the specific circumstances of the entity, while avoiding generic or standardized language. • Does not imply that the matter has not been appropriately resolved by the auditor in forming the opinion. • Takes into account how

the matter is addressed in the related disclosure(s) in the financial statements, if any and • Does not contain or imply discrete opinions on separate elements of the financial statements (“piecemeal opinion”).

GOING CONCERN (GC) The topic of GC is of significant interest in light of the global financial crisis. Stakeholders have called for

increased focus on GC matters by management and auditors. However, many stakeholders believe that, rather than simply requiring a auditor to report on GC, a more holistic approach is necessary and, therefore, there is new guidance to support the auditor’s evaluation of disclosures when a material uncertainty exists and a new requirement for the auditor to evaluate the adequacy of disclosures in “close call” situations (i.e. where events or conditions

are identified that may cast significant doubt on the entity’s ability to continue as a GC, but after considering management’s plans to deal with these events or conditions, management and the auditor conclude that no material uncertainty exists) [ISA570 Revised]. ISA 701 also highlights that matters related to GC may be determined to be KAM. This also raises many challenges in the auditor’s judgement in forming an audit opinion.

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IESBA ETHICAL STANDARDS Apart from the changes to Auditing Standards, matters that are of importance and will affect the audit process also relate to the revised IESBA Ethical Standards [released on 14 July 2016], in particular in connection with the standard on noncompliance with laws and regulation (NOCLAR). This first-of-its-kind framework aims to protect the public interest by setting out and guiding professional accountants, who may feel bound by confidentiality rules, on the actions to take if they become aware of potential violations of laws and regulations committed by a client or employer. These requirements apply to all professional accountants in public practice and in business. The standard will be effective on 15 July 2017. Early adoption is permitted. In this respect, to fulfil pro-

fessional responsibilities, auditors have a duty to: • Understand and comply with applicable laws and regulations, including requirements regarding reporting to an appropriate authority and prohibitions against “tipping off” • Comply with applicable auditing standards • Communicate the matter appropriately in the context of a group. In accordance with the IESBA Code, other matters of significance and threats to independence issued in 2016 are the new long association provisions of personnel with an audit or assurance client that will also need to be addressed.

OTHER MATTERS Other important challenges facing the audit profession moving forward are, in my opinion, the increasing regulatory burden and the

Other important challenges are the increasing regulatory burden, the exchange of information between regulators in different jurisdictions (IFIAR) and ensuring the effective and appropriate use of technology to enhance audit quality exchange of information between regulators in different jurisdictions (IFIAR) and ensuring the effective and appropriate use of technology, including data analytics, to enhance audit quality. In light of the above, audit firms must ensure that they address these issues by: 1. Implementing the changes by the IAASB in their audit methodology 2. Enhancing their independence checklists 3. Updating the company/ audit law requirement check-

lists 4. Enhancing their communication with those charged with governance 5. Investing In further training of their personnel (audit, regulatory, IT, software, data analytics, scepticism/judgement, Code of Ethics, etc.) 6. Addressing and assessing the technology used and data analytics software in their firms 7. Enhancing auditor scepticism and judgement in the business environment and among audit staff 8. Addressing compliance risks 9.Trying to find ways to increase fees due to increased audit costs (at a time when audit fees have drastically reduced due to factors such as bidding and price competition) in an environment where Clients will not pay for services where they cannot assess the value added.

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ACCOUNTING & AUDIT

LEADING BY EXAMPLE CHARTERED ACCOUNTANTS HAVE VITAL ROLE TO PLAY IN THE SUCCESS OF THE UN SUSTAINABLE DEVELOPMENT GOALS

By Hilary Lindsay, Former President, ICAEW

hen we talk about sustainability, it has not traditionally been the accountancy profession that springs first to mind and yet this is changing. There is much more interest in the environmental and social effects that companies have and what has become known as the “triple bottom line.” Companies are increasingly expected to report on their sustainability and ecological effects as well as their financial position. I believe that the profession has another role to play, and one where we can make a real difference to well-being and the public interest. ICAEW has recently adopted the UN Sustainable Development Goals in line with our new vision, ‘a world of strong economies’. The Goals, which were launched in 2015, have been agreed by the United Nations as their vision for 2030 – and have been referred to as The Future We Want. They draw on a quotation from former United Nations Secretary-General Ban ki-Moon that “There can be no plan B, because there is no Planet B.” I believe the accountancy profession has a central role to play in helping countries achieve these goals. The profession is uniquely positioned to assist the needs of economies and contribute to ending poverty, combating climate change and

fighting injustice and inequality through business leadership and guidance. One area where we are taking our responsibility for sustainability further is as a founding member of the Natural Capital Coalition. The vision of the coalition is ‘a world where business conserves and

At the heart of who we are as a profession are measurement and the provision of timely information enhances natural capital’ and the coalition supports business behaviour that adds to this vision. The aim is to bring together the many approaches to natural capital under one vision to share and promote the best practice. The profession can contribute to ICAEW’s sustainability goals and the vision of the Natural Capital Coalition because the future actions of businesses will be critical to the achieving this. At the heart of who we are as a profession are

measurement and the provision of timely information, together with insight and interpretation. This means that we will be able to provide a picture of how we are doing, so that informed business decisions can be made and governments, organisations and individuals can be held to account. At the recent Summit on “Accounting for Sustainability”, His Royal Highness the Prince of Wales praised the accounting and finance community for being open to change and understanding that innovation towards sustainability is key for prosperity. The accounting profession can be adaptable and we may need to change the way we operate within business to reach the Goals we have committed to. This will create uncertainty, however the profession is equipped to manage risk and be innovative. The Sustainable Development Goals are a monumental task which will require collaboration and the ability to recognise and learn from mistakes. The accountancy profession has the peculiar advantage of being positioned across all sectors of business and public life and possessing the skills to measure success. Businesses and ICAEW members have a vital role to play and success will be measured by all the goals being achieved. Sustainability and its role in the future of business is something ICAEW has been passionate about for a long time. This is reflected in our participation in these initiatives but I hope that the profession worldwide will see the opportunities that this presents and become more involved in sustainability as a whole. Lord Kelvin, the great Scottish engineer and physicist, is famous for saying that all knowledge begins with measurement. Once things can be measured, they can be improved. Chartered Accountants have always been involved in measurement; it is an integral part of what we do. I believe that ICAEW members can lead the way in transforming businesses so that sustainability is in the heart of business strategy.

ACCOUNTANCY CYPRUS

PROFESSIONAL ECONOMY SERVICES

GREAT POTENTIAL FOR CYPRUS IN THE POST-BREXIT ERA REFORMS TO THE LEGAL SYSTEM, INCLUDING THE SETTING UP OF A COMMERCIAL COURT, AND WAYS OF STRENGTHENING CYPRUSâ&#x20AC;&#x2122; REPUTATION AND STATUS AS A REGIONAL BUSINESS CENTRE ARE AMONG THE ISSUES THAT ACCOUNTANCY CYPRUS DISCUSSED RECENTLY WITH LEANDROS PAPAPHILIPPOU, SENIOR AND MANAGING PARTNER AT L. PAPAPHILIPPOU & CO LLC.

he Cypriot economy has enjoyed a broad-based recovery and is forecast to post solid growth in the following years. How do you expect the legal sector in Cyprus to perform in 2017-2018? Subject to regulatory challenges, the legal sector is expected to experience

further growth, particularly in light of the global Brexit-related challenges and the implementation of the European Union-Canada Comprehensive Economic and Trade Agreement (CETA). Cyprus, as the sole common law jurisdiction in the post Brexit era, with the enforceability of trusts, under Cyprus or English law, can play a pivotal role in the development of the regulated fiduciary sector. Further, due to its political and financial stability, as well as com-

Leandros Papaphilippou

mon legal tradition, Cyprus can become a portal for investment to and from Canada. Having said that, the potential erroneous implementation of the 4th European Union AML and adoption of the 5th EU AML Directive contrary to the jurisprudence of the Court of Justice of the European Union and the EU Treaties, would significantly obstruct both the development of the legal sector as well as of the Cyprus economy as a whole.

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In the 2017 edition of the Doing Business report, Cyprus ranks 45th overall out of 190 economies but is very low when it comes to issues regarding Cyprus’ justice system, including delays in taking cases and appeals to court. In your opinion, how do these delays impact the legal sector in Cyprus? Although unwarranted delays do lead to the untimely administration of justice, the initiative of the Ministry of Justice and Public Order and the Supreme Court to propose the establishment of the Commercial Court in 2018, which will hear commercial cases beyond a certain claim scale, will remedy the present problematic issues which relate to hearing delays and dissuade prospective investors. Further, the recent establishment of the Administrative Court has also proved to be

an important step towards the desired timely administration of justice. Do you believe that the legal institutions in Cyprus need further modernisation? What would your recommendations be in order to improve the legal sector? The establishment of the Commercial Court as soon as practically possible so as to deal with novel issues pertaining to the expansion of Cyprus’ economic activities, such as the oil and gas sectors, would be a step forward on the path towards modernisation. Further, establishing a Criminal Court hearing only white collar, fraud, and money laundering related cases, could exemplify the determination of the Authorities to deal more speedily with such issues, thereby increasing investors’ confidence.

Cyprus is ideally suited for international business due to the numerous benefits it has to offer. Apart from reforms to the legal sector, what else can be done to strengthen the country’s role as a regional business centre? The future commercialisation of the Larnaca Port, the establishment of an Arbitration Tribunal regarding shippingand commercial-related disputes, as well as establishing permanent consultation missions of Cyprus’ professional bodies such as ICPAC and the Cyprus Bar Association, in Brussels, could indeed reinforce Cyprus’ role as a business centre, both in the Mediterranean region and within the European Union. What can be done to increase potential investors’ confidence in Cyprus? In addition to the comple-

tion of the privatisation agenda of the Government and the establishment of the Commercial Court, restorative measures related to the 2013 bank deposits haircut can illustrate the determination of the Republic of Cyprus to safeguard investments. How successful do you believe the Government’s ‘Citizenship Through Investment’ scheme has been? Could it be improved? FDI numbers speak for themselves. The programme has been highly successful and Cyprus has become a case study of a small country doing great when committed, though every scheme can be improved in one way or another. If I were to make one addition to it, it would be to get a commitment from the Government and all the political parties to guarantee its continuity and secure its sustainability.

ACCOUNTANCY CYPRUS

ECONOMY

PRIVATE DEBT IS THE PROBLEM

WHY THE ECONOMIC RECOVERY OF CYPRUS REMAINS AN ELUSIVE AND DISTANT DREAM By Savvakis C Savvides, economist, former Senior Manager, Cyprus Development Bank

yprus suffers from an evolving acute case of what Richard Koo has called ‘Balance Sheet Recession’ (The Escape from Balance Sheet Recession and the Q.E. Trap, 2015). This means that because of the excessive and quite unprecedented levels of private debt (3 to 4 times the size of the country’s GDP) weighing on households and corporations, it is practically impossible for the country to ride out the storm that had been brewing for a number of years before it finally exploded upon us in 2013 in the form of the imposed bail-in. Put simply, companies and households are overwhelmed by debts which are almost impossible to repay. On the one hand, borrowers are encumbered with ever-increasing interest and additional collateral on their loans and, on the other, income from economic activity is progressively becoming stagnant, dragging the country into a severe recession given the lack of domestic demand, which holds back new capital investment. This situation poses two problems which impede the road to reconstruction and development. One is that, as the margins for dissaving are exhausted, the conditions for investing in economically viable projects are

becoming increasingly worse and secondly, but equally important, given the huge debts burdening the private sector, the ability to repay existing and new loans has deteriorated to the point where new loans to stimulate the economy are neither being demanded nor – justifiably to some extent – being offered by the banks. Under normal economic conditions, viability is far from given but when the lack of local consumer demand and the risks encompassing the country (such as the huge public sector debt and the instability of our banking system) are factored in, even with a clean slate (where existing debts are not taken into account), it would be very difficult for anything other than export-oriented projects (such as in tourism) to be viable. When economic conditions are adverse and the economic agents of the country are burdened with loans (most showing negative net worth), then something has to give for economic development to take place and be sustainable. In such grim circumstances, there are only two possible ways forward. Doing nothing and hoping for the best, which is the current economic policy employed by the Government, is not one of them. Manison and Savvides have shown in a recent article published in World Economics (Vol. 18, No. 1, January–March 2017) that the

observed high spending patterns in Cyprus are temporary and the result of dissaving in order to maintain living standards. It is, however, inevitable that savings will eventually be exhausted and that forced savings will be needed to pay down debt, resulting in the full and long-term effects of a balance sheet recession. The most obvious course of action would be debt reduction. Accumulated debt depresses consumer demand and inhibits new investment. Debt reduction (or debt forgiveness), however, is easier said than done, especially when policymakers adopt the mantra that “a debt is a debt and it is always paid”, no matter how big and how long it takes or even how it is paid (such as through the confiscation and liquidation of collaterals). Such a strict adherence to austerity, which ignores and totally puts aside the

New productive loans to stimulate the economy are neither being demanded nor – justifiably to some extent – offered by the banks

ACCOUNTANCY CYPRUS

effects of private debt, will, however, inevitably drag the country further into a crisis since the end result of forced debt repayment within a faltering economy is to amplify and prolong the recessionary effects. Iceland, for example, declared a state of national emergency, broke up and closed most banks and declared the bank debt to foreign entities and bond holders as not repayable in the then economic conditions. The result was a recovery in a period of less than three years. Given that Cyprus is in the eurozone, however, such a course of action may be more difficult unless, of course, the country is willing to consider leaving the euro and adopting its own currency. Without meaning to downplay the negative impact that such a radical recourse would inflict on the economy, particularly its adverse effects on the balance of payments, in such dire circumstances some control of inflation and devaluation of the currency can do more good than harm. In real terms, the debts to the banks, which are mostly foreign- owned, would fall significantly, thereby lowering the hurdle of repayment and having a similar effect as debt reduction on Cypriot borrowers. Moreover, the assets that are held as

Our predicament does not allow us the luxury of doing nothing and pretending that everything is fine collateral by the banks would increase in value relative to outstanding loan balances and therefore give better security coverage for the banks, reducing the need for higher provisions. Despite the adverse effects and initial hardship, it should be noted, nevertheless, that such a path can potentially lead towards the necessary adjustment for repair and reconstruction of the economy. Given Cyprus’ position in the eurozone and its political tight spot, one can understand not following an Icelandic-type solution. But our predicament does not allow us the luxury of doing nothing and pretending that everything is fine or even that Cyprus is an economic miracle, as the politicians would have us believe. This is why there is a need for policies to improve the macroeconomic

environment, carefully designed to address the balance sheet recession problem and specific private debt issues. The Government should not make the mistake of concentrating all its efforts on reducing the amount and cost of public debt, but rather use fiscal policy to lessen and repair the effects of private debt on the economy. The aim should thus be to stimulate the economy through carefully selected public and private sector projects, financed by creating new business entities (special purpose vehicles) unburdened by existing debts. This would, amongst other things, entail creating a special Development Finance Bank or Agency, mandated through legislation to evaluate and vet all major public sector capital expenditure and to ensure that public-privatepartnerships are viable and in the public interest. Given the huge private debt, the risk of a recession is very high because of the compelling need for households and corporations to repair their balance

sheets. In a recent statement during the presentation of the Central Bank of Cyprus’s Annual Report, the Governor admitted for the first time that the nonperforming loans problem will need another 10 years to be brought to manageable levels. Judging from the experience of countries like Japan, whose private debt was significantly lower than that of Cyprus, the period could be well in excess of 10 years. What the policymakers do not tell us – or perhaps do not even realise themselves – is that a long and deep recession will result from doing nothing and staying the course of strict austerity. Rather than staring blissfully into the abyss, the Government should stand ready to have the institutions in place, and provide for fiscal measures, which will mitigate and cushion the deflationary effects of the coming but very foreseeable, recession. To quote Richard Vague (2014), “Government Debt Isn’t the Problem – Private Debt Is”

The end result of forced debt repayment within a faltering economy is to amplify and prolong the recessionary effects

ACCOUNTANCY CYPRUS

ECONOMY

COMBATING THE DANGER OF PROTECTIONISM B Tassos Anastasiades, By Economist, Editor Accountancy Cyprus E

hen Donald Trump took over the presidency of the USA in January, he stated, inter alia, that, in general, trade agreements and specifically the free trade deal with Canada and Mexico (NAFTA) had led to a decrease in American exports and to fewer jobs in the United States. He promised to take

the necessary measures to amend these agreements, if necessary unilaterally. The first measure that President Trump took to promote this policy was withdrawal from the Trans-Pacific Partnership (TPP). In parallel, he asked for the renegotiation of NAFTA. It may be noted, however, that NAFTA has facilitated the creation of a wellfunctioning supply chain. Usually this entails the transfer of labourintensive production to Mexico and specialist high value added production to America. Therefore, the return of labourintensive production to the USA will be counter-productive and if Trumpâ&#x20AC;&#x2122;s aggressive mercantilist policy prevails, the future of world trade will be dismal. The EU, meanwhile, has been signing trade deals and thus extending its standards worldwide. It may be noted that, even without new trade deals, the comprehensive and rigorous rules of the EU have been accepted internationally, even by

Both Japan and Australia want to pursue the TPP without the US American multinational companies. One of the positive consequences of the expansion of trade deals over the last decades has been the creation of worldwide supply chains, which render businesses more

