Accountancy Cyprus - No. 139 - July 2022

tackle challenges and to open up new

Kyriakos Iordanou General Manager

| Forward thoughts

By the General Manager

Interesting times call for bold decisions!

Whatever one says about how things are shaping in the current politico-economic terrain and what are the reasonable expectations for the near future, it could sound surreal and with a huge degree of unpredictability.

Regrettably the war conflict in Ukraine, with Russia’s aggression on the one side and the Ukrainians defending their land coupled by the EU and other western countries trade and financial sanctions, on the other, appears to be keeping on, without any indication in the horizon for an eventual ceasefire.

Having the above in mind and carefully studying everything that happens around us, both locally and internationally, effortlessly, the first assertion that crosses the mind is that “We are living in interested times!”. Interesting in political, diplomatic, economic, financial, investment and social terms!!!

It can be easily and undisputedly observed that during the last few years, there is a constant appearance of international crises, the effects of which tend to rivet the governments, the business community and the society in a continual quest to mitigate their effects, rather than focusing on growth and development policies.

This was experienced during the last 2 or so years with the covid-19 pandemic, we are currently living it with the war in Ukraine and the politico-economic and the overall restrictions imposed against Russia, whilst in the recent past we had to navigate through the turbulent waters of the surging compliance regulations in the financial services and banking sectors, the increasing never-ending discussions to administer aggressive tax planning by the EU, OECD, G7, environmental and sustainability matters etc.

Apparently, there is nothing really much left to shake us by surprise!

All of the above, and I will dare mention EU’s aspirations for a swift transition to a “green economy and sustainable society”, lead countries and their national economies in the braces of rocketing inflation, the significant increase in the prices of goods, the disruption of the supply chain and the denormalization of trade, rendering them hostages of the energy cost and the provision of food supplies. Despite living in and heralding the capitalist theorem of the open economies, governments’ intervention and support at business and social level was crucial and essential.

We stand in the middle of an unprecedented crossroad, where governments and state treasuries must exhibit their resilience on the one

hand, and their civic sensitivity on the other. At the other side, business and households should also gauge their own resilience levels and redetermine their priorities.

Possibly, what we are watching now happening is a reshuffling of the global geopolitical and geostrategic map, with a readjustment of the influence and control nuclei, with the dominance over energy resources, raw materials and food supply, the control of the trade routes and the supremacy of national currencies being at the top shelf.

I suspect that given the situation, it is highly probable to see a reassessment of the environmental and sustainability policies, inhibiting thus the transition pace towards the EU goals set by the “Green Deal” and the Resilience and Recoverability Plan.

As states will inevitably reconsider their policies and strategies, it might be the first time that the doctrine of glabalisation is actually put under a stress test. The new regime is an alarm to countries to start becoming more self-sufficient in their own resources and production capacities, especially in the primary and energy sectors. Global taxation discussions may also suggest nationalistic approaches, with international business being modified from what was accustomed in the recent decades.

All of the above take place amid the everincreasing conversion to ICT and digital governance, posing as a catalytic and imponderable, at the same time, factor. Catalytic, as it diminishes physical boarders and promotes notional and virtual connectivity in real time terms.

The goal we have to achieve is to keep having stable and consistent economic growth rates, whilst having a parallel prosperity in the business sector, the society and the citizens.

This is indeed a volatile and unpredictable era with a complex grid of international challenges, interests and changes. Politics have been elevated to unchartered territories, rendering decision making and global compliance a tricky exercise.

All of these have a direct impact on Europe, Cyprus and inescapably our profession. So, we need to carefully read and interpret, to the extent of our capabilities and potential, the situation and act thereon. Let’s start with the obvious, that is, rectify internal weaknesses, fix “black holes”, innovate, improve competitiveness and reputation, and embrace digitalization. By being proactive, we deplete the “certainty of the ... uncertainty”.

ACCOUNTANCY CYPRUS

The Institute Council

Pieris Markou (Chairman)

Nicos Chimarides (Vice-Chairman) Eleni Pyrgou (Secretary)

Members

Andreas Andreou, Andreas Avraamides, Odyseas Christodoulou, Stavros Ioannou, Gabriel Onisiforou, Maria Pastellopoulou, Petros Petrakis, Demetris Siakallis, Spyros Spyrou, Demetris Taxitaris, Demetris Vakis, Christos Vasiliou

General Manager

Kyriakos Iordanou

Avenue,

1355, Nicosia,

Tel.: +357

Fax: +

e-mail:

09

ICPAC NEWS

• 12th Nicosia Economic Congress

• The ICPAC Mediterranean Finance Summit

• Famagusta Business Forum

CSR activities

NEW ICPAC COUNCIL

President: Pieris Markou, Vice-President: Nicos Chimarides, Members: Andreas Andreou, Andreas Avraamides, Odyseas Christodoulou, Stavros Ioannou, Gabriel Onisiforou, Maria Pastellopoulou, Petros Petrakis, Demetris Siakallis, Spyros Spyrou, Demetris Taxitaris, Demetris Vakis, Christos Vasiliou

COVER STORY

• ICPAC Annal General Assembly sends significant messages

Proposals for economic growth based on six pillars Pieris Markou: We can tackle the upcoming challenges with responsibility, efficiency and the right planning

• Address by the President of the House of Representatives Ms. Annita Demetriou Accountants have a vital role in current tumultuous developments

The Parliament is ready for close cooperation with ICPAC

• Address by the Minister of Finance, Mr. Petrides Tax system amendment to be pushed forward Aiming to make it more simplified and competitive

BUSINESS & ECONOMY

• SAI’s CYPRUS audit on public debt management Audit Office – Republic of Cyprus

• Foreign Directive Investment Screening: EU FDIS Regulation and Recent Developments

Pantelis Christofides Advocate – Director Head EU and Regulatory Law Department

• Law amendments enabling a financial statement review Eleni Ashioti Head of Technical and Professional Matters of ICPAC

• Slay the Dragon And Take the Gold Philippos Aristotelous Business Strategist, Author, Coach, Consultant, Philarist.com

• Keeping your competitive edge: The growing importance of Continuing Professional Development (CPD) in an evolving global business landscape

Efi M. Marcou Head of Learning and Development, The Institute of Certified Public Accountants of Cyprus

INVESTMENT FUNDS

• How the CFA Research Challenge can contribute to the development of great finance professionals for the Cyprus investment funds industry

Andrie Santis CFA, Associate Director at FNZ Group, Board Member of the CFA Society Cyprus Constantinos Kourouyiannis CFA, Executive Director at Easternmed Asset Management Services Ltd, Board Member of the CFA Society Cyprus

30 INTERNAL AUDIT

• The importance of

Orestis Papacharalambous

ECONOMIC CRIME & FRAUD

• How to protect your customers and yourselves from Russia-Ukraine crisis

Demetra Demetriou Senior Financial Officer and Member of the Financial Crime and Forensic Accounting Committee, ICPAC

SUSTAINABILITY

• The International Sustainability Standards Board (ISSB) and its

for

Evita Livera BFP, FCA Special Teaching Staff Department of Accounting and Finance University of Cyprus

Political agreement reached on the Corporate Sustainability Reporting

Eleni Ashioti Head of Technical and Professional Matters of ICPAC

The study of investor behaviour in reinforcing

Dr. George Theocharides Chairman of the Cyprus Securities and Exchange

Sustainability is the present and the future

Maria Panayiotou Board Secretary of the Cyprus Investment Funds Association (CIFA)

ICPAC NEWS

12th Nicosia Economic Congress

ICPAC, with GOLD Magazine and IMH, organised for a 12th consecutive year the Nicosia Economic Congress, on 12 April, 2022, probably the leading conference on economy in Nicosia, bringing together government officials, business leaders and specialists as well as other stakeholders.

The theme of the conference covered “Cyprus Economy and the new realities”, emanating from the left over consequences of the Covid-19 pandemic, the Russian invasion in Ukraine and the war there, coupled by the new realities in the business, trade, financial and social areas, pursuant to the restrictions and sanctions imposed, and from the surging inflationary trend, profound in Europe.

It was generally agreed that the best way forward for the Cyprus economy is to accelerate the efforts for the transformation of the economic and functional structure of the state and of the business activity. Such a transformation should be based on advanced technology and digital solutions, on simplified and effective governance practices promoting meritocracy and excellence, on innovation, on excelling the competitive advantages of the country and of the flexibility and resilience of the economic infrastructure.

The ICPAC Mediterranean Finance Summit

Consistent in its goals to enhance its activities and embrace all professional competencies of its members, ICPAC, via its CFO Committee and with association with Qube Events organised a very promising conference in Limassol on 5 and 6 May 2022 entitled “The ICPAC Mediterranean Finance Summit”.

The underlying idea for the conference served two principal purposes:

• To bring together finance professionals, financial advisers, CFO’s and the financial management community to a common venue and discuss matters and challenges related to the much underestimated and possibly unappreciated CFO and finance professional, embracing thus the financial management community withing ICPAC’s arms; and

• To render Cyprus as the focal point for such a gathering in the wider Mediterranean area, with the vision to gradually establish this summit a genuinely international one, attracting and networking together professionals from the whole Mediterranean basin.

Both purposes were met as the event was attended by a wide audience of business and finance professionals, having excellent speakers from abroad and Cyprus who presented the contemporary challenges, responsibilities, duties, tasks and span of knowledge and skills of today’s CFOs.

ICPAC is looking forward to hosting next year’s event.

Famagusta Business Forum

ICPAC had the pleasure to be invited and participate at the first Famagusta Business Forum, organised in Ayia Napa Marina on 12 May 2022.

The event was organised to celebrate the 50th anniversary of the twinning of the Famagusta Chamber of Commerce and Industry and the Commercial and Industrial Chamber of Pireaus, Greece.

Government officials and leaders from the business society from Cyprus and Greece met to discuss the emerging challenges and opportunities, given the turbulence and uncertainty caused by the recent international developments, in the areas of shipping, tourism, economy and energy.

ICPAC’s General Manager Mr Kyriakos Iordanou had the privilege to moderate the panel on the economy, with the

CSR activities

Ministers of Finance of both countries and the Presidents of the Chambers of Cyprus, Athens and Piraeus comprising the panel.

The Social Responsibility Committee of the Institute of Certified Public Accountants of Cyprus organized a Beach Cleanup Event, with the support of Pervolia Community Council and Let’s do it Cyprus. In this event participated around 80 people from age of 3 to age of 87

ICPAC CSR committee had organized blood donation and a free entrance Theater show at Nicosia Municipal Theater for all ICPAC members, families, and friends

New ICPAC Council

The Institute of Certified Public Accountants of Cyprus (ICPAC) held its 61st Annual General Assembly on 23 June 2022 in hybrid format from Nicosia Municipal Theater. Following the procedures of the General Assembly, the new Council was formed as follows:

The Council is thankful to the former members Mr. Karlos Zangoulos and Mr. Stavros Patziaris for their valuable services. Mr. Pieris Markou remains President for one more year.

Member: Andreas Andreou Member: Andreas Avraamides Member: Odyseas Christodoulou

Member: Stavros Ioannou Member: Gabriel Onisiforou Member: Maria Pastellopoulou

Member: Petros Petrakis Member: Demetris Siakallis Member: Spyros Spyrou Member: Demetris Taxitaris Member: Demetris Vakis Member: Christos Vasiliou

President: Pieris Markou Vice-President: Nicos Chimarides

ICPAC Annual General Assembly sends significant messages

Proposals for economic growth based on six pillars

The ICPAC submitted a set of proposals on the development of the economy and entrepreneurship based on six pillars, during its 61st annual General Assembly which was held on June 22nd in Nicosia. In his address to the Assembly, the ICPAC President Mr. Pieris Markou highlighted that the current developments entail a number of challenges that may shake the grounds both on a financial and on a geopolitical level. As the war in Ukraine has been going on since February, with no signs for a cease-fire any time soon, we will be coming across unprecedented global developments which will definitely affect our country. Referring to economy, he pointed out that the sectors of tourism, real estate, investments, shipping, financial and professional services have been severely affected by the global uncertainty and the destabilisation of the Russian and Ukrainian markets, with subsequent chain effects on our economy. He added that the international energy crisis and the supply chain disruption triggered by the war in Ukraine have led to severe inflation, hindering development and impacting households’ purchasing power.

changes in the economic and social sectors. The ICPAC proposals bring forward the following topics:

• The need to create a modern tax framework which will be able to serve the current and future needs of the country, based on a strategic planning for economic development up to 2035.

• The need to simplify the tax system and to remove outdated provisions from the tax law.

• The need for a more effective and efficient operation of the Tax Department through advanced technology and user-friendly systems both for the taxpayers and for the tax officers.

Mr. Markou clarified that for the ICPAC a mere change on a tax rate or slight modifications in the system do not count as adequate reforms. For the ICPAC, a Tax Transformation would require a comprehensive reform that would be based on a specialised study that will take into account all possible factors, and will draw on the experience and expertise of expert consultants. Therefore, the intention of the Ministry of Finance to raise corporate tax from 12,5% to 15% does not find the ICPAC in agreement.

The third pillar is competitiveness, a vital aspect for economic success in every country. This pillar covers innovation, technological advancement, capitalisation on competitive advantages to attract new investments and businesses and the facilitation of company formation and operation. These will enhance our country’s reliability and reputation, among other benefits. Mr. Markou added that the ICPAC is greatly concerned about Cyprus’ fall in its ranking of international competitiveness indicators

THE 6 PILLARS

Mr. Markou presented the six pillars that ICPAC considers vital for sustainability and further development of the economy.

