Accountancy Cyprus - March 2018

No. 130 | MARCH 2018

Exclusive Interview with the Minister of Finance, Harris Georgiades

NPLs: The Beginning of the End The Journal of the Institute of Certified Public Accountants of Cyprus

DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS POSTAGE PAID LICENCE no.33 SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΡΟΜΙΚΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239

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ACCOUNTANCY CYPRUS

C O N T E N T S

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THE GROWING IMPORTANCE OF INTERNATIONAL TAXATION!

By Kyriakos Iordanou

opinion COUNTRY-BY-COUNTRY REPORTING: DEVELOPMENTS IN THE GUIDANCE ON IMPLEMENTATION

By Antonis Dimitriou

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48 50 54

06 38 THE END OF ACCOUNTING?

By Yiangos Charalambous

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accounting & audit

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By Christis Michaelides

SOCIALISING THE LOSSES AND PRIVATISING THE GAINS

By Savvakis C. Savvides

GLOBAL M&A APPETITE REMAINS HEALTHY DESPITE GEOPOLITICAL UNCERTAINTY

Results of the 18th EY Global Capital Confidence Barometer

TAXPAYERS ARE THE EASY TARGET

By Demetris Georgiades

economy

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THINKING AHEAD

THE PENSION CRISIS

DEDUCTIBILITY OF VAT BASED ON INTENTION

By Irene Lagou

taxation

0 72 32 REFORM, SUSTAINABLE GROWTH, ENTREPRENEURSHIP AND INNOVATION. These are among the objectives and priorities of Christodoulos E. Angastiniotis, President of the Cyprus Chamber of Commerce & Industry.

INTERVIEW

COVER STORY

ADAPTING TO CONSTANT CHANGE

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TRANSITIONING TO THE NEW IFRS STANDARD FOR INSURANCE CONTRACTS

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Interview with Stavros Ioannou, Managing Partner & CEO of Grant Thornton Cyprus

By Amaro Gomes

TACKLING THE ACA ‘CRUCIBLE’

By Spyros Yiassemides

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professional services

INS N

MEET THE CFO

NPLS: THE BEGINNING OF THE END Exclusive Interview with the Minister of Finance, Harris Georgiades.

Stavros Kattamis, Partner & Head of Finance, PwC Cyprus

ISSUE 130 MARCH 2018 CYPRUS CEOS OPTIMISTIC ABOUT GROWTH PROSPECTS PwC’s 21st Annual Global CEO Survey

GDPR IS JUST AROUND THE CORNER!

By Georgios A. Korellis

WHO? WHAT? WHEN? WHY? WHERE? THE KEY QUESTIONS SURROUNDING GDPR

66 68 70

HIRING THE RIGHT PEOPLE FOR YOUR BUSINESS

By Andrie Penta

management HOLIDAY HOMES: PREPARATION AND MAINTENANCE

By Antonis Loizou

INVESTMENT IN A CHANGING WORLD

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84

real estate

By Marina Joannou

business in cyprus

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HOW TECHNOLOGY IS TRANSFORMING BUSINESS

Interview with Marios Kapiris, Manager, IBM Cyprus

WINNING COMBINATIONS

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Interview with George Appios, Managing Director & CEO, AstroBank

ict

IFRS 9 IS FINALLY HERE

By Pantelis Pavlou

financial services

Kevin Dancey to be IFAC’s Next CEO | Agreed-Upon Procedures Engagements | Enhancing Governance | IFAC Named Anti-Corruption Network Partner to B20 | ICSB Issues Amendments to Pension Accounting

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professional news VAMOS A BAILAR!

Kleovolos Christodoulou, Director, Baker Tilly Klitou is also a Latin Dance Instructor

out of office

INSTITUTE NEWS

NICOSIA ECONOMIC CONGRESS

Photos from the event organized by ICPAC and GOLD magazine

Editor Tasos Anastasiades, B.Sc., M.A. (Econ) The Institute Council Marios Skandalis (Chairman) Stavros Pantzaris (Vice-Chairman) Maria Pastellopoulou (Secretary) Members Andreas Andreou, Demetris Vakis, Christos Vasiliou, Karlos Zangoulos, Pieris Marcou, Philippos Raptopoulos, Spyros Spyrou, Demetris Taxitaris, Nicos Chimarides, Odysseas Christodoulou, Eleftherios Triaros General Manager Kyriakos Iordanou

Mailing Address P.O.Box 24935, 1355, Nicosia, Cyprus Tel: +357 22870030, Fax: +357 22766360 e-mail: info@icpac.org.cy www.icpac.org.cy The publication is prepared by

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Editor-in-Chief Ninos Hadjirousos, FCA

Address 11 Byron Avenue, 1096 Nicosia, Cyprus

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Interview with Daniel Murray, Deputy CIO & Global Head of Research, EFG Asset Management (UK)

ISSN 1450-2380

90

Managing Director George Michail General Manager Daphne Roditou Tang Media Manager Antonis Antoniou In-house Editor-in Chief John Vickers Coordination Pan Charalambous Art Direction Anna Theodosiou Design Alexia Petrou, Marios Kouroufexis Marketing Executive Kevi Chishios Commercial Manager Neofytos Constantinou Contact us for advertising Pavlos Giorkas pavlos.giorkas@imhbusiness.com Tel: +357 22505555, +357 22505566, Fax: +357 22679820 Address 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus, P.O.Box 21185, 1503, Nicosia, Cyprus Accountancy Cyprus is published quarterly by the Institute of Certified Public Accountants of Cyprus and is sent free to all members if the Institute as well as to a large number of other persons, companies and organisations.

The Institute can accept no responsibility for the accuracy of contributed statements or articles appearing in this publication and any views or opinions expressed are not necessarily endorsed by the Institute, its Council or by the Editors.

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ACCOUNTANCY CYPRUS

THINKING AHEAD

By Kyriakos Iordanou, General Manager, ICPAC

A NEW PAGE FOR THE ACCOUNTANCY PROFESSION IN CYPRUS

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t is no secret that, for many years, the accountancy profession in Cyprus has suffered from the existence of a conflict. Creating unnecessary tension and bottlenecks in the work of the House of Representatives, the broader political scene and the operations of the relevant bodies, this conflict has, in essence, hindered the development of the profession.

ICPAC has been around since 1961, encompassing all qualified professional accountants, enjoying the State’s seal of approval as the recognized body of accountants. On the other hand, there were a number of licensed statutory auditors, who belonged to two other associations (SPELEK and SALK).

This situation arose in the mid-‘90s and has troubled a lot of people since then.

Although it should have been dealt with by the Auditors Law of 2009, it took eight more years and the new Auditors Law of 2017 to eventually see some progress. Even then, the Auditors Law of 2017 was amended twice, further extending deadlines for its full implementation.

Yet, this is history now!

Acknowledging both the risks and opportunities, ICPAC, SPELEK and SALK started face-to-face discussions in order to find common ground for cooperation, which was eventually reached last February. Away from the spotlight and working in a spirit of mutual trust, respect and understanding, also taking into consideration the realities of the profession, all three

parties agreed to take the big step to unite the accountancy profession in Cyprus.

I am therefore in the very pleasant position to say that ICPAC now provides shelter to all statutory auditors and professional accountants in Cyprus. The members of SPELEK and SALK have registered with ICPAC and shall enjoy the same benefits, rights and responsibilities as all other members of equal standing. This was achieved early in the year, well ahead to the deadline given by the Law of 31 December 2018, which is a signal of the goodwill shown by all parties.

This development constitutes a very significant milestone in the history of the profession in Cyprus, which is thus turning a new page.

We now have the chance to focus on our work without any obstructions, designing the development of our members, profession and Institute. United and with a common voice, we have the opportunity to communicate our suggestions and proposals more effectively. At the same time, this will also lead to harmonization within the profession and its regulation.

We have successfully closed an onerous parenthesis and now look ahead to this new prospect with more optimism. On this new page, I am confident that ICPAC will be armed with more dynamism in order to better serve the interests of all Members, irrespective of their professional capacity.

Please allow me to publicly thank all those

who contributed to the successful outcome of this endeavour, starting with our friends at SPELEK and SALK and especially their Presidents, Eleftherios Triaros and Antonis Prokopiou, for their exceptional cooperation and approach. Many thanks also the Council of ICPAC for facilitating the negotiations and for opening up to our new colleagues.

The Council has committed the institute to providing any possible assistance to our new colleagues, in order that they may have a smooth induction. Furthermore, as a solid proof of its commitment, the Council filled the vacant position in March 2018 with the appointment of Eleftherios Triaros as a Council Member.

The appointment was made pursuant to article 44 of the Articles of the Institute.

ICPAC continues to take solid steps towards progress and further development, now representing all the professionals in the sector.

The source of its strength is its members and it is to them that it reciprocates to the best of its ability. Having all the professionals by its side, ICPAC is in a much better position to fulfil its institutional responsibilities as a competent authority and as a Recognised Body of Auditors, under the relevant Law. At the dawn of a new era and with plenty of challenges lying ahead, ICPAC remains fully focused on its principles and on its fiduciary duties of servicing its Members, the accountancy profession, the economy of the country and, in general, the public interest.

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ACCOUNTANCY CYPRUS

INSTITUTE NEWS

NEWS FROM THE BOARDROOM

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he first quarter of 2018 found the Council of the Institute convening four times in order to discuss and decide upon various matters relating to ICPAC, its activities and interests, as well as matters regarding the profession and the economy in general.

Significant activity was undertaken in order to reach an agreement with statutory auditors who are not ICPAC members to eventually join ICPAC as full members during the first months of 2018.

The main activities and decisions of the Institute’s Council included the following:

MEETINGS WITH OFFICIALS The President, Council Members and the General Manager held a number of meetings with government, political, business and other officials including, inter alia, the following: – 18/1/2018 The General Manager met with his counterpart at the Association of Cyprus Banks, Michael Kammas, to discuss matters of mutual interest and ways of expanding cooperation between the two bodies.

– 31/1/2018 ICPAC representatives had a meeting with ICAEW President Nick Parker, during which they discussed potential ways to further enhance bilateral cooperation. In the evening of the same day, the General Manager addressed the graduation ceremony of the newly qualified Chartered Accountants of 2017.

– 6/2/2018 The General Manager met with the President and one of the Vice Presidents of the Limassol Chamber of Commerce and Industry. During the meeting, various ways were explored with the aim of enhancing cooperation between the two organisations.

– 21/2/2018 ICPAC representatives also met with the Auditor General, following discussions in February and March with senior officers of the Personnel Department of the Ministry of Finance about the schemes of service for professional accountants in the public sector.

– 22/2/2018 The General Manager attended the presentation organised by the Treasury of the Ministry of Finance regarding the implementation process of the adoption of accruals accounting by the public sector.

– 26/2/2018 the President and the General Manager of the Institute met with the Deputy President of ACCA, Robert Stenhouse, and discussed with him matters of mutual interest and the further development of the relationship between the two organisations.

– 26/2/2018 In the evening, the President addressed the Graduates’ Events organised by ACCA. – 28/2/2018 A working lunch was held between the President and General Manager of ICPAC with senior officers of the US Embassy, during which issues of anti-money laundering, compliance and cooperation between the USA and Cyprus were discussed.

– 6/3/2018 The General Manager of the Institute met the Chairman of the Socialist Party EDEK, Marinos Sizopoulos, to discuss matters of common interest and to see how a more productive approach could be adopted regarding issues brought before the House of Representatives.

– 7/3/2018 The President and the General Manager met with the Chairman of ther Citizens’ Alliance, Yiorgos Lillikas, to discuss matters of common interest and explore how cooperation at the Parliamentary level could be further enhanced.

– 7/3/2018 The General Manager attended a round table discussion on Brexit, organised by the Cyprus Chamber of Commerce and Industry.

– 14/3/2018 The President and the General Manager of ICPAC met the Speaker of the House of Representatives Demetris Syllouris, and discussed issues emanating from the Auditors Law of 2018 and its recent amendments, as well as other important matters – 15/3/2018 The General Manager met with David Clark, Director of the Fraud Advisory Panel (FAP) in the UK, and signed a Memorandum of Cooperation between the two parties. The MoU concerns cooperation between the two bodies on issues of fraud, forensic accounting and financial crime.

– 29/3/2018 At the Council meeting, the Chairs of SPELEK and SALK were invited to seal the agreement for the induction of non-ICPAC statutory auditors into ICPAC.

COUNCIL’S MAIN DECISIONS – At its meeting on 29 March 2018, the Council appointed Eleftherios Triaros as a new filling thus in the vacant position.

Mr Triaros is the Chairman of SPELEK and his appointment was considered necessary in order to bring on board a representative of our new colleagues who also represent small practices.

Pursuant to article 44 of the Articles of Association, Mr Triaros’ term expires at the next Annual General Meeting on June 20th, when he will be eligible for election.

– In March 2018, the Council approved the Institute’s budget for 2018.

– During the quarter, the Council also dealt with other impor-

ACCOUNTANCY CYPRUS

tant issues including: – The results of the Readiness Assessment exercise, within the scope of GDPR – The revision of the Institute’s Disciplinary Regulation – The results of the Audit Monitoring and AML/Rules and Regulations visits results.

– During the quarter, the Council continued to look at various ways of fostering effectiveness in dealing with the increasing volume of issues involving the Institute, as well as the new responsibilities assumed by ICPAC with the enactment of the new Auditors Law.

OTHER IMPORTANT MEETINGS AND ACTIVITIES – 1/2/2018 ICPAC participated in the 1st International Tax Conference organised by IMH. The conference was chaired by the General Manager of ICPAC, whilst Council Members participated as panellists.

– 20-21/3/2018 The General Manager of the Institute attended the Members’ Assembly Meeting of Accountancy Europe in Brussels.

– 27-28/3/2018 ICPAC organized in collaboration with ICAEW a series of presentations dedicated to providing the members of the boards of the Public Interest Entities an insight into their role and responsibilities, by virtue of their institutional and fiduciary duties, as well as their additional duties, which will be affected by the new Auditors Law. The high-level workshops involved the projection of the insightful film “Without Question”, produced by ICAEW, provoking discussion and critical thinking on legal and ethical matters and the enhanced responsibilities of the Audit Committees. The keynote speaker was Duncan Wiggetts, Executive Director, Professional Standards of ICAEW. The General Manager of ICPAC also spoke.

– 17/4/2018 For the 8th consecutive year, ICPAC, in cooperation with GOLD magazine, presented the Nicosia Economic Congress which took place in Nicosia on 17 April 2018.

– 17-18/4/2018 The General Manager attended the Accountancy Profession Strategic Forum (APSF) organised by ICAEW and the Serbian Association of Accountants and Auditors in Belgrade, Serbia.

– The General Manager and Amalia Hadjimichael, Monitoring and Compliance Officer, attended various meetings with the Advisory Authority on matters relating to the Prevention and Suppression of Money Laundering Activities, with the new Law being passed during the quarter, thus transposing the 4th EU AML Directive. Ms Hadjimichael also participated in a week’s long training programme delivered by Moneyval for evaluators in April.

– During the quarter, ICPAC representatives appeared before the Parliamentary committees dealing with matters relevant to the Institute.

– There was significant activity around the revision of antimoney laundering legislation, including a number of meetings and exchanges of comments on the proposed bill, which was eventually enacted as new legislation on 3/4/2018.

– Both the President and the General Manager held various meetings during the quarter with other officials, stakeholders and Members of the House of Representatives, on issues relating to the Institute and the profession.

– ICPAC officials attended various business events and general meetings of related organisations and bodies in Cyprus.

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OPINION

THE GROWING IMPORTANCE OF INTERNATIONAL TAXATION

By Kyriakos Iordanou, General Manager, Institute of Certified Public Accountants of Cyprus

I

n February I had the pleasure to chair the first International Tax Conference organized by IMH, during which we had the opportunity to touch upon the most important aspects of international taxation, and how these affect Cyprus. This event had been conceived in response to the growing importance of international taxation, coupled by the fact that Cyprus operates as an international business centre amid a lot of challenges.

International taxation is probably one of the most difficult and controversial subjects to discuss. There may be no clear right or wrong answers but there is definitely a distinction between good and bad practices, compliance and noncompliance.

Over the years, a lot has changed in the international business arena. There have been fundamental political and geostrategic changes around the globe. We have seen the emergence of new jurisdictions for international business activities, coupled with modifications to the services and products offered. Offshore business (in the old sense) has been abandoned but we are still seeing the operation of regional business hubs, servicing clients from all over the world, which is again under scrutiny. Substance is a word of particular importance in the international business vocabulary. In addition, tax havens and zero tax regimes are demonised

today, whilst more regulation, codes of conduct and transparency have been established.

We have also seen the introduction of enhanced transparency and exchange of information measures, which render anonymity and “ghost� owners illegal. Compliance is a huge factor now and the proper identification of the Ultimate Beneficial Owners or other entities is crucial, with the appropriate keeping of records and the application of due diligence processes being mandatory.

And allow me to extend this assertion; we seem to be experiencing a conflict among governments themselves, as to which country is the rightful beneficiary of the tax revenue.

Hence, there is growing competition among countries, as to where the tax proceeds should eventually end up. So, the debate as to the basis of allocation of tax proceeds holds well, i.e. whether it should be based on the origin of the company, the place where the sale of goods and services takes place, the place of production, a combination of all of the above, etc. At the end of the day, in today’s globalized and digitalised, economy, it is rather difficult to safely define where profit should ultimately be taxed!

Another important factor to bear in mind is that taxation serves various causes for every country. It is obviously the main tool for governments to generate revenues, hence it

constitutes a core factor in their budgets. It also denotes the level of the social policies that each country wishes to offer its citizens. It defines the extent of payments on defence, health, education and welfare.

In the business world, taxation has also traditionally been a fundamental element in the competitiveness of each country. Countries compete to attract foreign investors, to maintain funds inside the country, to motivate economic activity and to generate growth in their economies. It is true that various countries have built up their comparative advantages in their tax regimes, by offering highly attractive tax rates, giving favourable tax rulings and making other convenient arrangements. FDI is essential in helping economies grow but the way one obtains it is now questionable.

Given the current situation, I believe that the struggle by countries to earn as much as possible and thus become more competitive will be intensified. Examples could include the recent new US tax reform and the potential aftermath of Brexit, whilst China should not be neglected.

On the other hand, global institutions such as the G8, the OECD and the EU try to deal with these issues by devising horizontal measures, rules and codes of conduct, with anti-avoidance and anti profitshifting measures being taken,

state aid issues being raised and the exchange of tax information becoming mandatory.

The end result is that life has indeed become more complex and more difficult, both for governments and for international companies.

All of the above were discussed at the first international tax conference organized in Cyprus.

The main messages conveyed and the suggestions from the speakers were the following: 1. Compliance with all adjacent requirements is a sine qua non.

2. Cooperation between jurisdictions and governments with corporations is essential.

3. The competitiveness of jurisdictions should not be defined by its tax benefits and practices but by other business, social and physical criteria.

4. Governments must invest in their tax departments, both in terms of human and technological resources.

5. Tax risks must be recognized and managed.

6. The digitalization of economies has opened up a whole new dialogue among the various stakeholders It is well understood that the trend is to make things stricter and more controlled. The least we can do is to carefully consider our current standing and acknowledge the above messages, from wherever they are coming, and properly and promptly address them.

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ACCOUNTANCY CYPRUS

Institute Committees Update

ENERGY COMMITTEE During the fourth quarter of 2017, the Committee was engaged in the following main activities: • The Committee attended a number of meetings with the Ministry of Energy, Commerce, Industry & Tourism to prepare the first round table discussion between the relevant Ministries and the upstream Oil & Gas industry in Cyprus (operators and service companies), with the Cyprus Investment Promotion Agency (CIPA) and the Cyprus International Businesses Association (CIBA) as facilitators. In coordination with the other facilitators, the Committee worked closely with the Ministry and organized the round table discussion.

• On 19 October, the discussion held at the Ministry of Energy, Commerce, Industry & Tourism focused on three priority areas highlighted in the Committee’s report “Strategy for promoting Cyprus as a regional energy hub”. Five of the Republic’s Ministries were represented (Energy, Finance, Transport, Labour and Agriculture) with three Ministers present as well as high ranking officials from all the operators and industry service companies in Cyprus. The meeting was chaired by Energy Minister Yiorgos Lakkotrypis, while the Committee and the other facilitators were present in a coordinating role. It was agreed that two additional sub-committees will be formed to further discuss matters raised at the 19 October meeting.

• On 1 December, a sub-committee of the Energy Committee/CIPA/CIBA attended a follow-up meeting with Transport Minister Marios Demetriades and discussed the detail of setting up a shore base for the O&G industry in Cyprus.

Constantinos Taliotis Chairman

ADMINISTRATIVE SERVICES COMMITTEE During the first quarter of 2018, the Committee covered the following:

• Discussion on the implementation of the 4th AML directive. The Committee continued the discussion on the status of the finalization of the implementation of the 4th AML directive and, in particular, concentrated on UBO and trust reporting requirements, limitations on cash transactions and obligations on reporting companies under trust arrangements. The final draft of the law was prepared and sent to the House of Representatives for discussion and enactment. Members of the management of ICPAC participate in the Parliamentary Committee meetings and convey their comments to the Administrative Services Committee.

• Initial discussion on the provisions of the amendments to the EU’s Anti-Money Laundering Directive (AMLD). The Committee was informed on the main provisions of the amendments to the EU’s Anti-Money Laundering Directive (AMLD), as published in December 2017. It promptly began researching how these will have an impact on Administrative Service Providers and circulated among members commentary that will assist in the formulation of a discussion paper that will eventually be forwarded to the management of ICPAC for consideration. Due to the strict deadlines imposed by the European Commission

on national parliaments for transposition of the amendments into national law, the Committee expressed its willingness to provide immediate assistance and involvement.