ACCOUNTANCY CYPRUS

productive since they lead to higher productivity. Christine Lagarde, Managing Director of the IMF, has warned that any effort to increase protectionism in trade will have grave consequences for world trade, noting that, “Measures to reduce the growth of world trade lead to the disruption of supply chains, which adversely affect world production and productivity, thus leading to higher prices of consumer goods.” Wilbur Ross, the US Secretary of Commerce and former Vice-Chairman of Bank of Cyprus, has said that the US wants to resume negotiations with the EU on the completion of a free trade deal. He has also stated that he would like one of the priorities of this trade agreement to be a decrease in the US trade deficit which, in 2016, amounted to $750 billion (of which $146 billion was with the EU). EU officials, however, are cautious about resuming negotiations, which would probably be difficult and would draw public opposition since President Trump is unpopular. “Before taking a decision on how to proceed, we would need to clarify that there is a sufficient level of shared ambition and common ground in finding solutions to difficult issues,” said the European Commission spokesman and it should be noted that Trade Commissioner Cecilia Malmstrom has said that the EU is pursuing trade deals with Japan and other Asian countries as well as with Australia and New Zealand. The views of President Trump on international trade, however, have

convinced the governments of Mexico and Canada to strengthen trade deals with other countries. Mexican officials have increased their efforts to finalise a trade deal with EU by the end of 2017. Also, Mexico believes that it will have a better negotiating position with the USA if it succeeds in finalizing agreements on importing wheat and corn from Brazil and Argentina. It may be noted that presently Mexico imports

American farmers are seriously concerned about the danger of losing the Mexican market. 98% of its needs in corn from the US and, consequently, American farmers are seriously concerned about the danger of losing the Mexican market. Japanese Prime Minister Shinzo Abe had stated that the TPP deal is of no significance without the US, yet his government was trying to salvage it because its trade rules are too precious to be abandoned. Finally, however, both Japan and Australia have changed their minds and want to pursue the TPP without the US. Now China is promoting an alternative Asia Pacific trade deal, the so-called Regional Comprehensive Economic Partnership (RCEP). This covers ten Asian countries and six neighbouring ones, including Japan, China, South Korea, Australia, New Zealand and India.. However, officials er from Japan and other Asian countries insist that this d trade deal should not be under the auspices of China, which is w trying to show that it is the champion of free

trade. After abandoning the TPP, both Japan and Australia want the RCEP to be of a high standard covering both goods and services. So far, President Trump has failed to define China as currency manipulator, which was one of his promises in his election manifesto, and this has helped reduce tension between China and the US. China has reacted positively and stated that it will promote a more balanced growth of world trade and will not use competitive depreciation of its currency. Recently, the two countries have succeeded in reaching a trade agreement, according to which China will open its market to US credit rating agencies and credit card companies as well as resuming imports of US beef, part of a package hailed by the Trump administration as the first step in redefining the trade relationship between the world’s two largest economies. In parallel, efforts are being pursued to promote a trade deal between the EU and South America, in an attempt to reduce restrictions on international trade and also as a reaction to Trump’s protectionist policy. It is worth noting that negotiators from the EU and the Mercosur countries (Argentina, Brazil, Paraguay and Uruguay) met recently in Buenos Aires. Although negotiations started in 1999 without any result, diplomatic sources now believe that a deal may now be finalized and European leaders have also stated their intention to promote negotiations with Japan, the Mercosur countries and Mexico.

ACCOUNTANCY CYPRUS

ECONOMY

INDIA AND CYPRUS

RESTORING RELATIONS THE SIGNING OF CYPRUS AND INDIA’S NEW DOUBLE TAXATION AGREEMENT REFLECTS A MUCH-NEEDED RESTORATION OF RELATIONS BETWEEN THE TWO COUNTRIES, AND PAVES THE WAY FOR BOTH TRADE AND INVESTMENT. By Philippos Aristotelous, Advocate and Partner, Elias Neocleous & Co LLC

he revised double taxation agreement (DTA) between Cyprus and India, which was signed on November 18, 2016, was ratified within four weeks of signature. It entered into force on December 14, 2016, and took effect in Cyprus on January 1, 2017 and in India on April 1, 2017 (the start of the Indian tax year). The conclusion of the agreement marks a significant milestone in the restoration of normal tax relations between the two countries, which were severely disrupted when the Indian authorities designated Cyprus as a notified jurisdictional area under Section 94A of the Indian Income Tax Act 1961 in 2013. India is among the world’s largest and fastest-growing economies, and the conclusion of the agreement marks the restoration of normal tax relations between the two countries, and provides great opportunities for both trade and

investment. While the revised agreement no longer provides exemption from capital gains tax on investments made after April 1, 2017, it places Cyprus on no less advantageous a footing than Mauritius and Singapore in this regard. The key features of the new agreement are set out below.

TAXES COVERED The DTA covers all taxes on income levied by either country or by any of a country’s subdivisions or local authorities, including taxes on capital appreciation, and on gains from the alienation of movable or immovable property. The specific taxes to which it applies are, in the case of India, income tax, including any surcharge; in the case of Cyprus, it applies to income tax, corporate income tax, Special Contribution for Defence (commonly referred to as SDC tax) and capital gains tax.

RESIDENCE Article 4 of the DTA reproduces verbatim the provisions of the OECD Model regarding residence, with the ‘tiebreak’ criteria for determining residence for individuals who are resident in both countries being permanent home and centre of vital interests, country of habitual residence, and nationality, in descending order. If none of these is decisive, residence is to be settled by mutual agreement between the two countries’ tax authorities. For legal persons, the place of residence is the place in which the effective management of the enterprise is situated. If this cannot be determined, the issue will be settled by mutual agreement.

PERMANENT ESTABLISHMENT Article 5 of the DTA, which deals with permanent establishment, also closely follows the OECD Model. A building site, a construction, assembly or installation project, or a supervisory

ACCOUNTANCY CYPRUS

or consultancy activity connected with it, will be deemed to be a permanent establishment if it lasts for more than six months. A permanent establishment will also arise when an enterprise provides services, including consultancy services, through employees or other personnel, which continue for more than 90 days within any 12-month period. An insurance enterprise of one country will, except in regard to re-insurance, be deemed to have a permanent establishment in the other country if it collects premiums or insures risks there through a person other than an agent of independent status. If an enterprise has a representative in the territory of a country who has, and habitually exercises, authority to conclude contracts in the name of the enterprise, or who habitually maintains a stock from which he regularly delivers goods or merchandise on behalf of the enterprise or habitually secures orders for the enterprise, the enterprise concerned is deemed to have a permanent establishment in respect of any activities which the person undertakes for it. As in the OECD Model, the DTA provides that an independent broker or agent who represents the enterprise in the ordinary course of business will not be caught by this provision. Particular care needs to be taken regarding the issuing of general powers of attorney so as not to risk unintentionally creating a permanent establishment, with potential adverse consequences.

INCOME FROM IMMOVABLE PROPERTY As in the OECD Model, income from immovable property may be taxed in the territory of the country where the property is situated.

BUSINESS PROFITS Article 7 of the DTA follows the principles contained in the corresponding article of the OECD Model, but includes a number of amplifications and clarifications.

The conclusion of the agreement marks a significant milestone in the restoration of normal tax relations between the two countries

The profits of an enterprise are taxable only by the country in which it is resident, unless it carries on business in the other country through a permanent establishment there, in which case the profit attributable to the permanent establishment may be taxed by the country in which it is located. Intra-group management charges, interest, royalties, and the like, are disregarded for the purpose of determining the profits of a permanent establishment.

INTERNATIONAL SHIPPING AND TRANSPORT Profits of an enterprise from the operation of ships or aircraft in international traffic (including interest directly related to such operations and income from containers, trailers, and related equipment) are taxable only by the country in whose territory the enterprise is resident. Income from the use of containers, trailers, and related equipment entirely within a country may be taxed in that country.

DIVIDENDS Dividends paid by a resident of one

country to a resident of the other country may be taxed in the country in which the company paying the dividends is resident. However, if the beneficial owner of the dividends is a resident of the other country, the tax may not exceed 10 per cent of the gross dividend. There is no minimum shareholding threshold. Article 1 of the protocol makes clear that dividends paid by Indian companies are currently exempt from tax by virtue of section 10 (34) of the Income-Tax Act (1961), and that, so long as this continues to be the case, there will be no withholding tax from dividends paid by an Indian company to its shareholders. Similarly, there are no withholding taxes on dividends paid overseas from Cyprus.

INTEREST Interest arising in one country and paid to a resident of the other may be taxed in the country of origin. If the beneficial owner of the interest is a resident of the other country, the tax may not exceed 10% of the gross interest. There are the usual anti-avoidance provisions restricting relief to armâ&#x20AC;&#x2122;s length interest in transactions between related parties. Interest paid to

ACCOUNTANCY CYPRUS

India is among the world’s largest and fastest-growing economies, and the conclusion of the agreement… provides great opportunities for both trade and investment local and national government bodies and national banks is exempt from these provisions. No withholding tax is levied on interest paid overseas from Cyprus, so the effective rate for Cyprus is nil.

ROYALTIES Royalties and fees for technical services arising in one country and paid to a resident of the other may be taxed in the country of origin. If the beneficial owner of the income is a resident of the other country, the tax may not exceed 10% of the gross amount. As with interest, relief is restricted to arm’s length amounts where transactions involve related parties.

CAPITAL GAINS Gains derived by a resident of one country from the disposal of immovable property situated in the other, or from the disposal of immovable or movable property associated with a permanent establishment situated in the other, may be taxed by the country in which the immovable property or the permanent establishment is situated. Similarly, gains from the disposal of shares in a company, which derive their value (whether directly or indirectly) principally from immovable property situated in one country, may be taxed in that country. Gains from the disposal of other shares may be taxed in the country in which the company issuing the shares is resident. However, Article 2 of the Protocol makes an exception from these provisions for shares acquired prior to

April 1, 2017. Gains from the disposal of shares acquired at any time prior to that date are taxable only in the country in which the disponer is resident. Gains derived from the disposal of all other property (including ships or aircraft operated in international traffic) are taxable only by the country of residence of the disponer.

ELIMINATION OF DOUBLE TAXATION Elimination of double taxation is achieved by the credit method. The credit is limited to the amount of tax that would be payable on the income concerned in the country of residence.

EXCHANGE OF INFORMATION The exchange of information article reproduces Article 26 of the OECD Model Convention almost verbatim. It adds a provision enabling a recipient of information to use it for purposes other than those specified on the condition that the laws of both countries permit such use, and the competent authority of the country providing the information agrees. Article 4 of the Protocol makes clear that neither country is obliged to carry out measures at variance with its laws, administrative practices, or public policy with respect to the collection of its own taxes. In this regard, it is important to note that Cyprus’s Assessment and Collection of Taxes Law provides robust safeguards against abuse of any information exchange provisions by requiring the country that requests information to fulfil rigorous specified procedures to demonstrate the foreseeable relevance of the information to the request. A request must be much more than a brief email containing the name and identifying information of the individual concerned. Rather, a

detailed case must be made, with the criteria set out in a formal, reasoned document. In effect, this means that the authorities requesting the information must already have a strong case even before they request the information. A specialist unit deals with requests for exchange of information, and informal exchange of information between tax officers bypassing the competent authority is prohibited. As a final safeguard, the written consent of the Attorney General must be obtained before any information is released to an overseas tax authority.

ASSISTANCE IN THE COLLECTION OF TAXES The DTA reproduces the corresponding article of the OECD Model Convention almost verbatim. It adds a provision making clear that the agreement does not give either country access to the courts of the other.

ENTRY INTO FORCE AND TERMINATION The agreement will enter into force when the two governments inform one another that their requisite constitutional procedures have been completed. Its provisions will have effect from the beginning of the following tax year. In Cyprus, the tax year is the calendar year, and in India it is the year beginning April 1. Termination of the agreement will require written notice by either country given at least six months before the end of any calendar year, whereupon the agreement will cease to have effect from the beginning of the following tax year. Notice may only be given after the agreement has been in force for five years.

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ECONOMY

LESS PUBLIC SPENDING MEANS MORE ECONOMIC GROWTH By Marios Mavrides, MP, Associate Professor of Economics, European University Cyprus

he performance of the Cyprus economy over the last three years has been impressive, especially given the situation in 2013, and the prospects for 2017 and 2018 are very good. According to the latest Eurostat data, the economy is growing at double the eurozone average – 3.3% compared with 1.7% (last twelve months). Cyprus is ranked 7th in the eurozone since only Bulgaria, Romania, Poland, Hungary, Latvia, and Lithuania have achieved higher economic growth. The European Central Bank’s quantitative easing programme, which has kept interest rates at very low levels, appears to be working. Cyprus lost 12.5% of its Gross Domestic Product (GDP) between 2009 and 2014, while unemployment climbed to 17%. Since then, the economic situation and social conditions have been improving every year. The economy is growing and unemployment is falling, while welfare programmes and social protection measures cover the basic needs of those in need. This year and the next will probably be the best for Cyprus’ economy, thanks to good management by the Government and also because of favourable external conditions, including tourism, low interest rates and major investments.

In its spring report for Cyprus, the European Commission notes that the country’s potential growth rate is near to zero and if the economy is to achieve sustainable growth, significant reforms must take place. The path of the economy over the next three years will depend partly on regional geopolitical factors (tourism, oil and gas exploration and foreign direct investment) but the most important factors concern public administration reform, the job market, privatization, the National Health Scheme, education, etc. The most positive development for Cyprus is perhaps the fact that ongoing economic growth is accompanied by fiscal consolidation and public spending has decreased and the budget deficit is now near zero. It is worth noting that the Government could easily have achieved a budget surplus, which would have enhanced the island’s reputation and creditworthiness in the international markets. Instead, it chose to gently relax fiscal policy, in order to give something back to society. The Government has contributed considerably to economic growth over

the last few years by creating a more investment-friendly environment, tax incentives for domestic and foreign direct investments and ‘selling’ passports to foreigners. It has reduced some bureaucracy and proceeded with some privatisations, which then sparked private initiatives in certain markets. The EU “open skies” policy, for example, which was implemented two years ago, resulted in more competition, lower fairs and a significant increase in the number of tourist arrivals. Arrivals translate into domestic consumption, thus helping the economic economy. The recovery and expansion that have taken place in the last three years may be the result of private sector initiatives but and the fall in public spending has also contributed significantly. This reduced spending was the result of up to €1 billion worth of cuts to non-productive government expenditure, meaning lower taxes for the private sector and a significant boost to the economy. That is why I have always insisted that a smaller, more effective public sector is an essential condition for sustainable economic growth.

A smaller, more effective public sector is an essential condition for sustainable economic growth

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ECONOMY

BREXIT, MACRON AND THE FUTURE OF THE EUROPEAN UNION By Yiannis Kitromilides & Michael Sarris, Economists

he result of the UK referendum in June 2016 on continued EU membership and the election of Emmanuel Macron as President of France in May 2017 are two significant recent events that are providing renewed impetus and urgency to the debate about the future of the European Union. The outcome of such a debate could be critical in minimizing the risk of the EU unravelling because of Brexit. There are two conflicting sides to this debate. One approach argues that the unravelling of the EU could be averted by a process known as ‘less Europe’. This is the idea that the process of economic and political integration in Europe has gone too far and moved too fast and it should be put on hold or even reversed. This may involve revisiting and revising some of the fundamental principles of the EU such as the free movement of people.

An alternative approach favours ‘more Europe’ as a means of preventing the unravelling of the EU. This is based on the belief that many of the current problems of the EU stem from the slow progress in achieving greater political integration. Emanuel Macron is a firm supporter of the ‘more Europe’ approach and his election raises expectations that the move towards greater political integration in Europe is about to receive a significant boost. Which reform agenda should the EU pursue post-Brexit? What must be kept in mind when attempting to answer this question is that the EU is not just an economic union but it is also a political project. It is generally known as the ‘European Project’ and a central element of it is the aspiration, expressed in the opening sentence of the Treaty of Rome in 1957 and repeated subsequently in all important EU treaties, of “an ever-closer union among the peoples of Europe”. Although never precisely defined, this

The eurozone crisis has exposed the fundamental flaws of operating a system in which political integration lags behind economic integration.

aspiration is generally assumed to mean the prospect of establishing greater economic and political integration in Europe, which may eventually take the form of a European ‘super’ national or federal state. In the 60 years since the signing of the Treaty of Rome, Europe has gradually evolved from a free trade area and a customs union of six nations to a single market of 28 nation-states and 500 million people, to the complete free movement of people, to the abolition of border controls and to an economic and monetary union with a common currency. Throughout this process of European transformation, an ‘implicit’ federal structure was put in place but without any clear indication or road map of whether or how this federal structure is to become an ‘explicit’ or complete political union. Without political unification, the abolition of national currencies (Economic and Monetary Union) and national borders (Schengen Treaty) and the establishment in 1992 of European Citizenship (‘free movement of people’) has proven a risky undertaking especially in dealing with crises. The eurozone crisis and, more recently, the refugee crisis have exposed the fundamental flaws of operating a system in which political integration lags behind economic integration. There is

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Without popular support, radical reform of the political system in Europe is not possible

Emmanuel Macron

voluminous literature on the so called ‘design faults’ of economic and monetary union in Europe. These ‘architectural’ shortcomings usually refer to the absence of mechanisms that can monitor and prevent ‘imbalances’ from emerging in one country and spreading to the rest of the monetary union, the absence of a banking union and the lack of ‘lender-of-last-resort’ assistance to sovereigns. In the short run, these problems have been dealt with in an ad hoc manner, usually following acrimonious ‘crisis’ meetings. There is a consensus that, in the long run, this is not a satisfactory model of EU governance but there is no clear shared vision of an alternative model. The so-called Five Presidents’ Report and the more recent EC white paper On the Future of Europe both recognize the challenge but there seems to be little follow-up. Since 1992, the two pillars of the European Project – free movement of people and a single currency – have become reality in the EU. Neither is essential for the workings of a single market in Europe but the long-term viability of both is now being questioned because of the lack of progress in the process of political integration. The eurozone crisis demonstrated vividly the immense problems that can arise

by operating monetary union without political union while the Brexit crisis is now raising similar concerns about the free movement of people. Many of the current problems that threaten the stability and the very existence of the EU, such as fiscal transfers, sovereign bail-outs and the free unrestricted movement of people, would not be so intensely divisive issues in a federal political system. In this sense, an ‘ever closer union’ is part of the solution and not part of the problem of EU membership. The shock of the UK’s Brexit decision merely brought to the fore existing tensions in the EU as to how the European Project is to be completed. The problem is that there is no clear road map for how this is to be achieved. In the USA, political union preceded monetary union; in the EU the process has been reversed. The establishment blishment of a Federal Europe is currently unpopular and therefore unlikely to be achieved ieved through normal democratic means. Without popular support, radical reform orm of the political system in Europe iss not possible. It is equally true, however, that without political reform, the existingg status quo in Europe will continue to be in crisis. The most realistic pathway to reform would be some intermediatee outcome between the ideal but ‘utopian’ ian’ federal

Europe and continuation of the existing crisis-prone status quo. This intermediate outcome would entail slow, gradual and incremental reforms involving treaty change, something that Germany is now reportedly prepared to accept if it includes strengthening the eurozone. It remains to be seen whether a common FrancoGerman understanding on EU reform will result in the kind of pragmatic reforms that will strengthen the EU and ensure the survival of the eurozone. Such reforms could include the creation of a European Finance ministry, an EU social budget and pan-European social insurance, deeper cooperation among some member states in key policy areas, the reform of the ESM or even some modifications to the ‘free movement of people’ people principle. p If that were to happen, Emmanuel Macron’s presidency would be truly ‘historic’.