The first pillar holds the reforms in the public service the justice system and local governance, as well as in other public institutions. These reforms will define the relation between the citizen and the state, while their cost will be covered by the state budget which derives from taxpayers’ money. Therefore, any mismanagement, inefficiency, delays, mistakes and bureaucracy will be a financial burn on all of us.

The second pillar is the Business and Tax Frameworks, which need to be reformed vastly.

Mr. Markou added that the ICPAC and its members have been demanding drastic modifications on the tax system for many years now. It is evident that the current tax system has nothing more to offer, hence, the ICPAC has submitted justified proposals for a Tax Transformation, taking into consideration the fast

The fourth pillar that ICPAC considers significant is the country’s international reputation. According to Mr. Markou, despite the attempts made by various state institutions and the private sector, we need to intensify our efforts in order to regain our country’s positive image globally. This requires careful and systematic monitoring of international media, prompt responses to their stories, a clear strategy in financial diplomacy, and, of course, an excellent product to promote or a superb story to tell.

In this light, Mr. Markou asked for more meritocracy and transparency, so as to eliminate corruption, and to “operate as a reliable, lawful state, projecting, in effect, a more consistent, attractive image to foreign politicians, foreign investors and foreign clients”.

The fifth pillar is Digital Transformation, a great tool that will give a further impetus to the state, to institutions, to competitiveness, to entrepreneurship and it will facilitate transactions, while improving our social and financial operation. The sixth pillar is Sustainable Development, which stands on its own. We need to focus our attention on the future and decide what we will leave behind to the next generation.

• Pieris Markou: We can tackle the upcoming challenges with responsibility, efficiency and the right planning

The ICPAC: CHALLENGES OF A NEW ERA

Mr. Markou added that the previous year was not an easy one for the country, the economy, the ICPAC and is members.

• The pandemic effects, the war in Ukraine, the sanctions against Russia have been high in our priorities. Taking into consideration the general interest of the country, we have tried to deal with the negative developments in the best possible way, undertaking a number of initiatives.

The ICPAC has also kept its focus on tackling Brexit and its consequences, through its participation in various meetings of parliamentary groups that discussed legal matters. The Institute has pushed for corporate governance and for amendments to the tax law, it has dealt with issues related to money laundering, it has acted as a supervisory body, it has achieved new agreements with other financial institutions in Cyprus and abroad, it has broadened its members’ training, its has enhanced its internal services and it has had an active involvement in all spheres of interest of its members.

Moreover, Mr. Markou added that the ICPAC has continued to develop its internal operations and structures, it has improved its supervisory role by implementing new Disciplinary and Administrative Regulations, and it has kept its members informed and updated on compliance matters and on sanctions against Russia, through issuing numerous reports and a Regulation. We keep on with our digital reform, aiming to provide higher quality services to our members.

Concluding his speech, Mr. Markou

highlighted that in its seventh decade of service, the ICPAC remains a responsible and reliable institution in the country’s economy, providing

constant support to the state, to the business sector and to society in general.

He added that the current period is

not easy. Uncertainty and destabilisation are reigning on the island and in the world. The constant unpredictable developments make the future completely unsure, disrupting the

established balance.

He pointed that we must stay alert and take all necessary measures. We should be well prepared to deal with any upcoming

challenge successfully.

The ICPAC General Assembly was attended by state officials, representatives of business organisations and ICPAC members.

Address by the President of the House of Representatives Mrs. Annita Demetriou

The current tumultuous geopolitical developments in our area and the uncertainty that prevails in the economies of our country and the world, largely as a result of the war in Ukraine, make the profession accountants more important.

This was among the highlighted points in the address by the President of the House of Representatives Ms. Annita Demetriou at the 61th ICPAC Annual General Assembly.

Ms. Demetriou stated that accountants can provide solutions to the state on crucial matters, acting as mediators between the state and the taxpayers.

Hence, accountants should always act with reliability, integrity and transparency.

Ms. President added that the accounting profession involves a wide range

of services, therefore, it requires professional and scientific competence, skills, as well as the capacity for continuous development and flexibility in order to meet the changing requirements of the economy and the governing legal framework. Ms. Demetriou also referred to the significance of the Code of Conduct with regard to the rightful delivery of professional accounting services.

Ms. Demetriou added that the current technological and digital advancement penetrates all social spheres and sectors, creating an imminent need to be able to manage the vast amounts of financial information on multiple levels, thus, making the accounting profession one of the most promising future

professions. As Johann Wolfgang von Goethe once said: “Accounting is one of the finest inventions of the human mind”.

On behalf of the House of Representatives, the President stated that they acknowledge the importance of the accounting profession and the role of the Institute, which has a significant contribution in the discussion of various bills by submitting its proposals. Therefore, the House of Representatives is ready to work together to draft the right laws and provisions that will strengthen the ICPAC, benefiting the economy and increasing the government’s trustworthiness. Cyprus needs to move towards development and stability, and the ICPAC can be the driving force towards this direction.

Accountants have a vital role in current tumultuous developments

The Parliament is ready for close cooperation with ICPAC

Address by the Minister of Finance, Mr. Petrides

Tax system amendment to be pushed forward

The amendment of the current tax system should be conducted in a way that will simplify it, enhancing it and making it more competitive and attractive. The tax system should respond to the current challenges and requirements and to the everchanging international environment, complying with the Recovery and Resilience Plan, the EU legal framework and taking into account the international developments.

These points were made in the Minister of Finance Constantinos Petrides’ address to ICPAC General Assembly. The address was delivered by the Ministry’s Permanent Secretary, Mr. Giorgos Panteli.

In the address, it was pointed out that in order to achieve the above, the economic institutions were

requested to submit their proposals, especially with regard to the relaxations that can be implemented to offset the proposed increase in the corporate tax to 15%. The Ministry of Finance has assessed the submitted proposals and is expected to bring a relaxation package on the table for consultation, which will take into account the high inflation, as well as the geopolitical developments of the war in Ukraine.

As far as the economic challenges are concerned, the Minster highlighted that the Russian invasion in Ukraine, the sanctions against Russia by the EU and the USA, and the subsequent developments in the field of energy introduce a new world order. The rising inflation diminishes citizens’ income and companies’ profitability, while a food

crisis is imminent in many countries.

The impact on Cyprus economy is expected in the form of an unprecedented increase in fuel and electricity price, with severe consequences on professional services and tourism.

The preparation of the National Plan “Cyprus – Tomorrow” shall create new prospects for economic growth and a long-term, sustainable, financial, social and environmental development.

The strategy, which was drafted by the Cyprus Economy and Competitiveness Council with the support of the government, aims to make Cyprus a sustainable business and commercial hub in Europe, setting high standards in competitiveness and resilience.

Aiming to make it more simplified and competitive

SAI’s CYPRUS audit on public debt management

SIGNIFICANCE OF PUBLIC DEBT AS AN AUDIT TOPIC

Borrowing is an alternative means, for governments, of raising funds to cover their needs, without reducing the real wealth of private individuals via taxation. The forms and sources of government borrowing may vary, and the level of borrowing needs is determined by the factors shown in the diagram below.

must ensure that equity is preserved between today’s and tomorrow’s generation. Borrowings by the government should not only directly benefit its present citizens, but also especially future citizens who will be responsible for debt servicing». In the recent past, excessive debts in Cyprus by the public sector, banks, and households, caused a major financial crisis. The collapse of one of its three systemic banks, sent shockwave shocks to the whole banking system of the island. The financial crisis was developing as excessive debt by the government kept lowering the ratings by the relevant agencies and rendering lending from the markets impossible. This experience highlighted the importance of managing public debt efficiently to ensure its sustainability.

acceptable level of risk, ensuring, as much as possible, the sustainability of public debt and the achievement of its medium-term strategy’s objectives.

Currently, sovereign debt has reached levels not seen since World War II. The pandemic added $24 trillion to global debt, representing a surge of 35 percentage points as a proportion to global GDP, with Government programmes accounting for half of the rise. Unprecedented interventions by central banks have averted a debt crisis, but concerns are voiced that climate change will imperil the ability of countries to repay COVID-19 debts. The state of public debt in countries is a first order problem for many sovereigns and in this contribution, we discuss how the Cyprus auditors added value to the country’s management of sovereign debt.

INTOSAI’s handbook «Audit of Public Debt Management» aptly states that «Debt is an inter-generational contract. Policy makers

Although public borrowing is mainly a political decision and is affected greatly by the fiscal policy, determined by the executive, the management of public debt, in the framework decided by the executive, relies heavily on technocratic analysis. Our Office, recognizing the significance of public debt management conducted a compliance and performance audit on the activities of the Public Debt Management Office (PDMO) during May-December 2021.

Areas covered by the audit

Our audit examined the effectiveness of public debt management, in meeting the financial needs of the Republic of Cyprus on a timely manner and in the most economical, efficient and effective way and at the lowest possible borrowing costs, given the prevailing circumstances, within an

We also assessed the operational framework of the PDMO, giving special emphasis on the controls safeguarding that it operates independently from political bias and ensuring the transparency of its operations, especially in relation to the provision of adequate and appropriate information to the House of Representative. We believe that, although the level of public debt is determined, to a great extent, by the fiscal policy of the Executive branch, the Parliament has an important role to play. By adopting relevant legislation, as well as through the approval voting of the annual State Budget, it can enhance transparency and accountability on the management of public debt. For the assessment of the sustainability of the public debt of the Republic of Cyprus, we the Cyprus Public Auditor office conducted a debt sustainability analysis. INTOSAI acknowledges the complexity of sovereign debt issues, and suggests that sufficient technical knowledge is essential in undertaking an audit. We therefore joined efforts with Professor Stavros Zenios from the University of Cyprus and the Bruegel think tank in Brussels, who had developed and published works on debt analysis. We chose to work with a model published in reputable peer-reviewed international literature, which was thus considered by our Office to be reliable for drawing conclusions with high level of confidence. The reliability and transparency of the model through a peer-reviewed process is essential for acceptability of the findings, given the complexity of the issues. The model assesses the financing

Audit Office – Republic of Cyprus

of Cyprus' debt over a 30-year risk horizon, considering different financing strategies and assumptions on the economy. We find that the Cyprus sovereign debt is sustainable under a wide range of reasonable assumptions on public finance, economic growth, and interest rates. However, the high level of debt is a reason for concern and stress tests reveal that public debt dynamics can be derailed from potential external shocks. For instance, we also went a step further to look into the possible impact of climate change on public debt. Stress tests confirm that high public debt levels create a situation that becomes more fragile due to the effects of climate

change on the economy. The figure below shows the declining (sustainable) debt dynamics as the orange fan chart, but under climate change scenarios we see that the debt trajectories follow an upward (unsustainable) trend from mid-century. We were also able to analyze the past debt financing practices by the PDMO. We found that they have been mostly efficient in balancing costs with risks, although we identified cases where the debt financing deviated from the best practice. Overall, our report applauded the Cyprus PDMO for its effectiveness, but it also recommended that it may want to improve its risk management capabilities.

1. Dibley, A., T. Wetzer and C. Hepburn (2021) National COVID debts: climate change imperils countries’ ability to repay, Nature 592:184-187.

2. Clerides, Sofronis, 2014, The Collapse of the Cypriot Banking System: A Bird’s Eye View, Cyprus Economic Policy Review, Vol. 8, No. 2, pp. 3-35. Zenios, Stavros A., 2013, The Cyprus Debt: Perfect Crisis and a Way Forward, Cyprus Economic Policy Review, Vol. 7, No. 1, pp. 3-45.

CONCLUSION

Our analysis showed that the current ultra-low interest rates in the eurozone can support the Cyprus debt, but its high levels are a reason for concern since debt dynamics can be derailed from potential shocks. The PDMO should keeping a forwardlooking approach, assessing relevant risks on a continuous basis. We also highlighted that, establishing a public debt management policy, that fixes a weighted average maturity to an acceptable value is not sufficient to control risks, as there are several alternative ways to issue debt, and some of them can deviate from the best practice. It is important to select the debt financing portfolio and not just its weighted average maturity at issuance, and the PDMO will benefit by improving its risk management capabilities.

The impact of public debt on the economy of a country can be significant. Extremely high levels can lead to a vicious circle of escalating borrowing needs in order to service and refinance existing debt, which, in turn, may lead to loss of trust by investors, causing a deadlock. Supreme Audit Institutions have a very significant role to play in ensuring that the management of public debt in their country is free from political bias, ensuring that this

Foreign Directive Investment Screening: EU FDIS Regulation and Recent Developments

With foreign direct investment screening (FDIS) being a pillar of the exercise of competence of the EU Commission, under Articles 3(1)(e) and 207(1) of the Treaty on the Functioning of the European Union (TFEU), in defining the framework for implementing the common commercial policy, Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, also know as the EU FDIS Regulation, stands as the capstone of the said EU wide policy .

EU FDIS Regulation, published on 21st March 2019 with date of legislative application being 11th October 2022, established a framework for the screening by EU Member States of foreign direct investments into the Union on the grounds of security or public order and for a mechanism for cooperation between Member States, and between Member States and the Commission, with regard to foreign direct investments likely to affect security or public order, including the possibility for the EU Commission to issue opinions on such investments.