• General Data Protection Regulation (GDPR). The Committee discussed extensively the regulations that have been circulated by the competent authorities addressing data protection, focusing on their implementation by Administrative Service Providers (ASPs). Due to the burden imposed on ASPs for implementing the GDPR requirements, the Committee expressed its availability to assist members in any way it can. As the regulation will become effective as from May 2018, the Committee is well informed and able to assist in this respect.

Costas Christoforou Chairman

SHIPPING COMMITTEE During the 1st quarter of 2018, the Committee continued to participate in the various working groups, including the Ministry of Transport’s Shipping Incentive Schemes & Ship Registry Pricing Policy and the Cooperation Enhancement within the Cyprus Maritime Cluster working groups, set up in an effort to develop a national shipping strategy. The Committee also continued to discuss industry issues with the relevant bodies, including the Department of Merchant Shipping, the Cyprus Shipping Chamber and the Cyprus Union of Shipowners. Also, in cooperation with the Central Bank of Cyprus and the Cyprus Statistical Department, “Survey SO” was implemented to comply with Cyprus’ national and EU obligations concerning the collection of quality statistical data for Cyprus shipowners.

Sylvia Loizidou Chairwoman

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ACCOUNTANCY CYPRUS

EDUCATION COMMITTEE During the first quarter of 2018, the Committee held three monthly meetings to discuss the organization of the following training seminars:

LIMASSOL-PAPHOS COORDINATING COMMITTEE Between 1 January and 31 March 2018, the Committee carried out the following activities: 1. On 14 March, the Committee coordinated the “GDPR Awareness Event Series GDPR – Ready, Steady, Go!” seminar at the St Raphael Resort in Limassol.

2. On 15 March, the Committee coordinated the “Are you ready for an Audit Monitoring visit?” seminar at the St Raphael Resort in Limassol.

Neophytos H. Neophytou Chairman

1. The new IFRS 9: This one-day training event took place in Nicosia on 22 February, 2018.

2. Are you ready for an Audit Monitoring visit? Three half-day training events took place in Nicosia, Limassol and Larnaca on 9, 15 and 21 March, 2018 respectively.

3. GDPR – General Data Protection Regulation: Three half-day training events took place in Nicosia, Limassol and Larnaca on 13, 14 and 15 March, 2018 respectively.

Overall, seven training events were organized during the first quarter of 2018. The Committee aims to organize the following seminars during the second quarter: 1. VAT on Reverse Charge and TOMS. 2. Financial Crime – An Introduction for Accountancy Professionals.

3. Updates on IFRS 16, 9, 41.

4. Tax Update on Benefit in Kind treatment.

AUDITING STANDARDS COMMITTEE

Akis D. Kolokotronis Chairman

The Committee completed its work and deliberations with relevant stakeholders and in January 2018 issued the following twoTechnical Circulars.

• Technical Circular 1/2018 in relation to requesting and receiving certification from banking institutions with respect to the bank balances and related transactions of clients in the context of the audit. This Technical Circular replaces Technical Circular No. 56 dated 23 December 2013. Technical Circular 1/2018 includes a bank confirmation letter template in both English and Greek to be used by the Institute’s members during the bank circularization process. Furthermore, the Technical Circular includes guidelines agreed with the Association of Cyprus Banks (ACB) and should be adhered to by auditors during the circularization process.

PUBLIC SECTOR COMMITTEE During the first quarter of 2018, the Committee held three meetings and carried out the following activities:

• Technical Circular 2/2018 which provides an illustration in both English and Greek of the independent auditor’s report on the financial statements of European Union (EU) Public Interest Entities (PIEs). This illustrative audit report takes into account the requirements of Article 10 of EU Regulation 537/2014, Article 69 of the Auditor’s Law 2017, ISA 700 (Revised) and ISA 701. The Institute’s members can use the illustrative audit report included in this Technical Circular in conjunction with any guidance from their network firms, where applicable. For illustrations of the independent auditor’s report on the financial statements of non-EU PIEs, reference should be made to Technical Circular 4/2017 issued on 6 June 2017.

1. The Committee met with the General Manager of ICPAC, who informed members about the latest developments in the accounting and auditing profession, in view of new legislation regarding audit profession and the ICPAC Board’s communication with various stakeholders.

2. Following the information received from the General Manager, the Committee sent a memo to the ICPAC Board asking to be informed about the measures it intends to take to establish/protect the accounting profession in Cyprus, as well as how it envisages securing the existing rights of ICPAC members before the enforcement of the new legislation regarding the audit profession.

3. Representatives of the Committee had meetings with: • The Acting Director of the Public Administration and Personnel Department to discuss recognition/protection of the accounting and audit profession in the public sector, in view of developments regarding the Terms of Employment in different public sector entities.

• The Auditor General and other stakeholders, regarding the recognition/ protection of the accounting and audit profession in the public sector, following the new Terms of Employment that are under development in the Audit Office of the Republic.

• Representatives of the Budget Directorate of the Ministry of Finance regarding the development of a Budget Law template, if feasible, for all public sector entities.

George C. Kazamias Chairman

Marios Hadjidamianou Chairman

ACCOUNTANCY CYPRUS

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VAT COMMITTEE The Committee continued to deal with a number of outstanding issues as well as looking at new issues brought to its attention.

Since our last report, the VAT Committee has examined the following VAT Circulars issued by the Tax Department, some of which resulted from the previous meeting with the Tax Commissioner.

• Circular 216 – Examination Centres • Circular 219 – Imposition of VAT on Land • Circular 218 & 220 – Imposition of VAT on the Leasing of Immovable Property • Circular 221 – VAT Groups • Circular 222 – Holding Companies • Circular 223 – Tour Operators Margin Scheme • Circular 224 – Services for the Direct Needs of Vessels • Circular 225 – Clarifications for Circulars 222 & 224 The Committee requested a meeting with the Tax Commissioner to discuss a number of issues resulting from the above circulars.

The Committee also examined the proposed directives that were published for consultation and has provided its comments. The directives related to: (a) The introduction of an additional reduced rate. (b) The imposition of a threshold for intra-community supplies of telecommunication, radio, broadcasting and electronic services.

Other issues already discussed with the Tax Commissioner and still outstanding: • Various issues concerning administrators/liquidators.

• Suggestions by the Committee about the current practice followed by the Tax Department in relation to VAT Group registration and the possibility of non-legal persons to be able to join a VAT Group were accepted by the Tax Commissioner in Circular 221. However, the inclusion of holding companies in a VAT Group still remains.

• The VAT treatment of allotment contracts in the Hotel industry.

• The VAT treatment of short-term and long-term leasing of villas and apartments.

• The VAT treatment of services for the servicing of aircraft passengers (the VAT treatment of services for the servicing of passengers of vessels was clarified in VAT circular 224) Finally, in cooperation with the Education Committee, the Committee presented seminars to ICPAC members on the imposition of VAT on Land and on the Leasing of Immovable Property. The two committees have scheduled another seminar for May 2018, which will address transactions falling under the ‘reverse charge’ procedure as well as amendments to the Tour Operators Margin Scheme.

Haris Charalambous Chairman

ACCOUNTING STANDARDS COMMITTEE During the first quarter of 2018, the Committee continued with the implementation of its action plan and dealt with the following:

PROJECTS COMPLETED • Amendment to the Cyprus Companies Law for compliance with the Accounting Directive: The Committee submitted the proposed amendments to the Law (article 142) for compliance with the Accounting Directive. The amendments have not yet been published in the Government Gazette.

• Restrictions on distribution on development costs: The EU Accounting Directive, which has been transposed into the Companies Law, entails provi-

sions based on which no distribution of profits takes place unless the amount of the reserves available for distribution and profits brought forward is at least equal to costs of development not written off and recognised under ‘Assets’.

The Committee concluded that a legal consultation from ICPAC’s lawyers need not be obtained.

• Revision of Companies Law checklist: We have completed the English version of the updated Companies Law Checklist. The Companies Law Checklist was amended due to recent amendments to the Companies Law, which were a result of the transposition of the EU Accounting Directive into domestic law. The updated Companies

Law Checklist was sent to ICPAC and has been uploaded to the Institute’s website.

• Disclosure of non-financial information and diversity information by large undertakings and groups: The Committee Chairman held meetings with the Directorate General for European Programmes Coordination and Developments regarding the application of the amendments to the Companies’ Law as a result of the harmonization of Cyprus legislation with the European Directive 2014/95/EU, relating to the Disclosure of non-financial and diversity information by large undertakings and groups. A circular will be prepared by another Committee.

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ACCOUNTANCY CYPRUS

PROJECTS IN PROGRESS AND OTHER ACTIONS • Update on developments relating to IFRSs: The subcommittee updates members of the Committee on the latest developments relating to IFRSs on a monthly basis.

During the last meetings, there was a discussion in respect of the agenda statement 21A relating to the ‘Primary Financial Statements’, agenda paper 18 ‘Goodwill and Impairment’ and agenda paper 23 relating to ‘Business Combinations under Common Control Transactions’.

• Requirement for the presentation of financial statements under a European Single Electronic format: The Committee is currently discussing the requirement of the European Transparency Directive for regulated companies to present their financial statements under a European Single Electronic format, starting from 2020.

• Exception from preparation of a management report: Following a request by certain members of the Institute, a subcommittee has been formed to clarify whether there is a requirement by the Companies Law for the preparation by a company of a management report, even when that company meets the exception criteria of the aforesaid law for the preparation of this report.

• Technical circulars 29 and 40: The subcommittee is in the process of issuing a combined technical circular as a result of recent amendments to the Companies Law. • Preparation of separate and consolidated financial statements and presentation to the Annual General meeting: Following the revision of the Cyprus Companies Law, the Committee has received a number of enquiries whether separate and consolidated financial statements should be presented together at a company’s Annual General Meeting. A subcommittee has been formed to clarify this matter.

• Accounting for General Data Protection Regulation and Cryptocurrencies: The Committee has discussed the accounting implications of the General Data Protection Regulation and Cryptocurrencies and will consider further action when an update is provided by the subcommittee set up for this purpose.

Yiannis Leonidou Chairman

ADVISORY SERVICES COMMITTEE During the last few months, the Committee has addressed various issues pertaining to the provision of advisory services by ICPAC members.

One initiative taken up by the Committee was the development of a questionnaire relating to the offering of advisory services and distributed electronically to all members of the Institute.

The objective of the questionnaire was to help the Committee identify the types of advisory services received by members in the industry and the needs for learning and development relating to such advisory services. The response is considered adequate and the results, which have just been received, are being considered by the Committee for further action.

The Committee also discussed ISO20700 Guidelines for management consultancy services, a new international quality standard released in 2017. The Committee Chairman presented ICPAC’s view on the usefulness and impact of the standard at an Information Day organised by the Cyprus Organisation for Standardisation.

Finally, one important subject that the Committee is working on through a subcommittee is the creation of an index outlining the key legislative provisions pertaining to the offering of advisory services. The aim is to have this completed in the next few weeks.

Christophoros P. Anayiotos, Chairman

LARNACA-FAMAGUSTA COORDINATING COMMITTEE During the first quarter of 2018, the Committee carried out the following activities: • The Committee coordinated the ‘GDPR Awareness Event Series: GDPR-Ready,Steady,Go!’ and ‘Are you ready for an Audit Monitoring visit?’ seminars, both of which were held at the Golden Bay Hotel, Larnaca • A meeting was held with Demetris Stylianou, VAT Commissioner at the Larnaca District Office, to discuss recent VAT developments.

Christos Antoniou Chairman

ACCOUNTANCY CYPRUS

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ACCOUNTANCY CYPRUS

TAXATION COMMITTEE The main activities of the Committee during the first quarter of 2018 were the following:

the application of the circular on intragroup financial arrangements/transfer pricing.

1. We sent letters to the Tax Department and discussed various issues, including: • Finalisation of the return TD4 for 2017.

• Granting of an extension for the submission of the 2016 TD4.

• Granting of an extension for the submission of the Country by Country reports (CbCR/DAC4).

• Imposition of 10% additional tax in cases where foreign tax relief is claimed without the submission of a temporary tax return (article 26 of the Assessment and Collection of Taxes law).

• Deductibility of 10% additional tax for deemed dividend distribution purposes.

• Circular 14 dated 14.11.2017 relating to the interpretation of article 5(2)(z) of the Income Tax Law. • Clarifications on circular 4 dated 24.7.2017 concerning the exemption of article 8(23) of the Income Tax Law. • Registration of collective pension schemes, class 7, operated by insurance companies.

• Publication of the agreed updated tax residency and other certificates.

• Finalisation of the regulations for the taxation of benefits in kind.

• Audited financial statements by individuals whose annual income exceeds €70.000 and derives from interest, dividends and rents.

Some of the above issues have been agreed with the TD and relevant circulars or announcements have been published.

3. We prepared comments for the Ministry of Finance in relation to the transposition into domestic law of the amendment to the Directive for Administrative Cooperation 2011/16/EU (DAC4) in relation to the reporting of advance pricing agreements and rulings concerning cross border arrangements.

2. We continued working with the Ministry of Finance and the Tax Department for the preparation a Q & A paper in relation

4. Following the invitation to a public consultation on the Council Directive 2016/1164 (ATAD) announced by the Ministry of Finance, we prepared and submitted comments and suggestions and followed up with meetings.

5. We prepared comments for the Ministry of Finance in relation to the discussions currently taking place in the EU Council about a proposed amendment to the Directive for Administrative Cooperation 2011/16/EU (DAC6) in relation to cross- border arrangements.

6. We studied and submitted comments when deemed necessary and attended parliamentary meetings during which tax bills were discussed.

7. We continued to provide technical support to the Ministry of Finance when requested.

8. Committee Members continued their involvement with DTT negotiations.

George Markides Chairman

Book Presentation “A Historical Account of Accountancy and Accountants in Cyprus” ICPAC proudly presents the book “A Historical Account of Accountancy and Accountants in Cyprus” written by Dr Christina Ionela Neokleous.

The presentation of the book will take place on Tuesday, 19 June 2018 at 7pm at the National Bank of Greece (Cyprus) Head Office in Nicosia, on Makariou III Ave.

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ACCOUNTANCY CYPRUS

ACCOUNTANCY CYPRUS

21

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ACCOUNTANCY CYPRUS

T

his year’s Nicosia Economic Congress, presented by Alpha Bank and organised by GOLD and ICPAC, took place on Tuesday, 17 April at the Hilton Park Hotel in Nicosia. It was chaired by the General Manager of ICPAC, Kyriakos Iordanou.

The annual gathering has established itself over the past eight years as the biggest financial/economic event in Nicosia, attracting attendees across the whole of the local business spectrum. Once again, the auditorium was full, as distinguished and influential international speakers analyzed current economic affairs and shared their forecasts for the economy and the markets.

The 8th Nicosia Economic Congress examined the future of the economy and the labour market, in particular in the wake of January’s presidential elections and the appointment of several new Government Ministers. Indeed, this year’s gathering had a strong ‘official’ aspect, and included addresses by Finance Minister Harris Georgiades, the new Minister of Transport, Communications & Works, Vassiliki Anastasiades, and the first-ever Deputy Minister of Shipping, Natasa Pilides.

In tandem with the Government’s own analysis and economic forecast, the economy will also be examined ‘from the outside’ during two Panel Discussions. One featured the French and Israeli Ambassadors and the British High

Commissioner to Cyprus who gave their views of the current situation and shared their assessments of potential new areas of growth and investment.

The panellists for the second debate were leading foreign media representatives who evaluated the country’s recent progress and its aspiration to be seen as a serious, competitive international business and financial centre.

A third Panel Discussion focused on the labour market and proposed legislative and policy reforms, during which the Government’s views were expressed, together with those of the Cyprus Chamber of Commerce and Industry (CCCI), the Cyprus Employers and Industrialists Federation (OEB) and of the two main trade unions, SEK and PEO.

ACCOUNTANCY CYPRUS

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ACCOUNTANCY CYPRUS

Vision - Strategy - Commitment Welcome Address by Kyriakos Iordanou, General Manager, ICPAC

T

he timing of this year’s Congress couldn’t be more relevant and appropriate, as we stand at the very dawn of the new Government’s term. The new Administration has only 1½ months of life and a full term ahead. Hence, “The View from the Ministers” gives a clear picture of today’s content. I am confident that the views of the Ministers of Finance, Transport, Communications & Works, and Labour & Social Security and of the Deputy Minister of Shipping will give us ample information about the Government’s policies and priorities, touching upon the major challenges of the country.

The Institute of Certified Public Accountants of Cyprus is a long-term, strong supporter of the State in the fields of its competence. Our Institute grew together with the Republic and has been there through the various phases of the country’s history. During the recent years of the financial crisis, in particular, ICPAC stood by the State in many respects. It gives us great satisfaction and pride that we, amongst others, helped the country overcome its predicament, avoid riskier paths and return to positive growth sooner than expected.

But we haven’t yet reached the end of the road. As we have said on many occasions, there is a lot that still remains to be done.

ICPAC once again states its readiness and willingness to work side-by-side with the Government and all relevant stakeholders.

Hence, we extend a call to the Government to summon all stakeholders and productive partners of the economy in order to prepare for the next day, capitalizing on each one’s expertise, knowledge and skills. We at ICPAC are firm believers in the tripartite framework of Vision – Strategy – Commitment. Therefore, we must all, collectively, work on a clear vision about the future of the economy, set the appropriate strategies and goals, and commit ourselves to pursuing those goals and delivering the desired results. It is imperative that collaboration between the private and public sector is further enhanced, thus injecting a multiplier factor into the economy.

Cyprus is not short of challenges, and a number of them still lie ahead. The first of the most pressing ones concerns the stability and robustness of the financial and banking system. Despite the efforts made so far, there is a lot of work to be done, entailing brave decisions as well.

Problems and inefficiencies that have accumulated over decades require the appropriate time to be resolved, hence their

resolution should be designed having in mind a medium-term horizon, rather than seeking to take immediate and rather ambiguous decisions.

Another important challenge is the sustainability of economic growth. This involves a wide range of actions, including a balanced fiscal policy and budget and the continual improvement of the country’s competitiveness and productivity by identifying the comparative advantages and maximizing the benefits yielded.

Careful diplomatic tactics are a sine qua non for the most beneficial exploitation of the country’s hydrocarbon reserves, a development which will definitely reshape the overall situation.

It is also fundamental to proceed with long-pending reform of the public sector.

This is our chance but the reforms should come about as a result of proper consultation with all the relevant stakeholders.

Thus everybody will be committed to a common goal, without excuses and exclusions. We must all acknowledge that, at the point we find ourselves today, halfway measures are not solutions. Political bravery is the key factor here.

Finally, and building upon the reforms and competitiveness, the adoption and implementation of e-governance is also a crucial stake we need to win. Digital transformation is not an option but the way forward! Coupled by the promotion of and adherence to the highest ethical ideals, there will be a tremendous opportunity to pave the way for much-needed cultural reform as well.

ACCOUNTANCY CYPRUS

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ACCOUNTANCY CYPRUS

INSTITUTE NEWS

ICPAC AND FAP JOIN FORCES TO FIGHT FINANCIAL CRIME AND FRAUD

T

he Institute of Certified Public Accountants (ICPAC) and the UK’s Fraud Advisory Panel (FAP) signed a cooperation agreement on Thursday March 15, 2018, in order to promote joint efforts in battling financial crime and fraud. Through the agreement, ICPAC and FAP will establish an educational and research partnership and a technical support mechanism which will foster best practices in the prevention, detection and investigation of financial crime, something that impacts both organizations and, more broadly, Cyprus and the UK. This development opens a significant window of cooperation for other authorities in the two countries, including the exchange of experience and information.

The agreement was signed by Kyriakos Iordanou, General Manager of ICPAC (left) and David Clark, Trustee of the FAP.

Roberta Koummettou, joint first place in Tax Compliance and the Knox Prize Marina Papanastasiou, joint first place in Tax Compliance and the Knox Prize Charalampia Skordi, joint sixth place and the Arthur Swinson Prize in the Professional Annual Order of Merit Addressing the

students, Nick Parker said, “The success you’re all celebrating tonight reflects the drive and work ethic with which you’ve approached your studies. You’re a model for those with high aspirations for their professional careers, and for their contributions to the wider world.”

DECISIONS OF THE DISCIPLINARY COMMITTEE KPMG LTD

ACA GRADUATES CELEBRATE IN CYPRUS

150

Cyprus. Special congratulations were given to a record number of prizewinners: From the September 2017 Prostudents celebrated passing their fessional Level examinations: Charalampia Skordi, first place ACA exams, the first stage of in the Financial Accounting & becoming ICAEW Chartered Reporting paper and the Spicer Accountants, in a ceremony at the Hilton Park Hotel in Nicosia and Pegler prize.

From the November 2017 Adat the end of January. ICAEW President Nick Parker, ICAEW vanced Level examinations: Louiza Christou, joint fifteenth Contact Member and CEO of PwC Cyprus Evgenios Evgeniou, place in the Advanced Annual International Order of Merit Accountant General Rea Georgiou and ICPAC General Man- From the December 2017 Proager Kyriakos Iordanou were all fessional Level examinations: in attendance.

Nicolas Christodoulides, joint The graduation ceremony high- sixth place and the Arthur Swinlighted the excellent ability and son Prize in the Professional Ancommitment of students from nual Order of Merit.