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ECONOMY

Cyprus has twice ‘caught’ a mild form of Dutch disease

DEALING WITH DUTCH DISEASE

WHILST THE EXPLORATION AND EXPLOITATION OF NATURAL GAS IN CYPRUS’ EXCLUSIVE ECONOMIC ZONE POSES BOUNTIFUL PROSPECTS, IT ALSO RISKS THE DEVELOPMENT OF SO-CALLED DUTCH DISEASE. AND, LEST STEPS ARE TAKEN TO DEAL WITH THIS EVENTUALITY, THE ISLAND MAY END UP KILLING OFF ITS OWN INDUSTRIES. By Demetris Georgiades, Chairman, Cyprus Fiscal Council

here have been ongoing discussions about designing a framework for the optimal administration of future revenues from the natural gas (to be) found in Cyprus’ Exclusive Economic Zone (EEZ). Said revenues will include exploitation agreements with oil giants, tax levies and licensing fees. Even though no-one can be certain of the size and value of the findings, the framework should be enacted as soon as possible, and should address all potential risks and challenges. First and foremost, the following question should be considered: How can we put these funds to their best use? The answer is simple: We must aspire to maximise future profit. In a purely business sense, ‘profit’ is expressed in monetary terms. Of course, this is only one of several factors that policy makers need to consider. Setting aside environmental and political factors, a government should also evaluate the effects on other sectors, on public finances and, most importantly, on future generations. There is a clear conflict between the aforementioned factors, and this makes the assessment extremely difficult. That said, empirical studies offer clear guidance as to what constitutes best practice. History has shown that, more often than not, governments misappropriate funds and very rarely use them wisely. Usually, they create permanent expenditure, either in the form of an overblown government payroll or unnecessary social benefits, they establish loss-making entities or invest in infrastructure, the return on which will never cover their costs. Some might argue that Cyprus will be an exception (like Norway or Chile), and succeed in avoiding these mistakes. As such, why prohibit investments in local profitable entities and other projects from the outset? Why not build a much-needed port or provide support to citizens in need? The answer is simple: so as to avoid so-called ‘Dutch disease’, a term commonly used, though rarely understood.

CATCHING DUTCH DISEASE The most common and simple definition of Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector and a decline in other sectors. Cyprus has twice ‘caught’ a mild form of Dutch disease. The stock exchange boom during the late ‘90s attracted resources from other industries and thus increased costs. Accountants and financial analysts became a scarce and expensive resource. More recently, the boom in construction and consumption made it hard and costly for hotels to find employees. Had the booms lasted for years, today’s thriving accounting services and the tourism industry would have been given a severe, and possibly permanent, blow to their competiveness. These sorts of booms are

usually short-lived, meaning that Dutch disease is ‘cured’ and goes away almost unnoticed. However, this is seldom the case when countries discover substantial natural resources. The revenues last longer but end unexpectedly, leaving no room for reactionary measures.

SIGNS AND SYMPTOMS For any Government Investment Fund (GIF) to accumulate substantial resources, the sector needs to be profitable with substantial economic activity. It will attract employees and capital from other industries, raising salaries and the financing costs for the whole of the economy. Unemployment benefits will decline, and both direct and indirect tax revenues will increase. The increased activity will have a multiplier effect through increased

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consumption and usually cause a boom in the construction industry and even in stocks and properties. Speculation and the wealth effect will further boost consumption and further speculation. All these create additional tax revenues, lower benefits, and, most importantly, euphoria and the belief that the party will last forever. This will create fiscal space and pressure for more government spending with an additional multiplier effect.

PROGNOSIS The prices of natural resources are volatile. The price of oil shot up from $20 a barrel in the late ‘80s to over $150 in 2008, only to drop again to $40. The natural gas price of $2 per MMBtu shot up to $14, dropping again thereafter back to $2. Even if 100% of natural gas revenues are invested abroad and no amount ends up in the government budget, such price movements will have direct and indirect effects on the economy and public finances. Given the small size and lack of diversity of its economy, Cyprus will be more vulnerable. Most importantly, if the price and activity boom in the industry lasts for a long period, then the resulting Dutch disease will unavoidably kill some industries. This has been observed even in Norway. It should be noted that Norway actually does use a defined amount from its GIF. This

is known as the Fiscal Rule. Cyprus’ proposed legislation stipulates for a corresponding amount of up to 1% of its GDP. One finds it hard to understand why a government would need additional funds from the GIF to increase spending for any reason.

CURING THE ILLS No-one can escape from the effects of these price movements. However, what countries can do is apply best practice: avoid using the profits in the economy, build up buffers, reduce debt, and create an adaptable economy that reacts quickly and absorbs shocks. Diversification is hard to achieve for a country the size of Cyprus but it is a necessity. The issue is not a question

Diversification is hard to achieve for a country the size of Cyprus but it is a necessity of ideology and personal beliefs, of capitalism versus socialism: it is demonstrably about how humans and economies behave and react. Rest assured that Cyprus will be no exception: the island is not immune to the

disease. I’m sure that all can appreciate the situation a country will find itself in if a sudden and long-lasting price drop of an abundantly available commodity is accompanied by a slowdown in economic activity: essentially, the end of increased government spending policies, high debt and no buffers. No-one can assess with certainty the viability of projects, the volatility of prices, and the direct and indirect effects on the economy. All decisions will be based on probabilities, will involve judgement on upsides and downsides, and on what corrective actions will be available. Parliament has to decide whether to allow the use of GIF funds in investing and spending in Cyprus, with the cost of wrong decisions being (a) The lost benefit from a project not undertaken in cases when the GIF funds are needed but cannot be used, with no alternative financing; or (b)

The effects of Dutch disease in cases where funds are unwisely used, temporarily boosting the economy but limiting buffers, thus leaving the economy and public finances more vulnerable. Of course, corrective actions are available. In the first scenario, allow the use of funds; in the second scenario, stop the effects. But what is the probability of obtaining a parliamentary majority to amend the legislation on: (i) Allowing the GIF finance of a clearly viable and beneficial project (in case the legislation is prohibitive); or (ii) Stopping the government from using GIF funds to finance a loss-making project, with the government making false claims (in case the legislation allows for the use of funds)? Both history and prudence clearly answer these questions as well as the question “Why not?” Note: The views expressed in this article are personal.

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ECONOMY

EXPANDING CYPRUS’ ECONOMIC HORIZONS THE RECENT VISIT OF PRESIDENT ANASTASSIADES TO INDIA REMINDED ME OF PAST EFFORTS TO EXPAND CYPRUS’ ECONOMIC HORIZONS By Dr. Iacovos Aristidou, Minister of Labour & Social Insurance (1990-1993) and former Director General, Cyprus Planning Bureau

he Cypriot poet Teukros Anthias said, ‘A small stone in the sea is my homeland’ (Cyprus Rhapsody) and, elsewhere, ‘A handful of earth is my Island’ (Oratorio) but ever since the country’s independence, we have exerted every effort to overcome the difficulties imposed by its small size and ensure its development. At the time, the protectionist policies that were followed by most countries (until the liberalisation of trade in the 1990s) amplified the problems we faced. To begin with, Cyprus became a member of the British Commonwealth, concluded a series of Barter Trade Agreements with Eastern European countries, an Economic Cooperation Agreement with the European Economic Community (EEC) in 1972, and agreements on economic and industrial cooperation with all Eastern European, Middle Eastern, and Asian countries after 1974. Indeed, expanding the island’s economic

I am often asked, ‘How did the Russians discover you, being such a small island in the Middle East?’ And my answer is always, ‘It was we who discovered them’

horizons became an even more imminent and elementary issue following the Turkish invasion, which rendered an already small country even smaller, due to the occupation of a large part of its territory. Expanding our economic horizons was adopted as a basic aim in the Emergency Plans drawn up following the invasion and the model on which we worked included upgrading the production structure of the economy so as to become more competitive, and encouraging Cypriot businesses to expand their activities abroad or transform Cyprus into a regional financial centre.

FORGING FELLOWSHIPS In parallel with our strong efforts to conclude a customs union with the EEC, we proceeded to conclude bilateral

agreements with a number of countries (including Greece, Syria, China, and India) or strengthened existing trade relations with other countries (including Egypt, Jordan, Lebanon, Israel, and Japan). The idea was for Cyprus to expand relations with its neighbours, so that the island could establish itself as an economic centre in the wider Middle East and, thus, attract the interest of countries further afield wishing to internationalise their activities. Of course, in describing Cyprus’ quest to expand its economic horizons, it is

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THE ORIENT EXPRESS

only natural to think of our small island’s relationship with the biggest country in the world: Russia. I am often asked, “How did the Russians discover you, being such a small island in the Middle East?” And my answer is always, “It was we who discovered them.” My first trip abroad after the invasion (in October1975) was to Moscow, accompanying the then Minister of Finance, Andreas Patsalides, who signed the new Agreement for Economic Cooperation between Cyprus and the USSR. The signing of similar agreements with all the Eastern European countries followed, and they were integral and instrumental to the attraction of activity from Europe’s ex-Socialist countries to Cyprus. Though Greece has always been considered as a natural extension to the Cyprus economy, we aspired to achieve better coordination and, as such, proposed and proceeded to sign a flexible bilateral economic agreement (at the end of 1980s). Meanwhile, Cyprus continued to maintain normal trade relations with all the Middle Eastern countries but these relations were characterised by a lack of systematic cooperation. Our cooperation on a technocratic level helped the development of economic and friendly relations between Cyprus and Israel during otherwise long years marked by a lack of normal diplomatic relations.

After the signing of the Economic Cooperation Agreement between Cyprus and Syria (1975), a number of Cypriot industries transferred their activities to Syria (the same happened later with Jordan), due to the lack – and high cost – of available labour at home. Arrangements were made for the transport of Cypriot products by road through Syria to the Gulf countries. Concurrently, various contacts were made in the sphere of tourism by Cypriot hoteliers to establish hotels in Syria and by travel agencies to include Syria (and other neighbouring countries) in the former’s organised tours. Unfortunately, the current situation in Syria does not allow for such endeavours and cooperation at present. For the moment, interest in the Middle East should be focused towards neighbouring countries. Indeed, the prospects for the exploitation of natural gas in Cyprus’ Exclusive Economic Zone have opened up a new dimension to this end and new prospects.

Looking further afield, the abovementioned plans executed in the 1980s were followed by the conclusion of economic agreements with China and India and the exploration of more concrete cooperation with Japan. The agreement with China was concluded in 1984. In our discussions in the Mixed Economic Committee, it was established that Cyprus could serve as a good base for cooperation vis-à-vis third countries as well. Unfortunately, between 1992 and 2001 – a period during which huge changes occurred in the international economic activities of China – the Committee did not meet for various reasons. During this period, China proceeded to enact many business arrangements in central and southern Europe, including an agreement with Greece for the port of Piraeus. I believe Cyprus missed a great opportunity to be included in these arrangements. I have described elsewhere the conditions under which the first Economic Cooperation Agreement between Cyprus and India was signed during the visit of President Vassiliou to New Delhi in 1989, and the difficulties encountered ever since its implementation. One classic example is that of the Tata Group, an international Indian conglomerate. We convinced the Group to establish a base in Cyprus from which to conduct its activities in the region. When I met with representatives from the company a mere few years later, they were about to close the Nicosia-based office they maintained and leave Cyprus altogether. Their complaint was simple: “Unfortunately, everywhere we applied, we did not get any positive response.” Neither the visit of President Papadopoulos to India nor the visit of the Indian President, Mrs. Pratibha Patil, to Cyprus helped to change the situation.

Whilst there was a spectacular initial increase in the number of exports of local industrial and other products, a serious lack of professionalism in the handling of said exports led to a subsequent spectacular fall.

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However, the prospects remain. Something similar happened in the case of Japan. While its exports to Cyprus were radically augmented after the island’s independence, the country’s imports from Cyprus were minimal, something about which even President Makarios himself had expressed dissatisfaction of to Japanese officials. After the invasion, we brought up the issue again. The relevant Japanese authority invited me to visit Tokyo to explore ways and means to rectify the problem. The meetings we had with various ministries (and others) explored numerous avenues of collaboration (exports of citrus fruits and other agricultural products to Japan, the development of air routes serviced by Japanese airlines, the establishment of Japanese companies on the island to use Cyprus as a depot to serve their customers in the area, tourist tours to include Cyprus as one of their destinations, industries to establish themselves in Cyprus, and more). Unfortunately, there was no serious follow-up in this case either. A Japanese company, which established itself on the Larnaca Free Industrial Estate, left Cyprus very soon after, as happened with Hitachi.

RISE AND FALL In addition to the above, serious mistakes, stemming from a lack of professionalism, were also made in the island’s collaboration with the Middle East. In our efforts after the invasion to promote economic relations and increase exports to Middle Eastern countries, many measures were taken (such as assistance to construction and other companies, coverage of political risks, solving various financing issues, etc.). Whilst there was a spectacular initial increase in the number of exports of local industrial and other products, a serious lack of professionalism in the handling of said exports led to a subsequent spectacular fall. There was a lack of responsible professional behaviour on behalf of many of those who appeared as trade promoters and of a number of temporary industrial units. Many Cypriot ‘exporters’ travelled through the Arabic markets, received orders, and haphazardly tried to execute them by delivering products different from the samples presented.

With such a short-sighted policy, Cyprus missed the opportunity to become the market hub of the area... a role that was eventually taken on by Dubai and Bahrain. Unfortunately, by the time we managed to establish an official catalogue of ‘exporters’, the damage to the prospects of Cyprus’ exports to Arabic countries had been done. In response to this, we created the Cyprus Export Promotion Organisation, in the hope of creating a more systematic approach. The Organisation was shortlived! Unfortunately, private interests prevented further positive developments in this domain, and whilst some private initiatives have helped the development of Cyprus, there must be integrity so as to ensure that said private interests are at least compatible with the public interest. Overall, many Cypriot enterprises failed to establish permanent, long-term relations with Arabic countries, which prevented them from reaping the benefits available. In some cases, it was not the businesses’ fault (as in the case of what happened and is still happening in Syria and Iraq). However, in general, their failure to establish permanent investment, create joint ventures with local businesses, and transfer technology and know-how diminished their chances of establishing long-term economic and business ties, and closer cooperation between Cyprus and these countries, which has effectively resulted in the exclusion of Cypriot products from these markets. The fall in Cypriot exports began.There also seemed to be a dissonance among officials as to what direction Cyprus’ industrial policy should take. Part of the effort to develop and apply a new industrial policy towards the end of the 1980s was the encouragement of the expansion of Cypriot industries to

neighbouring countries. In response to our meetings with ministries, chambers of commerce, employers’ associations, and more, to this end, one high-ranking official commented, “We are asking foreign companies to invest in Cyprus. How can we also encourage Cypriot companies to invest abroad?” We were clearly talking about two different things.

THE NEXT CHAPTER? To close the chapter on exports, it would be useful to discuss the issue of re-exports. Though Cyprus’ exports did not increase after 1990, re-exports did – substantially – thus indicating the great potential Cyprus had to become a hub for such re-exports. In response to workers’ unrest in the ports in the early 1990s, I investigated the situation (as Minister of Labour, Welfare and Social Insurance) and discovered that the fees at our ports and the total cost for loading/unloading a ship were much more than those of a competitive port in the area. Therefore, it was not surprising that many Cypriots conducting such business used other more competitive ports instead of those in Cyprus. I hope the new arrangements with the port of Limassol and the planned new arrangements with the port of Larnaca will solve this problem as well. Though at some stage the system of Free Zones was introduced in areas around the ports and airports to facilitate reexports, bureaucratic complications and difficulties were such that the system was not allowed to work effectively and be expanded to the whole of Cyprus, where bonded warehouses could operate for this purpose. A characteristic example was the ‘adventure’ of the International Merchandising Centre (IMC), a private initiative established at the beginning of the 1990s aimed at creating an organised centre for free international trade activities. All the competent public and private trade representatives were against this endeavour or refused to cooperate with the centre. Unfortunately, with such a short-sighted policy, Cyprus missed the opportunity to become the market hub of the area (both for wholesale and retail trade), a role that was eventually taken on by Dubai and Bahrain. Our business people chose the limited Cypriot market, instead of the huge Middle Eastern market.