Although having what could be regarded as the appearance of a Directive, with specific provisions of screening and co-operation with the EU Commission and the other Member States to be implemented via the adoption of national legislation, the said legislative measure was adopted in the form of a Regulation, with the EU Commission seeking, as per Carcy, to ensure a unified

and immediate implementation to all Member States and demonstrate that the EU acts as one when it comes to FDIS, regarded as a strategic issue.

Within the ambit of the FDIS process, the relevant EU Commission Communication dated 25th March 2020, called upon, in particular, Member States that did not have, at the time, a screening mechanism, or whose screening mechanisms did not cover all relevant transactions, to set up a full-fledged screening mechanism and in the meantime to use all other available options to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU, including a risk to critical health infrastructures and supply of critical inputs. Such investments – transactions, related, but are not restricted to, as per Article 4(1) EU FDIS Regulation, investments in relation

The above development could only be considered as welcome step in the direction of effective EU Law application in the FDIS sphere

Pantelis Christofides Advocate – Director Head EU and Regulatory Law Department

to critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure, critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies, supply of critical inputs, including energy or raw materials, as well as food security, access to sensitive information, including personal data, or the ability to control such information, and the freedom and pluralism of the media.

The utilisation of the words “inter alia”, in the description of the investments under scrutiny remit, by the EU Commission could not be regarded as without cause. As per Recital (paragraph) 9 of the EU FDIS Regulation Preamble, a broad range of investments which establish or maintain lasting and direct links between investors from third countries including State entities, and undertakings carrying out an economic activity in a Member State should be covered by this Regulation. Thus, and in accordance with the Principle of EU Law Effectiveness, each Member State could indeed consider including additional areas of investment to

be screened as being regarded of strategic importance, for example, in the financial sector.

In determining whether a foreign direct investment is likely to affect security or public order, Member States and the Commission may also take into account, amongst other issues, whether the foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces, of a third country, including through ownership structure or significant funding, whether the foreign investor has already been involved in activities affecting security or public order in a Member State, or whether there is a serious risk that the foreign investor engages in illegal or criminal activities.

As far as the intra – EU co-operation mechanism is concerned, an EU Member State has the duty to notify the proposed or existing investment, to the other EU Member States, pursuant to Article 6 EU FDIS Regulation, with each potentially affected EU Member State being enabled to provide comments. Further, the EU Commission may issue an Opinion, which, in relation to investment, planned or committed, which did not undergo screening, either when the Member State did not have a screening mechanism or when the Member State maintained a screening mechanism but the specific FDI transaction - investment had not submitted by the parties for ex-ante (in advance) screening, can be delivered no later than 15 months after the foreign direct

investment has been completed with the jurisdictional cut off point being 10th April 2019.

In accordance with the data published as part of the First Annual Report of the Commission to the European Parliament and the Council on the screening of foreign direct investments into the Union dated 23rd November 2021, during the period 11th October 2020 through 30th June 2021, a total of 265 notifications had been submitted by 11 EU Member States, pursuant to Article 6 of the EU FDIS Regulation, with more than 90% of these cases were notified by five Member States, namely Austria, France, Germany, Italy and Spain. Regarding the origin of the ultimate foreign investor, in the 265 cases notified, the five main countries of origin had been United States of America, United Kingdom, China, Canada and the United Arab Emirates.

In relation to the origin of the legal structure utilised so as to implement the proposed investment – transaction, the EU Frequently Asked Questions on the EU FDIS Regulation clarify that investments by EU entities may nevertheless come within the scope of the EU FDIS Regulation when they fall under the anti-circumvention clause. Although “circumvention” is not defined by the EU FDIS Regulation as such, Recital 10 of the Preamble thereof specifies that anticircumvention measures “should cover investments from within the Union by means of artificial arrangements that do not reflect economic reality and circumvent

& ECONOMY

the screening mechanisms and screening decisions, where the investor is ultimately owned or controlled by a natural person or an undertaking of a third country…”. Accordingly, an assessment ought to be made so as to ascertain whether such arrangements are part of a scheme of circumvention set up with the objective result of avoiding the application of the Regulation.

As per Article 2(4) EU FDIS Regulation, the screening mechanism relates to an instrument of general application, such as a law or regulation, and accompanying administrative requirements, implementing rules or guidelines, setting out the terms, conditions and procedures to assess, investigate, authorise, condition, prohibit or unwind foreign direct investments on grounds of security or public order.

To that effect, the Republic of Cyprus Ministry of Finance published, on 24th June 2022, an Announcement regarding the Public Consultation as to a draft Bill related to fleshing out the provisions

of the EU FDIS Regulation. The above development could only be considered as welcome step in the direction of effective EU Law application in the FDIS sphere.

1 For further information as to the context and objectives of the Proposal which led to the adoption of the EU FDIS Regulation see European Parliament Briefing Paper entitled ‘EU framework for FDI screening’, January 2018, accessible at https://www.europarl.europa.eu/EPRS/EPRS-Briefing-614667EU-framework-FDI-screening-FINAL.pdf.

2 See to that effect Article 17 EU FDIS Regulation.

3 See to that effect Article 1(1) EU FDIS Regulation.

4 See to that effect Carcy, Loïc, The new EU screening mechanism for foreign direct investments: When the EU takes back control, College of Europe, Bruges Political Research Papers, No 84 / March 2021, pg. 6, accessible at https://www.coleurope.eu/sites/default/files/research-paper/wp84_carcy_0. pdf.

5 See to that effect Communication from the Commission: Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), Brussels, 25.3.2020, C(2020) 1981 final, pg. 3, accessible at https:// trade.ec.europa.eu/doclib/docs/2020/march/tradoc_158676.pdf.

6 See to that effect Article 4(2) EU FDIS Regulation.

7 See to that effect EU Commission’s Frequently asked questions on Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union, and, in particular, Answer to Question no. 28, accessible at https://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157945. pdf.

8 See to that effect Article 7(8) EU FDIS Regulation.

9 See to that effect Article 7(10) EU FDIS Regulation.

10 {SWD(2021) 334 final} Brussels, 23.11.2021, COM(2021) 714 final, pages 11 and 13, accessible at https://trade.ec.europa.eu/doclib/docs/2021/november/ tradoc_159935.pdf.

11 See note 7 above, and, in particular, Answer to Question 12

12 The content of the Republic of Cyprus Ministry of Finance Announcement

It is, accordingly, envisaged that further comments and suggestions could be provided within the remit of an ongoing constructive dialogue.

dated 24th June 2022 as well as the text of the draft Bill are accessible at http://mof.gov.cy/gr/%CE%B3%CF%81%CE%B1%CF%86%CE%B5%CE%AF%CE% BF-%CF%84%CF%8D%CF%80%CE%BF%CF%85/%CE%B1%CE%BD%CE%B1%CE%B A%CE%BF%CE%B9%CE%BD%CF%8E%CF%83%CE%B5%CE%B9%CF%82-%CE%B5% CE%B3%CE%BA%CF%8D%CE%BA%CE%BB%CE%B9%CE%BF%CE%B9-%CF%85%C F%80%CE%BF%CF%85%CF%81%CE%B3%CE%B5%CE%AF%CE%BF%CF%85/%CE% BF-%CF%80%CE%B5%CF%81%CE%AF-%CF%84%CE%B7%CF%82-%CE%B8%CE%AD %CF%83%CF%80%CE%B9%CF%83%CE%B7%CF%82-%CF%80%CE%BB%CE%B1%CE% B9%CF%83%CE%AF%CE%BF%CF%85-%CE%B3%CE%B9%CE%B1-%CE%AD%CE%B B%CE%B5%CE%B3%CF%87%CE%BF-%CF%84%CF%89%CE%BD-%CE%AC%CE%BC% CE%B5%CF%83%CF%89%CE%BD-%CE%BE%CE%AD%CE%BD%CF%89%CE%BD-%CE %B5%CF%80%CE%B5%CE%BD%CE%B4%CF%8D%CF%83%CE%B5%CF%89%CE%BD%CF%83%CF%84%CE%B7%CE%BD-%CE%BA%CF%85%CF%80%CF%81%CE%B9% CE%B1%CE%BA%CE%AE-%CE%B4%CE%B7%CE%BC%CE%BF%CE%BA%CF%81% CE%B1%CF%84%CE%AF%CE%B1-%CE%BD%CF%8C%CE%BC%CE%BF%CF%82%CF%84%CE%BF%CF%85-2022

http://mof.gov.cy/gr/%CE%B3%CF%81%CE%B1%CF%86%CE%B5%CE%AF%CE%BF-%CF% 84%CF%8D%CF%80%CE%BF%CF%85/%CE%B1%CE%BD%CE%B1%CE%BA%CE%BF%CE%B 9%CE%BD%CF%8E%CF%83%CE%B5%CE%B9%CF%82-%CE%B5%CE%B3%CE%BA%CF%8D %CE%BA%CE%BB%CE%B9%CE%BF%CE%B9-%CF%85%CF%80%CE%BF%CF%85%CF%81% CE%B3%CE%B5%CE%AF%CE%BF%CF%85/%CE%BF-%CF%80%CE%B5%CF%81%CE%AF%CF%84%CE%B7%CF%82-%CE%B8%CE%AD%CF%83%CF%80%CE%B9%CF%83%CE% B7%CF%82-%CF%80%CE%BB%CE%B1%CE%B9%CF%83%CE%AF%CE%BF%CF%85%CE%B3%CE%B9%CE%B1-%CE%AD%CE%BB%CE%B5%CE%B3%CF%87%CE%BF%CF%84%CF%89%CE%BD-%CE%AC%CE%BC%CE%B5%CF%83%CF%89%CE%

BD-%CE%BE%CE%AD%CE%BD%CF%89%CE%BD-%CE%B5%CF%80%CE%B5%CE%BD %CE%B4%CF%8D%CF%83%CE%B5%CF%89%CE%BD-%CF%83%CF%84%CE%B7%CE%BD%CE%BA%CF%85%CF%80%CF%81%CE%B9%CE%B1%CE%BA%CE%AE-%CE%B4 %CE%B7%CE%BC%CE%BF%CE%BA%CF%81%CE%B1%CF%84%CE%AF%CE%B1%CE%BD%CF%8C%CE%BC%CE%BF%CF%82-%CF%84%CE%BF%CF%85-2022.

Law amendments enabling a financial statement review

Members had been informed, in previous publications, about ICPAC’s proposal for an alternative assurance framework to a financial statement audit for very small companies which would have served as the starting point for consultation between all relevant stakeholders, both from the public and the private sector. The proposal was eventually accepted following consultations conducted by ICPAC, which showed that the financial statement audit requirement for all companies and partnerships regardless of size and natural persons, had proved in practice to be burdensome, costly, and not of particular relevance.

This consultation has now been successfully completed resulting to the Parliament voting, on 9 June 2022, for relevant amendments to the Companies Law, Cap. 113, the General and Limited Partnership and Business Names Law and the Assessment and Collection of Taxes Law (‘the laws’) to permit companies, partnerships and natural persons that fall under certain criteria to apply a review engagement under the International Standard on Review Engagements (ISRE) 2400 (Revised) Engagements to Review Historical Financial Statements as issued by the International Auditing and Assurance Standards Board (IAASB). This standard is designed not only to provide an effective and consistent level of limited assurance on financial statements, but also to allow for efficient delivery of the service proportionate to the complexity of the statements reviewed.

It is noted that a review engagement can only be performed by a statutory auditor or audit firm as per the Auditors Law of 2017. It is expected that these changes will reduce the administrative burden across both the private and public sector entities, businesses and audit firms.

COMPANIES LAW, CAP 113 AMENDMENTS

To determine whether a company is

OTHER OBLIGATIONS

eligible to adopt a review engagement rather than an audit:

• the company must be a private company (i.e., not a public interest entity and also not subject to regulation and supervision by the Central Bank of Cyprus, the Insurance Superintendent and the Cyprus Securities and Exchange Commission).

• both its Net Turnover and Total Gross Assets should not exceed or cease to exceed the criteria of 200.000 EUR and 500.000 EUR, respectively, for at least two consecutive financial years.

For the purposes of determining whether an entity falls under the criteria that would allow it to adopt a review engagement, the amended law provides that ‘Net turnover’ includes the Net Turnover as defined in the provisions of the Companies Law, Cap.113, as well as income from rental income, interests, dividends, and royalties.

With regards to a group of companies, provided that the group is exempted from the obligation to prepare consolidated financial statements, then it can apply a review engagement if together with its subsidiaries they do not exceed or cease to exceed the relevant criteria for at least two consecutive financial years.

The same criteria apply for partnerships.

ASSESSMENT AND COLLECTION OF TAXES LAW AMENDMENTS

The requirement for a natural person to prepare accounts begins where his/ her total annual turnover and any other gross income arising from certain sources defined in the Income Tax law exceed the amount of seventy thousand euros.

For those natural persons whose total annual turnover and any other gross income arising from certain sources defined in the Income Tax law exceed the amount of seventy thousand euros but do not exceed or cease to exceed the amount of 200.000 EUR and total gross assets, do

not exceed or cease to exceed the 500.000, at the balance sheet date for at least two consecutive financial years, they can submit their accounts for review.

Where the abovementioned requirements are not met, the natural persons shall have their accounts audited.