Allegation: The defendants in or around 2015 proceeded with the audit of the financial statements of the Provident Fund of an Insurance Company, without prior communication with the existing accountant, who had been the auditor of the Provident Fund during the previous year, and without adhering to the requisite subsequent procedure for taking up work, in breach of their professional ethical obligations.

15 November 2017: The Institute’s Disciplinary Committee found the allegation proved.

Order: €200 fine, €1.060 costs.

VASILIS GEORGIADES

Allegation: During 2015 and until August 2016, although he had not renewed the audit practising certificate issued by the Institute, the defendant continued to practise the auditing profession, including the audit of a Public Interest Entity for which he had submitted the audited financial statements to the Cyprus Stock Exchange in April 2015, without possessing the required license, in contravention of the relevant Law and Regulations.

15 November 2017: The Institute’s Disciplinary Committee found the allegation proved.

Order: €1,000 fine, €2,000 costs.

GEORGE LIASIS

Allegation: Whilst in the employment of a firm of accountants and in the process of changing employer, he forwarded via electronic means confidential documents to his

ACCOUNTANCY CYPRUS

27

the allegations proved: Order: €500 fine for each allegation, €180 costs.

IOANNIS KARAPATAKIS own personal e-mail account, in contravention of his company’s confidentiality rules. In doing, he violated (1) The Institute’s Regulations on Professional Ethics as provided for in regulation 1.108, article 3(B) (ii) and (iii), and (2) The Statutory Auditor’s Law of 2009, articles 27(1) and (2) which incorporate the Code of Ethics issued by the International Federation of Accountants and the regulations concerning his professional status and his obligations emanating from it, in contravention of the Professional Ethics Regulations as provided for in regulation 1.107.5(1), (2) and (3) and 1.108, article 3(c).

22 November 2017: The Institute’s Disciplinary Committee found the allegations proved.

Order: €1,000 and €2,000 fines, €2,920 costs.

STAVROS COSTA MICHALAS AND STAVROS COSTA MICHALAS & CO.

Allegation: When applying to the Institute for renewal of their practising certificates for the years 2014 and 2015, the defendants submitted forged copies of insurance documents, showing that they had coverage for the said years. They thus failed to maintain professional indemnity insurance cover for 2014 and 2015, despite the fact that they were in possession of audit practicing certificates.

22 November 2017: The Institute’s Disciplinary Committee found the allegations proved.

Order: Exclusion from membership for a period of 3 years, €660 costs. The firm is banned from ever obtaining a practising certificate.

CONSTANTINOS CONSTANTINOU

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013, 2014 and 2015 and failed to provide the Institute with his CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegations proved.

Order: €100 for each allegation, €180 costs.

SAVVAS GEORGIADES

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013, 2014 and 2015 and failed to provide the Institute with his CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the fallegations proved.

Order: €500 fine for each allegation, €180 costs.

ANTONIS HADJIANTONAS

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013 and 2014 and failed to provide the Institute with his CPD records for the years 2013, 2014 and 2015 when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013 and 2014 and failed to provide the Institute with his CPD records for the years 2013, 2014 and 2015 when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegations proved: Order: €500 fine for each allegation, €180 costs.

GAVRIEL ANASTASIADES

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013, 2014 and 2015 and failed to provide the Institute with his CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the fallegations proved.

Order: €500 fine for each allegation, €180 costs.

GEORGIA PAPHITI

Allegation: The defendant failed to submit her Continuing Professional Development (CPD) declarations for the years 2013, 2014 and 2015 and failed to provide the Institute with her CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the fallegations proved.

Order: €100 fine for the first allegation, €500 fine for the second, costs €180.

ANTONIA CONSTANTINOU

Allegation: The defendant failed to submit her Continuing Professional Development (CPD) declarations for the years 2013 and 2014 and failed to provide the Institute with her CPD records for the years 2013, 2014 and 2015 when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegations proved Order: €500 fine for each allegation, €180 costs.

SAVVAS SAVVIDES

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013, 2014 and 2015 and failed to provide the Institute with his CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegations proved.

Order: €500 fine for each allegation, €180 costs.

MICHAEL SPYROU

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years

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ACCOUNTANCY CYPRUS

INSTITUTE NEWS

NEW MEMBERS

2013, 2014 and 2015 and failed to provide the Institute with his CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegations proved.

Order: €500 fine for the first allegation, €100 fine for the second, €180 costs.

COSTAS CONSTANTINOU

Allegation: The defendant failed to provide the Institute with his Continuing Professional Development (CPD) records for the years 2013, 2014 and 2015 when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegation proved.

Order: €400 fine, €180 costs.

SAVVAS SAVVA

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013, 2014 and 2015 and failed to provide the Institute with his CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegation proved.

Order: €500 fine for each allegation, €180 costs.

STELIOS SAVVA

Allegation: The defendant failed to submit his Continuing Professional Development (CPD) declarations for the years 2013, 2014 and 2015 and failed to provide the Institute with his CPD records for the said years when requested to do so.

28 November 2017: The Institute’s Disciplinary Committee found the allegation proved.

Order: €500 fine for each allegation, €180 costs.

PANAYIOTIS SIAKKAS

Allegation: The defendant failed to comply with Article 15 of Regulation 1.201 of the Members’ Handbook in that he did not renew his practising certificates for the years 2015 and 2016, despite being sent various reminders.

13 December 2017: The Institute’s Disciplinary Committee found the allegation proved.

Order: €500 fine, €330 costs.

KYRIAKOS PAPAGEORGIOU

Allegation: The defendant failed to comply with Article 15 of Regulation 1.201 of the Members’ Handbook in that he did not renew his practising certificates for the years 2015 and 2016, despite being sent various reminders.

13 December 2017: The Institute’s Disciplinary Committee found the allegation proved.

Order: Severe reprimand, €330 costs.

4585

SOTIRIS

SOTIRIOU

ART. 155

4586

SOTERIS

ELIADES

ART. 155

4587

CHARALAMBOS

CHARALAMBOUS

Art. 23

4588

ANDREAS

KTISTIS

ART. 155

4589

KYRIAKOS

KOUTSIOFIS

ART. 155

4590

ANTONIS

PROKOPIOU

ART. 155

4591

THEONITSA

THRASYVOULIDES

ART. 23

4592

ANDREA MARGARITA

JOANNOU

ICAEW

4593

CHRISTOS

THEOFANOUS

ART. 23

4594

THEOPHANIS

THEOPHANOUS

ART. 23

4595

PETROS

GEORGIOU

ART. 23

4596

NICOLAS

KLAPPIS

ICAEW

4597

SPYRIDON

DEMOSTHENOUS

ICAEW

4598

CHRISTINA

ANTONIADOU

ICAEW

4599

SOFIA

CHRISTODOULIDOU

ICAEW

4600

KALYPSO

PAPADOPOULOU

ACCA

4601

RIANA

TREPPIDES

ACCA

4602

MARIA

KOUNTOURIDI

ACCA

4603

PANICOS

FESSAS

ACCA

4604

KYRIAKOS

SAVVA

ACCA

4605

ANTONIS

CHRISTOFI

ACCA

4606

DONNA LOUISE

MITCHELL

ACCA

4607

KYRIACOS

SOCRATOUS

ICAEW

4608

KYRIAKI

KONSTANTINOU SYMEOU

ACCA

4609

VLADIMIROS

ZAVROS

ACCA

4610

DEMETRIS

ANDREOU

ACCA

4611

LOIZOS

TTERALLI

ACCA

4612

ALKISTIS

GKIOSI

ACCA

4613

MILTIADES

PERICLEOUS

ACCA

4614

NIKOLAS

KAKOUROS

ACCA

4615

CHRISTIANA

GERASIMOU

ACCA

4616

ILARION

KYRIACOU

ACCA

4617

MARIOS

TINIOZOU

ACCA

4618

LINOS

ZAMBAS

ACCA

4619

ACHILLEAS

ACHILLEOS

ART. 23

4620

MARIOS

CHRISTOPHI

ART. 23

4621

ANDREAS

LAMBROU

ART. 155

4622

THOMAS

STYLIANIDES

Art. 23

4623

COSTAS

KLOKKARIS

ART. 23

4624

ELEFTHERIOS

ELEFTHERIOU

ACA

4625

MARIA

MARKOULIA

ACCA

ACCOUNTANCY CYPRUS

4626

ELENA

GEORGIOU

ACA

4672

SIMOS

SYMEOU

ART. 23

4627

CHRISTIANA

EFTHYMIADOU

ACCA

4673

ANDREI

CHIZHOV

AICPA

4628

EFTHYMIOS

DEMOSTHENOUS

ICAEW

4674

IRYNA

MOROZ

ACCA

4629

KALIOPI

GEORGIOU

ACCA

4675

MARIOS

SOTIRIOU

ACCA

4630

HARIA

ANDREOU

ACA

4676

NATASA

KYRIACOU

ACA

4631

MARIOS

ARISTOTELOUS

ICAEW

4677

STAVROULA

KALLINIKOU

ACA

4632

ZOI

THEODOSIOU

ACCA

4678

IOANNA

LOUKATZIE

ACA

4633

APOSTOLOS

KATSARAS

FCCA

4679

MARIA

HADJIOSIF

ACA

4634

SARA

STAROVLAH

ACCA

4680

ANASTASIA

GORSHKOVA

ACA

4635

KATIA

SOLOMOU

ACCA

4681

FRANTZESKA

THEODOROU

ACA

4636

ANDREAS

EVANGELOU

ACCA

4682

ANDRI

GEORGIOU

ACA

4637

STEPHANIE

GEORGIOU

ACCA

4683

MARIA

IOANNOU

ACA

4638

CONSTANTINOS

KOUSHIAPPIS

ACCA

4684

ELENI

GEORGIOU

ACA

4639

SENAN

MCGONIGLE

ICAI

4685

KETRIN

KAPEXHIU

ACA

4640

COSTAS

PANAYIDES

ART. 23

4686

LEANA

STYLIANIDES

ACA

4641

NICOS

CONSTANTAS

ACCA

4687

ATHINA

GERMANOU

ACA

4642

AVGI

PAPACONSTANTINOU

ACCA

4688

YIANNOULA

ECONOMOU

ACA

4643

DEMETRA

YIASKOURI

ACCA

4689

STYLIANA

PANAYI

ACA

4644

ANGELA

ANTONIOU

ACCA

4690

CONSTANTINA

SOTERIOU

ACA

4645

DEMETRA

ANTONIOU

ACCA

4691

PANAYIOTIS

NEARCOU

ACA

4646

LOUIZA

ZENIERI

ACA

4692

CHRYSANTHOS

PAPACHRYSANTHOU

ACA

4647

MARIOS

LAZOURAS

ACCA

4693

RENOS

SKOUFARIDES

ACA

4648

ELENA

GEORGIOU

ACCA

4694

ANDREAS

CHRISTODOULOU

ACA

4649

MARINA

ANDREOU

ACCA

4695

THOMAS

TSOLAKIS

ACA

4650

MARIOS

CHRISTOU

ACCA

4696

ANDREAS

IOANNOU

ACA

4651

CHRISTOFOROS

KLEANTHOUS

ICAEW

4697

LOUKAS

PHOTI

ACA

4652

THEODORA

ORFANOU

ACCA

4698

EVROS

MENELAOU

ACA

4653

IACOVOS

KEFALAS

ACCA

4699

IACOVOS

MYLONAS

ACA

4654

YING

ZHOU

ACCA

4700

ANDREAS

KOUSIAPPAS

ACA

4655

MILENA

ZARIC

ACCA

4701

ANDREAS

TSIATTALOS

ACA

4656

ELENA

DANIEL

ACCA

4702

CHRYSOSTOMOS

STAVROU

ACA

4657

EVRIDIKI

GEORGALLIDOU

ACCA

4703

CHRISTOTHEA

SAVVA

ACCA

4658

CHRYSOVALANTO

STYLIANOU

ACCA

4704

ANDRI

ANTONIOU

ACCA

4659

CHRISTODOULOS

SAOULLIS

ACCA

4705

STEFANIA

COSTOURI

ACCA

4660

ELENA

VOLIDOU

ACCA

4706

CHRISTINA

PANAYIOTOU

ACCA

4661

ELENA

KANARI

ART. 23

4707

KATIA

ARGYRIDOU

ACCA

4662

ANDROULA

KAKKI HADJIAROU

Art. 23

4708

CHRYSTALLA

KOULLOUROU

ACCA

4663

RENOS

PASHIAS

ACCA

4709

LILIYA

GALEEVA

ACCA

4664

KYRIAKI

PIPERIDOU

ACCA

4710

KRISTINA

KARMANOVA

ACCA

4665

PANAGIOTA

GEORGIOU

ACCA

4711

MARIANA

SHYNKAR

ACCA

4666

CHRYSTALLA

ODYSSEOS

ACCA

4712

VASILIS

ADAMOU

ACCA

4667

IRAKLIS

NICOLAOU

ACCA

4713

NICOLAS

TSIAILIS

ACCA

4668

STELLA

VIOLARI

ACCA

4714

SERGIU

HARITON

ACCA

4669

PANTELITSA

RIGHAS

ACCA

4715

MARSELLOS

NICOLAIDES

ACCA

4670

MARINA

CHRISTODOULIDOU

ACCA

4716

CHRISTOS

TOOULAS

ACCA

4671

ELIANA

NEOPHYTOU

ACCA

4717

ARESTIS

DIONYSIOU

ACCA

29

30

ACCOUNTANCY CYPRUS

4718

STAVROS

YOULAS

ACCA

4761

ANDREAS

ERACLEOUS

Art. 155(1)(b)

4719

EVA SEVAN

ALEXANIAN

ACCA

4762

NICHOLAS

PASCHALIS

ACCA

4720

ALINA

JEFIMOVA

ACCA

4763

ELIAS

HADJIATHANASIOU

ACCA

4721

DEMETRIS

FRAGKOULIDES

ACCA

4764

PANAYIOTIS

GEORGIOU

ACCA

4722

CHARIDEMOS

VIOLARIS

4(1)(z)

4765

ANDREAS

AVGOUSTI

ACCA

4723

TASOS

ANASTASIOU

Art. 23

4766

VERA

BULENKOVA

ACCA

4724

ANDREAS

TSIAILIS

Art. 23

4767

DEMETRA

KATSARI

ACCA

4725

SAVVAS

ELIADES

Art. 23

4768

ANNA

PELTYAKOVA

ACCA

4726

KYRIAKOS

LOIZIDES

Art. 23

4769

OLGA

LEONIDA HADJITTOFI

ACCA

4727

CHRISTOS

CHRISTOFI

Art. 23

4770

ELIAS

KYRIAKOU

ACCA

4728

KYRIAKOS

CHRISTODOULOU

Art. 23

4771

ANNA

APPIOU

ACCA

4729

CHRISTOS

CHRISTOU

Art. 23

4772

SAVVAS

MICHAEL

ACCA

4730

MARIA

EFTHYMIOU - CHRISTOU

Art. 155(1)(b)

4773

ELENI

ANTONIADOU

ACCA

4731

GEORGE

ZACHARIOU

Art. 23

4774

NATALIA

EVANGELOU

ACA

4732

ELEFTHERIOS

SKOTTIS

Art. 23

4775

EVANTHIA

SOLOMOU

ACCA

4733

MARIOS

AVRAAM

Art. 155(1)(b)

4776

ARTEMIS

SELEARI

ACCA

4734

PAVLOS

CHRISTODOULOU

Art. 23

4777

LEONTIOS

SAVVA

ACA

4735

ELIAS

MYRIANTHOUS

Art. 23

4778

ELENI

PISSARIDOU

ACCA

4736

GEORGE

IOANNOU

Art. 155(1)(b)

4779

CHRISTINA

ECONOMOU

ACCA

4737

ELEFTHERIOS

IOSIFAKIS

Art. 23

4780

KYRIAKOS

LIVADIOTIS

ACCA

4738

GEROLEMIS

GEROLEMI

Art. 23

4781

MARILENA

PAPASAVVA

ACCA

4739

DEMETRIS

PROTOPAPAS

Art. 23

4782

ANTONIS

MOUSKOS

ACA

4740

MICHALIS

MICHAELA

Art. 23

4783

STELLA

KLATSIA

ACCA

4741

COSTAS

PHYLACTOU

Art. 23

4784

MARIA

SPANOU

ACCA

4742

CHRISTOS

MILTIADOUS

Art. 23

4785

CHRISTOFOROS

KOUSIAPPAS

ACA

4743

ANDREAS

MICHAEL

Art. 155(1)(b)

4786

IOANNIS

EVELTHONTOS

Art. 23

4744

ELEFTHERIOS

TRIAROS

Art. 23

4787

YIANNAKIS

KOKONAS

ACA

4745

CHARALAMBOS

PASTIDES

Art. 23

4746

CONSTANTINOS

AKONAS

Art. 23

4747

CONSTANTINOS

MINAS

Art. 23

220

VASSILIOS

HADJIVASILIOU

ACA

4748

STAVROS

KOSIARIS

Art. 23

660

GABRIEL

ANASTASIADES

ACA

4749

PANAYIOTIS

FLOURENTZOU

Art. 23

1989

ANASTASIOS

FIKARDOS

ACCA

4750

KYRIAKOS

DROUSIOTIS

Art. 155(1)(b)

2891

JOHN THOMAS

HORTON

ACA

4751

PANAYIOTIS

HADJICONSTANTINOU

ACA

3293

BARRY

IACOVOU

ACA

4752

ANDREAS

YIANNAKOU

Art. 23

3538

CHRYSTALLA

KAKOULLI

ACA

4753

MARIOS

STAVROU

Art. 23

3956

AGAPI

TRYFONOVA

ACCA

4754

ANDREAS

MICHAELIDES

Art. 23

4755

ISIDOROS

MAKRIDES

Art. 23

4756

PANAYIOTIS

MILTIADOU

ACCA

Reregistrations

4757

DEMETRIS

THEMISTOCLEOUS

ACA

2225

CHRISTAKIS

CHRISTOFI

Art. 23

RODOULA

ATHANASIOU

ACCA

Removals

4758

STELIOS

MAVROMMATIS

ACA

2521

4759

CHRISTOS

CHRISTODOULOU

Art. 23

2729

MARIYIANNA

PETROU

4(1)A

CIMA

2914

ANTONIS

ASSOS

Art. 155 (1)(b)

4760

ANDREAS

MICHAEL

ACCOUNTANCY CYPRUS

31

COVER STORY

NPLS: THE BEGINNING OF THE END

ACCOUNTANCY CYPRUS

FINANCE MINISTER HARRIS GEORGIADES BELIEVES THAT AN END TO THE FINAL LEGACY PROBLEM OF THE 2013 CRISIS – THE HUGE VOLUME OF NON-PERFORMING LOANS (NPLS) – IS NOW IN SIGHT, HELPED, SOMEWHAT IRONICALLY,

BY THE RECENT PROBLEMS FACING THE CYPRUS COOPERATIVE BANK. AS HE TELLS ACCOUNTANCY CYPRUS IN THIS EXCLUSIVE INTERVIEW, MORE PRIVATISATION, FURTHER REFORMS AND PUBLIC SECTOR INVESTMENT IN TECHNOLOGY ARE AMONG THE NEW GOVERNMENT’S PRIORITIES. ABOVE ALL, FISCAL DISCIPLINE AND A FOCUS ON ENSURING THAT THE GOOD WORK OF THE LAST FIVE YEARS IS MAINTAINED ARE ESSENTIAL IF THE COUNTRY IS TO FULFIL ITS GREAT POTENTIAL.

A

s happened at the start of your first term, the second also appears to have begun with a banking sector crisis.

What led to the unusual ‘fast track’ procedure to find investors willing to take over the operations of Cyprus Cooperative Bank (CCB)?

I don’t agree that it’s a crisis. There is certainly no comparison with what was a real crisis in 2013. By definition, a crisis arises unexpectedly but in this case, it has to do with the sequence of events which the CCB was obliged to implement, the only substantial change being one of somewhat expedited timeframes and a continuous raising of the bar on behalf of the supervisors, which has affected the banking sector throughout the euro system. A clear action plan was designed when state aid was offered to the CCB in 2013-14 and it was a condition that this situation would be temporary and that an exit would have to commence in 2018. That is exactly what is happening but we now have a more intense and demanding supervisory environment, which dictates that this process must be more swiftly concluded.

Didn’t the original plan envisage a stock market flotation?

Yes. It was part of the strategy to privatise the bank by raising new capital and a stock exchange is one place where this can be done. The fact that European supervision demands even swifter action has resulted in a change, not in the substance or the ultimate objective but in the method and the scale of this action.

So when you told a Parliamentary Committee recently that any final

33

decision on the future of the CCB would be taken by the ECB, is that what you were referring to?

No, I was referring to the fact that any new investor with a controlling stake has to seek and gain ECB approval.

If we take into account the recent €2.5 billion cash injection into the CCB, together with the original €1.7 billion, the state has supported it with more than €4 billion of taxpayers’ money over the last five years.

We are talking about two different things. It’s one thing to inject capital into a bank and another to buy assets.

The Government is not permitted to inject another euro into the bank’s share capital. What it did was to borrow money and make a deposit, as any client could do but, in doing so, it has taken the non-performing loans (NPLs) and other real estate assets as security, which means that the Government will also own a new revenue stream. And if €6.5 billion in CCB NPLs is shifted off the bank’s balance sheet, nationwide NPL levels will also drop significantly.

But won’t that deposit raise the level of public debt?