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ECONOMY

HOW TO SOLVE A PROBLEM

LIKE THE EU?

WHILST THE EU HAS SUCCEEDED IN SAFEGUARDING SECURITY AND PROSPERITY FOR THE WIDER REGION, A SERIES OF PROBLEMATIC CHALLENGES HAVE ARISEN THAT THREATEN ITS STRUCTURE. CHRISTOS MICHAELIDES, CHAIRMAN, CYPRUS EMPLOYERS & INDUSTRIALISTS FEDERATION (OEB), EXPLAINS WHY HE BELIEVES THAT THESE CHALLENGES MUST BE MET HEAD-ON, TO ENSURE THE EU’S STATUS AS A RESPECTED GLOBAL PLAYER. By Christos Michaelides

he European project, which led to the establishment of the European Union (EU), has brought prosperity to Europeans, and unprecedented peace and stability in the region. Nevertheless, the EU continues to face internal and external challenges, including globalisation, migration, ageing populations, and the rise and regulation of populism, to name a few. The Cyprus Employers & Industrialists Federation (OEB) firmly believes that these challenges are best addressed within the context of an improved EU, supported by stronger and more efficient institutions. This is all the more relevant in the case of Cyprus, whose ability to shape international political and economic affairs would be considerably diminished outside the context of the EU. Moving beyond the EU’s challenges requires the establishment of, and respect for, subsidiarity and a reduction in unnecessary bureaucracy and

regulation. Overall, efforts for inclusive, balanced, and sustainable growth should be strengthened. A key component of this is healthy public finances. Hence, individual member states must implement effective national policies and better coordinate their actions on major economic issues. In this way, the process of convergence between member states – a crucial element for the proper functioning of the EU and the common currency – will be reinitiated. Meanwhile, the EU must position itself at the forefront of shaping globalisation, the challenges of which must be addressed through a serious and transparent debate about trade, not through protectionism or isolationism, which can only lead to poverty. It is abundantly clear that economic success is the basis for social progress. For this reason, the European social model must be modernised in order to address social challenges while ensuring that European companies can keep up with increased international competition. The protection and advancement of the single market must be at the centre of our efforts, since it is the most important

tool for delivering prosperity and welfare. Businesses are crucial to solving many of the problems Europe faces, since they create jobs, generate growth, and promote research and innovation. Undoubtedly, in order to safeguard and improve the security and prosperity we have achieved over the past 70 years, and to ensure that the EU remains a respected global player, we need a united Europe working more efficiently, and effectively.

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ECONOMY

THE DEVIL IS IN THE DETAIL

A LOOK AT PROFESSOR ADAIR TURNER’S NEW BOOK, BETWEEN DEBT AND THE DEVIL, WHICH EXPLORES THE ROLE THAT BANKS AND EXCESSIVE CREDIT PLAYED IN THE CREATION OF THE FINANCIAL CRISIS. By Dr. Jim Leontiades, Academic Dean, Cyprus International Institute of Management

new book by Professor Adair Turner – who served as the Chairman of Britain’s Financial Services Authority during the recent recession – takes a fresh look at the role played by banks, credit and more during the financial crisis. Overall, the central theme of the book stipulates that too much credit, and the wrong type of credit, instigated the crisis. Questions abound: How did this come about? Why was it not foreseen? What can be done in the future to safeguard against the same thing happening again? Professor Turner proffers at the outset that it is a mistake to hold banks responsible for the crisis. Banks are posited as being essential to the economy, with their contribution to the 2008 financial crisis being attributed to their role as credit providers. Indeed, the author suggests that anyone interested as to how and why the crisis came about should focus on government finance ministries, central banks, and the economic theories that underpinned their policies. What follows is a brief summary, which cannot possibly do the book justice. I suggest that it is required reading for anyone interested in the subject!

THE ROLE OF THEORY The two key theories, which shaped the intellectual climate on financial matters prior to the crisis, were the efficient markets theory and that of rational expectations. Both are flawed. Real world evidence – of human irrationality and the existence of major market imperfections – contradicts both of these theories. They not only encouraged the development of faulty risk models, they also played a major role in the deregulation of banks and financial deepening (an increase in financial activity relative to GDP, and more liquidity). But financial deepening can make matters worse and more market liberalisation is not necessarily good. “Left to itself a free financial system will produce too much private credit,” Professor Turner portentously writes. Prior to the 2008 crisis, national central banks provided only loose control over a liberalised banking system. Central banks devoted their efforts to controlling inflation, and excessive credit creation was not a major concern. This was based on the belief that low inflation meant that increases in credit would go to businesses and thus be beneficial. According to the

prevailing view – prevalent in economic textbooks – banks collect savings from private households and channel these to finance businesses and entrepreneurs. The recent financial crisis proved that wrong. The reality is that only a small portion of new credit (some 14%) goes to businesses. The great majority of credit in advanced economies is used to finance the exchange of existing assets, particularly real estate. Lending for real estate in 1928 accounted for about 30% of bank lending. This has increased steadily, reaching nearly 60% of total bank lending in 2007. Of course, there is no “perfect market” that ensures the “right supply” of credit will be directed toward real estate lending. The supply of land (whose value is the biggest part of the increase in real estate value) is limited. Expectations (which are not necessarily rational) may lead to an increase in demand for a particular asset, such as real estate, and an increase in its price, resulting in a demand for more credit, higher prices, and a cycle of such increases. But there is a limit on how much credit an economy can support. When the limit is reached, the bubble bursts. Real estate prices fall, and the cycle is reversed.

There is a limit on how much credit an economy can support. When the limit is reached, the bubble bursts

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able to finance their imports by borrowing excessively from Northern European countries with trade surpluses. Eventually, the borrowing reaches a limit with adverse consequences, which are now familiar. Eurozone policies of fiscal austerity simply aggravate the problem. Professor Turner describes the eurozone as a “free market vision gone awry”. If it is not able to change itself into a political union, a break up is “likely to be inevitable”.

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House owners who are highly leveraged reduce their spending, depressing overall demand. A strong correlation has been found between areas where households were most highly leveraged and a drop in consumer expenditure, which brought with it a fall in business investment, and a rise in unemployment. Besides real estate, Professor Turner identifies two other “drivers” of excessive credit creation…

INCOME INEQUALITY AND GLOBALISATION Rising Income Inequality also contributes to excessive credit. People with higher incomes tend to save more. Their savings are channeled into banks, where they are made available to poorer people. This money is used to help finance mortgages on houses whose value often rises, encouraging more buying, etc. Rising inequality helps to fuel this cycle. Globalisation has added a further boost to the credit cycle. Flows of capital between countries in response to trade deficits and surpluses have increased the supply of credit. The trade surpluses of countries such as Germany and China are, in effect, loans, supporting credit expansion in deficit countries, such as the UK and USA.

A CREDIT CYCLE ON STEROIDS Over the past 40 years, a host of financial

Professor Turner considers several possible solutions to his central thesis, which is the “need to constrain private credit growth”. Increased financial regulation, higher capital requirements for banks, and taxes on income inequality, amongst other measures, are considered. He concludes that such measures may help but they are not sufficient. There is no panacea. The problem is made more difficult by the fact that credit creation is closely related to growth. It creates much of the purchasing power behind economic expansions. The challenge is how to bring about a balance favouring growth but avoiding too much credit. Helicopter money (or fiat money produced by the government) is considered a promising possibility. This can create the purchasing power and growth, which has typically depended on credit creation. This power has been abused in the past (and present). However, there have also been situations in which it has been successful. He recognises that most bankers and politicians not only oppose it as an economic policy but also have moral issues, considering the practice as almost sinful, close to the devil of the book’s title. But, as history has shown, excessive debt creation also has its dangers.

The challenge is how to bring about a balance favouring growth but avoiding too much credit

innovations, such as derivatives, credit default swaps, interest rate swaps, securitisations, shadow banking, risk management tools, and synthetic CDOs – which were thought to make the market more whole, and “perfect” – have actually been counterproductive. According to Professor Turner, it was precisely this “much bigger and more innovative financial system [which] led to the crisis of 2007-2008”. A credit cycle – as Professor Turner memorably depicts – on steroids. For example, the securitisation of mortgages was initially thought to make for a better distribution of risks. It would make credit less dependent on bank capital adequacy and therefore less volatile. In practice, securitisation meant that banks were able to sell mortgages to a series of upstream buyers. Therefore, there was little incentive on the part of banks that agreed the initial contract to ensure that that the mortgage would be repaid. The incentive, instead, was to maximise quantity.

THE EUROZONE The common currency facilitated the sort of capital flows (from trade surplus to trade deficit countries) as described above. Deficit eurozone countries (such as Greece, Portugal, Spain, and Italy) were

Between Debt and the Devil by Adair Turner is published by Princeton University Press.

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TAXATION

COMBATING TAX EVASION THE EXCHANGE OF INFORMATION BETWEEN COUNTRIES IS A POWERFUL TOOL AGAINST TAX EVASION. By Lenia Georgiadou, Economist & Board Member, Alpha Bank

ue to globalisation, recent years have witnessed an intensification of efforts aimed at international cooperation in a bid to combat tax evasion and tax fraud. The same applies to the fight against money laundering. The main tool to this end is the exchange of information between the tax authorities of various countries, the idea being to limit tax evasion through the automatic exchange of information and by ensuring that taxpayers pay fairly, sharing the tax burden. In 2010, the USA enacted legislation known as the Foreign Accounts Tax Compliance Act (FATCA.) This law requires financial institutions (such as banks, investment entities, custodial institutions, and specified insurance companies) to collect information on US residents for tax purposes. Many countries have opted to cooperate by collecting information at an intergovernmental level, based on the Intergovernmental Agreement, known as FATCA IGA.

EUROPEAN FATCA In the EU, Directive 2011/16/EU on administrative cooperation in the field of taxation was adopted in 2011. The Directive established the necessary procedures for better cooperation among tax administrations in the EU. The Directive provides for the exchange of information between member states in certain categories of income and capital – mainly of a financial nature – that taxpayers hold in a member state other than their state of residence for tax purposes. The above Directive is referred to as European FATCA, as it is the equivalent of the USA FATCA. In

2014, the Directive was amended by Directive 2014/107/EU, extending coverage to account balances, including custody accounts, as well as income or proceeds from the sale of financial assets, which belong directly or indirectly to beneficiaries residing in countries that have signed the agreement for the exchange of information. The exchange of information

covers both natural persons and legal entities.

A GLOBAL STANDARD In order to facilitate the automatic exchange of information and to ensure consistency in application, effective implementation and costefficiency for all parties involved, the OECD – in close cooperation with the G20 and the EU – has prepared a global standard for the automatic exchange of financial information for tax matters. This is known as the Common Reporting Standard or CRS. Based on this standard, financial institutions collect information and submit it to the tax authorities of the countries in which they are located and operate. The information covers financial assets maintained for their customers, who are residents for tax purposes in other countries. Subse-

Approximately 100 countries have signed the multilateral agreement adopting the CRS, with the majority committed to start automatic exchange of information as of 2017

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Cyprus has already put in place the required legal, regulatory, and administrative provisions required in order to be compliant with the EU Directives on this matter quently, the tax authorities exchange the information with their counterparts in the relevant counties where the reportable persons are residents for tax purposes (provided these countries have signed the respective agreements for the exchange of information). The standard includes due diligence and reporting rules, which the financial institutions have to follow for the collection and management of information and its automatic communication to the tax authorities. For the purpose of determining the country of residence for tax purposes of each account holder, the financial institutions are required to collect certified information from the beneficiaries of the accounts, which includes the country of residence for tax purposes and their tax identity. For this purpose, the financial institutions are required to review and update details for each account regularly. The countries that have signed the multilateral agreement for the automatic exchange of information are required to take certain measures for the effective collection, management and transfer of the information, such as information systems and technology

infrastructure tasked with safeguarding the confidentiality and security of the data. They must also ensure that the information collected is used only for the purpose for which it has been collected. By the end of September 2017, EU member states will start the automatic exchange of information for the tax year 2016. Cooperation with countries that are not members of the EU will be determined on the basis of signed multilateral agreements. Approximately 100 countries have signed the multilateral agreement adopting the CRS, with the majority committed to start automatic exchange of information as of 2017. The remaining countries are due to commence as of 2018.

COMPLIANT CYPRUS Cyprus has already put in place the required legal, regulatory and administrative provisions in order to be compliant with the EU Directives on this matter. The Directives have been transposed into law, via Law 205(I)/2012 on Administrative Cooperation on Tax Matters and its subse-

quent amendments (the last amendment was enacted in 2016). According to the law, the tax authorities of the Republic are required to communicate data (for persons who are residents of other member states) concerning income from employment, directors΄ fees, pensions, ownership of immovable property, income, and insurance products. The data – communicated to their counterparts in other member states via the automatic exchange of information – is for taxable periods from January 1, 2014 onwards. This information is communicated annually within six months from the end of the year. As for financial institutions, they are required to follow rules of due diligence, as described in annex I of the Law, and to submit for the tax year from January 1, 2016 onwards – and thereafter on an annual basis – information with respect to accounts that must be reported. The term ‘account’ includes ordinary deposit accounts as well as custody accounts. The information must be submitted within nine months from the end of the year to which they refer.

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BUSINESS IN CYPRUS

BUSINESS ON THE GO By George Agathangelou, Professional Services Director, IBSCY Ltd

IN TODAY’S WORLD, WORKING OUT OF THE OFFICE IS BECOMING INCREASINGLY COMMON. WORKING ON THE GO, IN AIRPORTS, CAFES AND AT HOME HAS BECOME AN EVERYDAY NEED FOR THE AVERAGE BUSINESSMAN.

ccording to the Global Business Travel Association (GBTA), spending on travel in 2014 was $1.25 trillion and is expected to expand by 5.8% by 2019. Every businessman always travels with at least three devices: a laptop, a tablet, and a mobile phone (sometimes even two mobile phones). The primary need is the ability to work from anywhere without compromising on productivity and security. The businessman: • Needs his e-mails/contacts

and calendar on all devices and is able to sync between them, no matter which one he is using at a given time. • Needs his files and access to the corporate software databases. • Needs to be able to talk/ chat/videoconference with colleagues and clients. • Needs to be able to work 24/7 without interruption and for everything to sync with the office without any issues or extra effort. • Needs all of the above to be as secure as possible, as 99% of data is usually confidential. • Needs to make sure that, if any of his devices are lost or stolen, he can remotely wipe them.

• Needs all his applications and devices to have the same password, as remembering a different password for each one is a job on its own. • Needs to make sure that he is protected from accidentally sending the wrong documents/emails to the wrong person, etc. So looking at the needs and wants of the businessman on the go, how do we go about tackling them? The shift of technology to the public and private cloud has made possible all of the above. 1. e-mails/contacts and calendars. This is the easy part. Multiple vendors offer solutions that sync all your

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devices in real time, are compatible with any mobile device, whether PC, Apple, Android, iOS, Blackberry, etc. 2. Files. There are quite a few different ways to achieve this, depending on the solution you choose, and some are slightly better than others. For example I can sync my work file server to my PC and I can work in the same way both online and offline. In my case, I work on the plane with no Internet, sending e-mails and working on documents and, as soon I connect to the Internet, everything is synced. 3. Skype. We all know that it is a great tool to video with

Technology undeniably plays a crucial role in business success our friends or kids abroad but we can use Skype for Business, for example, for work. There are multiple vendors out there that provide secure communications between coworkers as well as with clients.

4. e-mails. We have all accidentally sent an e-mail to the wrong person at some time (I know I haveâ&#x20AC;Ś) Well, there is now a way to avoid that. There are vendors who provide solutions that help you control such errors, all working seamlessly and in the background without affecting productivity, whilst ensuring security and confidentiality. 5. Lost devices. Every time I hear of a client or colleague who has lost or had his laptop/phone stolen at an airport, I am always worried about the potential data leak. Now we have multiple ways of controlling and preventing this from happening. We

can control /force passwords on all devices, remotely wipe them, as well as encrypt the data on them, thereby making it extremely difficult for anyone to get their hands on confidential documents, and our company ending up on the evening news. In general, security and confidentiality, whilst maintaining and even increasing productivity, are key to the success of any business. Technology undeniably plays a crucial role in that success and investing in a strategic technology plan can play an integral part in the companyâ&#x20AC;&#x2122;s growth.

ACCOUNTANCY CYPRUS

BUSINESS IN CYPRUS

THE X-FACTOR

YOUR MOST IMPORTANT BUSINESS RESOURCE

By Demetris Stylianides,

0U[LYUH[PVUHSS` *LY[PÄLK 537 ;YHPULY

he greatest resource of any business lies in its human capital. Employees are central to its smooth running and to the provision of a quality service. The value and importance of employees is often underestimated and, unfortunately, management sometimes neglects to see employees as the valuable assets they are. All too often employees are, instead, treated as liabilities. However, it happens to the best of us. We employ a new person who we think will be a star, only to realize we’ve made a mistake. So what does an employer do in such a scenario? The answer depends on the situation.