EFFECTIVE DATE

The amendments for the Cyprus Companies Law, Cap. 113 enter into force on 1 January 2023. Its provisions apply to the financial statements of companies/ partnerships/natural persons for reporting periods ending on or after 31 December 2022. (e.g., for companies/partnerships/ natural persons that have year-end other than a calendar year, the changes in the laws will apply for the following year, i.e., 2023).

ICPAC’S EDUCATIONAL SUPPORT

In an effort to prepare its members for the upcoming changes, ICPAC is planning to organize workshops/webinars to provide information about the requirements of ISRE 2400 (Revised). Additionally, technical circulars and guidance will be issued by the Auditing Standards Committee explaining the amended law requirements and providing relevant illustrations.

There is also guidance readily available, prepared by the Small and Medium Practitioners Committee of IFAC, titled ‘‘Guide to Review Engagements’’. This guide is helpful as it provides practical support on the application of the requirements when conducting a review engagement in accordance with ISRE 2400 (Revised).

Eleni Ashioti Head of Technical and Professional Matters of ICPAC

Eleni Ashioti Head of Technical and Professional Matters of ICPAC

Philippos Aristotelous Business Strategist, Author, Coach, Consultant, Philarist.com

Fear is always linked to future related narratives, predictions and stories habitually woven by our minds to help us remain properly oriented when navigating the uncertain terrains of life:

• What will happen to me at work if I lose this important client?

• How bad will I feel if I fail to get a bonus at the end of the year?

• Will I manage to keep my composure during my appraisal meeting tomorrow?

• Will I be able to deliver my speech at the upcoming conference without blacking out?

Our minds constantly strive to interpret, predict and narrate reality so as to help us maintain our sense of control.

Our ability to control our fear is closely linked to the degree of our preparedness and familiarity in relation to a situation:

1. The less information, data and facts we possess relevant to the situation, the more assumptions will be woven by our minds so as to fill in gaps, connect dots and produce (often flawed) predictions on how a situation is likely to play out or unfold.

2. The more extensive the web of assumptions we subconsciously employ to address unknown aspects of a situation, the more fearful, uncertain and tensed we become.

3. Fear always equals fear of the unknown.

The unknown can be symbolized by a terrifying dragon.

Slay the Dragon And Take the Gold

The less information we have relating to an upcoming situation, the larger the surface of the unknown – hence the larger the size of the ‘dragon’ in our mind.

Since fear = fear of the unknown, the only valid antidote to fear is to decrease the

surface of the unknown.

Thus to “slay the dragon” we need to cut it into smaller pieces first.

We cut it into smaller pieces by accumulating more and more information, data and facts on the situation or task at

hand thus gradually making the unknown less unknown.

We make the unknown less unknown by improving our level of knowledge, experience and mastery in the areas concerned.

more light into the various aspects of the project so as to expand the surface of the known:

1. Spend time studying, researching, collating information and perfecting your presentation to ensure you feel 100% comfortable with it.

2. Visit and fully familiarise yourself with the venue where the presentation will take place at least a day before the event. Aim to notice even the smallest nuances – where the parking area is, the table arrangements in the ballroom, the texture on the carpet, your view from the stage, where the restroom is, how you access the stage from your seat, the range of your clicker and wireless microphone etc.

3. Talk to the organisers to ensure they have your slides in order and that all technical issues are taken care of (e.g the kind of mic you may want to be using).

4. Select and prepare the clothes you will be wearing at the event well in advance.

5. Rehearse your presentation a few times (ideally with a coach or friend) to ensure your messages get conveyed clearly and that you will not exceed the time limit allocated to you.

6. Study the full agenda of the conference to get the full picture as regards the purpose and general mission of the conference.

Take the example of a future presentation causing us fear.

In this case the dragon symbolizes our primitive fear of humiliation in relation to our performance during the presentation.

The way to “slay the dragon” is to shed

7. Arrive at the venue early and if your speech is one of the later ones during the conference, make an effort to watch all speeches before yours as this may also provide you with some ammunition / addiitonal points you could refer back or use during your speech or the Q&A that may follow. What all the above points aim to do are to help us collect more information on the various aspects, logistics and angles of the matter in hand – thus helping us improve our overall sense of control over the future event. The more prepared we become the more we reduce the surface of the unknown. The smaller the surface of the unknown, the smaller the size of the dragon. The smaller the dragon, the less fear and anxiety we feel. The less fear and anxiety we feel, the less reluctant we will be to sneak into the dragon’s lair to capture the gold; the gold represents the courage to live the life you are most proud of. Are you ready to confront your next dragon?

”Dragons hoard gold because the thing you most need is always to be found where you least want to look.”

Jordan Peterson

Clinical psychologist and author

Keeping your competitive edge: The growing importance of Continuing Professional Development (CPD) in an evolving global business landscape

In a fast-changing world moving towards an era of realignment, professional accountants face increased knowledge and skill expectations whilst encounter unprecedented scrutiny of their work quality, in a framework full of challenges and opportunities and with serving the public interest remaining an uncontested objective.

The need to be competitive in a worldwide economy has prompted a more intense focus on the roles and responsibilities of professional accountants in entities of all types, be it in industry, commerce, education, private or public sector. As established in the International Education Standard 7 (IES 7),

Efi M. Marcou Head of Learning and Development, The Institute of Certified Public Accountants of Cyprus

“A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives the advantage of competent professional service based on current developments in practice, legislation and techniques. […]

The profession has a responsibility to ensure that professional accountants continue to develop and maintain the competence demanded by their professional roles and the users of their services.”

Beyond a shadow of a doubt, the times we live in shape world’s industries, markets and economies in such a fast pace, that the importance of continuing professional development crystallises and stands out on its own. Building and maintaining a competitive edge through the reinforcement and enhancement of current skills, whilst at the same time identifying and reducing any knowledge gaps or shortfalls, can be the factor to differentiate professionals who otherwise hold similar, rather basic qualifications. Academic and professional knowledge is bound to become obsolete, unless individuals ensure to continually develop their knowledge, skills, abilities, competences, continue to grow and evolve through such personal empowerment that will allow them to claim representation at the forefront of the profession and industry. Disruptive technology is on its own, a major challenge that the profession encounters and which professional accountants have to contemplate by staying up to date with developments and changing their skill set as required. In trying to identify or assess tomorrow’s needs and requirements, someone will firstly have to possess an in-depth understanding of the industry’s current affairs, whilst closely examining any new, emerging developments. Digital literacy is the vehicle through which a professional can reach an understanding of the industry’s future, or at least obtain an “as good as it gets” assessment, with what’s next and what changes inevitably lie ahead.

The new era in which the professional accountants’ world has entered into, requires also the built of a sound set of soft skills which includes communication with influence and impact, ethical thinking, negotiation, public speaking and presentation, timemanagement, teamwork, leadership and many more. Moving out from the traditional accounting tasks, which by default are becoming increasingly automated, the

The new era in which the professional accountants’ world has entered into, requires also the built of a sound set of soft skills which includes communication with influence and impact, ethical thinking, negotiation, public speaking and presentation, time-management, teamwork, leadership and many more

evolution of the professional accountant’s role demands agility and flexibility to adapt and harness the technology’s potential. These radical changes which inevitably impact the profession can only be turned into opportunities and growth-potentials through understanding, appreciating, and enforcing the notions of continuous

professional development.

Planning the appropriate CPD approach and choosing the right learning arrangement is imperative for all professionals to enable personal empowerment and taking charge of their career development and aspirations.

CPD is an extension of the education process that led to qualification as a professional

accountant, and relevance is the key word to accompany every chosen learning activity going forward. Given that CPD contributes to the competence of professional accountants, any chosen learning activities are expected to develop their professional knowledge, skills, values, ethics and attitudes, relevant to their current and future work role, position and responsibilities.

ICPAC is fiercely committed to its members’ lifelong learning and never stops highlighting the importance of continuous improvement of competence, by providing support and guidance whilst working on methods and ways to further enhance the quality and quantity of all learning resources and tools available to embrace them.

Learning opportunities provided by ICPAC are designed and delivered by leading professional instructors and cover an array of topics that span across areas of personal and business skills, technical and regulatory requirements, professional values, ethics and more, always on the lookout for any new topics that are deemed fit in this new period of appraisal that the accountancy profession is going through.

Supporting lifelong learning for its members through its established CPD Program is a strategic commitment for ICPAC. As such, it forms the basis of a learning culture dedicated to empowering its members in today’s progressive world and facilitating their continuous efforts to build and maintain a sustainable competitive edge.

FUNDS

How the CFA Research Challenge can contribute to the development of great finance professionals for the Cyprus investment funds industry

Whilst discussion around protective legislation and compliance is a key component to creating a successful ecosystem, there was little attention on the need for well-educated skilled investment professionals with the required level of ethical and professional standards to meet that growth. With the momentous growth of the funds industry, it is time for the local market to pivot and identify the need for focused finance professionals.

One such initiative is here to make an impact; the CFA Research Challenge (“RC"). It pivots our lens and focuses on the role of finance providing university students with hands-on mentoring and rigorous training in financial analysis and real-world experience in equity valuation.

The rigorous program, spanning 6+ months, aims to identify future finance leaders and seeks to ensure participating students are well prepared to undertake the position of equity research analyst in an investment fund management company.

Understanding the importance of the finance profession is key to ensuring we are meeting the objectives of tomorrow in our talent pool.

The CFA RC is a global equity research competition organized on annual basis by the CFA Institute (“CFAI”) and the local Societies across the world.

The CFA Society Cyprus created the CFA Cyprus RC & University Relations Committee (the “Committee”), hosting the local leg of the CFA RC competition.

Many members of the CFA Society Cyprus support this competition by participating as volunteers, either as Industry Mentors,

Graders or Judges. The program is further expanded by collaborating with established finance experts, professional service firms and with international banks to deliver relevant training to the cohort in areas such as equity valuation, Key Performance Indicators and Ratios, Equity Modelling, ESG, Report Writing and Presentation Skills.

Each year the Committee selects a relevant listed company and delivers a live investment analyst forum to the university students, where they are also given time to directly raise some bespoke questions to the Executive Management team of the subject company. They are then asked to prepare a written report, which focuses on the following areas:

Business Description: to deliver a coherent description of the current, and future strategic motives, broken down by products/services by segment and/

CFA, Executive Director at Easternmed Asset Management Services Ltd, Board Member of the CFA Society Cyprus

or geographical allocation to assess key dependencies/concentration.

ESG: 2021 was a momentum year in the global ESG narrative which has seen the topic elevated from a niche to a mainstream pillar of growth for companies. The CFAI supports the integration of ESG in financial analysis and developed the Global ESG Disclosure Standards for Investment Products, which creates a framework for investment managers to communicate to investors the nature and characteristics of ESG funds and investment strategies more effectively. For this section of the report, students assess and document how ESG may impact the company’s short- and longterm prospects.

Industry Overview and Competitive Positioning: teams are tasked with analysing the industry dynamics and the competitive landscape using tools

Τhe Cyprus fund industry has reached records of €11bn+ AuM, and pace of growth is expected to continue through 2022 and onwards.

Andrie Santis

Constantinos Kourouyiannis

CFA, Associate Director at FNZ Group, Board Member of the CFA Society Cyprus

such as Porter’s Five Forces This tool incorporates brand, cost leadership and access to protected technology under five key areas: (1) threat of new entrants, (2) threat of substitutes, (3) bargaining power of customers, (4) bargaining power of suppliers and (5) competitive rivalry.

Financial Analysis: teams need to build an analytical model of historical performance and to produce informed forecasts. Using financial ratios such as gross/net/EBITDA margin, return on equity, current/quick/ cash ratio, working capital cycle ratios, and debt servicing ratios, the teams need to interpret the performance, efficiency and health of the company.

Valuation: the results from the model need to form the valuation; what is the target price either on an absolute or relative basis. Understanding the relevance is also important; does the company/ industry operate with stable and predictable cash flows possibly lending itself to a DCF, or would the relative price of peers be more relevant?

Sometimes the answer is both and therefore, there is a natural triangulation of valuations that needs to be undertaken to understand the implied value, possibly

considering the use of a weighted average of various models.

Investment Risks: using a Risk Matrix framework, teams can assess financial, operational, regulatory, and legal risks using probability and likelihood measures. A successful report identifies systematic and non-systematic risks, many of which are not disclosed and need to be determined by research.

Industry veterans will understand that to complete the above analysis in such detail and with such expertise takes years to master.

The teams carve out their free time, away from their ongoing studies, to deliver this enriching learning in paper form, delivering the first stage output for the challenge.

The second stage is to bring the report to life in a presentation form, delivering a presentation to a panel of industry experts.

This is indeed a real-world experience since research analysts are required to present their recommendations to an investment committee.

The winning team qualifies to SubRegionals and can participate up to the Global Final competing with students in some of the top universities in the world.

Subject companies who have historically participated in the program include KEO,

Vassiliko, Fourlis and this year the preselected company was Hellenic Petroleum, which was indeed a very relevant and challenging company for the teams. There has also been a clear shift in the mindset of those who contribute, with many looking to hire directly from this cohort, and more relevant for some of the most powerful and influential employers in Cyprus, such as Eurobank, PwC, KPMG, EY, Grant Thornton and Deloitte offering internships to the participants in order to really capture our future finance leaders. As we see the world of education also shifting, we should all consider how we create not only a more defendable future talent pool, but also to consider how internship experiences, such as this offered by the CFA RC, will really transform our markets.