It is true that it will lead to a one-off increase in the public debt but, on the other hand, a very important point to note is that we may end the year with NPL levels of half of what they were at the start of last year. We are now in a

We may end the year with NPL levels of half of what they were at the start of last year

34

ACCOUNTANCY CYPRUS

COVER STORY

A fall in the banks’ NPL levels, through the shifting of a big chunk of them off the balance sheets, is what everyone wants tricky, demanding phase but one that will probably signal the beginning of the end of the last legacy problem from the crisis of 2013: non-performing loans. So it was a difficult decision – one that was not taken lightly or even very willingly – but we did what we had to do. It is good that we now have the ability to do what needs to be done in order to face off any dangers before they do any damage, to restore depositor confidence, which was temporarily shaken, to overcome the last hurdle and pave the way for what will essentially be the final solution to this last legacy problem.

Have you considered the possibility that the European Commission might interpret the €2.5 billion as a form of state aid and order the Government to recover it?

It will not be state aid for the recapitalisation of a bank – that is not permissible under banking union rules – but there is a permissible state aid element to it. We maintain an open channel of communication with the European Commission, pending confirmation of investor interest, of course. The privatisation plan for the CCB has always involved raising new capital but with new supervisory and audit procedures having been established, we had to

respond by amending the plan and paving the way for a more radical solution which, as I have already stated, undoubtedly has its cost in the form of a one-off spike in the level of public debt.

On the other hand, by doing so we are facilitating an ambitious restructuring of the banking sector and possibly consolidation in the sector. A fall in the banks’ NPL levels, through the shifting of a big chunk of them off the balance sheets, is what everyone wants.

How confident are you that this story will have a positive end? What would you like to see?

It may not be the most difficult issue that we have handled but it is certainly one of the most complex. However, I am, indeed, confident that there will be a positive outcome, one that will maintain Cyprus on the track of more rating upgrades and further improvements to the fundamentals of the economy.

Despite the upgrades from the ratings agencies, they still note that the NPL problem is one of concern. Do you intend to send new legislation to the House of Representatives to make it easier for the banks to recover what is owed, especially by strategic defaulters?

Yes, we do. New legislation was implemented three years ago and although it was a significant improvement on the previous non-existent legal framework, it contained a number of loopholes and loose ends, which allowed strategic defaulters to exploit the system and we shall primarily be trying to close those loopholes, to enable the banks to distinguish between a borrower facing changed financial circumstances and in need of a new arrangement – and the banks have an obligation to take action

to this end – and someone who has the capability to repay a loan but fails to do so. Ultimately, someone will have to pay, whether it’s the borrower or, in the case of the CCB, taxpayers, bailed-in depositors or new shareholders. No-one should be content to allow strategic defaulters to pass on their responsibilities to others. That said, I don’t foresee any radical amendments to the legislation – the core elements will remain intact.

At the recent Nicosia Economic Congress, you stated clearly that “No bad debts will be written off”. How is this possible?

With that message, I was making a clear political statement. The Government and the political system will have no direct or indirect role in the management of these loans which will be entirely carried out on commercial terms by the banks or by a non-bank, like an asset management company, under strict conditionality set by the European Commission. However, if, for servicing these loans, restructuring takes place which could, in some cases, see reductions in the balance owed, that is a very different from cultivating the perception that the loans will be written off. NPLs will be subject to restructurings, within which there are many options and tools.

The idea of a Bad Bank has been floated again, in particular as regards the CCB. With hindsight, do you think that this is something that should have been created in 2013?

If it had been at all possible, yes, but, unfortunately, it was not possible then.

Transferring a loan from the balance sheet of a bank to somewhere else will incur a loss for the bank itself if there is a difference between the transfer price

ACCOUNTANCY CYPRUS

and the provision level held by the bank against that loan. Let me remind you that, 4-5 years ago, provision levels were hardly above 30%. They are now near 50% and this alone should lead us to the conclusion that, even though it was a good idea back then, it wasn’t possible due to the significant cost, both to the banks, which were already in a tight spot, and to the Government, which was still under a programme and hardly able to finance its needs. To establish an asset management company or what is mistakenly called a ‘bad bank’ – it is neither bad nor a bank! – all the pieces of the puzzle need to be in place and those pieces have only now started falling into place. There are still constraints on such a move, even today.

During your first term, reform was a key aspect of government policy in all areas. Is it now a matter of continuation for the new Government?

You’ve used the right word: It is a continuation of previous policy. I believe that the voters re-elected President Anastasiades in order to see a continuation of the effort which has already delivered results but needs to be maintained if we are to cover lost ground and establish conditions for sustainable economic growth for the benefit of everyone over a medium- to long-term horizon. This is our new mandate. It’s no longer

No-one should be content to allow strategic defaulters to pass on their responsibilities to others

a battle for survival – we are already standing on our own feet and have covered significant ground – and we can be more optimistic and confident about our prospects but we should remain down to earth, realising that more still needs to be done. This is exactly what we intend to do: to maintain the effort, to maintain fiscal discipline, to ensure the full healing and smooth functioning of the banking sector – public finances and banking have been the focal areas of change and reform until now – but also to include a number of other necessary changes and reforms.

How important is e-government in your plans?

I would rank e-government as one of the top priorities. In my view, investing in technology in the public sector is the best and most efficient way to reform it and e-government is at the top of the list.

We have already initiated a number of projects – this is the advantage that a Government which is returned to office has. It doesn’t have to start from scratch and there already exists a pipeline of such projects, as well as reforms, policy initiatives, even infrastructure works which enables the Government to keep them going and even speed up the

35

pace of implementation and to ensure that they all go through.

36

ACCOUNTANCY CYPRUS

COVER STORY

Will you return to the privatisations that failed to win parliamentary approval first time round? Are you more confident of greater consensus on key issues between the Government and the House of Representatives?

I hope so but let’s take the cases one by one: we had the very successful privatisation of the Port of Limassol, which has proved all the doomsayers wrong.

That key success is now enabling us to move on with the privatisation, concession and redevelopment of Larnaca Port. I see hardly anyone arguing against the privatisation of the Stock Exchange, which we should complete during this second term, or the Government real estate in the Troodos mountain resort. In some cases, like the ports or the Troodos estate, there isn’t even a change of ownership. The privatisation option involves a long lease so it is the operation, not ultimate ownership, that comes into private hands.

What about the failed attempts with the Electricity Authority of Cyprus (EAC) and Cyta?

EAC was only tentatively included on a list but the objective was always to ensure the Authority’s operational unbundling and accounting separation as a way to meet supervisory requirements

The voters reelected President Anastasiades in order to see a continuation of the effort which has already delivered results

and to facilitate the effective opening up of the electricity market. We might face unjustified resistance regarding Cyta but I hope that we will all open our eyes and see slightly beyond today to realise that it is now, while Cyta is still profitable and enjoying a significant market share, that we should take the step to implement even a partial privatisation and bring in a strategic partner/investor that will take over the management and offer new prospects to the organisation before it’s too late.

How reassuring are the latest upgrades by the ratings agencies?

They confirm our good progress, they act as positive signals to the international investment community and they should also give confidence at a local level, leading us to continue and maintain the discipline and the effort that we have made so far. If we do so, I am absolutely convinced that there will be further upgrades. Each one has its benefits, some direct and others indirect but always important and significant.

Cyprus and the UK recently signed a new Double Tax Treaty. Are you planning to expand the 50+ network of such treaties to more countries? Are they truly valuable?

They are of key significance because they form an essential element of Cyprus as an international business centre. Cyprus is a small country with a small economy, a small population and a small market but it’s an excellent base from which to do business and interact with other regional and global markets. There is a long list of the comparative advantages of Cyprus to international businesses, primarily the excellent human capital and their skills, and maintaining a wide network of Double Tax Treaties is an-

Investing in technology in the public sector is the best and most efficient way to reform it other tool in the box, which is exactly why we are continuously reviewing, updating and expanding this network.

In 2013, the Government faced huge challenges and managed to overcome most of them. Do you feel that things will be easier this time or is the situation still very fragile?

Things are certainly much better than five years ago but this isn’t a personal success or even a government success: it is the success of the people of Cyprus and of the key productive sectors of the economy. What the Government did was to keep the ship stable, offer a helping hand and ensure that there would be no new taxes or bureaucracy to burden the efforts of the productive sectors to spearhead the recovery. Are things easier now? I would say that the task is much more manageable, precisely because we have already come a long way, but this should not lead us to complacency – and when I say ‘us’, I mean the government, the opposition, the private sector, the unions, industry, everybody. We must remain focused, calm and confident; we must continue to strive to improve where improvements are necessary, to protect the parts of the economy that are already healthy and strong, and to adapt whatever needs to change in order to become more efficient. That’s how societies progress and that’s our plan for Cyprus too.

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ACCOUNTANCY CYPRUS

INTERVIE W

REFORM, SUSTAINABLE GROWTH, ENTREPRENEURSHIP AND INNOVATION THESE ARE AMONG THE OBJECTIVES AND PRIORITIES OF CHRISTODOULOS E. ANGASTINIOTIS, RECENTLY ELECTED AS PRESIDENT OF THE CYPRUS CHAMBER OF COMMERCE AND INDUSTRY (CCCI).

You were recently elected as President of the CCCI, after being the Chairman of CIPA. Given that both organizations share similar objectives, has your work changed and if so, how?

It was with great pleasure, along with a feeling of responsibility, that I took office at the CCCI at a challenging time for the economy and the business world. The Chamber acts as the voice of the business world, with the aim of contributing to economic progress in Cyprus. It operates in a rational and coherent manner and cooperates with the Government and other sectors to enhance people’s standard of living. The CCCI is active on both a national and international level. We continue to develop our network with international Chambers and other economic forums and we strive to promote Cyprus and its interests by constantly building new international relations. In this, we are aligned with CIPA, which focuses on the investment sector, facilitating investments in our country. It is the sole contact point for those wishing to invest in the country and this is of great significance. Both organizations need to cooperate, together and with the Government and all involved parties, in order to achieve their aims.

What are your priorities as President?

On the issue of priorities, I would point to the Government’s current objectives, which are for Cyprus to continue its growth, reduce unemployment, eliminate public and private debt, control non-performing loans, exploit the country’s energy resources, play a crucial geostrategic role in the region, take advantage of the possible benefits of Brexit and create the potential for sustainable progress and prosperity. These are also the main priorities of the CCCI. We will also focus on the promotion of reform, the implementation of fundamental infrastructure projects, the fight against bureaucracy, the improvement of the business environment and relations between the executive and the legislature, etc. If entrepreneurship is to be given an impetus, the economy needs to be based on a resourceful, dynamic and flexible private sector. At present, the CCCI believes that it is of great importance to safeguard the free market and private initiative, to reward productive efforts, to widen the potential for entrepreneurship and innovation and to invest in the younger generation.

Increased public sector productivity, the completion of reforms, the enhancement of transparency on all levels, the acceleration of judicial procedures, the establishment of equality and justice, the operation of state

mechanisms free of interference from the political parties and constant improvements to the country’s infrastructure lie behind the new strategy that the CCCI intends to put into practice.

Businesses have started to improve slowly yet steadily since the 2013 crisis. How would you describe the current business scene in Cyprus?

I strongly believe that the Cypriot companies that managed to survive the financial crisis and its effects are now stronger than before. They still face problems, of course, particularly as regards financing, which is one of the biggest problems for the business world. It is true that that the banks have started giving certain loans but the high volume of non-performing loans does not allow them much flexibility. Moreover, public sector bureaucracy, high operating costs, leadership and succession issues, fierce competition, financial threats and taxation

NO STATE CAN SURVIVE AND THRIVE WITHOUT A HEALTHY ECONOMY

ACCOUNTANCY CYPRUS

THE ECONOMY NEEDS TO BE BASED ON A RESOURCEFUL, DYNAMIC AND FLEXIBLE PRIVATE SECTOR

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ACCOUNTANCY CYPRUS

INTERVIE W

THE SERVICES SECTOR ALSO NEEDS TO BE MODERNIZED IN ORDER TO ENHANCE ITS CONTRIBUTION TO ECONOMY are just some of the issues of concern for local companies. These make the future difficult, as they do not allow businesses to expand into new markets. A lack of resources and incentives for the further development of entrepreneurship hinders the growth of Cypriot and other companies. The CCCI believes that the state should support private initiatives and efforts that support the economy, which cannot recover without the innovative ideas and economic boost offered by small businesses. At the same time, the CCCI is trying to exploit European programmes that support our businesses.

Successful businesses need a successful banking sector and you mention the high volume of Non-Performing Loans (NPLs). How much of a problem are they for the local banks?

Despite the fact that they have been reduced, NPLs are still a major destabilizing threat to the economy. It is a fact that they have a massive impact on companies, especially on small and medium sized ones, which are less resilient to fluctuations and more dependent on bank loans than larger companies. The high volume of NPLs prevents the banks from being flexible with companies, thus making business financing tremendously difficult. The CCCI believes that, although the banks are following the right policies, they need reconsider them because a productive economy requires higher liquidity in order to function properly. Companies have taken the economy into their hands and have managed to turn the crisis into an opportunity but they need help from the banks. In this light, we ask the banks to become more flexible in providing liquidity to the market, more effective in regulating old business loans, more resourceful

with new plans, more supportive to company investments and more reasonable with their charges.

Do you have specific proposals on how to improve today’s situation regarding business?

We need to attain budgetary discipline, increase the efficiency of the public sector, accelerate the implementation of reforms, enhance transparency and constantly improve the country’s infrastructure. Furthermore, a National Digital Policy should be drafted, which will create the potential for the development of new business sectors, building on the new knowledge and new skills of our human resources. As far as measures relating to the private sector are concerned, there should be incentives to enhance both traditional and new economic sectors, as well as new versatile industries. Incentives should also be given for the creation of start-ups and innovative businesses, for the development of a more outward-looking economy and for promoting Cyprus as an International Business Hub. It is also essential to continue on this course of positive growth, ensuring that trust the economy is regained. No state can survive and thrive without a healthy economy.

Are there specific things that you believe the new Government ought to be doing in order to help local businesses?

Yes. First of all, we expect the new Government to take action and approve the creation of Deputy Ministry of Tourism.

This will lead to a substantial structural change that will help improve the business environment and the promotion of Cyprus as an attractive tourist and investment destination, giving an impetus to current efforts for development. With regard to investment, the CCCI has welcomed the bill, which introduces an effective procedural mechanism that will facilitate and accelerate the licensing of strategic investments with flexibility, efficiency and without bureaucracy. We expect the bill to be enacted without delay by the

House of Representatives, since, especially now, investors are waiting for the right incentives in order to proceed with investment projects, bringing fresh money to the market and creating new jobs. Tourism performed well last year, thanks to international political circumstances, and has helped companies active in the sector as well as the economy as a whole. The CCCI supports the drafting of a ten-year action plan that will incorporate all related aspects, such as seasonal tourism, better connections with new markets, competitiveness, urban beautification, hotel refurbishment and improvements in the quality of tourism-related services. We need to enhance the quality and competitiveness of our product by investing in a series of new development projects, as well as in constant human resources training. The real estate sector has also shown obvious improvement, especially due to the interest of foreign buyers and the state should continue to provide incentives, extending those that have appeared to be productive, since the real estate sector makes a substantial contribution to the development of the economy and increased state revenue.

In addition to the traditionally successful sectors of Tourism, Shipping, and Professional Services, what are the new areas of economic activity that need to be promoted?

We pay special attention to the manufacturing industry and the encouragement of start-ups through more incentives, especially those that are related to innovation, research and technology. We welcome the drafting of the relevant bill and we call for its prompt approval. We are proud of the large number of professionals in Cyprus and we have both the infrastructure and the potential for such business activities, as well as the ability to utilize European funds. Start-ups create new development prospects and give the opportunity to young people to stay on the island. It is of critical importance that the State encourages start-ups, especially those involved with innovation, research and

ACCOUNTANCY CYPRUS

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Why live and work in Cyprus?

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ACCOUNTANCY CYPRUS

technology, with new incentives.

There is no doubt that the energy sector is expected to attract new foreign investment in the future. You mentioned shipping and I believe that the state should pay particular attention to the industry, which does not seem to have been particularly influenced by the financial crisis but should in no way remain static. In addition, the services sector also needs to be modernized in order to enhance its contribution to economy.

Other emerging sectors are industrialized farming and start-ups. The production of biological products could also thrive in the coming years, as well as renewable energy sources and recyclable materials.

The extension of modern digital technologies to entrepreneurship, society, political developments and new production methods is also of great significance. Our country falls behind when it comes to institutionalized cooperation between the private sector and academic institutions, which will enable academic research to be directly accessible by industries. As noted earlier, the drafting of a National Digital Policy will create the potential for the development of new business sectors, building on the new knowledge and skills of our human resources. We should develop the current economic model of the country, differentiating it from traditional approaches.

In recent months, Brexit has raised concerns in many European countries. Do you believe Cypriot businesses will be affected in a positive or negative way by this development?

The way that the UK will step outside the European Union is still not clear.

Nevertheless, we believe that Cyprus may benefit from Brexit, attracting companies that do not wish to keep their headquarters in Britain. We have all the requirements that allow us to attract financial companies that may wish to move their operations or headquarters from London to other European cities. Even though Cyprus cannot compete with countries like Germany, the Netherlands or France, there are numer-

ous reasons why a British company would consider having its basis in Cyprus. The high quality of our professional services, as well as the tax and legal systems, are some of Cyprus’ advantages when it comes to attracting British companies. Other potential investors are those who are now based in the Eastern Mediterranean and wish to create a basis in Cyprus in order to be closer to their country. In particular, Arab business owners in Britain may be interested in moving their companies to Cyprus.

What are your expectations for business and the economy this year and in the near future?

The New Year found our economy in a much better state than at the start of previous years. Based on this, the CCCI is optimistic about the economic prospects for 2018. We believe that the correct, well-targeted moves will enable us to improve the economy even further, generate higher income, enhance people’s standard of living and ensure social cohesion.

Drawing on our advantages, we can play an active role in the region, not only in the field of energy but also in issues related to war and peace. Strengthening the country’s geostrategic role will result in improving Cyprus position in the European context, which is of great importance for all our future aspirations, relating both to the Cyprus Problem and the economy. The improved macroeconomic environment is expected to lead to the attraction of foreign investment, which is of great value to the economy. Budgetary policy is also expected to contribute to growth, through increased public investment. At the same time, local demand and private consumption are expected to remain at the positive levels of 2016-2017, while unemployment continues its downward trend. All this, in combination with the positive investment prospects in the fields of transport, energy and tourism, creates new potential for the economy. Cyprus’ potential is immense, provided that we tackle the challenges facing the country and grasp international opportunities.

Are you planning CCCI trade missions abroad this year? Which countries do you see as having the greatest potential for trade with Cyprus?

In cooperation with the Ministry of Energy, Commerce, Industry and Tourism, the CCCI has drafted the plan for its 2018 international trade missions.

This was a process of consultation with the Chamber’s members, as well as other relevant services and institutions. We have already visited Rome and Milan and these missions will be followed by visits to Kiev and Cairo in May, Tehran and London in September, Johannesburg in October and Cape Town in November. We are also planning trade missions to China and Canada, probably in October. It is worth noting that all the missions arrange B2B meetings for the Cypriot delegations in order to maximize the successful results.

Your predecessor worked closely with the Head of the Turkish Cypriot Chamber of Commerce on promoting bicommunal links and preparing both communicates in Cyprus for reunification. Do you intend to continue his work in this field?

The CCCI will definitely maintain good relations with the Turkish Cypriot Chamber. Nevertheless, as you can understand, in order to promote common actions, a positive political climate is required.

Unfortunately, today we cannot see such a positive climate, due to Turkish threats regarding Cyprus’ Exclusive Economic Zone. Our cooperation with the TurkishCypriot Chamber will thus be obliged to develop accordingly.

THE DRAFTING OF A NATIONAL DIGITAL POLICY WILL CREATE THE POTENTIAL FOR THE DEVELOPMENT OF NEW BUSINESS SECTORS

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ACCOUNTING & AUDIT

COUNTRY-BY-COUNTRY REPORTING: DEVELOPMENTS IN THE GUIDANCE ON IMPLEMENTATION

By Antonis Dimitriou, International Tax Services, EY Cyprus

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he Base Erosion and Profit Shifting (BEPS) initiative was designed by the Organization for Economic Co-operation and Development (OECD) to combat the tax avoidance strategies followed by multinational enterprise (MNE) groups in order to exploit the gaps and mismatches of tax laws in different jurisdictions. Through the use of such artificial profit-shifting strategies that have resulted from aggressive tax positions, certain MNE groups may have benefited from low or no-taxation of their income.

In this respect, Action 13 of BEPS (Transfer Pricing Documentation and Country-by-Country Reporting) was designed with the aim of improving and enhancing the levels of transparency.

For that purpose, it introduces an obligation for MNE groups with consolidated revenue exceeding €750 million to report on an annual basis, various details regarding their financials and presence in each jurisdiction that they carry out business.

(i) Whether an MNE group is eligible to use different accounting principles/ standards for the calculation of the total consolidated group revenue, and (ii) Whether the definition of “Systemic Failure” captures non-compliance with the confidentiality, appropriate use and consistency conditions.

of the enterprises were traded on a public securities exchange”.

In addition, Paragraph 3 of the same Article, defines an “Excluded MNE Group” as a group having total consolidated group revenue of less than €750 million (or an equivalent amount in local currency approximately equivalent to €750 million) during the Fiscal Year immediately preceding the Reporting Fiscal Year.

According to the latest guidance, the MNE group is required to calculate total consolidated group revenue for the purposes of Article 1.3, based on the accounting standards that are used for identifying a group under Article 1.1.