The need for proper induction Many organizations throw people into their jobs with little thought as to how they will perform. New employees are expected to show up and become a productive part of the team with little direction. Take a closer look at your induction process. Have you provided the newcomer with an employee orientation programme in order to be successful in his/her role? If not, step back and offer more guidance. You may be able to turn this situation around. If you feel you have properly trained this new employee and things are still not working out, then you must move this person out of the organization as soon as possible. Knowing when “fit” doesn’t necessarily mean “right” Perhaps it’s a matter of fit. The employee may have the skills to do the job but appears to be the wrong fit for the organization. This is likely due to a

mismatch with the corporate culture. You could invest in a coach for this employee and hope things will get better. In fact, changing behaviour is not an easy thing to do and, in many cases, it’s next to impossible. Investing resources in a newlyhired employee who has yet to prove his/ her worth may simply not be a sensible thing to do. It is much better if, at the

An individual who will twist the facts to get a job will probably twist the rules on the job

screening stage, you take a closer look at the characteristics of this person. Do their values align with the values of the organization? If the person isn’t the right fit, then termination is your best course of action. Using a special set of questions called “Meta-programmes”, you can figure out a person’s profile within seven minutes or less. You need special training for this but it pays off in the long run. Deal immediately with performance issues Too often employers are afraid to confront employees regarding performance issues. Instead, they pray this person will resign, which is rarely how things end. It is best to have an open and honest discussion with a new employee who appears to be the wrong choice, rather than having to show him/ her the door after a few months. Whatever you decide to do next, you should keep minutes of the conversation in writing just in case the matter comes up again in the future. Learn from your mistakes Hiring mistakes are costly and divert attention that is better spent moving the business forward. Examine your hiring process and make corrections where necessary to avoid making the same mistake twice.

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Examine your hiring process and make corrections where necessary to avoid making the same mistake twice COMMON HIRING MISTAKES AND HOW TO AVOID THEM Relying on an interview to evaluate a potential employee The usefulness of the interview in accurately predicting later success on the job was analyzed by a research study group and the surprising finding is that the interview is considered as a very poor tool, even though it is still the most commonly used selection technique. The reasons why an interview is not very useful include the following: • Most managers don’t structure an interview, nor do they determine the best answers before the interview. • Candidates do a lot more interviewing than most managers and are more skilful at presenting a strong appearance

• An interview does not help evaluate “personal chemistry” and allow the manager to get a feel of how well they might get along and work together. This is an important issue even if it doesn’t predict the candidate’s future potential to succeed in the job. Modelling successful people It would seem common sense to try to duplicate success. The problem is that the reasons people succeed are not clear from just observing the characteristics of top performers. The critical information you must know is how top performers are different from poor performers. You must “verify” the critical skills for success by comparing the differences between a large enough sample of top performers against weak performers to find the factors that

consistently distinguish the winners from the “losers”, otherwise, you may select energetic candidates who fail quickly but with style. Evaluating personality instead of skills Many consultants have offered psychological theories to support their belief that certain personality factors are critical to success in management, sales or other types of jobs. Reputable “personality” type test producers like the Myers Briggs readily admit that their tools are useful for self-awareness and training but are not suited for hiring candidates. Only “skills-based tests” or job knowledge tests have consistently been proven to predict success on the job. So while it might be nice to know that a sales candidate has self-confidence

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The employee is the secret in the sauce and the glue that holds the corporation together and high energy, it is far more critical to know whether he or she can retain existing customers or develop new ones. Using yourself as an example Some sales managers, who became managers based on their “success”

PRACTICAL SOLUTIONS TO MINIMISE RECRUITMENT SURPRISES 1. Evaluate a candidate only on the skills critical for success in your job: Use questions that predict on-thejob skills and performance (not just personality) Prioritize to select the skills that are most critical for your job 2. Get the best and most reliable feedback: (a) Delegate the task to an expert consultant in your firm or outsource the service. (b) Provide multiple options to fit your needs (have a backup plan) (c) Assist your staff as much as possible in the entire selection process, including interviewing and other screening steps 3. If you have a human resource department, ensure that the person in charge relies mostly on logic and not on feelings: This will save you the trouble of keeping the wrong employees for emotional reasons rather than showing them the exit and getting fresh blood as soon as possible.

as salespeople, believe that they can instinctively recognize a good candidate. Many of the top business managers, however, have learned through trial and error, and are more cautious. They look for an objective and independent source to confirm or reject their gut feeling. Otherwise, they would be unconsciously just using themselves as a template. Most importantly, when you use yourself as a model, your own ego gets in the way. It does for everybody and that “bias” can interfere with your objectivity in judging others – a critical mistake when hiring. Not using statistically validated testing Skills are the critical elements that consistently predict job success. Incentives can motivate a skilled person but all the motivation and good intentions won’t improve an unskilled candidate. Experts suggest that we should rely on “reasoning” or “common sense” because it is easier to determine an individual’s attitude or personality than to measure their skills. Skills can often only be measured by carefully developed tests or real on-the-job trials. Not examining carefully the reasons why people have failed in a previous job Research consistently shows that people fail in a job due to factors different from the criteria used to select them. Most managers can list the two, three or four most common reasons why people have failed. Surprisingly, however, this exercise is rarely part of the process used to choose the criteria when selecting new candidates. Identifying these “failure points” and building it into the selection process can reduce hiring mistakes. Relying on general people’s skills While everybody wants to hire “good

people”, just being a good person (i.e. good presentation skills, enthusiastic, hard working, humour, etc.) is not a predictor of success on the job. The primary reason is that skills have become so specialized that there is little advantage or application for very general skills unless we’re selecting for the most administrative type of entry level jobs. Not conducting a careful background reference check For whatever reason, various recruiting and placement agencies report that there is a fairly high percentage of false information presented in CVs and job applications i.e., 15%-20% of job applicants try to hide some dark chapter of their lives. For some positions, it can be as high as one out of every three CVs. While it takes extra effort, not doing thorough homework to verify critical information almost always results in problems later. An individual who will twist the facts to get a job will probably twist the rules on the job. It is much better to be carefully safe than carelessly sorry. A company’s primary assets are its employees. The employee is the secret in the sauce and the glue that holds the corporation together. Without employees, other assets are valueless. They are expense items on the income statement. But the real measure of the employee expense can be measured by the loyalty, commitment and love that employees have for the company and their work. If management shifts its focus to the careful selection of these intangibles, the profits will take care of themselves. An organization that has a mission beyond mere moneymaking considers its employees its greatest resource, its X-Factor. Thus if it secures its reputation by doing what is right for its people, it will definitely meet with success.

ACCOUNTANCY CYPRUS

BUSINESS IN CYPRUS

TOURISM: IMAGINATION IS THE KEY By Dr Sotiroula Liasidou, Lecturer, Faculty of Management and Economics – Department of Hotel and Tourism Management, Cyprus University of Technology

Tourists have recently re-emerged with a new identity: mature, well-educated and experienced

ontemporary tourism development is driven by a plethora of forces that lead to transformation. The tourist as consumer has a new identity that is characterised by a complex desire for multidimensional experiences. The production processes are becoming more adaptive and competitive in an attempt to satisfy new trends that emanate from a different pace of social life in ‘postmodern society’. Technological advances intervening in the consumption patterns have ‘armed’ the consumer with knowledge and the urge to look for something new. Furthermore, it enables tourism companies and destinations to define and implement innovation as a key component of contemporary management procedures. Tourists have recently re-emerged with a new identity: mature, well-educated and experienced. The new form of tourism development is undoubtedly beyond the

scope of mass tourism, which denotes an identical product, addressing a large number of sun-lusting tourists without being ‘bothered’ to differentiate market segments but, rather, proposing an identical tourism activity, which may be rather painful, judging from the extensive sunburn resulting from endless hours spent on sea, sand and sun. Has the tourism industry changed or is it the tourist that has changed? This current trend is flexibility, which refers to a tailor-made product to meet the needs of particular consumer groups. Business management strategies are driven by adjustable, contemporary technological forces that focus on specific market segments that satisfy specific human needs. The profile of the tourist in modern society is distinctive due to the differentiated nature of the tourism product in comparison to other commodities that have a restricted and tangible existence. The new tourist has emerged or been reborn in the different approaches that wrestle internally for new, distinctive and unique images. Tourists are stepping away from the culture of mass consumption and epithets such as ‘tasteless’, ‘serialised’, ‘socially uni-

formed’ and ‘culturally passive’. The new tourist consumes images that derive from the imagination and the surrounding environment and is anxiously looking for ways to achieve external and real satisfaction. The ‘tourism gaze’, as it has been labelled by John Urry in The Tourist Gaze (2002) is an amalgam of imaginary experiences that are sought to be lived in reality. The above statements accentuate the realisation of the existence of a new form of tourist that is seeking new experiences through tourism, which is viewed as a means that will stimulate and satisfy the imagination with a temporal alteration of the daily pace of life. This discussion leads to the conclusion that society has forced a change in tourist behaviour which, in turn, alters and affects the tourism industry’s suppliers. Thus, suppliers and destinations are becoming more creative and adaptive in an attempt to take advantage of the changing patterns of the new global business environment that is characterised by relentless competition. Imagination is the key to success, so that the imagination of the consumers/tourists may be satisfied in return.

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FINANCIAL SERVICES

A RADICAL TRANSFORMATION OF THE EUROPEAN FINANCIAL LANDSCAPE IS ON THE HORIZON, AND FIRMS NEED TO ENSURE THAT THEIR STRATEGY AND ORGANISATION IS ALIGNED WITH THE MiFID II REGIME WELL AHEAD OF JANUARY 2018 IN ACHIEVING COMPLIANCE. By Demetra Kalogerou, Chairwoman, Cyprus Securities and Exchange Commission (CySEC)

ndoubtedly, MiFID II and MiFIR are the most important and anticipated legislative changes of the last decade, and they will radically alter the financial sector and the industry as we know it. MiFID II is the acronym for the Markets in Financial Instruments Directive 2014/65/EU of the European Parliament and of the Council dated May 15, 2014, and is accompanied by the amending Markets in Financial Instruments Regulation (MiFIR), both of which will enter into force on January 3, 2018. Their objective is to implement new rules that take into account recent developments in the financial environment, and particularly the recent financial crisis and technological growth, to improve the functioning of the financial markets in order to be more efficient, resilient, and transparent. MiFID II must be transposed into national law by all EU member states, including Cyprus, by July 3, 2017, whereas MiFIR will be directly applicable. As far as Cyprus goes, the national law to harmonise the national legislation with

the provisions of MiFID II is currently before the House of Representatives. To remain at the cutting edge of financial regulation, CySEC considers the prompt transposition of all key European Directives affecting the securities market as a high priority. CySEC emphasises the importance of all market participants affected by the changes introduced by MiFID II and MiFIR commencing preparations at once for the implementation of the new legislative framework, and taking all necessary steps to comply with it, well ahead of January 2018. Such market participants include: • Cyprus Investment Firms, which will need to extend their authorisation to cover new investment activities and/or financial instruments introduced by MiFID (the relevant circular can be found on CySEC’s website); • Entities that will no longer be exempt from the scope of this legislation; • Persons undertaking high frequency algorithmic trading that will now fall within the scope of MiFID II; and • Currently unauthorised businesses and entities that will have to be authorised under MiFID II.

CySEC takes all necessary measures to ensure supervised entities are adequately prepared to comply with the provisions of this very important piece of legislation. As a member of the European Securities and Markets Authority (ESMA), we are engaged in the exchange of valuable expertise and practices with other national regulatory authorities, monitoring developments in the European securities

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markets, and helping shape upcoming legislation. At the same time, we engage in industry dialogue through public consultations before legislative changes are concluded and implemented to ensure market participants have an active role in the preparatory stage as well.

LESSONS FROM THE PAST

We engage in industry dialogue through public consultations before legislative changes are concluded and implemented to ensure market participants have an active role in the preparatory stage

It was only a few years after MiFID I came into effect that it became apparent that some major changes were needed. While MiFID helped create a more competitive financial landscape and a single market in financial services, improvements were necessary so that the benefits could be more strongly felt by market participants, particularly investors. Additionally, technological changes made some of MiFID I’s provisions obsolete. Furthermore, financial engineering necessitated the reinforcement of investor protection and enhanced transparency through various ways. Market failures in the past have

underlined the need to strengthen regulation in a number of areas where weaknesses have been identified. Examples of said weaknesses are:

• With regard to the effective functioning of financial markets, transparency needs strengthening to ensure improved investor protection; • Many institutions are weak when it comes to corporate governance. Excessive risk-taking and poor systems of checks and balances on the Board level have left many financial organisations badly bruised and, in some cases, completely burned. As such, new corporate governance rules address the management bodies of investment firms. In particular, MiFID II adopts the relevant provisions of the Directive 2013/36/EU on access to the activity

of credit institutions and the prudential supervision of credit institutions and investment firms. Also, there is the Consultation Paper, published jointly by ESMA and EBA, regarding guidelines on the assessment of the suitability of members of the management body and key function holders. It’s expected that the guidelines will be finalised within the following months. The joint guidelines will apply to Competent Authorities across the EU, as well as to credit institutions and investment firms.

KEY CHANGES AHEAD MiFID II’s broad objectives will be fulfilled through measures in five core areas. These are: • Enhanced investor protection to account for the rapid innovation and growing complexity in financial instruments; • Increased transparency for market participants. For example, through increased regulatory and client reporting requirements for an extensive list of asset classes, as well as all organised trading being conducted through regulated venues and being fully transparent, both pre- and post-trade. • Improved market structure through the creation of a level-playing field for market participants. For example, over the counter transactions in financial instruments will be limited; at the same time, a new trading venue category – termed an Organised Trading Facility – will be introduced for non-equity financial instruments, such as derivatives and bonds; • Enhanced internal controls and governance through strong governing board and committees, increased role of compliance, and more; • Product governance will be introduced, covering arrangements for firms to adopt when manufacturing products (product governance obligations for manufacturers), when deciding on the range of products and services they intend

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to offer to clients, and when offering or recommending such products to clients (product governance obligations for distributors). In particular, amongst others: Investment firms, which manufacture financial instruments for sale to clients, will maintain, operate, and review a product approval process for each financial instrument and significant adaptations of existing financial instruments before they are marketed or distributed to clients; the product approval process will specify an identified target market of end clients within the relevant category of clients for each financial instrument; and it will also ensure that all relevant risks to the identified target market are assessed, and that the intended distribution strategy is consistent with the identified target market. • And new powers for stronger external controls by national supervisory authorities, and additional reporting requirements by market participants. Importantly, the new MiFID regime provides for the introduction of new competencies for national supervisory authorities, such as product intervention. This means that there will be a mechanism for prohibiting or restricting the marketing, distribution and sale of any financial instrument that

gives rise to serious concerns regarding investor protection. Since these competencies will concern mainly complex products, companies that specialise in such products will need to examine and decide whether they will alter their business models by turning to the provision of different products that are safer and more appropriate to market to private investors.

REMUNERATION Both senior management and the Board of Directors should scrutinise how employees and officers are incentivised, and consider whether certain incentives may lead to potentially risky behaviours. MiFID II will codify certain remuneration issues for the first time, including requirements designed to ensure that regulated firms do not create such remuneration schemes that could incentivise the promotion of a particular financial instrument irrespective of the needs of consumers, and that a firm’s management is responsible for promoting policies that encourage the fair treatment of investors, and address conflicts of interest.

Market failures in the past have underlined the need to strengthen regulation in a number of areas

without advice, MiFID II will expand the types that are considered complex for investors to understand. Defining a financial instrument as complex means that firms selling such products without advice will need to assess whether potential consumers have the necessary experience and knowledge to understand the product they wish to buy. This is the appropriateness test, which is currently applied to products such as contracts for difference, spread bets – including derivatives – and other such products that are generally considered difficult for the average investor to understand, alongside with the potential risks involved. MiFID II expands these products to include non-UCITS collective investment schemes. Testing a consumer’s ability to understand the workings of non-advised sales of such financial instruments will be required.

COMMISSION AND FEES APPROPRIATENESS While the appropriateness requirements of MiFID apply where firms sell products

There will no longer be any hidden costs to investors. All charges, some of which are not typically disclosed today to

investors, should now be explained to them clearly and in advance.

INDEPENDENCE For the first time, a common definition of what constitutes independent advice will be used across the EU, with requirements put in place to ensure that independent advisers consider products from a sufficient range of providers before making a recommendation to their clients.

FINAL MESSAGE The MiFID II regime will bring about structural market reform and will dramatically change the entire marketplace, as we know it today. Taking into account its complexity and broad scope, firms need to ensure that their strategy and organisation are aligned, to guarantee their compliance with the MiFID II regime well ahead of January 2018.

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FINANCIAL SERVICES

“SELL IN MAY AND GO AWAY” IS THIS REALLY A VIABLE SEASONAL STRATEGY?

By Antypas Asfour, Board Member, CFA Society of Cyprus & Lecturer, Cyprus Institute of Marketing

In issue 126 of Accountancy Cyprus, Antypas Asfour analysed the January Barometer, the leading stock market indicator, which posits that “as goes January, so goes the year”, and concluded that, at least based on data from recent decades, the indicator lacks predictive value. Here he assesses the popular market adage “sell in May and go away”, also known as the “Halloween indicator”. The proponents of this simple strategy, such as Yale Hirsch, buy on the first day of November and sell on the last day of April, holding their position for six months.

y analysing data from the past three decades, we may infer that this seasonal strategy’s success rate is somewhat consistent across

four major global equity indices. On 55% of occasions on the S&P 500 and the FTSE 100 indices, there were positive returns in the November to April periods and negative returns

in the May to October periods. The corresponding accuracy for the Euro STOXX 50 Index and the TOPIX 100 Index was slightly higher at 59% and 61% respectively (see Figure 1).