This unique opportunity for practical training and exposure to industry experts, experience which cannot be obtained from any academic or professional course in finance, should be integral to our development.

Fund management companies willing to invest in their human capital and looking for competent and skillful personnel should give value to university students having the relevant experience and training such as that offered by the CFA RC.

The importance of internal audit

Every organization is exposed to a certain level of risk over the course of its life, but what really differentiates an entity from its competition is how it deals with potential threats. A key strategy to ensure good governance over the business activities and keep the stakeholders well-informed is an annual internal audit (IA).

IA is an investment that will definitely pay off in the long run. Here are some of the key reasons why an IA is important for your organization.

1 Internal control assessment

Internal control, as defined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is a process affected by an entity's board of directors (BOD), management, and other personnel. It is designed to provide reasonable assurance regarding the achievement of certain objectives. Typically, management is responsible for developing an appropriate system of internal controls, but every employee is responsible for following and applying these practices. Internal control review assumes greater importance in light of current economic downturn. Well-designed

Orestis Papacharalambous Internal Auditor at Lemesos Municipality

internal controls keep the organization operating efficiently and effectively, and they can help maintain compliance with regulations.

2 Anti-fraud control framework

Harry Markopolos once said: “…it’s not the armed robbers or drug dealers who cause the most economic harm, it’s the white-collar criminals living in the most expensive homes who have the most impressive resumes who harm us the most. They steal our pensions, bankrupt our companies, and destroy thousands of jobs, ruining countless lives.”

Organizations lose approximately 5% of their revenue to fraud each year, according to the Association of Certified Fraud Examiners. With fraudsters becoming ever more sophisticated in their approach, closer attention must be paid to an organization’s anti-fraud control framework. Recent studies have shown that entities with an IA function are more likely to detect/ prevent fraud,

compared to organizations without such a function.

3

Cybersecurity

Over the course of just a few years, Cybersecurity has grown into one of the most significant risk management challenges that virtually every type of organization faces. The annual global cost of cyber-crime topped $6 trillion in 2021, and this figure is expected to rise up to $10 trillion by 2025. Cyberthreats are real, and organizations are becoming more vulnerable due to the increasing reliance on computers, networks, programs, social media, and databases.

IA has a critical role in helping organizations in the ongoing battle of managing cyber-threats. It can achieve that by providing an independent assessment of existing and necessary controls, and by helping the audit committee and BOD in understanding and addressing the diverse risks of the digital world.

TAKEAWAY

The IA is essential for entities of all sizes, since it identifies ways to minimize risks and optimize resources. This is important, because it can help your organization save time and money, and reduce fraud risk.

The establishment of an IA function need not be a major investment. An organization does not have to jump into the deep end of the pool and hire an entire department. The function can be internal, outsourced or co-sourced.

CRIME & FRAUD

How to protect your customers and yourselves from RussiaUkraine crisis scams

As the war in Ukraine captures the international community’s attention, opportunistic criminals are seizing the chance to take advantage of the crisis, as they are undoubtedly using the war as an opportunity to commit fraud and other financial crimes. All professionals in the business must remain alert and safeguard themselves and their customers from those criminals, especially those who provide administrative and banking services to Russian-Ukraine customers. As they are at a greater risk of exposure to fraud, it is important to get familiarized with the fraud types that are more likely to be committed in light of the Russian-Ukraine crisis, the red flags that could alert them and key fraud mitigation actions that could protect them and their customers from fraud losses.

2.8 million people reported Fraud in 2021, with more than $5.9 billion fraud losses1

IMPERSONATION OR IDENTITY FRAUD

Identity theft is when an individual’s personal data, such as name, ID/Passport number, phone number, email /physical address, or financial data, such as bank account details, credit card details, are stolen. Identity fraud is when those data are used, without the person’s permission or knowledge, to commit fraud. There are various forms of identity fraud but the most common is the financial fraud, such as making unauthorized transactions, resulting in financial harm to the victim and financial gain to the impersonator. As thousands of people have been killed and more than 10 million2 have fled their homes in Ukraine because of the war, with a great danger of their personal and financial data to be exposed, the possibility of your RussianUkraine customers to become victims to an identity fraud scam is a very real and serious threat. These people are a good target to fraudsters, to make use of their personal data, of important documents or of financial records left behind. Hence,

it is important for you to be aware of this possibility and to protect your RussianUkraine customers’ assets from being stolen.

FRAUD RED FLAG WARNINGS

• Your customers contact you from unknown email address or phone number

• They request alteration of their contact details such as email address, phone number and physical address, using various well believable excuses

• They ask you for confidential personal or financial data

• Customers who wish to place a third party as authorized representative

• Third parties acting in your customers’ name by presenting forged documents

• Customers request irregular transactions, such as a payment to a new beneficiary or a high-amount payment

• They request a transaction from a dormant bank account

Demetra Demetriou Senior Financial Officer and Member of the Financial Crime and Forensic Accounting Committee, ICPAC

FRAUD MITIGATION ACTIONS

• It is important to maintain accurate and updated the ‘KYC’ records of your customers

• Customers’ data must be verified, by checking the information provided (i.e. email address, phone number) against your own internal data or against another trusted source

• Identity verification (i.e. checking that persons are really who they say they are) should also be applied, by asking them confidential personal and financial information

• If you identify any inconsistencies, inform your legitimate customers. Do not reply to the message in question.

• Contact the customers’ Financial Institution and inform them of the possibility their customers to be fallen for an identity fraud scam, in order to be alert on the customers’ bank accounts

• If you have been tricked into sharing personal and/or financial information of your customers with the scammers or

people reported

into performing a fraudulent transaction, you should immediately contact your customers’ Financial Institution and let them know of the scam and request recall of the transactions

• Report your suspicion for an identity fraud to the Police

PAYMENT REDIRECTION FRAUD

The rapid rise in digital activity has created new opportunities for fraudsters, exposing businesses to increased fraud risk. Companies that have been identified as vulnerable to cyberattacks, could easily become victims of various types of fraud, with the most common the ‘payment redirection fraud’. C yber attackers could impersonate your Russian-Ukraine customers and ask you to change the bank details of a legitimate payment instruction. You then would perform the altered payment, thinking that it comes from your legitimate customers, when in fact the money is paid into the fraudsters’ account.

Recovering money from fraudulent accounts can be extremely difficult, as the fraudulent funds are often quickly transferred or withdrawn.

‘Payment redirection fraud’ is also known as ‘a man in the middle’ fraud, ‘mandate fraud’ or ‘business email compromise’ fraud, as the cybercriminals intercept the communication between the businesses by compromising corporate e-mail accounts through social engineering techniques, to conduct unauthorized transactions.

FRAUD RED FLAG WARNINGS

• If you receive payment instructions with different bank account details than the ones held for similar previous transactions. Be alert for changes in the bank account number (i.e. IBAN), even if the beneficiary name maybe the same.

• If you get notification to alter the bank details of a payment instruction into a new account, by giving a convincing excuse

EXAMPLES:

• ‘Bank is facing SWIFT problems. Find below active bank details for your payment to avoid any delay in crediting funds.’

• ‘Bank is currently on hold due to

CRIME & FRAUD

banking restrictions (i.e. sanctions) and cannot accept funds’

• ‘Account cannot accept transactions as it is under economic investigation. Beneficiaries accept payments through their accountant’.

• ‘Account cannot credit funds momentarily due to the discrepancies in their ledger balance.’

• The urgent nature of such requests is likely to appear more pressing and convincing, especially for such requests late in the day and on Fridays, which would apply pressure to the victims not to follow the protocols and make mistakes.

• Be cautious on unexpected requests for bank account closures and transferring of funds into a new account

FRAUD MITIGATION ACTIONS

If the payment creates a sense of urgency or danger take your time to think before you act, as the fraudsters love applying pressure on their victims Always confirm the details of payment instructions with data held on customers’ file or from previous instructions received that you know to be genuine, and do not solely rely on the new instructions

• Always verify the payment request by calling directly to customers’ known phone number or through a skype call.

• If you don’t manage to verify the payment instructions with your customers, do not make the payment, even if it is urgent. Fraudsters will attempt to pressure you into making mistakes.

• Be alert on phone spoofing, i.e. scammers can create a phone number and a caller ID name of their choice, making you thinking that you speak to the genuine customers. Hence, do not verify payment instructions from a phone call received by them. Always call your customers back, on a previously verified phone number, not on a phone number indicated on the payment request itself.

• Be cautious on email spoofing, as the fraudsters can forge your customers’ email address. A spoofed email address and/or email’s display name may looks-alike to your customers’ genuine email address/name. Email

servers have no way to determine whether the sender address is legitimate or spoofed. Therefore, email addresses have to be critically reviewed by the recipients; the scammers can add or remove a letter or use alternative numbers/ letters in your customers’ legitimate domain (i.e. what follows the @ symbol), where the difference in both domains could be minimal so that it might go unnoticed by the recipient.

• Be careful on sms spoofing, as a spoofed text message may appear to come from your customers’ legitimate phone number.

• If you think you have been scammed, report it to the customers’ Bank immediately; there’s a small chance that they may be able to recover the funds from the recipient bank, if not already withdrawn

• Reset your email password. Even if you are not sure whether it is yours or your customers’ email account that has been compromised, it is better to err on the side of caution and reset your email password, by using a strong password

• Consult an IT security expert to ensure that your device is free from malware, as usually organizations’ and individuals’ email addresses are used for logging into other accounts as well. Also, ‘inboxes’ , ‘sent’ and ‘archived’ items almost certainly contain a large volume of confidential information of our business and of our customers

• REPORT THE FRAUD TO THE POLICE.

‘Invoice scams lead to more business losses than any other type of fraud. Most (55%) of the money lost to scammers between December 2021 and February 2022 was lost through invoice scams3.’

Donation fraud and Romance fraud

When a major crisis like in Ukraine causes a flood of charitable donations, this can also be used by fraudsters taking advantage of global goodwill by creating scam charities. There are many scammers out there claiming that they aim to provide support to the people in Ukraine who suffer because of the war. They may contact you via a variety of channels such as an online Ad or a website Pop-up, an email, an SMS, a phone call but the perfect channel for them to take action are the Social Media platforms, like Facebook, Instagram,

$1.3 billion lost to romance scams in the past five years, with losses to be up almost 80% in 2021 in comparison to 2020 and more than 6 times what they were in 20071

WhatsApp, LinkedIn, Twitter, TikTok, etc.

EXAMPLES OF POSSIBLE DONATION

FRAUDS:

• People are asked to book empty Airbnb rentals in Ukraine, as a way to quickly send cash to the country, with the promise of the owners to use the donation for charity and use the apartments to house people who have lost their homes in the war.

• Individuals and groups on various social media apps requesting from users to directly send them money that they will then forward to people or charities in Ukraine.

• Fake charity websites asking for donations to Ukraine people, to help children or to buy weapons for the Ukrainian military

• Emotional appeals for financial assistance through social media channels, emails, or text messages from unknown individuals claiming to be affected by the Ukraine crisis.

• Phishing emails that pretend to come from credible organizations like the United Nations, Red Cross or the Ukrainian government.

In times of war, it is also common for romance scammers to pose as soldiers or doctors serving in the war zone, as this give them a good excuse not to meet you in person and it’s a good way to win

your sympathy. They convince you to enter a virtual, online warm and trusting relationship and once they manage to gain your trust, they get you to send money. The aim of the Romance scammers is on the one hand to create an image of a person of trust and on the other hand to create feelings of empathy and make you send them money.

EXAMPLES OF POSSIBLE ROMANCE FRAUDS:

• ‘Help, help, I’m stuck here’ where the scammers pretend to be soldiers stuck in Ukraine, claiming money for a plane ticket to return back home

Doctors serving in the war zone asking for financial aid to assist their humanitarian efforts or to get away from the war.

Ukrainian refugees seeking help in leaving the country or in covering a medical emergency Rich Ukrainians- Russians asking for your professional services to move their money/possessions out of the country. However, financial demands of some sort quickly follow if you accept.

KEY FRAUD RED FLAG WARNINGS

You get a tweet, text, email or a message on social media that tells you to pay by cryptocurrency (e.g. Bitcoins, Ethereum), gift card or wire transfer.

• The fraudsters want to move quickly into a private conversation (e.g. WhatsApp, Messenger, Viber)

• They make their request for financial assistance seem urgent or like an emergency

• They act distressed to guilt you into sending money

FRAUD MITIGATION ACTIONS

• Be resistant to anyone saying they need money sent right away

• Do not click on links provided via messages/email or found on Social Media Apps/Online Ads. You can donate money to reputable charities directly through their web address.

• Never make donations in cash, gift cards, debit cards (linked to your bank accounts) or wire transfers.

• Cryptocurrency payments should also be avoided, as they don’t have any legal protection and is a favor way for scammers.

• Use credit cards to donate money, as they provide an extra layer of protection should you need to dispute a charge. Don’t give money to a person seeking financial aid that you haven’t met in person

‘$1.3 billion lost to romance scams in the past five years, with losses to be up almost 80% in 2021 in comparison to 2020 and more than 6 times what they were in 20071’

https://www.bbc.com/news/world-60555472

https://www.cityam.com/ (City A.M. is London’s most-read

The International Sustainability Standards Board (ISSB) and its requirements for disclosures

International investors with global investment portfolios are increasingly calling for high quality, transparent, reliable and comparable reporting by companies on climate and other environmental, social and governance (ESG) matters.