DEFINING TOTAL CONSOLIDATED GROUP REVENUE Paragraph 1 of Article 1 of the Model Legislation on CbC Reporting, defines a “Group” as “the collection of enterprises related through ownership or control such that it is either required to prepare Consolidated Financial Statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any

DEFINING SYSTEMIC FAILURE Systemic Failure, as defined in Paragraph 13 of Article 1 of the Model Legislation, arises where a jurisdiction suspends automatic exchange of information for reasons other than those in accordance with the terms of the relevant Qualifying Competent Authority Agreement (QCAA) or otherwise persistently fails to exchange CbC Reports in

The first round of guidance relating to Country-by-Country (CbC) Reporting legislation was released in June 2016.

Since then, the OECD released additional guidance during 2016 and 2017.

The latest update was released in February 2018 and addresses two specific issues:

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its possession.

In accordance with the CbC Reporting legislation, “Systemic Failure” is a triggering event for local filing. Therefore, if a Systemic Failure occurs either in the jurisdiction of tax residence of the Ultimate Parent Entity or the jurisdiction of tax residence of the Surrogate Parent Entity, the MNE group could be required to submit a local file in another country as a result of Systemic Failure.

Confidentiality, consistency and appropriate use, are all necessary conditions underpinning the obtaining and use of CbC Reports by tax authorities. The consequences of non-compliance with these conditions will depend on the terms of the QCAA between the jurisdictions.

A Competent Authority may temporarily suspend the exchange of information by giving notice in writing if it is determined that there is or there has been significant noncompliance by the other Competent Authority.

The term “significant non-compliance” is not defined, however, as provided in the guidance on the Appropriate Use of Information Contained in CbC Reports, this determination may, for example, be based on the outcomes of a jurisdiction’s peer review evaluation of appropriate use.

On the question of whether the suspension

due to non-compliance with the conditions of confidentiality, appropriate use or consistency constitutes Systemic Failure, the latest Guidance answers negatively i.e. because a temporary suspension of exchange of information is in accordance with the terms of the relevant QCAA, this does not constitute Systemic Failure and would not lead to a local filing obligation.

OTHER DEVELOPMENTS INTERNATIONAL COMPLIANCE ASSURANCE PROGRAMME WHAT IT IS On January 23, 2018, the OECD launched the International Compliance Assurance Programme (ICAP), a voluntary programme that will use CbC Reports and other information with the view to provide early tax certainty and assurance. ICAP will begin with a testing period in which eight tax administrations (Australia, Canada, Italy, Japan, the Netherlands, Spain, the United Kingdom and the United States) will participate in the multilateral risk assessment of MNE groups. Other tax administrations will participate as observers and will participate in discussions but not in any risks assessments and will neither receive any information of the groups involved.

HOW IT WILL BENEFIT ICAP will be beneficial as it will provide clarity and understanding of the MNE group’s cross-border activities to the tax administrations and increase understanding of the transfer pricing risk, permanent establishment risk or any other international tax risk that the MNE group

might carry.

HOW IT WILL OPERATE ICAP will be voluntary and available for MNE groups with headquarters in any of the participating jurisdictions. An MNE group which wishes to participate will need to identify the jurisdictions where it has operations/activities and

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wishes to include them in the risk assessment. The risk assessment process will comprise of 3 phases (4 in cases of Level 2 risk assessment) and depending on the facts, it could be completed in a period as short as 17 weeks (up to 12 months in cases of Level 2 risk assessment).

TARGETED TIMEFRAME FOLLOWING A LEVEL 1 RISK ASSESSMENT

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• MNE group provides documentation package • Tax administration conducts initial review and consders the information at hand

8

• Meeting between MNE group and tax administration • Level 1 risk assessment • Tax administration could require extension of 4 or 8 weeks • Tax administration presents outcomes to MNE Group • Period to agree tax adjustments and limit risks to low or zero levels

WEEKS

WEEKS

3

WEEKS

• Tax administrations prepare outcome letters • Outcome letter describes outstanding issues (if any) and next step for covered risks which could not be assured as low or zero leveled

TARGETED TIMEFRAME FOLLOWING A LEVEL 2 RISK ASSESSMENT

6

• MNE group provides documentation package • Tax administration conducts initial review and consders the information at hand

8

• Meeting between MNE group and tax administration • Level 1 risk assessment • Tax administration could require extension of 4 or 8 weeks • If not all risks are limited to low or zero levels, Level 2 risk assessment is required

5

• Level 2 workshop between tax administrations • Meeting with the MNE groups for discussion of outstanding issues and information required • MNE group provides additional information and level 2 assessment is conducted • Tax administration presents outcomes to the MNE Group • Period to agree tax adjustments and limit risks

WEEKS

WEEKS

MONTHS

3

WEEKS

• Tax administrations prepare outcome letters • Outcome letter describes outstanding issues (if any) and next step for covered risks which could not be assured as low or zero leveled

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ACCOUNTING & AUDIT

THE END OF ACCOUNTING? SOMETHING NEEDS TO BE DONE ABOUT THE WAY FINANCIAL STATEMENTS ARE EVALUATED. BUT WHAT?

By Yiangos Charalambous FCCA , former technical consultant, UHYAxon Chartered Accountants S.A, Deputy Senior Partner, KPMG, former Senior Vice Chairman, Hellenic Capital Market Commission.

I

n 2016, Wiley, the international publishing house, brought out a book entitled The End of Accounting and the Path Forward for Investors and Managers by Baruch Lev (New York University Stern School of Business) and Feng Gu (State University of New York at Buffalo). But what drove these busy professors to invest a significant part of their precious time in writing a book that differs so much from the approach and principles to which we accountants are so accustomed?

Had they identified a common mistake in the approach that company directors and we accountants or auditors take to presenting financial statements? Are so many pages of the financial statement reports out of date, non-informative and outdated by the time of publication? Do these reports not cover issues that investors look for? Are changes taking place so rapidly that the financial statements are of no use to users? Last but not least, do the financial state-

ments presented under IFRS not cover all items that add value to an entity?

Without any doubt, the changes that are taking place in the world’s economies are so rapid that the financial data, presented with the relevant ratios that we accountants so proudly boast about, has indeed changed before the publication of the relevant report or announcement. As a result, from the 100+ pages of data that companies disclose in their financial statements, investors or analysts can only make guesses to inform their own poor readers about such reports.

In an article in The Wall Street Journal, Professors Baruch Lev and Feng Gu provide as examples: (a) Amazon, whose earnings fell below the analysts’ consensus earnings estimates in eight of the 16 quarters of 2012-2015, alarming some investors, yet obscuring its phenomenal growth and competitive prowess; and (b) the quarterly financial statements of Netflix for April 2016, in which the reported

profits are considerably lower than the estimates provided by various analysts. Nevertheless, the company’s stock price rose by nearly 18% on the date of the financial statements were published. The question is why? Was there a blackout of information to investors? The answer is no. Investors rightly ignored the already outdated accounting information and acted enthusiastically, providing a sharp share price rise on the new-subscribers indicator that depicted profits of US $4.9 million compared to the figure of US$4.00 in the financial statements.

The clever readers/investors noted that the material difference in profits was due to Netflix’s increased Research & Development, the cost of

which was debited in the income statement, in conformity with international accounting standards.

Concerning the accounting treatment of Research & Development, Dennis R. Oswald states “I find that the decision to expense versus capitalize development expenditures is influenced by earnings variability, earnings sign, firm size, R&D intensity, leverage, steady-state status of the firm’s R&D program, and R&D program success.” (JBFA, 20 December 2007) According to the authors of

The problem with reported earnings and financial statements in general is that they no longer reflect the realities of businesses

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The End of Accounting, the example of Netflix in their Wall Street Journal article is not an aberration. The problem with reported earnings and financial statements in general is that they no longer reflect the realities of businesses. Instead, they follow an arcane set of accounting rules and regulations, creating an alternative reality, in which financial statements fail to illuminate the essential factors that make an enterprise rise or fall, where, for example: • The most important, valuecreating investments in patents, brands, IT and other intangibles are considered regular expenses, like salaries or rents, without future benefits.

• Reported earnings are a mixed bag of long-term items (indicating sustained growth) and one-time transitory gains/ losses (restructuring costs, for example), having negligible effect on corporate value.

• Non-traded assets/liabilities, like privately placed bonds, which have no market values, are nevertheless required to be market-to-market in the financial reports. This, of course, is an oxymoron.

Furthermore, the professors state that, as if the above were not bad enough, accounting earnings are based on multiple subjective estimates and projections (e.g. stock-options expense, prospective bad debts, future liabilities, etc). These examples and other estimates by management are prone to errors and manipulation, as we auditors or accountants accept, as company failures have demonstrated.

All the above, and so much more, result in backwardlooking accounting statements that say little about the enterprise‘s future growth and ability to compete. In my five years (2004-2009) at the Hellenic Capital Market Commission, our relevant team conducted research that showed an increasing gap between reported earnings and share prices and that led us to decide on time-reductions (from June to March) for the submission of financial statements or budgets to HCMC, to enable analysts and investors to enhance their ability to predict future corporate performance – a main

reason for using financial statements.

Nowadays, due to the prevailing crisis, institutional investors and analysts are more active when it comes to participating in “investors’ days” in trying to find out the metrics missing from the financial statements, because accounting standards do not require them. It is metrics like customer growth and churn rate, the test results of products under development, policy renewal and cancellation rates of insurers and other operational factors, that reflect the business strategy and its execution, rather than the reported assets, liabilities or profits that matter most to an investor.

An initiative was started by big firms to produce Integrated Reports but there is still a long way to go.

The question, therefore, is what small, medium and large organizations do next. Do they remain true to the accounting standards (IAS or IFRS) or initiate new reporting approaches that follow the practices of deep-pocketed investors who, through the power that

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My recommendation, especially to corporate managers, is to provide continuous and clear information to investors and the general public their wealth brings, have direct access to corporate managers and can afford research teams using expensive real-time data (see Google Analytics), while most investors still rely on deficient accounting reports?

A supplementary question is what should we accountants and auditors do? Can we rely on the CPDs offered by most of our institutes or associations to fill the gaps in the current IFRS? My recommendation, especially to corporate managers, is to provide continuous and clear information to investors and the general public. Accountants and auditors should insist on methods of reporting presentation that provide evidence of the value that an enterprise has added compared to its previous report, and of its future prospects.

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ECONOMY

THE PENSION CRISIS PLANNING FOR RETIREMENT OUGHT TO BE ON EVERYONE’S PRIORITY LIST

By Christis Michaelides, BA, MSBA, MCIM, Ancoria Insurance Public Ltd

A

welfare state is a concept whereby the government plays a key role in the protection and promotion of the social and economic well-being of its citizens. Retirees around the world rely heavily on this concept as they depend on the state to provide them with sufficient pension income during their twilight years.

In Cyprus, the dependence of retirees on the state pension (frequently defined as Pillar I of the pension system) is especially high. It is estimated that around 40% of the current Cyprus labour force are likely to rely solely on the state pension, as they are not enrolled in an occupational pension scheme (Pillar II of the pension system) which would enhance their retirement income. With no occupational pension funds saved and a state pension averaging less than €1,000 per month (for the private sector workforce), retirement years will likely be challenging for a

substantial population segment in years to come.

Why are pensions systems struggling globally?

1. Life Expectancy During the last century, life expectancy increased, thanks to a decrease in infant mortality, rising living standards and advances in healthcare and medicine. On the one hand, this is one of humanity’s great accomplishments. Alas, more years to live in retirement requires more pension savings.

2. Increasing Dependency Ratio The age dependency ratio is the ratio of older dependents (people older than 64) to members of the working-age population (aged 15-64). An ageing population and a decline in birth rates means there is an atrophy of working people to support the growing number of retirees.

3. Low yields A prolonged period of low-

Around 40% of the current Cyprus labour force are likely to rely solely on the state pension

interest rates, paired with struggling economies, has contributed towards lower than expected financial returns for pensions.

Higher returns may not be the golden goose but they are definitely part of the equation for shrinking pension deficits.

pension plan.

4. Prohibit access to accumulated pension benefits until retirement age is reached.

5. Tighten the regulations to ensure the professional and adequate management of pension schemes.

Pension reforms Governments are being called upon to face the aforementioned challenges and countries that have not implemented pension reform or taken measures to tackle the looming crisis will need to come up with a sustainable plan very soon.

In Cyprus, apart from increased budget spending on pensions that will impact its finances, the Government can take certain actions to increase the probability of the public saving for its retirement. Such actions could be: 1. Offering additional tax incentives to encourage pension savings.

2. Making it mandatory for employers to offer an occupational pension scheme so that all private sector employees may enrol if they wish to, even if the employer does not contribute.

3. Allowing individuals to enrol in tax-deductible personal pension schemes if their employer does not offer an occupational

It is never too late to act So far, Cyprus has fallen short of introducing any meaningful reforms to its pension system and, if nothing changes, the dilemma that most of us (especially in the private sector) will face in the near future is that of extending our working years beyond 65 or substantially lowering our standard of living in retirement.

Undoubtedly, a welfare state is obligated to create the necessary conditions and raise awareness that will help the public overcome this crisis but, at the same time, it is up to all of us to acknowledge the problem and start saving more for our retirement, irrespective of how difficult that may be. There are simple tools that can assist in projecting pension income as well as calculating retirement needs.

Planning for retirement ought to be on everyone’s priority list.

Failing to plan and remaining idle is certainly the poorest course of action.

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WHAT IS IT THAT MAKES PENSION FUND DEPOSITS ‘SACRED’?

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ECONOMY

SOCIALISING THE LOSSES AND PRIVATISING THE GAINS THE CASE OF CYPRUS FIVE YEARS AFTER THE BAIL-IN OF BANK DEPOSITS.

By Savvakis C. Savvides, economist, former senior manager, Cyprus Development Bank, regular visiting lecturer, Harvard University & Queen’s University

A

s pointed out in a recent IMF report, “private sector indebtedness in Cyprus remains extremely high”. Politicians and banks, however, continue to present non-performing loans (NPLs) as the core problem of the economy. They argue that reducing NPLs is basically the same as providing a cure for the economy’s woes but NPLs are only a symptom of the real problem of the economy which, as pointed out by the IMF, is the enormity of private debt. Focusing only on the need to reduce NPLs may mitigate a banks’ need for additional capital but it is also likely that it will worsen the bigger problem of private debt and make it harder to resolve.

Indeed, while the planned sale of bank loans to third parties, including funds and asset management companies, will reduce and even enable some banks to show an accounting profit and ease their capitalisation needs, it will leave borrowers with the same amount of debt that they presently owe. Moreover, the funds and companies that buy these loans at

huge discounts from the banks will push for full repayment or collection of their dues by liquidating collateral and claiming on the guarantees. Any margins that the banks may have had by utilising the applied provisions for reducing or writing off a loan in a debt restructuring exercise will have been squandered as discounts to hedge funds and others to induce them to buy and thus take the NPLs off the banks’ balance sheets.

Private debt remains the key factor constraining households and firms from engaging in normal economic activity, let alone putting them in a position to undertake new investments. What is not widely understood is that it is imperative that finance be channelled towards economically viable capital investments in order to have sustainable economic development. If finance is used to fund unproductive investments in the economy, the result will be a piling up of private debt which cannot be repaid and, sooner or later, will bring about a financial and economic crisis.

Another fallacy or misconception is the generally held belief that more finance is always better. What is not understood

is that there is a need to keep a constant and balanced stream between economic and financial flows. Too much available finance in the banking system will inevitably lead to the financing of unproductive investments. The need to position these extra deposits as income-generating loans as quickly as possible will outweigh the requirement for applying prudent practices to identify and fund economically viable projects. In any case, there are simply not enough such projects in a developed economy to justify the doubling or even trebling of deposits in the banks (usually from overseas money). This is, in fact, what happened in Cyprus where over a period of 8-9 years, foreign deposits in the banking system swelled to over six times the country’s GDP. These deposits were inevitably lent out

NON-PERFORMING LOANS ARE ONLY ONE SYMPTOM OF THE ECONOMY’S REAL PROBLEM, WHICH IS ENORMOUS PRIVATE DEBT

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THE IMPOSED BAIL-IN IN 2013, APART FROM CREATING HAVOC, ONLY TREATED THE SYMPTOMS OF THE DISEASE and used for mostly unproductive purposes or simply to finance consumption.

The financial crisis of 2013 was an accident waiting to happen. It was a demon, designed and nurtured for many years by those who had something to gain from such a loose control of the money flow from abroad and this, despite the clear indications that it would inevitably lead to a crisis. Private debt accumulated, depleting the equity of economic agents and bringing the country to the brink.

The imposed bail-in in 2013, apart from creating havoc, only treated the symptoms of the disease. The lessons that should have been learned were not. Instead, politicians found it convenient to argue that, by saving the banks, the economy would also be saved and put back on the road of sustainable economic growth. The country has been in denial for five years. The politicians and mainstream academia keep reciting that, if only non-performing loans were somehow to be reduced or even disappear from the balance sheets of the systemic banks, the threat of another crisis would go away.

But, as already mentioned, non-performing loans are only one symptom of the economy’s real problem, which is enormous private debt. This is likely to remain very high, even if, through some tool or method (such as the packaging and selling of loans), the current Boards of the banks find a way to register a notional accounting profit and therefore avoid, at least temporarily, having to inject new capital into their ailing institutions.

The abnormality of an economy burdened with the onus of having to pay a practically unrepayable mountain of private debt under conditions of weak economic

growth cannot be overstated. In fact, Cyprus has avoided falling into a long and deep recession so far because borrowers are not actually servicing their loans (Manison and Savvides 2017). Instead, they kept channelling most of their available income and any remaining savings they had into consumption. This has, in effect, sustained domestic demand at a level that has kept the economy going. Tourism has also helped in this respect, as it has enhanced the demand for goods and services from foreigners who are not affected by the private debt locally.

Collections on loans are repayments which, in essence, are savings flowing out of the economy and into the banks. But in situations of excessive private debt, such as the one enduring in Cyprus, where economic conditions are not conducive for savings to be swiftly ploughed back into the economy in the form of productive loans, slowly but surely, the economy is drifting into another recession. The only way this can be mitigated is through fiscal policy measures and, in particular, through Government spending on economically viable projects.

Based on similar experiences mostly from Japan, Richard Koo (The Escape from Balance Sheet Recession and the QE Trap, 2015) has identified two conditions that are required to recover from an overindebted economy. Clean balance sheets

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and viable investment opportunities.

If these two conditions do not exist, or measures and policies are not undertaken to put them in place, then the most likely outcome is that the country will fall into a deep economic crisis which he calls a “balance sheet recession”.

Sustainable development comes about only when funding is channelled into productive projects that generate incomes and adequate capacity for borrowers to repay loans and, in addition, provide a good return to the investor. In fact, most economic crises are the result of a disconnect between funding and productive investments, marked by an inability of the banking system – as well as the economy – to channel excess available finance into productivity. As illustrated below, this is what happened in Cyprus leading up to the bail-in in 2013. Richard Vague, among other prominent economists who followed up on the classic exposition of the impact of private debt by Irving Fisher (1933) and Hyman Minskey (1986), identified a significant empirical regularity common to all economic crises: the combination of a private debt to GDP ratio of 150% or more, and a cumulative increase in that ratio over a five-year period of 17% or more (The Next Economic Crisis: Why It’s Coming and How to Avoid It, 2014).

The data on Cyprus shows that there was indeed such a ‘smoking gun’ in place.

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ACCOUNTANCY CYPRUS

THE FINANCIAL CRISIS OF 2013 WAS AN ACCIDENT WAITING TO HAPPEN Cyprus therefore created almost by itself an economic problem which could have been avoided, or at least contained, through a prudent financial policy. The myth conveniently created by some intermediaries who stood to gain from this is that Cyprus was becoming a miracle international financial centre. In fact it was nothing more than a smokescreen behind which they could profit, despite causing huge collateral damage to the real economy.

The balance sheets of companies and households in Cyprus are now in the red (in negative equity or underwater) and, in essence, rendering borrowers hostages at the mercy of the banks. And the banks, in turn, without an economic development perspective, have only the collateral and loan guarantees to fall back on and try to recoup. This further reduces both new loan demand and supply. So, an increase in savings in the form of repayments of existing loans will not find its way back into the economy in the form of productive loans because it is hard for loans to exist in conditions of feeble demand and where underwater balance sheets are the rule rather than the exception.

What makes the prospect of attaining sustainable development difficult is the fact that the over-indebted private sector cannot address the repayment of its loans without this impacting negatively on consumption. Good domestic demand is a prerequisite for viable investment opportunities. Perhaps it is for this reason that the only important development that Cyprus has witnessed so far is in areas that do not depend directly on the existence of local demand, such as tourism and the sale of luxury properties to foreigners, the latter dubiously driven by the lure of EU citizenship.

In conclusion, when an economy reaches such an extreme scenario where private debt is overwhelming, there are not many easy options available other than the reduction of debt. As Michael Hudson has pointed out, a debt that can’t be repaid will not be repaid. So any pursuit to fix an over-indebted economy will have to include, in some form of other, significant debt forgiveness (The Bubble and Beyond. Fictitious Capital, Debt Deflation and Global Crisis, 2012). Such measures can, in turn, stimulate investment and also mitigate the effects of an inevitable decrease in consumption while loan repayments are in full flow. Moreover, a reduction of private debt must be further boosted with carefully planned public expenditure and investments in economically viable projects. This is the reason why I have argued that Cyprus needs to create a Development Agency or a Reconstruction and Development bank that can competently and independently assess and lead the way for banks and other financial institutions to invest in viable projects (in both the public and private sectors).