FIGURE 1: FREQUENCY OF POSITIVE AND NEGATIVE RETURNS FOR THE NOVEMBER – APRIL AND MAY – OCTOBER PERIODS AND STRATEGY ACCURACY (1988-2016) 35 30

20 15 10 5 0 Up

Down

November - April # times S&P 500

Down

May - October # times FTSE 100

TOPIX 100

Right

Wrong

# times Strategy Euro STOXX 50

Note: TOPIX 100 data spans 1989-2016 Sources: Author’s own calculations, FactSet

# of times

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By analysing data from the past three decades, we may infer that this seasonal strategy’s success rate is somewhat consistent across four major global equity indices Although these accuracy figures may not seem particularly high, if we shift our attention from the frequency of accuracy to the average returns in the two scenarios, we can see that this anti-random

walk strategy has been a real investment anomaly over time and across indices. Not only is return across all four indices in the six-month periods from November to April significantly higher relative to the

May to October periods, but risk-adjusted returns (Sharpe Ratio), taking into consideration the standard deviation of returns, are also consistently higher for the 1988 to 2016 period (see Fig. 2).

S&P 500

FSTE 100

TOPIX 100

Euro STOXX 50

May - Oct.

Nov.- April

May - Oct.

Nov.- April

May - Oct.

Nov.- April

May - Oct.

Nov.- April

Average Return

2.0%

6.8%

0.3%

5.4%

-3.9%

4.4%

-0.9%

8.5%

St. Deviation

10.2%

9.1%

10.1%

7.9%

15.6%

17.8%

13.7%

13.2%

Sharpe ratio

0.20%

0.74%

0.03%

0.68%

-0.25%

0.25%

-0.07%

0.65%

The outperformance of the November to April periods, though, seems to be robust over time with similar results for the more recent 2000 to 2016 timeframe (see Fig. 3) as well as following the 2008 financial crisis.

The results from 2000 also follow the 1998 (first) posting of one of the most thorough analyses on the topic by Jacobsen and Bouman, who found that the “sell in May” effect existed in 36 out of 37 countries, being statistically

Notes: TOPIX 100 data spans 1989-2016; risk-free rate assumed to be 0% Sources: Author’s own calculations, FactSet

FIGURE 2: HOLDING PERIOD AVERAGE INDEX RETURNS, STANDARD DEVIATION AND SHARPE RATIO (1988-2016)

significant in 20 of them at the 10% level. Thus, interestingly, widespread knowledge of this seasonal trend hasn’t affected its persistence, raising questions with respect to market efficiency.

S&P 500

FSTE 100

TOPIX 100

May - Oct.

Nov.- April

May - Oct.

4.3%

-1.0%

2.8%

8.7%

12.2%

6.2%

0.49%

-0.08%

0.45%

May - Oct.

Nov.- April

Average Return

-0.2%

St. Deviation

12.0%

Sharpe ratio

-0.01%

We can thus conclude that, at least based on data from recent decades, the “sell in May and go away” saying seems justified. Investors and traders looking to capitalise on the Halloween indicator

Euro STOXX 50

Nov.- April

May - Oct.

-4.9%

5.5%

-2.8%

2.2%

18.1%

17.3%

15.0%

10.0%

-0.27%

0.32%

-0.19%

0.22%

should remember that past performance does not guarantee nor predict future performance, and that transaction costs were not taken into account. Any investing or trading, irrespective of the

Nov.- April

Note: Risk-free rate assumed to be 0% Sources: Author’s own calculations, FactSet

FIGURE 3: PERSISTENT OUTPERFORMANCE OF THE NOVEMBER TO APRIL PERIODS (2000-2016)

underlying motivation, should be done with prudence following thorough analysis or with the help of a qualified professional as there are a myriad of factors that drive markets.

ACCOUNTANCY CYPRUS

FINANCIAL SERVICES

BANKING ON

BASEL IV

THE EUROPEAN COMMISSION HAS INTRODUCED A PACKAGE OF REFORMS – TERMED BASEL IV – WHICH ARE BEING RELIED UPON TO REDUCE RISK IN THE FINANCIAL SECTOR. BUT ARE THERE OTHER IMPLICATIONS OF WHICH STAKEHOLDERS SHOULD BE AWARE? By Michael Kronides, First Senior Advisor, Association of Cyprus Banks

n November 2016, the European Commission unveiled a package of proposals to further reduce risk in the financial sector. This reformed package has been termed by the banking industry as Basel IV – despite the fact that Basel III (published in 2010) is only expected to be fully implemented in 2019 – and it is expected to have considerable implications for both banks (with regard to higher capital requirements), and the economy (as far as growth prospects are concerned). The Basel III reform package focused primarily on strengthening the quality and quantity of regulatory capital (numerator of the regulatory capital ratio), whereas Basel IV reforms intend to revise the way banks measure and quantify their riskweighted assets (RWA) (denominator of the regulatory capital ratio). RWA are of major importance in capital regulation and cover different types of risk, such as credit, market, operational, counterparty and interest rate risks. The key elements of the Basel IV proposals

include the following: • A binding 3% leverage ratio; • A binding net stable funding ratio (NSFR); • A new standard on total loss absorbing capacity (TLAC) and minimum own funds and eligible liabilities (MREL); • A fundamental review of the trading book (more risk-sensitive own funds for securities and derivatives trading); • And a more risk-sensitive standardised approach, and constraints in the use of internal models to calculate risks.

BANKS AND BASEL IV It is largely expected that all the banks will be affected by the new regulatory framework, whether they are large international or small domestic banks.

ACCOUNTANCY CYPRUS

First and foremost, banks will be affected due to higher capital requirements as a result of the increase in RWA. Currently, banks may use the standardised method or the internal rating-based (IRB) method to calculate credit risk weights on exposures. The latter method sometimes leads to lower RWA when compared to the standardised methodology. Basel IV proposals require banks using the IRB method to apply capital floors. This reduces the risk sensitivity of the underlying assets and leads to a situation

The most obvious and direct impact will be on lending to the real economy, due to increased capital requirements incurred by banks where low-risk assets are penalised with high-risk weights. The size of the impact will depend on the composition of the banks’ credit portfolios across asset classes (mortgage, retail, and corporate) and the extent to which they use internal models to calculate RWA for these asset classes. In addition to the impact on capital requirements, banks will face a range of costs when implementing the new standards. These include the cost of amending internal models to meet the new standards, upgrading IT systems to ensure timely and accurate data collection and compliance with supervisory reporting requirements, and – last but not least – employing highly skilled personnel to meet the implementation challenges.

IMPACTING THE REAL ECONOMY The proposed regulatory framework is expected to impact the real economy as well. The most obvious and direct impact will be on lending to the real economy, due to increased capital requirements incurred by banks. The revised standardised method and the restrictions on the usage of internal models to assess risks will restrict the availability of credit to both retail and corporate customers, and increase the pricing of loans. This will have a negative impact on economic

growth, more so in the EU where the banking sector is responsible for 80% of the financing of the economy, contrary to the US where the capital markets provide the same proportion of financing. Also, US banks, unlike European banks, do not keep mortgage loans on their balance sheets, and this is expected to strongly affect real estate financing in Europe. Undoubtedly, Basel IV’s proposed revisions are expected to have a significant impact on banks and the European economy. The higher capital requirements will increase the cost of funding, reduce return on equity, and constrain the ability to lend. In order to comply, banks may need to develop a new strategy that may include actions to raise additional capital, either through retaining earnings or issuing new equity, or to deleverage the balance sheet. Either way, banks will need to change their business model in order to secure a viable and sustainable future. Recently, there has been a debate on the appropriateness of imposing higher capital requirements on banks, especially by European countries where bank lending and profitability has remained weak since the financial crisis. The debate questions the timing of the implementation of the new regulatory standards and contemplates the viability of taking into account local circumstances and economic conditions.

Banks will need to change their business model in order to secure a viable and sustainable future

ACCOUNTANCY CYPRUS

FINANCIAL SERVICES

CLEANING OUT THE TIME HAS COME TO CLEAN OUT CYPRUS’ CLOSET AND EXPOSE ITS SKELETONS: A NATIONAL STRATEGY AGAINST CORRUPTION IS NEEDED, AND IT IS NEEDED NOW, LEST THE INSIDIOUS SOCIAL-ECONOMIC CONSEQUENCES OF CORRUPTION ARE ALLOWED TO RUN RIFE. By Ioanna Markidou, Senior Manager, Audit and Advisory Services, Deloitte & Nicholas Roussos, Senior Manager in Consulting, PwC

orruption is a complex phenomenon with a negative socio-economic impact. It prevents economic development, interferes with democracy and reduces citizens’ confidence in democratic institutions and procedures. At the same time, it damages social justice and the rule of law. In Cyprus, we have seen a sharp rise in the number of cases of corruption among public or independent officials being taken to court. And even though it can be said that Cyprus is well equipped to deal with threats of corruption, there is room for further improvement, as we still lack a comprehensive piece of legislation dedicated to anti-corruption and bribery. The relevant legislation is outdated and the need for an anti-corruption strategy to drive the implementation

of unified, detailed anticorruption and bribery provisions is urgent. The provisions should clearly combine the rationale of current EU provisions – as demonstrated through the Criminal Law Convention on Corruption – and domestic legislation. Cyprus signed the UN Convention against Corruption on December 9, 2003 and ratified it on February 23, 2009; it is also a member of the Group of States against Corruption (GRECO) of the Council of Europe. Cyprus has ratified the Criminal Law Convention on Corruption (ETS 173) and its Additional Protocol (ETS 191) and made the offences contained therein directly applicable in domestic law. However, despite the fact that this legislation has been in force for several years, it has not been applied by the prosecuting

authorities or by the courts. Instead, these authorities have continued to apply old legislation concerning corruption offences, which does not comply with the requirements of the Criminal Law Convention and its Additional Protocol. The coexistence and overlap of old and new legislation makes the legal framework in respect of corruption offences inconsistent.

NATIONAL STRATEGY AGAINST CORRUPTION The most important part of a successful national anticorruption strategy is the development of a strong legislative framework that will support all attempts to combat corruption and which is designed to take into account the context and the main corruption challenges that are relevant to Cyprus.

Examples of successful legislative frameworks in other countries, which could be formulated in line with the main corruption challenges related to Cyprus, are the US Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, and the UK Public Interest Disclosure Act of 1998. The Minister of Justice and Public Order, Ionas Nicolaou, presented the National Strategy Against Corruption on April 21, 2017. The document, prepared by his ministry, was made available for public comment until May 22, 2017, and the Minister’s presentation provided relevant information to the competent stakeholders and services. One of the main tools employed in the war against corruption is transparency in the public sector. As such, a bill permitting the public access to any state document

ACCOUNTANCY CYPRUS

THE CLOSET

has been prepared, and is currently the subject of discussion before the Parliamentary Committee on Legal Affairs. Other proposals regarding rules and regulations tasked with combating corruption within the police force are on their way to parliament. The most recent enactments, meanwhile, dealt with imposing serious sanctions on corporations found guilty by a court judgment, or by their own admission, of giving bribes to public servants in relation to winning public tenders. These are only a few examples of relevant legislative measures. Of course, political will, coordination between the public authorities dealing with the fight against corruption, the private sector and other agencies, as well

as the overall improvement of governance in Cyprus, are of paramount importance in moving forward. The anti-corruption strategy should include a robust and easy-to-use monitoring and evaluation system involving civil society organisations and other external actors. Great emphasis should be placed on changing the behaviour of officials, especially in areas that are considered important and prone to corruption. The strategy should also focus on the promotion of institutional integrity, where strong measures are used by state actors to discourage unethical and corrupt operations, as well as the prioritisation and sequencing of actions, such as asset recovery, whistleblower protection and public procurement.

The coexistence and overlap of old and new legislation makes the legal framework in respect of corruption offences inconsistent The main purpose of the strategy should be to reduce and prevent corruption through the strict application of the legal and institutional framework and to maximise the impact of corruption measures.

MAIN PILLARS AND CHALLENGES The strategy should be structured around the following:

â&#x20AC;˘ Strengthening the disciplinary regime for public servants, streamlining procedures to ensure effective investigation of corruption within the police, and ensuring effective coordination of anticorruption policies by giving the coordinating body the necessary powers. â&#x20AC;˘ Introducing codes of conduct for elected and appointed officials for them to declare assets periodically and to disclose potential

ACCOUNTANCY CYPRUS

FINANCIAL SERVICES

The strategy should also focus on the promotion of institutional integrity, where strong measures are used by state actors to discourage unethical and corrupt operations conflicts of interests, with independent supervision and effective penalties. • Reducing the thresholds for donations to political parties, limiting state-owned companies’ freedom to sponsor political events, regulating donations to election candidates and campaigns, obliging parties to publish their financial statements and accounts online (including the identity of donors), and establishing external supervision of election candidates’ income and expenditure. • Developing uniform and effective tools to prevent and detect corruption in public procurement at national and local level, including internal and external control mechanisms and risk management tools within contracting authorities. • And introducing new

legislation offering protection to whistleblowers that disclose abuse of power or other illegal behaviour in the public and private sector. The main challenges in designing and implementing anti-corruption strategies are as follows: • Political will • Sequencing and prioritization • Lack of autonomy of coordination agencies • Lack of involvement of other stakeholders and • Lack of diagnostics.

LEARNING BY EXAMPLE A good example of a country that has developed an effective anti-corruption strategy is Romania. Adopted in 2012, Romania’s national anti-corruption strategy (NAS 2012-

2015) was based on an independent assessment of the two previous anticorruption strategies, and following extensive public consultation with more than 500 individuals from public and private entities over a period of more than a year. The NAS builds on lessons learned from the previous strategies and has a strong focus on implementation and impact measurement. The Government and those working on the strategy considered that the main laws and institutions necessary to prevent and combat corruption were in place and, therefore, emphasis should be given to effective implementation. The strategy is structured around four main general objectives: 1. Preventing corruption in public institutions 2. Increasing the level of corruption education 3. Combating corruption through administrative and criminal matters and 4. Approving the sectoral plans, and developing a national system to monitor the NAS.

A STEP IN THE RIGHT DIRECTION It is irrefutably positive that Cyprus now has a plan in the making in order to fight corruption. Following the period of public consultation, it is important to focus on implementation sooner rather than later. The Institute of Certified Public Accountants of Cyprus (ICPAC), in line with its mission and in an effort to better address its goals, established a specialised working group in 2010: the Committee on Economic Crime and Forensic Accounting. The Committee has a two-year mandate, and some of the terms of reference include the monitoring and providing of advice to the Council on developments in economic crime management, and forensic accounting in Cyprus and abroad. The Committee also initiates, develops and maintains contact with the appropriate international bodies, aiming to plan, implement and disseminate research in the areas of economic crime and forensic accounting.

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ACCOUNTANCY CYPRUS

MANAGEMENT

THE VALUE OF INDUCTION COURSES INDUCTION COURSES HAVE THE POWER TO SET THE STAGE FOR A FRUITFUL COLLABORATION BETWEEN EMPLOYEE AND EMPLOYER AND TO REDUCE LABOUR TURNOVER. By Demetris Ergatoudes, Retired (2006) Senior Manager, Cyprus Popular Bank Ltd, and Fellow of the Chartered Institute of Bankers, London

An induction course is a training programme provided to new employees by the employer in order to assist them in adjusting to their new job and its tasks, and to help them become familiar with their new work environment and the people with whom they will work. This type of training is also tasked with outlining a basic overview of the business and its services, as well as the new employee’s role in said environment.

THE AIMS OF AN INDUCTION COURSE It is very important to devise a programme to ensure that employees: • Integrate as quickly as possible • Understand their responsibilities • Learn the relevant aspects of the mission, culture, policies, procedures, and methods of the company and its workings, and • Feel comfortable, motivated, and productive as soon as possible.

PLANNING AHEAD A well-planned induction programme can help to decrease labour turnover by ensuring that newcomers

settle quickly into their jobs and reach an efficient standard of performance as swiftly as possible. Such an induction programme should cover the following: • Conditions of employment • Procedures for absence and holidays • Timing of meal breaks • Discipline and grievance procedures • Welfare issues • The organisation, its history, and culture • The geography of the workplace • Key personnel: who’s who in the organisation • Safety • Training arrangements • The pay system • Trade unions and staff associations.

WELCOMING A NEW EMPLOYEE The first stage of an induction is when the employee arrives at the company. The employee should be welcomed by a responsible person (of higher ranking than a commissionaire or a junior payroll clerk), who can provide basic information about the company, and the terms and conditions of employment. Some of the information will confirm what the employee has already been told, some will be new; overall, there is a limit to how much can be conveyed at this stage. An employee handbook is useful for this purpose. It need not be too glossy but it should convey clearly and simply what the new staff needs to know.

ACCOUNTANCY CYPRUS

If the organisation is not large enough to justify a printed handbook, then a typed summary of the basic information required should at least be provided.

DEPARTMENTAL INDUCTION COURSES When the induction course has been completed, the new employees should be taken to their place of work and introduced to their managers or supervisors for

the departmental induction programme. The departmental induction programme should, wherever possible, start with the departmental manager, not the immediate supervisor. The manager may limit his or her remarks to a general welcome and a brief description of the work of the department before handing the new employee over to his or her supervisor for the more detailed induction. However, it remains

The badly inducted worker is more likely to leave in the early weeks of employment

important for the manager to be involved at this stage, so that the new employee does not view the manager as a remote figure. It also ensures that the new starter will not be reduced to simply a name or number in the eyes of the manager. The detailed induction is probably best carried out by the immediate supervisor. It should have five main aims: • To put the new employee at ease • To generate interest in the job and the company • To provide basic information about working arrangements • To indicate the standards of expected performance behaviour • To convey training arrangements, and how he

or she can get on with the company.