On 3 November 2021, the IFRS Foundation Trustees announced the creation of a new standard-setting board, the International Sustainability Standards Board (ISSB), to help meet this demand.

The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.

ISSB issued two exposure drafts. The aim of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information1 is the disclosure of comparable and verifiable sustainability-related financial information so that users will be able to assess an entity’s enterprise value. While IFRS S1 deals with the abovementioned disclosures, ISSB has selected climate to be the first significant factor that affects sustainability and has therefore developed the IFRS S2 Climate-related Disclosures2 Exposure Draft.

This is indicative of how important ISSB considers climate-related challenges to be, how the entity is adapting to these and how they affect the enterprise value. Both exposure drafts are open for comments until 29 July 2022. ISSB plans to review the feedback it will receive and issue the first two standards by the end of 2022. In this article I analyse the specific proposed reporting requirements and disclosures contained in the two exposure drafts. The aim of ISSB is to implement the Exposure Draft proposals in a way that benefits will outweigh the costs.

IFRS S1 GENERAL REQUIREMENTS FOR DISCLOSURE OF SUSTAINABILITYRELATED FINANCIAL INFORMATION

The Standard’s objective is to disclose all significant sustainability-related risks and opportunities to which the entity is exposed so that the user will be able to assess the entity’s enterprise value. ‘Sustainabilityrelated’ information includes information about the entity’s governance and strategy for addressing sustainability-related risks and opportunities, information about decisions that could result in future inflows and outflows, as well as the entity’s relationships with, and dependencies on people, the planet and the economy. IFRS S1 is proposed to be applied together with IFRS S2 Climate-related Disclosures.

The scope of the Standard applies to users preparing financial statements with any jurisdiction GAAP and not only with IFRS Accounting Standards. Sustainability-related financial disclosures are proposed to be provided at the same time as the financial statements to which they relate. Entities are not required to provide comparatives in the first year of application. Other specific reporting requirements and disclosures are listed below:

CORE CONTENT

The Exposure Draft requires disclosures relating to governance, strategy, risk management and metrics and targets. The entity is proposed to disclose its processes, controls and procedures used to manage sustainability-related risks and opportunities, their integration into the entity’s overall risk management processes and how the entity assesses its performance, including progress made towards the targets it has set.

REPORTING ENTITY

The sustainability-related risks and opportunities should be disclosed for the same reporting entity as the related financial statements and should include information about the entity’s activities, interactions and relationships and use of resources along its value chain.

FAIR PRESENTATION

Sustainability-related risks and opportunities should be faithfully represented. To identify these, an entity is proposed to apply the IFRS Sustainability Disclosure Standards, as well as the industry-based SASB Standards, the ISSB’s non-mandatory guidance and

Evita Livera BFP, FCA Special Teaching Staff Department of Accounting and Finance University of Cyprus

The sustainabilityrelated risks and opportunities should be disclosed for the same reporting entity as the related financial statements and should include information about the entity’s activities, interactions and relationships and use of resources along its value chain

the most recent pronouncements of other standard-setting bodies whose requirements are designed to meet the needs of users of general-purpose financial reporting.

MATERIALITY

Materiality needs to be judged in relation to the enterprise value and to sustainabilityrelated financial information, which might differ to information that is included in financial statements. Materiality judgements need to be reassessed at each reporting date.

LOCATION OF INFORMATION

The Exposure Draft avoids requiring the information to be provided in a particular location within the general-purpose financial reporting so as not to limit an entity’s ability to communicate information in an effective and coherent manner and to prevent conflicts with specific jurisdictional regulatory requirements. Information required by IFRS

Sustainability Disclosure Standards can also be included by cross-reference.

IFRS S2 CLIMATE-RELATED DISCLOSURES

IFRS S2 aims to help users identify climaterelated matters and significant risks and opportunities that affect an entity’s financial position and performance, its future cash flows, strategy and business model. The Standard’s objective is for companies to disclose climate related risks and opportunities and their related strategy. Disclosure is required so that the users will be able to understand the governance processes, controls and procedures used to

monitor and manage climate-related risks and opportunities. The governance body will need to be disclosed, as well as the role management plays in dealing with such issues.

ISSB needs feedback on whether disclosures, which need to be complete, neutral and accurate, will be particularly challenging to verify or enforced by auditors and regulators.

ISSB invites feedback on whether IFRS S2 should be imposed earlier, later or at the same time as IFRS S1. Users are asked whether they think the benefits of disclosing climate-related information will outweigh the costs and if they have any comments on the likely benefits and costs that will result from the ongoing application of the proposals included in the Exposure Draft. Other specific

reporting requirements and disclosures are listed below:

IDENTIFICATION OF CLIMATE-RELATED RISKS AND OPPORTUNITIES

The exposure draft proposes to disclose a description of significant climate related risks and opportunities and how these would affect the entity’s business model, strategy, cash flows, finance and cost of capital over the short, medium and long term. The aim is to improve relevance and comparability of disclosures.

CONCENTRATIONS OF CLIMATERELATED RISKS AND OPPORTUNITIES IN AN ENTITY’S VALUE CHAIN

Users need to understand the effects of significant climate-related risks and

opportunities in an entity’s business model, including in its value chain. Where in the entity’s value chain are these concentrated? The exposure draft proposes use of qualitative disclosures and asks whether quantitative disclosures are necessary.

TRANSITION PLANS AND CARBON OFFSETS

Disclosures are needed about an entity’s transition plans in achieving its climaterelated targets, the entity’s plans for legacy assets and quantitative and qualitative disclosure about its progress of plans as previously disclosed by the entity. What is the entity’s plan for reducing emissions? Entities are proposed to disclose whether the carbon offset amount will be achieved through carbon removal or emission avoidance.

CURRENT AND ANTICIPATED EFFECTS

Quantitative information needs to be disclosed regarding the effects of significant climate-related risks and opportunities on the entity’s financial position, performance and cash flows for the reported period and the anticipated effects over the short, medium and long term. Users are asked whether qualitative information should be disclosed in the case where the entity is not in a position to

disclose information on a quantitative basis.

CLIMATE RESILIENCE

Users need to understand the resilience of an entity’s strategy to climate change, factoring in the associated uncertainties. It is proposed that an entity should use climate related scenario to assess this resilience, unless it is unable to do so, in which case an alternative technique must be used.

RISK MANAGEMENT

The entity uses to identify, assess and manage not only climate-related risks, like what the Task Force on Climate –Related Financial Disclosures (TCFD) Recommendations currently request, but also climate-related opportunities. This is because ISSB believes both risks and opportunities can result from same source of uncertainty.

CROSS-INDUSTRY METRIC CATEGORIES AND GREENHOUSE GAS EMISSIONS

The aim is to improve the comparability of disclosures among reporting entities belonging to different industries. It is proposed that all entities shall disclose seven cross-industry metric categories: greenhouse gas (GHG) emissions, transition risks, physical risks, climate-related opportunities,

capital deployment towards climate-related risks and opportunities, internal carbon prices and the percentage of executive management remuneration that is linked to climate-related considerations. Users are asked whether there are any additional disclosures that need to be considered.

TARGETS

An entity needs to disclose its emissionreduction targets as well as how the entity’s targets compare with those prescribed in the latest international agreement on climate change (Paris Agreement, April 2016).

INDUSTRY-BASED REQUIREMENTS

The Exposure draft proposes industrybased requirements derived from the SASB Standards, as opposed to cross-industry requirements, that address significant sustainability-related risks and opportunities associated with climate change. It proposes amendments to SASB Standards that will enable users to apply the requirements regardless of jurisdiction. It also proposes to add disclosure topics and associated metrics in four industries: commercial banks, investment banks, insurance and asset management.

CONCLUDING REMARKS

Climate change creates both business risks and business opportunities: all entities and economic sectors face significant risks directly from physical climate changes, and risks arising from the transition to a lowercarbon economy, including those associated with greenhouse gases (GHG) associated with business activities3. At the same time, climate change can also create opportunities for entities, for example positive reputational effects or creation of competitive entities in an evolving market. Entities can be exposed to these risks and opportunities directly and through counterparties beyond their direct operations, because global supply chains and distribution channels are interconnected.

The need for high-quality, globally consistent and comparable information regarding climate-related matters is evident. Users need to make informed decisions and understand how sustainability risks and opportunities create, preserve or erode an entity’s enterprise value. Entities need to remain competitive, as they rely on a range of nonfinancial sources of value. This should be a running start for the development of a single set of global standards.

Political agreement reached on the Corporate Sustainability Reporting Directive

The market for sustainability information is rapidly growing and so the European Union (EU) is committed to address the needs of all stakeholders and transform itself into a modern, resource efficient and competitive economy with no net emissions of greenhouse gases by 2050.

Part of this commitment was the review and revision of the provisions concerning non-financial reporting as stipulated in the Non-Financial Reporting Directive (NFRD).

Upon the review of this directive, the term ‘non-financial information’ was replaced with the term ‘sustainability information’.

Following the European Commission’s (Commission) proposed amendments to the NFRD, on the 21st of June, the Council, and the European Parliament reached a political agreement on the Corporate Sustainability Reporting Directive (CSRD).

This agreement is a major step as financial and sustainability information will be put on an equal footing for the first time in the EU. The information provided about the impact of business on human rights and the environment will certainly be better.

Companies will be required to publicly disclose information on their sustainability impacts, risks and opportunities in their management report based on mandatory sustainability reporting standards.

SCOPE

The CSRD introduces more detailed reporting requirements and ensures that all large companies and all listed companies will be reporting on sustainability issues such as environmental rights, social rights, human rights and governance factors.

These companies are also responsible for assessing the information at the level of their subsidiaries.

Listed small and medium-sized entities

(SMEs) will be subject to proportionate requirements.

For non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of €150 million in the EU and which have at least one subsidiary or branch in the EU.

MAIN REQUIREMENTS

Undertakings will need to report sustainability information in a clearly identifiable dedicated section of the management report.

They will not only be required to report on information to the extent necessary for an understanding of their development, performance, position, but also on information necessary for an understanding of the impact of their activities on environmental, social and employee matters, respect for human rights, anticorruption and bribery matters (‘double materiality perspective’).

Undertakings will need to disclose information about five reporting areas: business model, policies (including due diligence processes implemented), the outcome of those policies, risks and risk management, and key performance indicators relevant to the business. They will also be required to disclose any plans they may have to ensure that their business model and strategy are compatible with the transition to a sustainable economy and with the objectives of limiting global

Eleni Ashioti Head of Technical and Professional Matters of ICPAC

Eleni Ashioti Head of Technical and Professional Matters of ICPAC

The CSRD requires disclosures based on standards that are to be developed

warming to 1,5 Celsius degrees in line with the Paris Agreement and achieving climate neutrality by 2050.

EUROPEAN SUSTAINABILITY REPORTING STANDARDS

The CSRD requires disclosures based on standards that are to be developed. The European Financial Reporting Advisory Group (EFRAG), being the technical advisor of the Commission, will be responsible for establishing these European standards, following technical advice from a number of European agencies. The Commission should adopt a first set of reporting standards by 30 June 2023. The second set and sector specific standards as well as

SMEs standards will be adopted by 30 June 2024.

ASSURANCE

To ensure that companies comply with the reporting rules, the statutory auditor, another auditor (Member State option) or an independent assurance service provider (IASP) (provided that IASP is subject to equivalent rules as per Audit Directive) (Member State Option) must ensure that the sustainability information complies with the certification standards that will be adopted by the EU. The reporting of non-European companies must also be certified, either by a European auditor or by one established in a third country.

EFFECTIVE DATE

• Financial year 1 January 2024 for companies already subject to the non-financial reporting directive (large companies with more than 500 employees);

• Financial year 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive;

• Financial year 1 January 2026 for listed SMEs, small and non-complex credit institutions, and captive insurance undertakings but SMEs can ‘opt-out’ from reporting requirements for a twoyear transitional period;

• Financial year 1 January 2028 for non-EU companies; a review clause has been introduced to assess this requirement. The provisional agreement reached is subject to approval by the Council and the European Parliament. The approval is procedural, and no change to the text should be expected.

The study of investor behaviour in reinforcing investor protection

Dr. George Theocharides Chairman of the Cyprus Securities and Exchange Commission

For many years, the science of finance has relied on the assumption that investors are rational beings who make decisions based on rational expectations for maximizing utility. In practice, however, investors unconsciously make irrational decisions, against their own interests, guided by psychological and emotional factors that prevail at the given moment.

The study of behavioural finance is more important than ever before

THE ROLE OF PSYCHOLOGY

Psychological factors that affect the procedure of investment decisions based on individual cognitive, include among other, overconfidence, uncertainty avoidance, conservatism, herd behaviour, over optimism-positive thinking, clinging on beliefs, as well as risk aversion. This phenomenon became widely known by the phrase “irrational exuberance” as stated by the President of the US Federal Reserve, Alan Greenspan, in a speech in 1996.

For instance, investors often overestimate their decisions and exaggerate on their abilities and predictions, creating the “control illusion”. This leads to being indifferent regarding new information which may subvert the data, as well as to taking higher risk than they can endure. Another example is the avoidance of uncertainty, as investors are more averse to uncertainty than risk. This practically means that when they have to choose between two options of equally expected performance, they tend to choose the one that they know best, despite the fact that it

may involve higher risk.