Despite the many calls that have been made for the creation of such an organisation, the Government has been both slow to act and, now that things have come to the point where the capital adequacy of the banks is seriously threatened by the inevitable need to fully provide for NPLs, is set to take the wrong option again by investing in the creation of a bad bank.

It appears that the Government, mainly by “supporting” the Cyprus Cooperative Bank, will purchase the ailing bank’s NPLs at a suspected very high cost to the taxpayer. But what such an organisation is likely to become is no more than a dumping ground funded by the taxpayer, where a high price is paid to take over bank obligations which are cast in stone against deteriorating assets. If the Government proceeds – as seems to be its intention – to sell off the healthy part of the CCB, it will result in a situation of socializing the losses and privatizing the gains,

Moreover, creating a Government organisation that simply collects the banks’ NPLs is confronted with two insurmountable problems. One is that, without taking on a healthy loan portfolio, it will not have the income necessary to cover its operating costs, let alone to generate a return on the money invested by the taxpayer.

Secondly, and perhaps more importantly, without having in its portfolio loans that have a prospect of viability in sight, there will be very little it can do to help the reconstruction and creation of new viable enterprises and ventures to be spun back into the economy, which is what the Cyprus economy gravely needs.

The need to repair and rebuild into new businesses the assets gathered in this manner is the main reason why a Reconstruction and Development bank is proposed. Such a bank can do all that a “bad bank” can perform but it will also provide expert services and financing to economically viable projects where these are most needed. Moreover, as an independent professional organisation, it will fulfil the need for providing competent advice and vetting on public sector and public-private partnerships (PPPs).

Unfortunately, the latter need is played down by the Government because politicians always prefer to close such deals behind the scenes, under the veil of a commissioned study which, more often than not, is put together to justify decisions already taken rather than to aid the decision making process for the benefit of the economy as a whole.

CYPRUS CREATED ALMOST

BY ITSELF AN ECONOMIC PROBLEM WHICH COULD HAVE BEEN AVOIDED, OR AT LEAST CONTAINED, THROUGH A PRUDENT FINANCIAL POLICY

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ECONOMY

GLOBAL M&A APPETITE REMAINS HEALTHY DESPITE GEOPOLITICAL UNCERTAINTY DESPITE DEAL LEVELS ABOVE THEIR PRE-FINANCIAL CRISIS HIGHS IN 2007, GLOBAL APPETITE FOR MERGERS AND ACQUISITIONS (M&A) SHOWS NO SIGN OF WANING, ACCORDING TO THE 18TH EY GLOBAL CAPITAL CONFIDENCE BAROMETER (CCB), A BIANNUAL SURVEY OF MORE THAN 2,500 EXECUTIVES ACROSS 43 COUNTRIES.

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ising economic and corporate confidence and the drive for innovation and growth are outweighing geopolitical and regulatory concerns as more than half of respondents (52%) to EY’s annual poll of executives indicated that they plan to acquire in the next 12 months. Nearly twothirds of executives (61%) expect the number of deals in their M&A pipeline to increase over the next 12

months – up from 36% in April 2017. The number of executives expecting to complete more deals in the next year has more than doubled (67% in April 2018 versus 33% in April 2017). In addition, an overwhelming majority of executives (86%) expect the global M&A market to grow further over the coming 12 months – a significant increase from last year (39%). And, more than three-quarters of executives (80%) predict increased competition for M&A assets in the next year, with most (68%) of those respondents citing private equity (PE) as the biggest competitor.

Stelios Demetriou, EY Cyprus Transaction Advisory Services Leader, says: “The current M&A environment

appears positive, with an increasing number in both interest and actual transactions.

The market favours consolidation across various markets in almost every sector. Organisations are increasingly considering growth through M&A opportunities as opposed to organic growth. This route of action could entail of course higher risks and the need to engage the right professionals to support the decision making process from the early stages of the transaction to completion; from initial transaction structuring to valuation, due diligence, negotiation and SPA finalisation”.

Strong dealmaking intentions are supported by positive macroeconomic and capital market factors. The majority of executives (73%) believe

that global economic growth is improving. Three quarters (77%) of respondents also believe corporate earnings are set to improve, while just 2% predict a decline in valuations. Similarly, only 2% see any potential for market stability to deteriorate. In contrast to current market sentiment among many commentators, the survey found that executives are looking at their own fundamentals and seeing a brighter outlook for capital markets.

Despite current geopolitical tensions, a majority of executives surveyed (75%) expect governments to increase infrastructure spending over the next 12 months, and almost two thirds (64%) of those executives say that the increased government

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investment would support their own corporate growth.

However, executives also recognize that geopolitical uncertainty poses challenges, with close to half (43%) seeing it as a key risk. Changes in policy and protectionism are also seen as risks that could hamper growth among more than a third of respondents (36%).

Almost three-quarters (70%) of respondents see portfolio transformation as the top priority on the boardroom agenda, as companies look to remain agile, alert to new opportunities and need to quickly respond to a fast-moving market environment. Companies are increasingly using data analytics and artificial intelligence (AI) to make better informed decisions about their portfolios. AI and robotic process automation (RPA) are most prominent for almost half (46%) of re-

AN OVERWHELMING MAJORITY OF EXECUTIVES (86%) EXPECT THE GLOBAL M&A MARKET TO GROW FURTHER OVER THE COMING 12 MONTHS

spondents’ boards, followed by cloud computing and big data (38%) and blockchain (15%). As more companies adopt new technologies, more than half of executives (55%) indicate that they are struggling to hire people with the right skillset and 67% cite talent acquisition as a main strategic driver for pursuing M&A. While identifying growing protectionism and geopolitical uncertainty as threats, executives are confident that these will not deter international dealmaking. More than three-quarters (81%) plan cross-border M&A in the coming 12 months as access to new markets in different geographies continues to be a growth priority. Executives name the US, Brazil, Canada, China and the UK as the top five investment destinations of choice respectively. While the US continues to top executives’ investment destinations, both the US and global respondents do not believe that the US tax reform will significantly boost dealmaking – contrary to market sentiment. A small number (4%) expect to use any financial gains for inorganic growth or acquisitions, while proceeds from repatriation are expected to be invested in organic growth (77% of

US respondents) or returned to shareholders (19%).

As cross-border dealmaking has increasingly become the norm, cross-sector M&A is also becoming more commonplace. Almost a fifth (18%) of global executives see an increase in crossindustry acquisitions to be the hallmark of M&A in 2018 – fueled by the need to adopt new technology and digital capabilities. In terms of acquisition appetite of executives, the top five sectors are oil and gas, telecommunications, automotive and transportation, consumer products and retail, and mining and metals.

A strong deal appetite in an already heightened M&A market might raise speculation about the longevity of the current market. Yet despite rising competition for assets, there are no signs that the market is overheating, with executives indicating that they are prepared to pull-out of deals.

Nearly three-quarters (73%) say they have walked away from a deal in the past 12 months, and of those, more than half (58%) say it was due to competition from other buyers or disagreement on price/ valuation.

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COMPANIES ARE INCREASINGLY USING DATA ANALYTICS AND ARTIFICIAL INTELLIGENCE (AI) TO MAKE BETTER INFORMED DECISIONS ABOUT THEIR PORTFOLIOS View the survey online at ey.com/ccb

Stelios Demetriou EY Cyprus Transaction Advisory Services Leader

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ECONOMY

TAXPAYERS ARE THE EASY TARGET PASSING THE BUCK IS EASY WHEN YOU LABEL SOMETHING AS ‘SACRED’

By Demetris Georgiades, Chairman, Fiscal Council

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n almost all public discussions, we use ‘labels.’ They can often be helpful as well as necessary but their use can also become very counterproductive and, sometimes, even bring negative or unfair results.

A label is a summary or a simplified description – usually one word or a phrase – of a situation or phenomenon that would otherwise require considerable time to explain. For example, if the subject of “whether the quantitative easing policy of the European Central Bank (ECB) is appropriate under the current economic conditions” is being discussesd and if all stakeholders are aware of the precise definition of ‘quantitative easing,’ the ‘ECB’ and the ‘economy’, then the debate can concentrate directly on the core issue. The dialogue will more likely be short and fruitful.

Unfortunately, the use of a ‘label’ often causes problems or, in some instances, is deliberately used to mislead other participants or public opinion and promote specific interests, in the absence of any valid arguments. This becomes more pronounced when words with deeper meaning, such as ‘right’, ‘sacred’, ‘freedom’, ‘ideal’, ‘moral’ and the like are used. When one person designates something as ‘moral’ or ‘sacred’, the person at the other side of the table may feel that if he/ she disagrees, he/ she may be considered immoral or sacrilegious.

This will most likely lead to a counterproductive dialogue or even terminate it prematurely. As a result, only the voice and arguments of one side will be heard. Such examples are very common, whether they involve everyday social dialogues or even serious issues such as the economy and health.

A recent example is the use of the label ‘sacred’ to characterize ‘sacred’ pension fund deposits and thus validate the claim for the provision by the government to fully cover damages suffered during the bail- in of 2013. Is there a consensus on the definition of the word ‘sacred’? What features should an asset have to be considered as such? If not – and we all know such a definition does not exist – then we have to provide one before the start of the discussion.

Every participant and, most importantly, every citizen should be clear about what constitutes a sacred asset so that they can all demand and have the same and equal treatment. What is it, then, that makes pension fund deposits ‘sacred’? And why are they more sacred than the following: • The deposits of someone who has just retired, sold his home or who lost a parent and received a lump sum?

• The deposits of the salary of a waiter, an accountant, a cleaner or an engineer?

• The products delivered by a farmer to a

supermarket soon to go bankrupt?

We could cite many more examples.

Even if we find a way to accept that pension fund deposits are indeed sacred, we should then consider whether those responsible for managing those funds behaved in the same ‘sacred’ way. The primary responsibility for the proper management of money donated by churchgoers is borne by the church management committee, then by those who appoint its members and then by the Archbishopric.

Let’s assume that the claim has passed this test too and that pension funds are indeed sacred and that their management committees and/or members were not to blame for the losses. The ultimate key question that arises – and one that should always be addressed in cases involving claims against a government, whether for indemnities, subsidies, relaxations, exemptions, etc. – is: “Why should Mr. Costas and Mrs. Marina (the taxpayers) bear this cost?”

I do not want to be absolute. There are cases when Mr. Costas and Mrs. Marina either a. have to pay, because they have direct or indirect responsibility as voters or b. they want to pay, for social or public interest reasons.

WHAT IS IT THAT MAKES PENSION FUND DEPOSITS ‘SACRED’?

Even if we are to pass this ultimate test too, we should make a fair allocation of the final cost of the decision, according to the degree of responsibility by each of the parties or groups involved. We should not try to identify or – even worse – cite a relatively minor error by a government institution (e.g. by the supervising authority) and argue that full blame rests with the Government and thus 100% of the cost should be borne by the taxpayer.

Unfortunately, a recent dialogue, like most public dialogues, did not answer any of the key questions, let alone the ultimate one and, as is quite often the case, the taxpayer became the easy target. * The views expressed in this article are the author’s personal ones.

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TAXATION

DEDUCTIBILITY OF VAT BASED ON INTENTION

By Irene Lagou, Senior Manager, KPMG Limited

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recent decision of the Cyprus Supreme Court (case 151/12), regarding the entitlement to recover input VAT arising on first investment expenditure incurred for the purposes of a business, has put an end to the local Tax Authorities’ argument over the mandatory existence of a direct relation between input VAT and income generated from taxable transactions.

More precisely, by its decision published on 3/4/2018, the Court ruled in favour of the taxpayer, allowing him to recover input VAT on preliminary expenses incurred for the preparation of the architectural designs for a hotel facility which the taxpayer intended to construct and operate in the future, even if the hotel was eventually not constructed but the land on which it would have been built was sold.

By reaching this decision, the Supreme Court ruled in line with relevant past decisions of the European Court of Justice in cases C-268/83 (Rompelman) and C-110/94 (Inzo), taking the view that, except in cases of fraudulent or abusive behaviour, a taxable person’s right to recover input VAT arising on preparatory acts for its future involvement in taxable trading activities cannot be disputed by the Tax Authorities, as long as substantial evidence is presented to the latter in support of the taxpayer’s genuinely declared intention to commence such activities.

Despite the Tax Authorities’ argument that the abovementioned ECJ cases were not applicable to case 151/12 on the grounds that they were based on different facts, the Supreme Court reached its decision in light of the principles adopted in those cases

rather than their actual facts. Still, we are of the opinion that all three cases were based on similar facts as, in all cases, the local Tax Authorities were reluctant to refund input VAT to taxpayers on the grounds that their intended income-generating activities, in relation to which the expenses were made, for various reasons never commenced and as a result taxable income was never generated.

It was therefore decided that, irrespective of whether input VAT arises on expenses incurred for a profitability study related to the future project involving the construction of a desalination plant (Inzo case) or for the lease of units so as to be exploited as showrooms, where the option to tax was elected (Rompelman case) or for the preparation of architectural designs related to the construction of a hotel (case 151/12), the direct link between these expenses and the taxpayers’ intention to get involved in taxable trading activities for VAT purposes, should be sufficient for the Tax Authorities in order to allow them to retain their right to recover the arising input VAT. In addition to the above, the Court clarified that the approach by the Tax Authorities to accept the status of a taxable person for the purposes of VAT, due to that person’s intended involvement in taxable trading activities, cannot be withdrawn retroactively in view of the fact that eventually no taxable income was yielded. Any opposite argument would be contrary to the provisions of Article 9 of EU VAT Directive (2006/112), according to which the term “taxable person” means any person who independently carries out in any place any economic activity, whatever the purpose or results of that activity. The adoption of such a position by the Tax Authorities would be contrary

A TAXABLE PERSON’S RIGHT TO RECOVER INPUT VAT ARISING ON PREPARATORY ACTS FOR ITS FUTURE INVOLVEMENT IN TAXABLE TRADING ACTIVITIES CANNOT BE DISPUTED BY THE TAX AUTHORITIES to the principle of legal certainty for the rights and obligations of taxable persons to depend on facts, circumstances or events which occurred after the Tax Authorities made a finding in respect of those rights and obligations. The principle of fiscal neutrality would also be breached if the Tax Authorities insisted on their position for a direct relation between input VAT and income generated from taxable transactions, due to the fact that unjustified differences would be created between businesses already carrying out taxable transactions and other businesses seeking by investment to commence activities which would, in the future, be a source of taxable transactions.

Based on the above, it is concluded that taxpayers should be requested to present to the Tax Authorities objective evidence in support of their declared intention to commence economic activities which will give rise to taxable transactions. The latter should examine whether the taxpayers acted in good faith at the time when their intention to become involved in taxable trading activities was declared, excluding any possibility of fraud or abuse. Should these fundamental conditions be satisfied, the Tax Authorities are precluded from disallowing the recovery of the arising input VAT on such expenses by arguing that the economic activity envisaged did not give rise to taxed transactions. We believe that any different approach on this issue would cause unnecessary frustration to taxpayers, increasing the administrative burden for both taxpayers and the Tax Authorities.

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PROFESSIONAL ECONOMY SERVICES

TECHNOLOGY IS CHANGING THE WAY BUSINESSES OPERATE AND IT IS GOING TO AFFECT THE AUDIT PROFESSION TOO, SAYS STAVROS IOANNOU, MANAGING PARTNER & CEO OF GRANT THORNTON CYPRUS. HE ALSO SHARES HIS VIEWS ON THE PRESENT AND FUTURE CHALLENGES FACING THE GOVERNMENT AND THE COUNTRY.

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ow that the economy appears to be on a positive course following the financial crisis, what do you see as the main challenges that lie ahead for the new Government?

In my opinion, there are five main

challenges that the new Government needs to deal with: the high levels of non-performing loans (NPLs), reform of the public sector, including the national health system, privatizations and the judicial system, further reducing unemployment, tackling the problem of corruption and attracting foreign investment into new industries such as innovation, technology and R&D. Can we follow the examples of Israel and Estonia?

Taking the first one, how do you think the NPL problem can best be resolved?

For dramatic impact, we need to see significant sales of loan portfolios as well as the securitization of NPLs. The creation of what would effectively be a “bad bank” or an asset management company could be another option, provided that all the practicalities are considered, including the quantification of the potential impact on the public debt. In my opinion, the existing legal framework makes efforts to reduce NPLs difficult, as it does not really provide the banks with effective tools.

For many years, the three key drivers of the economy have been Tourism,

Shipping, and Professional Services.

Do you believe that they will continue to play the same important role and are there other potentially significant sectors that may develop in the coming years?

Yes, I do believe that the traditional sectors will continue to play a very significant role and act as the key drivers for our economy. At the same time, the energy sector – despite the current difficulties – could be a significant contributor. The funds industry could also be a significant sector. We should also encourage investments in new sectors such as technology and innovation.

Technology has officially become a necessity in the working environment, and has many different forms.

Do you believe that the accountants of the future will require a strong background in IT? How will this help/challenge the accounting sector?

We have, indeed, experienced massive technological advancement, which has disrupted our clients’ traditional business models. I expect that this trend will continue and our profession will have to adopt. The use of data analytics and Artificial Intelligence is already affecting how we perform our work,

BUSINESSES ARE CHANGING RAPIDLY AND, AS A RESULT, THE EXPECTATIONS OF AUDITORS ARE ALSO CHANGING

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Stavros Ioannou

assisting us to be more efficient but also improving our quality of work. Millennials are tech-savvy and, as a result, can cope with these changes. As the profession shifts towards more of an advisory and consultancy role, accounting firms will be recruiting future accountants from various backgrounds including IT, who possess strong communication and presentation skills.

How is the practice of mandatory firm rotation working in Cyprus?

Mandatory firm rotation for Public Interest Entities is a welcome measure. However, it is still early days to see how it is working in practical terms. It is expected to increase the level of competition and, as a result, audit firms will have differentiate themselves by demonstrating a good undersetting of the specific entity’s industry and the ability to add value through the audit process.

We still hear people saying that auditors should do more than simply confirm

that a company’s financial statements are correct. Do you agree that this would be a useful change to your work?

Businesses are changing rapidly and, as a result, the expectations of auditors are also changing. I do agree that it will be a useful change, as we need to adapt to the new challenges and expectations of the different stakeholders. Some changes have already come into effect, such as the inclusion of Key Audit Matters in the audit reports for Public Interest Entities. I expect that there will soon be a need to provide assurance on forward-looking information in annual reports as well as assurance on the entity’s business models and risks.

In the wake of the publication of the so-called ‘Panama Papers’ and ‘Paradise Papers’ and growing global objections to tax avoidance schemes and aggressive tax planning, how important is it for Cyprus to insist on issues of transparency and compliance so that it

WE COULD AND SHOULD BE PROMOTING TRANSPARENCY AND COMPLIANCE AS ONE OF OUR COMPETITIVE ADVANTAGES maintains its good reputation and the trust of clients?

As a member of the EU, we adopt all the policies needed and it is of utmost importance to continue to do so if we want to be considered as an international business and financial centre.

We could and should be promoting transparency and compliance as one of our competitive advantages to enhance our reputation as a jurisdiction and to continue to attract serious high-profile organisations to invest in Cyprus.

Do you believe that Cy-

prus will benefit in any way from Brexit? Will there be any negative consequences for us?

Brexit is a significant issue but, for the time being, no one can really assess its impact. As a tourist destination Cyprus is likely to face challenges post-Brexit. On the other hand, I believe that there could be opportunities because of our attractive tax system our common law system.

What are your priorities for Grant Thornton in 2018-2019?

We will continue to invest in new advisory services but also in our people. We consider corporate culture to be extremely significant in a world of disruption and change. It is our people and the way we are delivering our services that will differentiate us. Training our people and developing the leaders of tomorrow is a key priority for us if we are to take advantages of new opportunities and it will also to help the firm navigate in a world of continuous change.

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PROFESSIONAL ECONOMY SERVICES

TRANSITIONING TO THE NEW IFRS STANDARD FOR INSURANCE CONTRACTS THE MATERIALS AND OTHER SUPPORT AVAILABLE TO NATIONAL STANDARD-SETTERS AND REGULATORS PLANNING FOR IMPLEMENTATION OF IFRS 17 INSURANCE CONTRACTS.

By Amaro Gomes, Board Member, International Accounting Standards Board

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n 2021, companies will apply the accounting requirements in IFRS 17.

The Standard will be a fundamental change for the insurance industry and, for many companies, the challenge will be as big as adopting IFRS Standards for the first time. Jurisdictions have their own processes for adopting a new IFRS Standard, varying from automatic adoption to extended consultation and endorsement. Regardless of the adoption process, the national standard-setter or regulator can play a crucial role in successful implementation of a new IFRS Standard.

This article outlines the steps national standard-setters or regulators may take when planning for implementation of IFRS 17 in their jurisdiction alongside the materials and other support available from the IFRS Foundation.

A useful first step is to create a consensus of the need for and objectives of IFRS 17. This can help everyone commit to an implementation plan.

plementing a new IFRS Standard is usually resource-intensive and getting all the right people involved – preparers, auditors and regulators –is essential. For a Standard like IFRS 17, technical specialists such as actuaries and financial-risk analysts will also be involved.