AVOIDING AN INDUCTION CRISIS The absence of an induction programme is likely to reflect in a delay in new employees reaching the level of productivity of the experienced workers. It is also the case that the badly inducted worker is more likely to leave in the early weeks of employment than one who has been part of a good programme, thus raising labour turnover. This is known as an induction crisis: a critical phase during which new starters are most likely to leave.

ACCOUNTANCY CYPRUS

MANAGEMENT

OUR MOST IMPORTANT ASSET? By Dr Aspasia Simillidou-Theodosiou, PhD, Human Resources Consultant & Lecturer

“Our people are our most important asset.”

ow many times have we heard this expression? Managing people has become increasingly complex. HR today recognises the relationship between strategy, technology, processes and people management that moves organisations forward but while it may be more obvious now than it was ten years ago, the evolution of this profession has often been slow. Actually, we could argue that the field of HR dates back to the arrangement between master craftspeople and their apprentices. The master craftspeople had the responsibility to look after their apprentices when they were sick as well as offering them food and shelter. In the late 1800s, people started worrying about how to recruit and retain employees because of the bad working conditions they were exposed to. People people started talking about personnel management and the department would deal with issues such as recruitment and selection as well as compensation and, in the early 1900s, they were also involved

in training. It is believed that the first personnel department began at the National Cash Register Company (NCR). At that time, the industrial giants had begun to realise that they needed to do more than hire and fire people and deal with issues of compensation. They became aware of the importance of their people and their role in the company’s performance. Human Relationship management emerged in the 1920s. In an effort to increase productivity, companies introduced newer benefits, such as healthcare and medical assistance, which are nowadays expected by everyone looking for the right job.

those that had concerned them before. More recently, around 2008, this again changed into Talent Management, while the latest version – yet another fancy name – is Strategic Capability Management, now that HR is seen to play a key role in the successful implementation of an organisation’s strategy. What is most important here is not really the name of the department but, rather, how organisations perceive HR and how they deal with their “most important asset” as they like to call it. Do they give more emphasis to the importance of this department by changing its name every so often? Is that really all they need to do? Surely, they also need to change attitudes, ideas, perceptions and the actions that they take? Let me go back to the starting point if this article: “Our people are our most important asset.” Well, are they or aren’t they?

What is most important here is not really the name of the department but, rather, how organisations perceive HR

In the 1940s people started talking about employees’ feelings and motivation and how these affected productivity and performance. Human Relationship management then evolved slightly into Human Resource management, since companies were now dealing with new issues as well as with

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ACCOUNTANCY CYPRUS

REAL ESTATE

FOOD

FOR THOUGHT

THE TIME IS NOW RIPE FOR AN INITIAL EXAMINATION REGARDING THE CREATION OF REAL ESTATE FUNDS IN CYPRUS. By Antonis Loizou, FRICS, Antonis Loizou & Associates Ltd.

he opinion that the creation of real estate funds may be beneficial for the local real estate market is based on several factors. Property prices have reached rock bottom for properties deemed good quality and we do not expect any notable discounts or further reductions in the immediate future (in fact, based on recent developments and projections, real estate prices for certain properties appear to be on the rise). Overall, there is an ample supply of all types of real estate across all districts. Moreover, financiers are now offering real estate units at reasonable prices to worthy buyers, either in the form of ‘swap deals’ or via auctions, which are coupled, in most cases, with financing, and – indeed – existing buyers and re-sales to new buyers could be coupled with longterm finance (subject to prior agreement with the financiers). As is the trend abroad, interest on deposits has been reduced from 6% to 1.5% per annum. Deposit rates abroad are around 0.5%, with some foreign banks even charging a “keeper’s fee”. Maintaining our attention abroad, there is a prevailing worry with regard to European banks’ robustness (for example, in Greece and Italy), and popular regions typically invested in by locals (again, see Greece, or even consider London, with the still unknown consequence of Brexit) are marred by an uncertain economic future With the above in mind, and with the (albeit limited) finance available for the Cypriot real estate market, it is perhaps time indeed to examine the possibility of setting up local real estate funds. Such funds could vary in size and scope. However, as a basis, the following stipulations could well be applicable:

• Establish an initial fund of €10 million; • Set a target to borrow €5 million; • Determine a period of eight to 10 years to exit the fund; and • Commit to a target of a minimum 4% per annum return. And as a matter of consideration, the following target markets could serve as a good starting point: • Development land in the seaside areas of the Famagusta district (e.g.Ayia Napa,

Paralimni, Sotira, and Dherynia); • Mid-term let buildings (at least four to six years) with solid tenants, which show a gross return of 4-5%; and • Residential apartments in select localities, which are in need of renovation, and possess could re-sale attributes. Perhaps, initially, these funds

The more attractive the fund appears to the market, the greater the demand for it will be, and so it will constitute a viable way for financiers to dispose of the properties which they currently – or will soon – hold

ACCOUNTANCY CYPRUS

Notwithstanding the situation of the Cypriot economy, the real estate market is improving with clear signs for a positive future could be created with the financier being the major shareholder, with an option (or otherwise) to depart in two to four years. Since management will be in the hands of the financier, the other shareholders will feel safe, as opposed to a private individual controlling the fund. The more attractive the fund appears to the market, the greater the demand for it will be, and so it will constitute a viable way for financiers to dispose of the properties which they currently – or will soon – hold. If the financiers or majority shareholders ‘guarantee’ – for the initial period of two to three years – an annual income of 1.5-2.5% per annum, the fund will become even more attractive, secur-

ing an initial return for the shareholders, along with the expected capital appreciation and the anticipated profit. The financiers could set up numerous funds representing various levels of equity investments. Larger funds could even be set up aimed at other investments of greater monetary magnitude, such as hotels, golf courses, beach land, student halls, beach villas, villas to let, and more. Notwithstanding the situation of the Cypriot economy, the real estate market is improving with clear signs for a positive future, and instead of the prevailing situation – that of financiers sitting back and waiting for investors to show interest – the above vehicle for sale is one option that may succeed in attract-

ing big investment buyers from abroad (one need only consider Chinese interest in shopping malls and hotel developments). As such, properly studying the idea of establishing real estate funds is a worthy exploratory effort on the part of financiers, in particular. Aggregating agriculture Regarding alternative investment funds, agricultural fund investment should not be discounted outright. The problem with this kind of fund is the very small pieces of agricultural land available. However, with halloumi and some other local produce (such as kolokasi, prickly pears, aloe, etc.) now patented or with controlled des-

101

ignation of origin, there are certainly fruitful possibilities to be investigated. If financiers get together and exchange ideas on how to unite and promote these agricultural plots, it may be possible to come up with large holdings (for example, if one financier owns Plot X, and another financier owns the adjacent Plot Y, a solution presents itself in the form of aggregating the land as one plot). Of course, before going forward, any kind of agricultural investment will require a dedicated study on soil suitability and produce quality, and – to this end – the Ministry of Agriculture, Rural Development, and Environment could help with its expert knowledge, or various subsidies. Not easily understood, agricultural investments will – I imagine – require a great deal of persuasion: a difficult job, indeed. But without some form of structured investment fund or scheme, what is going to become of the various agricultural plots now in the ownership of financiers? It’s certainly food for thought.

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ACCOUNTANCY CYPRUS

REAL ESTATE

PRESTIGIOUS PROPERTY THE DEMAND FOR LUXURIOUS OFFICE SPACE IN LIMASSOL IS ON THE RISE AND THE ISLAND’S DEVELOPERS ARE NOT SHYING AWAY FROM THE CHALLENGE.

B Panos Danos, By CEO, DANOS/BNPPRE Group C

he Limassol property market is undergoing a strong surge, with high demand for prestigious residential and commercial property, which will inevitably lead to a shortage of high-value

homes and offices. Several tower developments are currently in the development pipeline or at the conception stage. Cyprus has a small commercial real estate market, both in terms of occupier and investor demand. Transaction volume is limited to acquiring units for own use, with a few

exceptions of local institutional or overseas investors, typically High Net Worth Individuals, interested in income-producing assets. Limassol’s commercial property market has historically been divided into the following urban areas:

LIMASSOL COMMERCIAL SECTOR

STREETS

USE

MAIN OCCUPIERS

28TH OCTOBER AVENUE

OFFICES, SHOPS, HOTELS, AND RESIDENTIAL

BANKS, SHOPS, CAFÉS, BARS, RESTAURANTS, AND SERVICES

ARCHBISHOP MAKARIOS III AVENUE

OFFICES AND SHOPS

BANKS, SHOPS, CAFÉS, BARS, OFFICE BUILDINGS, SHOWROOMS, AND SCHOOLS

GLADSTONE STREET

OFFICES AND SHOPS

BANKS, SHOPS, CAFÉS, RESTAURANTS, AND SERVICES

The practice of relocating a company’s office space to what are considered key locations in the city is on the rise, with this trend increasing demand and thus setting the bar a little higher in terms of both capital values and rents. Based on market research undertaken by DANOS/BNP PARIBAS Real Estate, it is anticipated that the demand for office space in Limassol will reach 20,000 m2

per year. At present, Limassol’s key commercial locations are considered to be 28th October Avenue (the coastal road artery of Limassol), as well as Grivas Dighenis Avenue and Gladstone Street, which are both experiencing an influx of local and multinational firms, and are serving as the sites of upcoming significant commercial developments such as The

Oval. Indeed, the latter is an example of supply aspiring to meet demand and it is not the only one. The Lanitis seafront development, a new addition to Limassol’s skyline along the city’s coastal strip, is expected to finish soon. The €150 million project has been erected on the site of the old Lanitis mansion. Pafilia, meanwhile, signed a €77 mil-

ACCOUNTANCY CYPRUS

103

The average market value of a Grade-A seafront/sea view office space in Q1 2017 is €9,000/m2, whereas the average market value of a Grade-A secondary location office space is

€4.500/m2 lion construction contract with J&P and ACC to proceed with the Construction of ONE, the tallest residential seafront tower in Europe. ONE will be visible from anywhere in Limassol. Olympic Residence – a residential project consisting of two impressive towers – has already introduced a new luxury standard to Limassol’s real estate environment, whilst the Del Mar Sea Front development is set to offer exclusive seafront living with five-star hotel-style facilities, amenities, and services. Other important developments include three 18-hole golf resorts, a rehabilitation medical resort, and the Limassol Marina (with 162 luxury apartments and 74 villas with private docking berths), Porto Bello (a unique commercial development), and the high-calibre Paris Business Centre.

OFFICE MARKET VALUES In 2016, the office market in Cyprus showed signs of stabilisation in comparison with 2015. It has continued to perform well in the 1st quarter of 2017, with demand being mainly for Grade-A offices in prime locations, where foreign investors have

shown interest in incomeproducing assets as well as vacant offices. According to DANOS/BNP PARIBAS Real Estate, the average market value of a Grade-A seafront/sea view (considered a primary location) office space in Q1 2017 is €9,000/m2, whereas the average market value of a Grade-A secondary location office space is €4.500/m2. The market values of seafront/sea view office spaces and prime locations in 2016 remained constant compared to 2014, and are expected to stay at the same levels in

2017. In May 2017, Lanitis Bros announced the launch of an open tender procedure for the sale of land with a total surface of 34,462 m2 next to the marina.

office space is €20/m2 per month. The market values both in seafront/sea view office spaces and secondary locations in 2016 remained constant compared to 2015, and are expected to stay at the same levels in 2017.

OFFICE RENTAL VALUES According to DANOS/ BNP PARIBAS Real Estate, the average rental value of a Grade-A seafront/sea view office space in Q1 2017 is €30/m2 per month, whereas the average market value of a Grade-A secondary location

YIELDS The latest transactions (sale and leaseback and other investments in rented properties) show that yields in commercial properties range between 5% and 6.5%.

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ACCOUNTANCY CYPRUS

ICT

SERVING THE CUSTOMER OF THE FUTURE

HOW NCR IS HELPING CONSUMERS IN CYPRUS GET USED TO THE DIGITAL AGE NCR Cyprus is a subsidiary of NCR Corporation, a US based company with a history of 133 years, having been founded in 1884. NCR Corporation, headquartered in Duluth, Georgia with approximately 29,000 employees, is the global leader in consumer transaction technologies. NCR does business in 180 countries and has been in Cyprus for 62 years. It has been a significant contributor to the Cyprus economy and to the evolution of the country’s IT industry. For the first 20-30 years of its existence, NCR was the only IT company in Cyprus and many professionals, who either formed their own companies or helped bring other multinational companies to invest in the Cyprus economy, first worked at NCR. Kyriakos Kyriakou, General Manager of NCR Cyprus, talks about the ever-increasing importance of technology to business. With over 60 years of experience in meeting the needs of consumer-oriented businesses, NCR Cyprus has maintained its position as a leading technology provider of business solutions. What makes the company unique? What makes NCR unique is its portfolio of hardware, software and services. NCR enables more than 485 million transactions daily across retail, financial, travel, hospitality, telecom and technology and small business. In this way, NCR helps its customers respond to the demand for fast, easy and convenient transactions with intuitive self-service and assisted-service options. What we do goes beyond niche technologies or markets; our solutions run the everyday transactions that make life easier and help businesses around the world increase revenue, build loyalty, reach new customers and lower their costs of operations.

Consumers are changing the way they choose to interact and transact with business NCR Cyprus recently won the tender for the country’s National Health Service IT systems. How important is this project for the company and its contribution to a new era in the health system in Cyprus? The contract for the Provision of the HΙΟ Solution and IT and Business Process Services to the Health Insurance Organization (HIO) of Cyprus involves the delivery and operation

of systems and processes required for the end-to-end transformation of the current healthcare system in Cyprus. It is an advanced Process Reengineering and Digital Transformation project that is being undertaken by the Government and one of the most technologically advanced outsourced professional services. NCR will deliver the end-to-end solution that will enable the digitization and automation of all key health insurance processes, thus creating a new and improved omni-channel experience for citizens. In implementing the systems and delivering the services prescribed in the contract, NCR will work with the HIO on making this vision a reality. We are honoured to have been awarded this very strategic project, which is an indication of the good work of our people and also of the trust that we have built as a company with the authorities and, especially, the Govern-

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ment for implementing complex IT projects.

Customer requirements are constantly changing and businesses have no other option but to change too

How does NCR Cyprus help companies reach their goals? By continuously learning about how the world interacts and transacts, we not only help companies reach their goals but we also change the way everyone shops, eats, travels, banks and connects. NCR tailors its unique and innovative solutions to meet the requirements of the customers of our customers, so, when the need arises, we are ready to help them respond to new market requirements or to competition. NCR technology not only helps deliver amazing customer experiences but, most importantly, helps companies lower their operating costs and eventually reach their business goals. Consumer behaviour has changed in the digital age. How important is for businesses to invest in new innovative technologies in order to stay up-to-date with the way we shop, eat, travel, bank and connect? Consumers are changing the way they choose to interact and transact with business. On one hand we have the younger generation, the customers of

the Digital Age, who are keen to use self-service channels and, on the other hand, there is the older generation of those who prefer traditional channels. There is also a third type of consumer, who are part of the older generation but they have managed to emigrate to the Digital Age and therefore share the same characteristics as the younger generation. In time we shall see more and more customers emigrating to the Digital Age, which basically means that greater numbers will shift from assisted-service to self-service channels. This will change the whole market landscape and businesses will need to transform themselves in order to meet their customersâ&#x20AC;&#x2122; new requirements. However, transformation is not easy; it is a never-ending journey that requires a deep dive into technology. Most importantly, it requires new mentality and a strong management mandate for it to happen. The companies that decide to start this journey sooner will gain an advantage; for those that delay, the journey will be more difficult and costly. Do you believe that companies in Cyprus are more reluctant to invest

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in or implement new technologies, compared to their counterparts in other European countries? If so, why? Reluctance to invest in technology is very common and although geography does play a role in terms of how developed or saturated a market may be, it is not the key reason behind this reluctance. At NCR, we have identified the three most common reasons for such reluctance: Fear (related to financial aspects, return on investment, etc), Conformity (change g is difficult and people usually reject it) and Laziness (change requires a lot of work, over and above the cur-

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rent workload). Technology requires investment and, as with any type of investment, the room for failure is very small if not zero. An investment needs to deliver a return, otherwise it will simply become a cost in the P&L of the business. Therefore, when such an investment has to be made, a company needs to make sure that it gets it right the first time. On the other hand, there are market pressures and a need to transform the business itself in order to be competitive. Customer requirements are constantly changing and businesses have no other option but to change too. They need to address the needs of what we call “the customer of the future”, which they cannot address today. How does NCR envision the “customer of the future”? The “customer of the future” will need simplicity, convenience and alternative ways of interaction. These may involve a self-service machine, a mobile phone, the Internet (there is a lot of discussion these days around the Internet of Things), a Cloud-based system, Big Data Analytics in the back office to support a better service at the front-end, or any of a series of new technologies that can help businesses respond to their customers’ new requirements. At NCR we understand the situation businesses are in and their difficulty in starting the Digital Transformation journey. That is why we offer our customers consultancy services to help them un-

We are seeing more and more ‘customers of the future’, either because they have emigrated to the Digital Age or they were born in it derstand the details of the investments they are making, and also calculate the impacts (positive and/or negative) of such investments prior to making them. We build a business case for them end-to-end, and keep ourselves accountable from the beginning of the journey right up to the realization of the benefits. In this way we help them get it right the first time and to make sure that, thanks to NCR’s experience in the 180 countries where we do our business, they obtain the return they anticipate from their investments. How do consumers in Cyprus respond to new technologies? Cyprus has made significant progress in recent years, especially after the boom in smartphone sales from local telecom companies. The previously mentioned shift in the market from assisted service to self-service technologies is happening in Cyprus as well. We are seeing more and more “customers of the future”, either because they have emigrated to the Digital Age or they were born in it. Customers in Cyprus are changing the way they choose to interact and transact with business. The pace of the change is a lot slower than in the more developed economies in Europe or the US, but

it is happening and faster than ever before. How important is data security when choosing new technologies and how can businesses protect themselves from online and other threats? Data Security is a key ingredient in every IT solution but especially for businesses that hold people’s personal data, such as banks, the Government, the health service and so on. Data Privacy is regulated by national and international authorities while IT solutions have the relevant certifications or have to conform to regulations validated by the responsible authorities. All the world’s major IT companies devote a large amount of their R&D on ensuring that their solutions are protected and certified with global industry and security standards. NCR is no exception. What are NCR Cyprus’ plans for the next 3-5 years? NCR focuses on specific areas of interest, providing vertical and specialized solutions to its customers, so as to capture specific requirements in the various markets to which we provide solutions. This means that we are not interested in every IT project available in the market but very selective in terms of the projects we embark on, as these need to be in line with NCR’s corporate strategy. In our target markets, we usually have a dominant position with a high market share.