Furthermore, it has been observed that when investors experience positive feelings regarding an investment, their positive attitude leads to excessive optimism. This creates a belief that their decision is unlikely to achieve negative outcomes despite the fact that it is not the result of timely information. Consequently, investors accept that the benefits of the given investment outweigh the risks that they may incur.

Something that should be taken in account by supervisors and regulators of contemporary capital markets is that fraudsters will most definitely take advantage of the above-mentioned psychological factors to serve their interests.

BEHAVIOURAL FINANCE

These findings of researchers triggered the formation of the science of Behavioural Finance that combines various disciplines such as psychology, sociology and finance. The aim is to investigate the reasons

that lead to investment decisions and to propose alternative interpretations to understand the behaviours observed in capital markets that cannot be explained by traditional theories of the efficient market hypothesis.

Behavioural Finance has developed explicit theories which aim to explain unorthodox investment behaviour. One of the bestknown theories is “nudge theory” which examines, designs and uses subconscious influences on peoples’ way of thinking and decision-making procedure. Based on the reasons that people make unpredictable and irrational decisions, these specially designed “nudges” target to attract a persons’ attention or/and to guide them towards the right direction.

The theory may be applied to various sectors, one of which is public policy. In fact, effective nudges have been applied to reduce tax evasion, for energy savings in households and numerous social issues.

Supervisors and regulators in financial markets, are exploring how nudge theory may affect the way that investment options are presented to investors, as well as how to provide more effective information.

THE CRUCIAL NEED FOR FURTHER RESEARCH

Especially nowadays, in the era of digitization and the constantly emerging new financial products and additionally due to the stunts of fraudsters, it is imperative to investigate the behaviour of investors and the factors that guide it, with the aim to design and develop instruments that will empower, educate and protect investors.

The design of financial education programs can greatly benefit from the findings of behavioural finance, to achieve more than adequate information and to develop new skills and self-improvement techniques, in the scope of investment behaviour.

Sustainability is the present and the future of investments

The COVID-19 pandemic and the war in Ukraine are contributing to the continued strengthening of Sustainable Investments. Sustainability factors are increasingly being incorporated into the next generation of investment firms’ products, but at the same time they are trying to restrain costs and maintain the attractiveness of their returns. And they certainly don't want to be labelled as organizations that resort to “Greenwashing” practices - a term that includes risks such as mislabelling, presenting and selling products allegedly as “green”. Continuing to strengthen its international image as a growing centre for financial services, Cyprus reiterates its commitment to evolve into a green and sustainable economy. The Recovery and Resilience Plan (RRP) aims to strengthen economic resilience and implement a strong new growth model, which will comply with the EU’s green and digital goals. Indicatively, as part of Cyprus’ environmental commitment, the government is expected

to issue a green bond, raising around €1 billion from the markets.

ESG criteria are also having a rapidly growing impact on investment funds worldwide. At national level, and particularly under Regulation 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (SFDR), the Cyprus Securities and Exchange Commission (CySEC) is continuously strengthening its commitment and its focus on promoting compliance with sustainable finance standards. Financial advisers and market participants are required to comply with standardized transparency and disclosure requirements. Under these circumstances, in the Collective Investment industry, fund managers need to consider and possibly adopt internal strategic changes in the way their organizations operate so that their practices are aligned with evolving ESG-related regulatory requirements.

SUSTAINABLE INVESTMENTS: THE NEW REALITY

It is taken for granted that in the coming years, the so-called “Sustainable Investments” will simply be called “Investments”, as they will be fully integrated into investment strategies and decisions. In light of this development, it is certain that investment organizations that make timely and meaningful changes in environmental, social and governance practices will have an advantage over the competition and their chances of long-term sustainability and profitability will be increased. Management Companies and Undertakings of Collective Investments (UCIs) based in Cyprus have been constantly taking action in this direction for the last few years. In total to date, the Investment Funds based in Cyprus have invested 36.9 million euros or 0.332% of total investments in Sustainable Development projects. Although the percentage is still quite small, as is the case internationally, it is taken for granted that it will increase significantly in the coming years as the shift towards sustainable investments is the only option. Cyprus is in a privileged position to take advantage of market trends and create an attractive institutional framework for ESG-compliant investments, a direction we are working towards here at CIFA.

Maria Panayiotou Board Secretary of the Cyprus Investment Funds Association (CIFA)

In principle, from a policy perspective, countries impose withholding taxes on gross payments made to nonresidents often on passive income such as dividends, interest and royalties. Part 1 of this series analyzes the importance of being the beneficial owner of the income. Part 2 of this series looks at the new Principal Purpose Test.

INSIGHT: Treaty Shopping - Is the New Principal Purpose Test a Game Changer?

Russia and Ukraine companies. As a result, such tax authorities have denied the double tax treaty benefit, and therefore increased the tax burden for such companies. Yet the tax authorities have an additional weapon in their arsenal: a tax treaty general anti-abuse rule, namely the Principal Purpose Test (“PPT”), to challenge similar structures.

PASSIVE INCOME

Inappropriate use of double tax treaties (“DTTs”) was high on the agenda of the Organization for Economic Co-operation and Development (“OECD”) with respect to the Base Erosion and Profit Shifting (“BEPS”) project and for this reason BEPS Action 6: Prevent Treaty Abuse is included as a minimum standard.

Transfer Pricing

Cypriot companies have been widely used for investing in both Russia and Ukraine. This is due to the attractiveness of the low withholding tax provided in both treaties, namely Cyprus–Russia and Cyprus–Ukraine, and therefore, to a large extent, foreign direct investments have been routed to Russia and Ukraine through Cyprus. Recently, however, Cyprus structures have been criticized by both the Russian and Ukraine tax authorities, because a Cyprus company might not be the beneficial owner of the income received, such as interest, dividends and royalties paid out from both

Although the Beneficial Ownership Clause has been included in the passive income articles (Article 10 Dividends, Article 11 Interest and Article 12 Royalties of the OECD Model Tax Convention since 1977), the OECD decided to include an additional tax treaty General Anti-Avoidance Rule (“GAAR”), namely the PPT, to counter treaty shopping. Such a tax treaty GAAR, from the perspective of the tax authorities, seems likely to work as a safety net in case the Beneficial Ownership Clause, or any other specific anti-avoidance provision, would seem unable to counter aggressive tax planning techniques with respect to, but not limited to, passive income.

In this context, following the introduction of the Russian deoffshorization law in 2015, as well as the new treaty signed between Cyprus and Ukraine that came

into force in 2014, the beneficial ownership provision came into play to challenge Cyprus structures with respect to passive income paid out from both Russia and Ukraine to Cyprus companies.

Also, following the signing of the Multilateral Instrument (“MLI”) by Cyprus, Ukraine and Russia, such structures seem likely to be further challenged by tax authorities based on the PPT in the event that one of the principal purposes of the taxpayer was to take a tax advantage.

BENEFICIAL OWNERSHIP CLAUSE - A SPECIFIC ANTI-ABUSE PROVISION

As noted above, the Beneficial Ownership Clause was first introduced by the OECD in 1977 (a similar clause is also found in the UN model, the U.S. model and the EU tax directives as regards to dividends, interest and royalties), and since then has been a controversial issue internationally.

In this context, investments through Cyprus have been challenged for not being the beneficial owner of the income; in particular holding, financing and IP structures have been challenged in this respect. Such structures have been challenged, to a large extent, by the Russian tax authorities and, to a lesser extent, by the Ukrainian tax authorities.

The main issue arising in such cases is whether a company, resident in one contracting state and receiving such income from another contracting state, is also to be considered the beneficial owner of such income. For example, assume that Company A, resident in a country having a wide double

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

tax treaty network such as Cyprus, borrows funds from Company B located in a tax haven (low or no tax jurisdiction), and the former lends the same funds to Company C resident in a country where the investments are located, such as Russia or Ukraine. In this case, the tax authorities of the country where the investments are located (either Russia or Ukraine), may refuse the tax treaty benefit (reduced withholding tax rate imposed on interest payment to nonresidents according to the double tax treaty) claimed by Company C, on the gross interest paid to Company A, provided that Company A is not the beneficial owner of the interest received.

It is worth mentioning that the term “beneficial owner” does not mean the ultimate controlling person (owner of shares). Pursuant to the OECD MTC, any double tax treaty undefined terms shall have the internal law meaning “unless the context otherwise requires.” In this context, it is argued that the domestic law meaning could not suffice and therefore an international fiscal meaning should be provided to this term.

Consequently, following the Conduit Companies Report in 1986 that effectively amended the OECD Commentary, in general, the beneficial owner of the income would not be an agent, a nominee, or a conduit company. Instead, in general, it could be a person that has the actual “right to use and enjoy” the income “unconstrained by a contractual or legal obligation to pass on” the said income to another person.

In other words, the meaning of the Beneficial

Ownership Clause is not whether a person is the owner of the company, but rather it emphasizes the authority and control of such a person with regards to the income flows of that company. Effectively, although this definition implies economic substance, it can be argued that it is a pass-through test rather than providing an economic substance meaning. Interestingly, one has to take into consideration legal documents and contractual restrictions in order to analyze whether the recipient of the income essentially has the right to use and enjoy such income.

Practical Application and Planning Points

For example, suppose that an multinational enterprise (“MNE”) has fully fledged offices with numerous employees in Cyprus and suppose that the Cyprus company enters into a back-to-back interest-bearing loan agreement (the Cyprus company is obliged under the back to back loan agreements to pass on the interest received to a company located in a tax haven) with its foreign subsidiary located in Russia.

Consequently, the Russian subsidiary will pay an interest expense in regard to the loan payable to the Cyprus holding company claiming treaty benefit, and therefore reducing the interest withholding tax to 0 percent pursuant to the Russia–Cyprus treaty.

In practice, however, it seems likely that the Russian tax authorities could challenge the structure that the Cyprus company is not the beneficial owner of the interest income since the Cyprus company is obliged to pass on the interest income to another company located

in a non-treaty country.

Effectively, although the Cyprus company appears to have adequate substance in Cyprus (fully fledged offices with numerous employees in Cyprus), as noted above, the back-to-back loan arrangement appears to be the key point.

In this respect, it could be argued that the Cyprus company does not satisfy the passthrough test of the domestic law meaning of the Russian tax code (for example, the domestic law meaning in regard to beneficial owner of the income is the person who has the actual right to independently use and or dispose income received, and therefore account shall be taken of the functions which are performed and the risks which are assumed) nor of the OECD commentary definition as noted above. As a result, a 20 percent withholding tax could be imposed on the gross interest expense paid from the Russian subsidiary to the Cyprus holding company.

Equally, in practice, the Ukrainian tax authorities have also challenged similar structures in this respect.

In light of the above, it can be argued that use of the Beneficial Ownership Clause is limited to counter intermediary companies granting treaty benefits for another person.

Notably, such a clause will not prevent other treaty anti-avoidance provisions to prevent treaty shopping cases such as the Principal Purpose Test.

Part 2 of this series looks at the new Principal Purpose Test.

* The article was published in Bloomberg BNA at International Tax News

WORKPLACE CYPRUS

Gender Equality between Women and Men in the workplace of Cyprus compared with the EU

Εquality between women and men is a fundamental value of the European Union (EU) on the basis that it is a Human Right and it strengthens Democracy. Women and men shall have equal opportunities to thrive and succeed in the society and in the economy.

The European commission calls on the Member States to develop and implement strategies to increase women in decision making positions with regards to policy making as well as politics. Moreover, the European commission is committed to increase women in positions relating to Technology such as Information Communications Technology (ICT). The National Action Plan of Cyprus has specific actions with timeframes encouraging Gender Equality.

The key Cyprus Legislations that promote Gender Equality in the workplace of Cyprus are the following:

The Law 205(I)/2002 on Equal Treatment between Men and Women in Employment and Vocational Training, which is monitored by the “Department of Labour” of the Ministry of Labour, Welfare and Social Insurance.

The Law 177(I)/2002 on Equal Pay between Men and Women for the Same Work or for Work to which Equal Value is Attributed, which is monitored by the “Department of Labour Relations” of the Ministry of Labour, Welfare and Social Insurance.

Based on the Cyprus Legislations, women and men shall be treated equally at work, shall have equal training, development, promotion opportunities, as well as be remunerated equally for the Same Work (identical) carried out, or for work of substantially Equal Nature, or for work to which Equal Value is attributed. The “pay comparison” is applied to Employees of opposite gender who either work within the same entity, or within the same group of entities. It is further clarified that the comparison includes cash emoluments as well as Benefit in Kind (BIK) emoluments.

It is noteworthy that a “National Certification Body “has been established in Cyprus which is chaired by the Permanent Secretary of the Ministry of Labour Welfare and Social Insurance, that evaluates Cyprus entities with regards to the application of the “Equal Treatment and/or Equal Pay principles” in their working environment.

According to the model of certification, the entities have the right to apply for two types of certifications namely (a) “Best Practice” for separate (individual) practices applied, and (b) “Equality Employer” for adopting a comprehensive system of promoting

Niki Christofi Member of the Corporate Social Responsibility Committee of ICPAC Business Mentor

Gender Equality in their workplace. So far, 61 entities have been awarded in Cyprus. Following the certification decision, a ceremony is organized by the Ministry

during which the Minister awards prizes to the entities. Their award certification is published to the local media. Entities that have been awarded are in an advantageous

position with regards to their participation in public procurement tenders. They can also indicate the logo of the certification in their website/email signatures.