Plan for implementation Deciding who is responsible and having a robust plan is key to the success of any project. Im-

Education Another job for implementation groups is educating others. Most implementation plans have

Discussion Groups for Implementation Many jurisdictions establish groups to plan the implementation of a new IFRS Standard, such as the discussion groups on IFRS Standards set up by the Canadian Accounting Standards Board and the transition resource group for insurance contracts established by the Australian Accounting Standards Board. These groups provide a forum for discussion of issues arising on implementation of a Standard such as the impact of local initiatives, including regulation, and to share experiences. These groups may also submit questions to the IFRS Interpretations Committee or the Transition Resource Group for Insurance Contracts.

an educational stage to help stakeholders understand the details of IFRS 17. A number of webcasts with introductions to specific requirements of IFRS 17 are available on the IFRS Foundation website. Each webcast lasts 15 to 30 minutes and covers a topic such as the scope of IFRS 17 and summarises the requirements and simplifications available. We also have webinars tailored to national standardsetters and to investors. Illustrative Examples published with IFRS 17 are also available. The examples portray hypothetical situations illustrating how some requirements in the Standard might be applied.

As the preparers, regulators and investors in a jurisdiction become familiar with IFRS 17, implementation questions may arise. The IFRS Foundation provides support in addressing those questions.

Transition Resource Group for Insurance Contracts We have established a Transition Resource Group (TRG) that brings companies, auditors and regulators together in a public forum to discuss questions about implementing IFRS 17. Anyone can submit an implementation question to

the TRG if it meets certain criteria.

The criteria, submission form and other TRG documents, including agenda papers and meeting summaries, are available on the TRG for insurance contracts page. The TRG cannot issue authoritative guidance or amend the Standard; however, its discussions can help identify topics for webcasts or for consideration by the Board or the IFRS Interpretations Committee.

Other implementation support Board members and staff regularly speak at conferences and other events organised by the IFRS Foundation or third parties. Information about events organised by the IFRS Foundation and links to supporting materials are available in our meeting and events diary. We have also created a dedicated email address for questions about IFRS 17. Although we do not provide a formal technical enquiry service, such questions are useful for us to monitor IFRS 17 implementation and may result in further action. For example, we might develop further educational materials related to a specific question. The materials available to support planning for implementation as well as details about how to contact us are available on a dedicated IFRS 17 implementation page. To receive alerts about any new materials that we publish, follow IFRS 17 Insurance Contracts.

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PROFESSIONAL ECONOMY SERVICES

TACKLING THE ACA ‘CRUCIBLE’ THE CASE STUDY IS THE ACA’S EQUIVALENT OF THE CRUCIBLE, THE GRUELLING TEST THAT EVERY RECRUIT MUST GO THROUGH TO BECOME A US MARINE.

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he ACA (Associate Chartered Accountant) professional qualification. Oh, the memories! I fondly remember switching back and forth between work and college, going from client to lecturer and vice versa, in order to be able to cope with both the professional and academic demands of my ACA traineeship. Back then, I was working for Deloitte, as an ACA trainee. This is where an audit firm, usually one of the Big 4 (PwC, Deloitte, KPMG and Ernst & Young) hires graduates fresh out of university and puts them into a rigorous training programme that combines work, lectures and exams, in the form of something like a long sandwich course, at the end of which lies the prized three-letter professional title: ACA. A lot has changed since I did my ACA training with Deloitte. Traineeship contracts’ duration has been extended from three years to five, and the ACA exams have increased from nine to fifteen. One thing, though, that has remained constant throughout the years that the ICAEW has been offering this coveted professional credential is the notorious final exam: the Case Study.

Fresh graduates with an accounting academic background always come up to me with the same question: “Which professional qualification should I go for?

‘Certified’, meaning the ACCA (Associate Chartered Certified Accountant) awarded by the Association of Chartered Certified Accountants) or ‘Chartered’, meaning the ACA awarded by the ICAEW?” My answer is always the same: You can opt for either of the two, as the prestige that comes with either one is the same and both represent “professional passports” in your hand.

However, you should be aware of one major difference between the two; the ACA has the Case Study, the ACCA doesn’t!

Ask any qualified Chartered Accountant and he/she will tell you that the Case Study is one hell of a paper. Some may find it easy to tackle, others hard, but everybody agrees that it is an exam like no other. So what exactly makes the Case Study different from other exams of its sort?

First of all, it is a four-hour exam, the longest of those on the ACA curriculum.

During these four hours, the candidate is called to produce a written report containing answers to a number of real-life business questions faced by a fictional company operating in a real industry. Certain information regarding the company in question is given to the candidates in advance, with

By Spyros Yiassemides BA, MSc, ACA, Senior Manager, Accounting Services, First Names Group, Cyprus.

a view to familiarizing themselves with the circumstances surrounding the company, its business in specific terms and its industry in general. This is information that must be learned inside out, but it cannot predict in any way how the questions will play out on the day of the exam. When this day comes and the candidates have taken their seats, all sweated up, their glands frantically pumping adrenaline, another bundle of information is presented to them, which brings to light new developments that directly affect the underlying company – a recession in the economy, a fire at the company’s warehouse, a merger, an acquisition; all possible scenarios that could come up on the big day and drive the nature and content of the questions to be posed to the candidates. They say that the gold standard by which you can judge if you have covered all bases when jotting down your answers, is to develop a cramp in your wrist from the nearly four hours of non-stop, fast-paced writing!

Another characteristic of the Case Study that sets it apart from other, more traditional exams, is the fact that it follows absolutely no trends in the way its questions are set. While with other exams, you can obtain past papers and practice on them until your eyes go blurry and your mind is prepped for tackling any kind of ques-

ACA trainees affectionately refer to it as ‘the exam from hell, which either makes you or breaks you’

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tion within the exam’s curriculum, with the Case Study what you gain by practising with past exam papers is the strengthening of your writing, problem-solving and time management skills, but you will not be able to predict what the questions will look like or what subjects they will touch upon, based on the pattern of questions set in the past. No two Case Study exam papers are alike.

The Case Study has a fluid curriculum which is based more on practical experience than on theory and textbooks. It is, effectively, an exam that builds on all prior knowledge gained throughout the ACA qualification, and this is evidenced by the fact that a candidate is not allowed to take the Case Study exam unless he/she has attempted all the other exams that precede it, fourteen in total. Another prerequisite to taking the said exam is to have completed at least two years of practical work experience, so as to be able to bring into the exam the much-needed business awareness trait that is needed to pass the exam. No matter how well the underlying theory is learned, if the practical element is not there, then tackling the Case Study questions in an effective manner will prove to be a difficult, if not impossible, task. In the words of ICAEW, “The objective of the Case Study is to assess understanding of complex business issues and the ability to analyse financial and non-financial data, exercise professional and ethical judgement, and develop conclusions and recommendations. The limited class time available with a tutor, even when supplemented by extensive home study, is insufficient for success in the Case Study. Students must bring work experience into their preparation and development programme”.

Even the marking protocol of the Case Study differs from that of a conventional exam. While in most exams you get marks for providing correct answers to the questions, in the Case Study you are graded on a competency scale in over 40 different areas.

This means that you are being marked primarily on a qualitative basis rather than on a quantitative one, i.e. on the quality of your arguments and advice given, and how fact-based, justified and viable these are, rather than on the correct/incorrect, blackor-white aspect of your answers. You are

judged on that broad grey area called “critical thinking”, and it is this very area that will make the difference between passing or failing, of becoming a qualified Chartered Accountant or carrying on as a trainee.

Which brings us to the average pass rate for this particular exam. As you may have guessed, it is not as high as the rest of the ACA exams, a fact that is attributed to the unique characteristics mentioned above which, combined, set the standard of the Case Study high enough for ACA trainees to affectionately refer to it as “the exam from hell, which either makes you or breaks you”, much like the US Marines’ Crucible, the last training event that recruits must pass before becoming Marines! The pass rate is 75%, the lowest among all the ACA exams, which means that one in four candidates does not make it to the other side of the qualification. That said, there is no restriction on the number of attempts one can have at the Case Study exam so, unlike the Marines, you get a second (or third or fourth) shot at it, although repeated attempts are not advisable, the reason being that they may wear you down psychologically. If you fail the exam at the first attempt, there are a few things that you can fine-tune so as to make it work next time, most of them having to do with how the concept of the Case Study is approached and your analytical and decision-making skills, rather than how much you know about any given subject. No matter how much knowledge and data you can cram into your mind in preparing for the exam, if you don’t master the ability to critically analyze this data in the context of the relevant new facts that come to light once you turn over the exam paper, and then process the same and come up with value-added information, success in this Paper of Papers is doubtful.

This is not a paper for the faint-hearted but, then again, the profession that it leads you to often appeals to those possessing nerves of steel and a very strong stomach, so it could be argued that the Case Study is the closest to a professional drill that an aspiring Chartered Accountant will undergo before proving to both himself/herself and the ICAEW that he/she is ready for the real thing. And, while a qualified ACA may not work under the same hazardous conditions

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This is not a paper for the faint-hearted but, then again, the profession that it leads you to often appeals to those possessing nerves of steel as a fully-fledged Marine in his life of business, he/she will still encounter hardships and the occasional guerrilla client (the one that ambushes you out of nowhere with an ultra-tight deadline) thus, much like the Marine, the Chartered Accountant must be in a constant state of readiness to do his/her duty (meaning to charge the books with all his/her might!). The ACA Crucible known as the Case Study is designed to test the extent of that readiness on an ACA-to-be.

I still remember those days leading up to the Case Study exam and shudder! The mere agony associated with going on the (unavoidable) wild goose chase of trying to ascertain what the questions would be, was enough to make me pile up such an amount of sleep debt that I needed days, if not weeks, after the exam was finished to pay it back. Looking back, though, I am glad that I had to go through it, to endure this “exam from hell”. It’s not that I wouldn’t be where I am today, had the Case Study been absent from the ACA curriculum. Work will eventually shape you into a true professional, irrespective of the breadth and depth of your academic background. After all, I have dealt with hundreds of real-life Case Studies since I passed the one on paper. What I am grateful for, in having to sit through that final exam, however, is the resilience to stress that I developed in the process, a resilience that can only be gained through dealing with, what I like to call, “landmark projects”. These are the kind of projects that leave a lasting impression on you long after they have been successfully tackled. The Case Study was the first in a long series of such projects, thus it can be considered as my professional “baptism of fire”.

“Certified” or “Chartered”? Irrespective of whether you are asking or being asked this question, the Case Study is always a good topic with which to start the discussion!

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BUSINESS in cyprus

Cyprus CEOs Optimistic About Growth Prospects CEOs of companies operating in Cyprus are optimistic about the growth prospects of their companies as well as that of the global economy, according to the findings of PwC’s 21st Annual Global CEO Survey.

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his year’s annual survey of CEOs by PwC, entitled “The Anxious Optimist in the Corner Office”, saw the participation of almost 1,300 CEOs in 85 countries. PwC Cyprus carried out the local survey for the 7th consecutive year, with the participation of 67 CEOs in Cyprus.

An analysis showed that while CEOs are particularly optimistic, both at a global and a eurozone level, in Cyprus, they are more optimistic than ever. More specifically, 52% of CEOs in Cyprus believe that global economic growth will improve, a percentage much higher than the 36% in 2017 and 33% in 2016.

They are also confident about the revenue growth prospects of their own company over the next 12 months with 85% of CEOs in Cyprus confident about their company’s prospects for revenue growth, slightly up on the corresponding figure of 83% last year. The results

are similar for a three-year time frame with 91% voicing optimism compared to 85% in 2017.

Cyprus believe that they will increase the headcount of their organisation over the next 12 months. This demonstrates a positive outlook for the future and confirms the more general optimistic climate.

According to the survey, the priority for CEOs in Cyprus is organic growth with 69%, followed by new strategic alliances or joint ventures As regards the countries they with 51%. At the same time, consider important for their there is a significant drop, as company’s growth prospects, regards cost reducGreece is the first tion, with the choice for CEOs percentage in Cyprus with falling to 54%, fol48% from lowed by of CEOs in Cyprus last year’s the United believe global 65%. It Kingdom economic growth will is worth with 52%, improve over the noting Russia with next 12 months that 63% 34% and Gerof CEOs in many with 21%.

52%

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Despite the more general prevailing optimism, there is, nevertheless, increased concern for a wide range of business, social and financial threats. The biggest concern for CEOs in Cyprus is the future of the eurozone with 79%, followed by geopolitical uncertainty and over-regulation with 78%. Also cited are an increasing tax burden with 70%, uncertain economic growth with 69% and terrorism which features in the top five threats at a global level for the first time with 67%. Moreover, the speed of technological change (67%),

cyber threats (66%), availability of key skills (64%) and changing consumer behaviour (57%), are cited as the most significant business threats for CEOs in Cyprus, as regards their company’s growth prospects.

The results of the survey were presented by Philippos Soseilos, Advisory Partner at PwC Cyprus at a special event on 11 April 2018.

Taking part in the discussion that followed the presentation were PwC Cyprus CEO Evgenios Evgeniou, the CEO of Cablenet Communication

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The priority for CEOs in Cyprus is organic growth

Systems Ltd Nicolas Shiacolas and the CEO of Hermes Airports Ltd Eleni Kaloyirou, who participated in the survey with an in-depth interview.

Commenting on the results of the local survey, Evgenios Evgeniou said, “The majority of CEOs in Cyprus believe that global economic growth will improve. This appears to be, in part, a result of the strengthening of the Cypriot

economy which has recorded stronger rates of growth that, in the last quarter of 2017, reached 3.9%. Increasing productivity, attracting productive investments, reforms that will enhance competitiveness and innovation are the next big bets that Cyprus must win.”

The full results of the survey are available on www.pwcceosurvey.com.cy.”

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BUSINESS IN CYPRUS

IS JUST AROUND THE CORNER! THE GENERAL DATA PROTECTION REGULATION (GDPR) IS THE NEW EU REGULATORY FRAMEWORK, WHICH IS INTENDED TO SIGNIFICANTLY UPGRADE PRIVACY PROTECTION. WITHIN ITS SCOPE IS THE PERSONAL DATA OF LIVING PHYSICAL PERSONS WHO ARE IN THE EU. IT COMES INTO EFFECT ON MAY 25, 2018.

By Georgios A. Korellis, Chief Executive Officer, PhoenixPro Ltd

GDPR

has far reaching business implications for large and smaller organisations alike. In addition to significantly increased ceilings for monetary penalties (in the extreme, the highest of up to 4% of worldwide turnover or €20 million), the new Privacy-by-Design requirement signals a significant shift in how personal data is required to be collected, processed, used and stored. Consequently, in addition to Marketing and Information Technology (already regulated, with further requirements by GDPR), other business workflows such as for HR

(recruitment, evaluations), Distribution, Insurance Claims Handling, Sales and others such as Production and Manufacturing, traditionally treated as outside the scope of privacy, must now be considered.

Notable GDPR concepts include (a), the Data Controller – the entity mainly responsible for the collection of personal data; (b) the Data Processor – an organization or individual materially involved in processing personal data; (c) the Data Protection Officer (DPO), a role with challenging requirements, that can be delivered in-house or by using external services

from qualified individuals or teams; (d) a Privacy Impact Assessment – a key requirement intended to provide a safety mechanism preventing organizational initiatives or projects from resulting in adverse privacy impact and (e) Breach Reporting – the obligation of Controllers and Processors to notify the Regulator in cases of actual or suspected breaches, within 72 hours.

GDPR Implementation Challenges GDPR presents multiple implementation challenges, the most notable

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perhaps being the need for a process architecture focused on the prevention of privacy lapses (typically, not how organizations currently operate).

Nevertheless, in seeking GDPR compliance, it is mission-critical that organizations should also remain successful and profitable!

Within this context, we outline certain key challenges we are addressing, working with customers in multiple industries.

The need for updates and changes to multiple aspects of People-ProcessTechnology dictates that GDPR must be treated as a real project. Therefore, assigning ownership to an executive project sponsor is as important as securing the necessary funding and prioritizing actions for team members to be involved.

Also important is having an effective mechanism for the timely identification of the need for Privacy Impact Assessments, as is actually having the methodology, tools and expertise to conduct them. Another challenge revolves around choosing the DPO, between an in-house resource (with the challenges this entails) versus using qualified 3rd party providers with expertise, resources and methodologies to discharge this important role.

To the question “Is encryption and pseudonomization necessary”, the

answer is yes! Of course, normal risk assessment and cost-benefit principles also apply. As a rule of thumb, we recommend encrypting all GDPRcritical production systems and pseudonymizing all Test, QA and Development systems. Given, however, the inevitable procurement and technical implementation challenges, it is critical to start the related work immediately. It is also advisable that encryption is not restricted to data “at rest” (such as in in databases or file servers) but extended to backups, DR-sites and transmitted data (“in motion”). GDPR owners should also be sure to address particular challenges regarding the use of cloud applications and external hosting.

Additionally, the more one can reduce the use of spreadsheets, the easier it will be to achieve and maintain compliance!

In addressing requirements over GDPR User Rights (access, erasure, stop processing, deletion, portability, etc.), organizations should also ensure that they implement feasible execution mechanisms and are able to honour defined retention policies, as communicated when receiving the personal data.

Finally, one should not underestimate the effort and challenges in addressing “downstream risks”, specifically those emanating from vendors and external parties. Negotiating the necessary

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changes will take time and what one may perceive as reasonable may, in fact, be strongly objected to by one’s vendor(s). Therefore, start immediately and be ready for surprises!

In summary, for all its practical challenges, GDPR can, in fact, be a trigger for improving established processes and practices and for implementing technological controls that ultimately safeguard your reputation and operations. All whilst achieving regulatory compliance.

Good luck with your projects!

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BUSINESS IN CYPRUS

WHO? W WHAT? WHEN? WHY? WHERE? THE KEY QUESTIONS SURROUNDING THE GENERAL DATA PROTECTION REGULATION (GDPR)

By Marina Joannou, Director, Cyprus Securities & Exchange Commission

hat exactly is GDPR? The General Data Protection Regulation (GDPR) is a comprehensive regulation that unifies data protection laws across all European Union member states. It defines an extended set of rights for European Union citizens and residents regarding their personal information. Consequently, it describes strict requirements for companies and organizations on collecting, storing, processing and managing personal data. Businesses have little time and a lot of challenges to comply with the requirements, as they must review and adapt all their existing processes and services used to collect and handle personally identifiable data of their employees and customers.

According to Gold N’ Links Europe CEO Timi Moisis, this regulation is not being taken seriously: “The reality is that most organizations we speak to are staring straight down the watchdog’s barrels.

Risk management, compliance, business continuity, disaster management, insurance

and cyber security can now no longer be add-ons to an organizations infrastructure.”

So what? See the section on fines!

Who is affected by GDPR? From an implementation side, the following is a nonexhaustive list of entities that are affected: Public and private doctors, medical centres, pharmacies, telecommunications companies, ISPs, banks and PSPs, insurance companies, accountants, lawyers, any company with client data, schools, Facebook, Twitter…

Basically, any physical or online firm or organisation that obtains, processes or retains personal data is caught under this regulation. Yes, even our bonus cards at supermarkets, bakeries and other pointincentive shopping organisations (remember the ones where you completed a form by providing your personal details?) That data is personal data so the firms that collect and use such data need to act.

So does it affect you? Possibly. You should check with your compliance officers, consultants or legal advisers together with your IT

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teams. GDPR is not something to be handled by the IT department alone anymore. It is now a Director-level matter, and the fines for non-compliance ensure this.

WHEN MUST GDPR BE COMPLIED WITH? All organisations, firms etc. must comply by 25 May 2018, after which breaches will be fined according to the regulations.

Why implement GDPR? (a.k.a fines) GDPR is a ruling intended to protect the data of citizens within the European Union. The true reason is to protect the citizens but hefty fines have been added for good measure. Fines for certain breaches can be the higher of 2% of global turnover or €10,000,000 whilst for others the fine can be up to the higher of 4% of global turnover or €20,000,000. Indeed one such fine could result in a typical firm shutting its doors!

the personal data of EU citizens can be held accountable under the GDPR. The regulation applies not only to all organizations established in the EU that process personal data, but also to any non-EU established organizations that process personal data of individuals who are in the EU in order to offer them goods and services or monitor their behaviour within the EU.

DATA THAT FALLS UNDER THE GDPR In essence, GDPR covers any information that can be classified as personal details or that can be used to determine a person’s identity. In order to process any data relating to children aged 16 and under, parental consent will be needed. The following type of data will fall under GDPR: • Name • Photo • E-mail address • Social media posts • Personal medical information

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• IP addresses • Bank details.

INSURANCE – DIRECTORS ARE YOU PREPARED? Perhaps you feel that your insurance policy will cover you if you need any cover (if you have a policy). Possibly. But here are some questions to guide you on this: 1. Have you considered an insurance policy? If yes/no why? You should document this in company minutes.

2. If there is a policy, when was the detail of the insurance policy last reviewed?

If it’s close to 12 months or longer, it’s time for a thorough review. Make sure the review is documented and presented to the Directors who can take a decision about insurance.

3. Who ensured that the policy covered your (firm’s) gaps? Ideally this should be senior management/directors with legal and / compliance officers.

4. Who ensured that the risk mitigation measures of the firm will ensure that the cover is not invalidated?

Where does GDPR apply?

GDPR has far-reaching implications for all citizens of the European Union and businesses operating within the EU, regardless of their physical location. If businesses wish to offer goods or services to citizens of the EU, they will be subject to the penalties imposed by the “I’m applying for the Information Security position.

GDPR. In addition, Here is a copy of my resumé, encoded, encrypted and shredded” any business that holds

CONCLUSION It is suggested that you check immediately with your compliance officers, consultants or legal advisers if you are within the scope of GDPR and that you speak with the relevant security firms. May 25 is not far away!