ENERGY NEWS www.energynews.com.cy

Energy News Portal EnergyNews.com.cy is the online portal for up-to-date energy-related news from Cyprus and the rest of the world. Well-rounded and objective information on all energy-related issues for businesses, professionals and consumers in Cyprus is presented and all organizations, bodies and companies active in the broader energy sector are promoted.

ΙΜΗ 5 Aigaleo Str., 2057 Strovolos, P.O.Box 21185, 1503, Nicosia, Cyprus Tel.+357 22505555 Fax. + 357 22679820, E-mail: events@imhbusiness.com Contact details · Andreas Leontiades, tel. 22 505535, email: andreas@imhbusiness.com · Christopher Constantinou, tel. 22 505565, email: christopher@imhbusiness.com

www.energynews.com.cy

Collaboration

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ICT

PEOPLE,

PROCESS, TECHNOLOGY SUCCESSFUL PROJECT MANAGEMENT REQUIRES ALL THREE COMPONENTS. MPONENTS.

By Theodosis Theodosiou, dosiou, Account Technology Strategist, trategist, Microsoft Cypruss

inancial services professionals wear many hats and Project Management is one of them! This statement applies especially to Cyprus, where the average business is smaller compared to those in other EU countries. Project data may be scattered among multiple tools and Project Managers (PMs) may find it difficult to have a comprehensive view of their projects

or see project status at a glance. They usually use Excel to list the tasks, dates and owners but this is not ideal. There is also a need to improve visibility and control across varied portfolios, align spend with strategic priorities, and drive team collaboration to deliver projects on time and within budget. There are modern tools that offer a centralized view of projects, help to improve accountability and drive project management success. These tools offer mobile access to project data and PMs can turn their attention from software tool installation and maintenance of infrastructure to focusing on their business.

TIPS FOR FINANCIAL SERVICES PROFESSIONALS MANAGING THE FOLLOWING PROJECTS: Commercial Lending Use tried-and-true lending processes by importing existing workflows. Increase customer transparency with customizable timelines that you can share using familiar applications. Mergers and Acquisitions Improve efficiency and collaboration with automated scheduling and integrated communication tools. Use metrics to decide which projects to start based on strategic value and cost. Regulatory Compliance Manage all compliance projects and

ACCOUNTANCY CYPRUS

develop strong regulatory processes to avoid fines and bad press. Use integrated collaboration features to keep everyone on the same page. New Product Introduction Develop products with data-driven tools that examine objectives, budgets, and required resources. Implement products using tools that provide insights across time and task entries.

PEOPLE, PROCESS AND TECHNOLOGY Let’s not forget this principle: People, Process and Technology. Success cannot be achieved without all of them. People need to be trained and have the right culture; there should be a process in place that is efficient and simple; the technology should be user-friendly. With technology, PMs have more visibility in their projects and with visibility comes greater responsibility. They should be able to encourage behaviours that they weren’t able to address before, such as storing project documents centrally in the right place and updating schedules regularly. Driving transparency, communication and culture change is a must. A Project Management solution should be able to help organisations meet the following business imperatives: Intuitively capture all requests within a central repository and manage them using governance workflow – Demand Management Objectively prioritize, optimize,

and select project portfolios that best align with the organisation’s business strategy – Portfolio Selection and Analytics Proactively and reactively manage resources throughout the project lifecycle – Resource Management Easily create and communicate simple and complex project schedules – Schedule Management

With technology, PMs have more visibility in their projects and with visibility comes greater responsibility. Control and measure project and portfolio financial performance – Financial Management Simplify the collection of time and task status updates from team members –Time and Task Management Better connect disparate teams to share information and drive collaboration – Team Collaboration

CLOUD-BASED SOLUTIONS The IT industry is in a transformation phase and is moving away from deploying complex, costly and inflexible on-premise traditional solutions. The answer is flexible Software-as-aService (SaaS) solutions.

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Utilizing a Cloud-based solution offers clear advantages to setting up a customized server environment. You do not have to worry about maintenance or upgrade issues and compatibility issues are much less. While traditional Project Server implementations take time and commitment to roll out, you can deploy Cloud solutions quickly and easily. Your IT staff does not have to deal with additional costs associated with maintaining extra infrastructure, such as applying updates, maintaining security, scaling capacity, and ensuring uptime and availability.

INTEGRATION WITH FINANCIAL SYSTEMS Organisations need to be able to obtain accurate financial data from different Line-Of-Business (LOB) systems. The solution should offer easy connectivity to existing systems (API, PSI). By connecting the Project solution to existing IT systems, organisations will be able to automate the collection of financial data from LOB applications to drive project accounting views and reports. In addition, organizations can take advantage of independent software vendor (ISV) partner add-in solutions, which offer certified integration with familiar Enterprise Resource Planning (ERP) systems. The integration can support bi-directional data transfer, ensuring that project managers and financial analysts and accountants can effectively share data while working on their productivity tool of choice.

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PROFESSIONAL NEWS

IFRS Foundation Annual Report & Pocket Guide The IFRS Foundation has published its Annual Report for 2016, which includes an overview of the Foundationâ&#x20AC;&#x2122;s activities during the year and sets out its plans for 2017 and beyond. The theme of this yearâ&#x20AC;&#x2122;s report is Better Communication in Financial Reporting and it addresses, in particular, the Insurance Contracts Standard and the revised Conceptual Framework, the increased focus on supporting the implementation and application of IFRS Standards, and the issue of increased transparency through making public the meetings of the Due Process Oversight Committee. Meanwhile, the IFRS Foundation has also published the 2017 edition of its Pocket Guide to IFRS Standards, which provides an overview of the progress towards adoption of IFRS Standards in 150 jurisdictions around the world and includes information about the Standards and the organisation.

IAESB STRATEGY FOCUSES ON ACCOUNTING EDUCATION STANDARDS DEVELOPMENT & SUPPORT The International Accounting Education Standards Board (IAESB) has released its Strategy for 2017-2021 and Work Plan 2017-2018. Approved by the Board at its November 2016 meeting and by the Public Interest Oversight Board during its February 2017 meeting, WKH 6WUDWHJ\ DQG :RUN 3ODQ UHĂ HFWV H[WHQVLYH FRQVXOWDWLRQ DQG YDOued feedback from a wide range of stakeholders. Accounting HGXFDWLRQ VWDQGDUGV GHYHORSPHQW LV WKH FHQWUHSLHFH RI D Ă&#x20AC;YH \HDU strategy that also includes implementation support, a post-implePHQWDWLRQ UHYLHZ RI H[LVWLQJ VWDQGDUGV DQG VWUDWHJLF HQJDJHPHQW and communication with the boardâ&#x20AC;&#x2122;s stakeholders. The primary goal is to ensure that the accounting profession has the necessary skills to meet the ever-changing demands of business and the SXEOLF VHFWRU DQG WKHUHE\ LQFUHDVH SXEOLF FRQĂ&#x20AC;GHQFH

SCHILDER TO CONTINUE AS IAASB CHAIRMAN The Public Interest Oversight Board has approved an extension of Prof. Arnold Schilderâ&#x20AC;&#x2122;s term as Chairman of the International Auditing and Assurance Standards Board (IAASB) through 2018. This exceptional

IAASB PROPOSES MODERNIZATION OF FINANCIAL ESTIMATE AUDITS

extension beyond Prof. Schilderâ&#x20AC;&#x2122;s normal term is due to the current review of potential enhancements to international standardsetting arrangements being undertaken by key stakeholders. Since his initial appointment

in 2009, Prof. Schilder has played a key role in guiding the IAASB as it strives to enhance the quality and consistency of auditing and assurance practices throughout the world. There are now 113 jurisdictions around the

Significant changes in how auditors evaluate accounting estimates and related disclosures have been proposed by the International Auditing and Assurance Standards Board (IAASB). The changes will require auditors to sharpen their focus on risks of material misstatements arising from accounting estimates, and to address those risks with more granular audit requirements.

important that auditors are required to design and perform procedures to ensure estimatesâ&#x20AC;&#x2122; reliability,â&#x20AC;? said IAASB Chairman, Prof. Arnold Schilder. â&#x20AC;&#x153;The proposed standard will bring significant changes to many audits but particularly to audits of financial institutions, such as banks and insurers, given the recent shift to accounting for expected credit losses.â&#x20AC;?

â&#x20AC;&#x153;Accounting estimates are used in many financial statements â&#x20AC;&#x201C; often they are complex, and require judgement or have estimation uncertainty. It is especially

The proposed standard continues the evolution of audit to meet the challenges of an increasingly complex global economy. It was developed following extensive

world using or in the process of adopting the clarified International Standards on Auditing.

consultation with regulators and practitioners, including those who audit small, medium, and large businesses. The proposed standard enhances requirements for risk assessment procedures to include specific factors related to accounting estimates, namely complexity, judgment, and estimation uncertainty. It sets a more detailed expectation for the auditorâ&#x20AC;&#x2122;s response to identified risks, including augmenting the auditorâ&#x20AC;&#x2122;s application of professional scepticism, and is scalable regardless of the size or sector of the business or audit firm.

ACCOUNTANCY CYPRUS

IFRS FOUNDATION AND WORLD BANK DEEPEN COOPERATION

he IFRS Foundation has announced a new cooperation agreement with the World Bank to provide greater support to developing economies in their use of IFRS Standards. The agreement, in the form of a Memorandum of Understanding (MoU),

reflects the organisation’s view that the transparency, accountability and efficiency provided by adoption of IFRS Standards plays an essential role in attracting inward investment, boosting economic development and, ultimately, alleviating poverty. As the global accounting standard-setter, the IFRS

Foundation has extensive knowledge and expertise about IFRS Standards and the IFRS for SMEs Standard. The World Bank has for many years worked with donor organisations to encourage the use of IFRS Standards by developing economies, as part of its work to support creation of open and transparent financial systems. The MoU describes a series of priority areas the organisations will jointly focus on over the next few years, including the development of

DEVELOPING A FUTUREREADY PROFESSION FOR ACCOUNTANTS IN BUSINESS Following on the fundamental reorientation of the IFAC Professional Accountants in Business Committee made to its meetings and communications in 2016, the committee has issued a report that shares the knowledge, ideas, and experience of the committee on developing a future-ready profession.

The main themes in the report, and in the meeting it flows from, are:

The report is designed to be accessible, with improved navigation, summaries that enable a fast read, and clearly identified future actions and recommendations.

• how integrated reporting can lead to better reporting outcomes; and

• digital disruption and rapid cognitive business development; • the continued evolution of the profiles of finance leadership and accountants in business; • effective risk management;

• how the new media landscape is changing the way we communicate.

educational programmes (both online and offline) to help build capacity and understanding of IFRS Standards, the IFRS for SMEs Standard, and materials to support their implementation, the packaging of such programmes to provide an off-the-shelf solution for development projects within individual countries or regions, and steps to help developing economies with less advanced standard-setting capabilities to play a more active role in the work of the IFRS Foundation.

IAESB PROPOSES REVISED CPD STANDARD The International Accounting Education Standards Board (IAESB) today released a proposed revision of International Education Standard (IES) 7, Continuing Professional Development, that places greater emphasis on learning and development directly related to an accountant’s professional responsibilities rather than simply focusing on a minimum number of hours of Continuing Professional Development (CPD). The proposed revisions enhance the current standard and encourage professional accountancy organizations look at how their CPD systems are measured, monitored, and enforced. CPD applies to all professional accountants and supports their development and maintenance of professional accountancyy competence ompetence to deliver high-quality services for their clients, employers, and other stakeholders.

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Kyriakos Iordanou, ICPAC

Harris Georgiades, Minister of Finance

7th NICOSIA ECONOMIC CONGRESS

he 7th Nicosia Economic Congress, presented by Alpha Bank Cyprus Ltd and organised by ICPAC and GOLD, was held on Tuesday, 25 April 2017 at the Hilton Park Hotel in Nicosia. Once again, the Congress aimed to provide the broade broader business world with comprehensive information on the latest economic trends and informa develo developments, in Cyprus and across the world, their impact on the island’s economy. and the Christodoulos Christodoulou & Galatia Loizou, Trust Insurance Cyprus

Constantinos Petrides, Minister of Interior

George Pamboridis, Minister of Health

Demetris Vakis, ICPAC

H Haris Koureas, M MM Makronisos M Marina Ltd

(UKYLHZ *OYPZ[VÄKLZ 274. .LVYNL :`YPJOHZ Central Bank of Cyprus & Kyriakos Iordanou, ICPAC

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Loucas Marangos, TFI Markets

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Maria Kyriacou, CIM

Irene Loizidou, ICPAC

Marios Loucaides, CTC & Tony Antoniou, Vassiliko Cement Works Ltd

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Yangos Hajdiyannis, CIM

Michael Yiangou, CIM

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Maria Zavrou, Elena Mouzouri and Myro Michael, KPMG

Vicenzo Guzzo, IMF

6SRQVRUV Isabella Pericleous & Evangelia Tsianakka, GAP Vassilopoulos

Gene Kornegay, Noble Energy International Ltd

2UJDQL]HUV Anna Theologou MP

Constantinos Koutentakis, Alpha Bank

Thomas Kazakos, *`WY\Z :OPWWPUN Chamber Kyriakos Kokkinos, IBM

Christos Tsikouris, BDO Ltd

Mehran Eftekhar, har, WTC (Cyprus) Ltd

Christodoulos Papalambrianou & Tryfonas Christodoulou, Alpha Bank Cyprus

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OUT OF OFFICE

CULTURE VULTURE All ICPAC members naturally have a life beyond accountancy and, in each issue of the magazine, we take a look at how one of them spends his free time. George Papageorgiou studied to be a Chartered Accountant but his present post as Marketing and Culture Commercial Manager at Public Cyprus is only the latest in a long line of positions in which his passion for culture – and particularly theatre – has been key to his success and job satisfaction.

In your current role at Public Cyprus, how does your background in theatre and the arts contribute to the success of the business? As Marketing and Culture Commercial Manager, I hope to work with people who love theatre and also to make sure that we read more books in Cyprus, while establishing Public as a destination for culture. How and when did your fascination with the theatre begin? At the age of three, when my Dad, who was a lighting designer at the Cyprus Theatre Organisation (THOC), took me to watch a performance. That led to many more performances, both as an audience member and as a child actor, together with numerous afternoons starring in children’s shows in the television and radio studios of the Cyprus Broadcasting Corporation. How did you decide on what might appear to be a rather strange combination: accountancy and the arts? My fascination with theatre stayed with me through to adulthood so when a Human Resources lady at KPMG in London made me an offer to join them for my ACA studies and gave me the option of industry specialization, the words “entertainment industry” came out of my mouth. I will be always be grateful to her for making a note of that and for adding junior-me to the greatest team of entertainment professionals in London at the time.

George Papageorgiou

What do you love so much about the theatre? The people. Those responsible for enacting magic on stage, the creative brains behind the magic and, of course, the fleet of people working backstage to provide technical support, market a production and cater for the audience’s needs. Do you have an all-time favourite play? Why? There are over a thousand to choose from, so please allow me to choose two, not on dramaturgical merit or the wealth of emotions they contain but because they are two productions that changed my life: “The Trojan Women” by Euripides, directed by Nicos Charalambous for THOC, was the production that gave me the opportunity to work on an ancient Greek drama to be performed at the Ancient Theatre of Epidaurus in Greece, and “Wealth” by Aristophanes, directed by Diagoras

Chronopoulos for the National Theatre of Northern Greece. That was the inspiration for my first professional job as a producer. You worked as General Manager for THOC and the Rialto Theatre in LiT massol. What was the most enjoyable m part p of your job in each case? Definitely the most enjoyable part was D working with great theatre people, on w stage and backstage, to push our limits, s to t encourage and manage change and to t work endless hours for audiences to enjoy immaculate, faultless productions e that t redefine boundaries. It I must have been quite different from your experience of working at the y Royal Opera House at Covent Garden. R Not necessarily. Budget and size aside, I find similarities between the ROH and the Rialto Theatre. I believe that what makes them both successful is a shared commitment to excellence, team spirit and passion for the job. What is your opinion of the quality of theatre productions in Cyprus? There is, of course, room for improvement in order to reach and surpass the first glorious decades of THOC. I am proud of my own small contribution to giving a younger generation of theatre practitioners the opportunity to shine and I am glad to see them grasping that opportunity and writing a new chapter for theatre in Cyprus. Do you believe that the younger generation can be attracted to the theatre? Of course, provided we don’t look down on them and we actively demonstrate that we want to communicate with them and not just give them a theatre lecture.

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©2017 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.