Examples of good practices for which Cyprus entities have been awarded, relate to:

• Appointment of Equality Officers, or establishment of an Equality Committee within the entity with the participation of both male and female Employees.

• Applying a “Working Parents Scheme” under which parents have the right for flexible working arrangements after having children (before they reach 18 years) in respect of flexible working hours, reduced hours, compressed work week (reduced working days), tele-working.

• Extension of the conveniences provided by the law upon the mother's return to work from Maternity Leave, until the child becomes one year old (i.e., the right to work for one hour less during each workday without any reduction of salary).

• Complementing the Maternity and the

It is important to acknowledge that the “European Institute of Gender Equality “(EIGIE) has developed the “Gender Equality Index”, which is a tool that measures the progress of Gender Equality within the EU

Paternity Allowance up to the amount of their salary.

Temporary movement of a pregnant Employee from a position that requires manual work or increased physical effort, to office duties. Moreover, special working facilities for the last month of pregnancy providing the right to work from home for several days during a week.

Actions to increase the representation of women in managerial/leadership positions.

• Actions to increase the representation of women in the technical departments of the entity.

• Providing mentoring to high performance female Employees offering them experiences and opportunities for their personal development. Furthermore, organising workshops about “Women in Leadership”, addressed to female Employees in high level positions (or candidates to such positions)

• First-day-of-school” (paid) leave granted to working parents in order to be able to accompany their children on the first day at the elementary school.

• Facilitation of participation of working parents in “Child Adaptation Programs” during the first week at kindergarten, without any reduction of salary for the hours of their absence from work.

• Establishing an on-line training platform within the entity, ensuring that every Employee, regardless of the gender, family status, work duties or family responsibilities, has access to life-long learning.

• Offering summer school for the Employees' children, organised at the Employer’s premises (the cost being partly subsidized by the Employer).

• Granting part of the kindergarten/ nursery cost suffered by an Employee, on the proviso that the choice of the school allows the response of the Employee to the Employer’s needs.

It is important to acknowledge that the “European Institute of Gender Equality “(EIGIE) has developed the “Gender Equality Index”, which is a tool that measures the progress of Gender Equality within the EU. The Index uses a scale of 1 to 100 points, where 1 is defined as total inequality and 100 is for total equality. According to the Gender Equality Index of the 2021 edition, the overall score of Gender Equality in the EU is 68 out of 100 points and it is expected that equality will be reached in approximately 60 years . Regarding Cyprus, with 57 out of 100 points, it ranks 21st within the EU, nevertheless it cannot be underestimated its significant improvements during the past years.

To end with, a prosperous and social Europe depends on all of us and it is a joint responsibility. It requires cooperation, teaming and action from everyone. Our aim and vision shall be making equality between women and men a reality for all Europeans and beyond. Companies, governments, organizations, institutions should be led both by women and men for successful leadership.

Special thanks to the Statistical Service of Cyprus (CYSTAT), the Ministry of Labour, Welfare and Social Insurance, the Representation of the European Commission of Cyprus, the Mediterranean Institute of Gender Studies, Eurostat, the European Institute of Gender Equality (EIGIE), the Institution of Gender Equality of Cyprus, the Gender Equality Committee in Employment and Vocational Training of Cyprus, as well as Fimonoi organization for providing valuable information and guidance. Also Special thanks to all Members of the Corporate Social Responsibility Committee of ICPAC for their support on this Article.

STATISTICS: For statistics that the percentage sums up to 100%, these relate to total population of women and men. For statistics that the percentage does not sum up to 100%, these relate to population of women (separately) and of men (separately).

(A) Source: Gender Equality Index of the

Share of members of boards in largest quoted

supervisory board or board of

(%)

issued on

of tertiary education including universities and

(B) Source: Eurostat (Statistical Office of the European Union) Employed (Employees and Self Employed) Information Communications Technology (ICT) specialists by gender, year

(%)

Women

(C) Source: Statistical Service of Cyprus (CYSTAT)

Number of Individuals Employed (Employees and

Employed (Employees and Self Employed) persons with Information Communications Technology (ICT) education by gender, year

for the

Individuals of all occupations Managers and Legislators

Women

Professionals

Technicians (excluding Information Communications Technology)

1 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52020DC0152&from=EN

2 http://www.mjpo.gov.cy/mjpo/mjpo.nsf/sectorgend02_el/sectorgend02_el?OpenDocument

3 http://www.cylaw.org/nomoi/indexes/2002_1_205.html

4 http://www.cylaw.org/nomoi/indexes/2002_1_177.html

5 http://www.mlsi.gov.cy/mlsi/dlr/dlr.nsf/nationalcertificationbody_en/nationalcertificationbody_en?opendocument

6 https://eige.europa.eu/gender-equality-index/about

7 https://eige.europa.eu/about/projects/gender-equality-index-2021-focus-health

8 https://eige.europa.eu/gender-equality-index/2021

9 https://eige.europa.eu/gender-equality-index/2021/country/CY

IFAC Latest Activity

IFAC news

•

IFAC Releases 2021 IFAC Integrated Annual Review - Inside, you will read about the introduction of IFAC’s IMPACT approach; the development of a methodology for measurement and reduction of our carbon footprint; and an enhanced discussion on stakeholder engagement. These were all key priorities that began in 2021 and will carry into the future.

• IFAC Calls on Global Business Leadership to Drive Trust and Sustainable Value Creation by Championing an “integrated Mindset” Functional and information silos within organizations are barriers to delivering high-quality sustainability-related information, which is necessary for decision making and trustworthy corporate reporting. Boards and CEOs are turning to CFOs and finance functions to break down these silos and to drive connectivity between sustainability and financial information and processes, thereby creating a critically important “integrated mindset.” IFAC’s call-to-action, Championing an Integrated Mindset to Drive Sustainable Value Creation, highlights what it means to adopt an integrated mindset, why it is important and how it is achieved; and the critical role of CFOs and finance functions in enabling an integrated mindset.

• IFAC and CPA Canada Release Sustainable Dept Key to Financing Economic Transition Report - Countries around the world are searching for ways to shift capital investments into activities that support the transition to a more sustainable, low-carbon economy. To finance that massive change, investors and regulators are looking

New on the IFAC Gateway

• Championing an Integrated Mindset: Driving Sustainability and Value Creation calls on businesses to integrate financial and sustainability information with an integrated mindset to make betterinformed decisions that deliver long-term value creation—financial returns to investors while taking account of value to customers, employees, suppliers, and societal interests.

• No Net Zero Without SMEs: Strengthening Policy and Collective Action for SME Greening - Countries around the world are faced with a pressing need to take action on climate change mitigation and many have set ambitious policy targets for a more sustainable economy. Such ambitious targets demand profound transformations in how our economies and societies work, and require that all economic actors and societal groups are fully aware of their role and engaged in the transition. In particular, achieving these targets require all firms to invest in greening their businesses. Small and Medium-sized Enterprises (SMEs) are neither an exception nor a supporting actor in the journey; on the contrary, they are an essential engine to the green transition.

• IFAC Technology Matrix - IFAC has created a Technology Matrix as a quick guide to help stakeholders understand and access the breadth

to the sustainable debt market as an important vehicle in raising funds to finance projects that advance environmental, social and governance (ESG) objectives. This new, comprehensive study delves into the challenges and opportunities that exist in the sustainable debt market – Navigating the sustainable debt market: Enhancing credibility in an evolving market.

• Leading Financial Market Participants Call for Stronger Alignment of Regulatory & Standard Setting Efforts around Sustainability Disclosure - IFAC welcomes the establishment of the International Sustainability Standards Board (ISSB), as well as jurisdiction or regional initiatives that can contribute toward the creation of a global system for consistent, reliable and assurable sustainability disclosure. In a joint statement, IFAC joins with leading capital markets participants—PRI (Principles for responsible Investment) and WBCSD (World Business Council for Sustainable Development)—in calling for simplicity and alignment in the standard-setting process. At this critical juncture, regulatory and standard-setting fragmentation must be avoided through efforts to align key concepts, terminologies, and metrics upon which disclosure requirements are built.

of technology resources available. Featuring content from June 2020June 2022.

• Are You Ready for the IAASB’s New Quality Management Standards? Watch Our Panel Discussion to Kick Start Your Planning - In late 2020, the IAASB issued three new and revised quality management standards. The standards strengthen and modernize how a firm of any size or level of complexity approaches quality management. In order to support implementation and help small- and medium-sized practices (SMPs) understand, navigate and apply the revised standards, IFAC in collaboration with the Forum of Firms held two video panel discussions.

• Staffing Trends During the Great Resignation - The terms “Great Resignation” and “Great Reshuffle” have come to define the period of a nearly unprecedented churn in the U.S. labor market since 2021.

The IFAC Small and Medium Practices Advisory Group recently met with Senior Vice President of Robert Half International—a firm specializing in the placement of professional accountants—to discuss some of these trends and what firms can do to attract and retain talent. They also provided their experiences from different parts of the world.

Audit

• IAASB Digital Technology Market Scan: Natural Language Processing - In this fourth Market Scan, we explore natural language processing (NLP), a technology that has applications within Accessing Information & Data (NLP and Computer Vision for Digitizing Documents) and within Assessing Internal Controls (Optical Character Recognition, NLP and Machine Learning for Intelligent Document and Voice Analysis). This technology has the potential to impact many areas of the audit—enhancing the way auditors work and providing opportunities for greater insight. IAASB will issue a Market Scan on topics from the report approximately every two to three months.

View the previous released IAASB Digital Technology Market Scans: (1) Data Standardization; (2) API Access; and (3) Artificial Intelligence—A Primer.

• Balancing Urgency and Effectiveness in International Sustainability Assurance Standards - The IAASB is taking the next steps for new standards for ESG assurance. The IAASB already has well-established principles-based and subject-specific standards and guidance that are being effectively applied. But know there is further work to be done in bringing the existing standards and guidance together and supplementing them to address assurance of sustainability reporting specifically.

IAASB have recently discussed their actions in responding to the urgent need for an international assurance framework for sustainability reporting. The IAASB is hoping to have the proposed new sustainability assurance standards ready for public comment during the second half of 2023.

EFFECTIVE DATES

• International Standard on Auditing 600 (Revised), Special Considerations-audits of Group Financial Statements (Including the Work of Component Auditors) - The revised standard addresses special considerations that apply to audits of group financial statements (group audits). Group audits are often more complex and challenging than singleentity audits because a group may have many entities or business units across multiple jurisdictions, and component auditors may be involved. View the Basis for Conclusions and a Factsheet are available to support implementation.

 Effective for audits of group financial statements for periods beginning on or after December 15, 2023

• IAASB released First-time Implementation Guide for ISA 220, Quality Management for an Audit of Financial Statements - The guide will help stakeholders understand the standard and properly implement its requirements as intended by the effective date in December 2022 – View the Implementation Guides for First-time Implementation of ISQM 1 and ISQM 2.

 Explore more on the Quality Management Standards by accessing IFAC’s dedicated Quality Management page – view articles, webinars, videos, and more resources!

Education

•

IFAC EdExchange Video SeriesThe IFAC EdExchange video series presents the sessions and speakers’ discussions to consider the impact for developing skills and competencies, or acquiring knowledge, for the accounting profession. We believe this will help arm our profession with further knowledge. We are keen to encourage an exchange of views to further enhance the profession’s understanding of some of these new questions we face.

• Conversations with Experts |

Advancing Accountancy Educationon-demand videos with experts talking about the future of accountancy education & on sustainability reporting!

• Revisions to IES 2, 3, 4, and 8 are now effective, as of January 1, 2021. The revisions to these standards reflect the increasing demand for accountants skilled in information and communications technologies and place further emphasis on the professional skepticism skills and behaviors. These apply to both aspiring and professional accountants.

• Self-Assessment Against Main Requirements of International Education Standards

Public Sector

EFFECTIVE DATES

• IPSAS 44, Non-current Assets Held for Sale and Discontinued Operations - IPSAS 44 is based on International Financial Reporting Standard (IFRS®) 5, Non-current Assets Held for Sale and Discontinued Operations.

Effective Date: January 1, 2025 (Earlier application is permitted)

IPSAS 43, Leases - IPSAS 43 supersedes IPSAS 13, Leases and introduces the right-of-use model for lessees, aligning with IFRS 16, Leases. For lessees, IPSAS 43 introduces a right-of-use model that replaces the risks and rewards incidental to ownership model in IPSAS 13, Leases. For lessors, IPSAS 43 substantially carries forward the risks and rewards incidental to ownership model in IPSAS 13.

Effective Date: January 1, 2025

www.ifac.org, www.ipsasb.org

• IPSASB Release June 2022 eNews - The eNews covers the latest IPSASB project updates on: Transfer Expenses; Revenue; Measurement; Conceptual Framework – Phase I; Other Lease–Type Arrangements; and ED 78, Property, Plant, and Equipment.

VISION

A model professional body, recognized by the state and the society as the primary stakeholder for the accountancy profession and the economy in general, instilling confidence, credibility and value

Byron Avenue 1096 Nicosia, Cyprus Tel.: +357 22870030 Fax: + 357 22766360 e-mail: info@icpac.org.cy www.icpac.org.cy