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MEET THE CFO

Stavros Kattamis ALTHOUGH THE CHIEF EXECUTIVE OFFICER (CEO) OF A COMPANY OR ORGANIZATION IS THE PERSON WITH ULTIMATE RESPONSIBILITY FOR ENSURING THAT IT FUNCTIONS PROPERLY AND IMPLEMENTS THE STRATEGY SET OUT BY THE BOARD, THE CHIEF FINANCIAL OFFICER (CFO) IS BECOMING INCREASINGLY IMPORTANT AND POWERFUL. WE SPOKE TO STAVROS KATTAMIS, PARTNER AND HEAD OF FINANCE AT PWC.

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here have been numerous reports over the last 2-3 years which suggest that the role of a company’s Chief Financial Officer (CFO) is changing rapidly. Is this your experience?

Yes, this is true. Businesses operate in a challenging environment with unprecedented and ongoing economic, governance and regulatory changes. To adapt, CFOs have transformed and their role has been shifted from spending time on traditional finance activities to being a trusted business partner. CFOs devote most of their time to emerging priorities such as strategic analysis and planning, stakeholder management, business transformation, risk management, technology, regulation and compliance, performance management and organizational planning. Their aim is to create value, to support and protect the business by securing its smooth and uninterrupted operation and to contribute to its sustainability and growth.

It has been suggested that the CFO is perhaps the one person in an organisation who sees the ‘big picture’. This suggests that the roles of CEO and CFO are growing closer. Would you agree?

Absolutely. Governance continues to evolve to meet changes in regulatory compliance and the strategic needs of companies, requiring ever more collaboration between CEOs and CFOs. A CFO is a multi-functioning executive with a broad set of job responsibilities that cover the whole organization. It is, therefore, reasonable to say that cooperation between the two executives has become really close. A CFO in a big organization must be in a position to effectively contribute to setting up and meeting the organization’s long term goals by applying critical thinking, demonstrating a strong sense of business and financial acumen and constructively challenging senior management.

size must develop and possess in order to stay relevant. In today’s constantly changing corporate world, CFOs must always be updated on all changes occurring either locally or globally which may affect their business and even the business of their clients.

The impact of technology on organizations has been – and will be – tremendous.

CFOs must be aware of all the new technological developments that are relevant to their organization since new technology may provide the means for achieving operational excellence. Being knowledgeable and updated enables CFOs to see the big picture and develops their sense of business acumen which, in turn, allows them to take informed and targeted decision proactively.

A CFO is a multifunctioning executive with a broad set of job responsibilities that cover the whole organization

Have you had to develop certain new skills for your position in today’s changing corporate world?

Of course. Thought leadership, business and global acumen are only some of the managerial/executive competences that the CFO of an organization of any

Technology is changing business in many ways. Has it had a direct impact on your work as CFO? It is obvious that technology has a direct impact on the daily work of a CFO. In my view, a modern CFO must take full

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advantage of technology and transform the operating model of the finance function, starting from the data collection process to the issuing and distribution of information to stakeholders. A number of the finance function activities can be captured using basic task automation technologies such as robotic process automation (RPA). RPA and complementary technologies, like business process management and optical character recognition tools (OCR), can be applied across a number of activities in finance.

Data Analytics and Business Intelligence tools help produce and analyze data and populate real-time results to stakeholders. This automation helps CFOs focus more on other business activities, such as strategic leadership, risk management, data security and regulatory matters.

How much pressure is placed on the CFO these days due to stricter regulation and compliance requirements?

Regulatory and compliance requirements in their present form do indeed place extra pressure on CFOs and their teams. CFOs must ensure that they have put in place processes and controls to prevent incidents that could potentially

Regulatory and compliance requirements in their present form place extra pressure on CFOs and their teams

CFOs must be aware of all the new technological developments that are relevant to their organization put their organization at risk. CFOs and Finance functions teams must be regularly trained and kept updated on developments in regulations and apply them strictly in their day-to-day working.

In your personal role at PwC are there aspects of the work that are very specific to the company and the sector or is a CFO doing pretty much the same thing in any company or organisation?

The CFO role implies a certain knowledge background and skills.

Some aspects of the work and responsibilities of CFOs are, more or less, the same in every company. Being a Partner in PwC, I am closer to the business and I am fully aware of the vision and the strategy. I have a close coop-

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eration with the CEO and the members of the management board. This gives me a better understanding of the business issues and challenges that the company may face. I use this knowledge and understanding to support my organization and come up with suggestions and solutions to address these challenges.

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FINANCIAL SERVICES

INVESTMENT IN A CHANGING WORLD

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EFG IS ONE OF THE LARGEST SWISS PRIVATE BANKS WITH A GLOBAL PRESENCE AND THE ONLY INTERNATIONAL BANK IN CYPRUS THAT OFFERS DEPOSITARY SERVICES TO CYPRUS FUNDS. DANIEL MURRAY, DEPUTY CIO & GLOBAL HEAD OF RESEARCH AT EFG ASSET MANAGEMENT (UK) LTD WAS IN CYPRUS RECENTLY AND SPOKE TO ACCOUNTANCY CYPRUS ABOUT HOW HE SEES BREXIT AFFECTING THE UK IN GENERAL AND HIS BUSINESS IN PARTICULAR, AND ABOUT HOW THE INVESTMENT WORLD HAS CHANGED IN THE WAKE OF THE GLOBAL FINANCIAL CRISIS. EFG Asset Management has a presence in Europe, Asia and America and your funds are available in 13 countries but Cyprus is notably absent! Although the Cyprus branch of the bank does offer depositary services to Cyprus funds, what would it take to encourage or persuade you to use the island as a more substantial base for your investment activities?

That’s a good question. Part of this relates to history and convenience. You get networks of people with expertise and businesses with similar expertise located in the same place. As we’ve seen in the case of Dublin, it can be done but it takes time to build up. There’s also a cost element and if the work can be done more cheaply and effectively and to a high standard in other parts of the world, that certainly creates an opportunity for a place like Cyprus but obviously the networking effect, whereby businesses locate around likeminded businesses, is still important.

Don’t forget that, if you are already set up and you don’t have a particular need to set up elsewhere, there has to be a good reason for you to change. Asset management and fund administration are not the types of business where you would change just to try something new.

One major change that might affect such businesses is Brexit, which

is now less than a year away. How do you see that affecting EFG Asset Management?

Although I’m based in London, our funds are domiciled in Luxembourg and Dublin and so, from a European perspective, Brexit won’t make an awful lot of difference to us. It’s not clear yet which parts of our business will physically have to be located within the EU but, from a funds perspective, at the moment it doesn’t look as if there will be a particular problem. There may be other parts of the business that will force us to have a physical presence within the EU borders but, of course, that depends on what sort of deal is negotiated.

Presumably the referendum result came as a surprise?

Yes, it did, although I knew it was always going to be close. Clearly there

I THINK THE UK WILL BE MARGINALLY WORSE OFF EVERY YEAR THAN IT WOULD HAVE OTHERWISE BEEN

was a lot of misinformation out there and if, at the time of the vote, people had been aware of the mess that we would be in now, they might have had a different view. That said, I haven’t seen many post-referendum polls in which people have said that they would vote differently if they were doing it now. Most of the ones I’ve seen still give more or less the same figures.

What’s your forecast for the postBrexit UK? Growth in the UK is still positive and has beaten expectations but I suspect that, every year, growth is going to be a bit less than it might otherwise have been. We won’t notice it from one year to the next, the country will continue to function as normal, there will some post-Brexit gains which the Brexitsupporting press will give big headlines to but, overall, I think it will be ‘death by a thousand cuts’ and the UK will be marginally worse off every year than it would have otherwise been. It’s a sad state of affairs, best summed up by the challenge in terms of keeping the Northern Ireland-Republic of Ireland border open whilst trying to exit a customs union, which seems intractable to me. It’s impossible to find a solution that appeases all sides.

Has the way you work changed since the global financial crisis?

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The whole world has changed and we can see that in the way central banks work. If you had told a central banker 12 years ago that, within a few years, he would be printing money to support the economy, you would have been laughed at. They could never have foreseen it and would have been appalled by the idea. And yet, all the major banks have done it – the Federal Reserve, the Bank of England, the ECB, the Bank of Japan – and that naturally changed the investment landscape.

Of course, people still want to invest in companies that generate a positive cash flow, that aren’t expensive, that have a good business model and decent management in place that is able to allocate capital efficiently and effectively. So not everything has changed but perhaps the context in which we think about investment has. I find that the markets are constantly humbling – just when you think you know what’s

THE MARKETS ARE CONSTANTLY HUMBLING – JUST WHEN YOU THINK YOU KNOW WHAT’S GOING ON, SOMETHING ALWAYS COMES ALONG TO SURPRISE YOU

going on, something always comes along to surprise you. That’s one of the reasons why I enjoy working in financial markets so much: it’s a constant form of education. So many things that happen in the world today can impact economies and what seemed important yesterday may not seem like that today or tomorrow.

Earlier this year, EFG Asset Management launched something called the “Future Leaders Panel” What is it and what is its purpose?

We decided to bring together a group of interesting people from different backgrounds to help us think about how to navigate the investment world over the coming years. At present, the panel currently comprises a neuroscientist and expert in behavioural psychology, two business innovation experts and one who specialises in ESG (environmental, social and governance) issues. More members will be added to the panel over the coming months. In addition to contributing to the investment research process, the panel will draw on its combined intellectual capital to provide unique insights for the benefit of EFG’s clients. What we’re seeking to do is to use these people to help us think about the investment world in a slightly different and novel way so, for example, they can help our equity team think about what sort of questions they should be asking managers in this “new world” and how we can help to identify businesses that are really going to flourish in the years to

DUE TO THE WAY ECONOMICS IS TAUGHT, THE IMPRESSION IS GIVEN THAT ‘THIS IS HOW THE WORLD WORKS’ AND IT’S NOT TRUE

come. The Future Leaders Panel is thus something that we’ve set up both for our own people and for our clients.

You’re doing something that is directly connected to your studies in Economics and Econometrics but before you started work, was it clear to you that Economics is not exactly an exact science?

I think that, due to the way Economics is taught, the impression is given that “this is how the world works” and it’s not true. In the end, what Economics gives you is a lot of tools to help you think about the world but they are simplifications and approximations and will rarely, if ever, give you a precise answer. It’s all about determining which tools you are going to use, trying to find the appropriate metrics, making sure your data is good quality and then interpreting it.

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FINANCIAL SERVICES

WINNING COMBINATIONS YOUTH & EXPERIENCE LINKED TO SPEED & EFFICIENCY ARE BEHIND ASTROBANK’S UNIQUENESS AND ITS SUCCESS IN BEING PRODUCTIVE AND COMPETITIVE, SAYS GEORGE APPIOS, MANAGING DIRECTOR AND CEO.

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ow would you describe AstroBank’s presence on Cyprus’ banking scene?

AstroBank is actively dedicated to contributing to Cyprus’ economic development by growing and developing into a major player in the banking system.

It successfully combines the energy of the new with the experience of a wellestablished bank and injects enthusiasm and dynamism to its pledge to ‘make it happen’. The Bank is, more than ever, rooted in its Cypriot identity but it also looks overseas, beyond Cyprus’ borders.

We intend to grow our position both organically and through acquisitions when the right opportunity arises.

Given the strong competition in the local banking sector, what do you see as the biggest challenge facing AstroBank?

Our main challenge is to find the way to innovate and be different with the aim of continuing to grow rapidly while maintaining the quality of our service as well as the quality of our assets. We want to build further on a culture based on values, principles and respect and to ensure a loyal adherence to it We want to bring tangible added value to the service we offer, by creatively engineer-

ing optimal facilities for our customers and by introducing new products to the market, relevant to the needs of our customers. Of course, challenges can also arise from exogenous or systemic factors. That is why it is important for the Government and the Central Bank of Cyprus to maintain a solid and supportive regulatory environment, which provides stability and sustainability to the macro-economic ecosystem.

How does AstroBank manage to differentiate itself from the many banks in Cyprus?

Through its unique mix of investors and management and the combination of youth with experience. We have the set-up and experience of an established bank, well-recognised and appreciated as a main player in the market. We also have the vision, the vast international experience and the extensive banking know-how of the new investors, whose acquisition of the bank has ensured its sustainability and given it a stronger financial standing as it moves into a new era. Our target is to invest in new, innovative ideas that will allow us to continue with our plans to grow and strengthen the organisation, most notably by attracting new corporate and private clients not just from Cyprus but also from overseas. AstroBank has set the bar high and aspires to a prominent position in the Cypriot market. All

AstroBank has set the bar high and aspires to a prominent position in the Cypriot market the changes already made over the past months, and those in the process of being introduced, aim at improving the speed and efficiency of the services provided, enhancing innovation by creating new products and services, exploring new business routes and cultivating a culture of cooperation with and respect for the Bank’s customers.

Speed and efficiency are key to being productive and competitive.

How did Piraeus Bank’s customers respond to the re-branding of the bank?

Very positively. Since the re-branding, the bank has remained true to its “universal” bank approach, continuing to offer a full range of banking products to large corporations, retail individuals, High Net Worth Individuals and international businesses. However, in addition to that, the Bank has also started to introduce innovative products and channels to both existing and prospective clients. The main characteristic of

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these new offerings is the added value they will be getting and the manner in which they receive these services. Leveraging on our strong capital base and liquidity position, we have expanded in the market by offering retail and corporate loans to local individuals and corporations, thereby boosting economic growth.

Do you think enough is being done to resolve the problem of NonPerforming Loans?

Undoubtedly, the strict adherence to the MOU by the Government has, on the whole, been beneficial for public finances. All banks have been complying with the Arrears Management Directive and have, to a large extent, achieved the targets set by the Central Bank. Provisions for bad debts have increased substantially, banks have built adequate reserves of provisions in order to absorb any future shocks and, although it will take some time to bring the NPL ratios to acceptable levels, the system is on the right track. The effort to resolve the problem of NPLs has to be collective, which means including the Government, the regulators, the banks, the business world and the public (individuals).

In December of 2017, you mentioned that growth is a top priority in AstroBank’s strategy. How do you plan to achieve this in 2018?

By taking further advantage of the ele-

We have expanded in the market by offering retail and corporate loans to local individuals and corporations

ment of flexibility made possible by our size and the fact that we are a local bank with simple, straight-forward decisionmaking mechanisms. In our view, this translates into better, faster and, more importantly, relevant service to our clients. Technology plays a crucial role in this effort and the bank is investing in new technologies to offer clients a choice of service through a variety of digital and electronic communication channels.

What other goals have you set for AstroBank in 2018 and how do you intend to achieve them?

We aim at becoming a major player in the local market whilst also exploiting other markets. Our main goal is to create added-value that benefits all our stakeholders: depositors, clients, staff and shareholders. To achieve this, everyone in the Bank is being called to participate, be innovative and professional and offer the best possible service to clients.

The Bank’s structure has changed in order to accommodate these new priorities and more emphasis has been given to marketing and business development as well as the business lines.

It was reported at the end of last year that AstroBank intended to take over USB bank. Do you have anything new to tell us about this?

I will not confirm or deny the reports.

I will say this, however: growth is a top priority in our strategy and we are ready to seize every opportunity in order to accomplish it. It could be achieved organically or through the acquisition of loan packages or even another bank, thus contributing to the consolidation efforts of the local banking sector. We will respond in due time to the opportunities afforded by changes on the local scene by expanding our branch network and we will also exploit our international experience and contacts to develop internally.

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The bank is investing in new technologies to offer clients a choice of service through a variety of digital and electronic communication channels

George Appios

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FINANCIAL SERVICES

IFRS 9 IS FINALLY HERE IFRS 9 INTRODUCES A NUMBER OF CHANGES ON HOW TO ACCOUNT FOR FINANCIAL INSTRUMENTS. THIS ARTICLE FOCUSES ON THE MAIN CHANGES IN ACCOUNTING FOR IMPAIRMENTS OF FINANCIAL INSTRUMENTS.

By Pantelis Pavlou ACA, IFRS expert, KBC Bank & Verzekering

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uring the countdown to 2018, the financial services industry stopped at nine – IFRS 9!

More than 10 years since the idea was conceived of replacing the rule-based, complex and out-dated IAS 39, the financial sector entered a new financial reporting era.

The implementation of the new standard, and in particular its impairment requirements, was not easy. Even the European Banking Authority (EBA), in its report, referred to the implementation efforts and to their expectations that improvements will continue after the first-time application date.

A NEW IMPAIRMENT MODEL IFRS 9 includes a single impairment model for all financial instruments in its scope, replacing the patchwork of the impairment requirements of its predecessor.

The new model is forward-looking and requires that credit losses be calculated over the lifetime of a financial instrument once there has been a significant increase in credit risk, hence the name of the new approach: The Expected Credit Losses (ECL) model.

In a nutshell, the standard requires that every financial asset entails impairment losses at initial recognition, which are compensated from the credit spread that

is incorporated in the interest rate. In developing the standard, the International Accounting Standard Board (IASB), together with the key stakeholders, debated the accounting for this model and ended up using the 12-month ECL as a proxy for accounting for credit risk at initial recognition. This is referred to as “Stage 1”.

Economic losses, the standard argues, occur once there has been a significant increase in credit risk since initial recognition and, as such, are not incorporated in the assessment at origination (and pricing). Therefore, when the credit risk has significantly increased, the impairment should reflect the ECL over the remaining lifetime of the financial instrument, which means (in most cases) a significant increase in ECL. This category is called “Stage 2”. It is important to point out that the analysis and assessment is a relative one, with the credit risk at initial

IFRS 9 ECL (as intended) will not be sufficient to cover the actual credit losses of the next financial crisis

recognition as a reference point. Finally, IFRS 9 includes a “Stage 3” category for credit-impaired financial instruments.

ASSESSMENT OF SIGNIFICANT INCREASE IN CREDIT RISK (AKA “STAGING”) As mentioned above, the assessment of whether a significant increase in credit has occurred is crucial for the ECL model.

IFRS 9 describes the principles on how such an assessment should take place; however, the standard allows room for interpretation and adaptation, as its objective is to be flexible enough to capture the credit risk management of the financial sector. In its guidance, IFRS 9 provides a long (non-exhaustive) list of information that may be relevant in assessing changes in credit risk.

To achieve some sort of consistency, the standard includes a rebuttable presumption that the credit risk of a financial instrument has significantly increased if the contractual payments are more than 30 days past due (dpd). A preparer can rebut the 30dpd presumption if it has reasonable and supportable information that demonstrates that the credit risk has not increased significantly since initial recognition, even though the contractual payments are more than 30dpd.

Another crucial element in the standard is the definition of default (or the lack of it).

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ICPAC CPD SEMINAR ON IFRS 9

As default is a strictly regulated, IFRS 9 deliberately decided not to define it, therefore, for financial reporting, IFRS 9 makes a link to the definition used for internal credit risk management purposes. Again, IFRS 9 includes a rebuttable presumption and it states that default does not occur later than when a financial instrument is 90dpd. To this end, financial institutions would (most probably) align with the regulatory definition of default.

THE USE OF FORWARD-LOOKING INFORMATION IN THE ECL. IFRS 9 requires that entities must use all information that is available without undue cost and effort, including forwardlooking information. Forward-looking information includes forecasts of macroeconomic variables that could affect credit risk and the estimation of ECL. The use of forward-looking information is equally important for assessing whether a significant increase in credit risk has occurred and for estimating the ECL. To this end, and to clarify the impact of multiple macroeconomic scenarios, the IASB held a webinar discussing the interaction between staging and the estimation of ECL. The IASB concluded that, as a first step, preparers need to assess staging and then calculate the ECL that corresponds to the correct stage.

IFRS 9 FIRST TIME APPLICATION (FTA) IMPACT Upon transition to IFRS 9, entities booked a one-off impact directly in eq-

In February 2018, ICPAC organised a oneday seminar on IFRS 9, mainly focusing on the banking sector. Following a brief introduction on the impairment requirements of IFRS 9, some of the most debated topics were introduced. The following topics were on the agenda: a discussion on the use of the 12-month Probability of Default (12M PD) as a proxy for the assessment of an increase in credit risk; Gross Carrying Amount (GCA) definition; Purchased or Originated Credit Impairment (POCI) financial assets; the maximum period over which the ECL should be measured; and last but not least, the use of the forwardlooking information.

uity to reflect the changes from IAS 39, which eroded the capital of many banks.

The impact of the standard is twofold: (i) the impact from the classification and measurement requirements (“phase 1”); caused by the reclassification from amortised cost measurement to fair value and vice versa; and (ii) the impact from the impairment requirements (“phase 2”).

The total impact on the Common Equity Tier 1 (CET1), a key measure for the capital of banks, varies considerably across banks and across jurisdictions. There are plenty of possible reasons for the wide range of the impact but two main ones stand out: the composition of the portfolios (in terms of credit quality and staging) and other concurrent changes (e.g. alignment with regulatory requirements with respect to the definition of default).

As the end of the first quarter of 2018 has already passed, more information will flow to the market, as banks will be publishing the details of the transition from IAS 39 to IFRS 9 (transition disclosures). Financial markets participants, analysts, auditors, prudential regulators and the sector itself are looking forward to reading, analysing and understanding the impact

of IFRS 9 on banks’ balance sheets upon transition from IAS 39.

GOING FORWARD The new standard is expected to address the criticism of “too little too late”. However, some argue that we are now entering an era of “too much too early”! The optimum level of impairments remains to be discovered. Nevertheless, it is certain that IFRS 9 ECL (as intended) will not be sufficient to cover the actual credit losses of the next financial crisis; IFRS 9 only accounts for “Expected” credit losses and, during a crisis, “unexpected” losses occur.

To this end, banks hold capital buffers to ensure their resilience towards such unexpected losses.

Being forward-looking, IFRS 9 is expected to bring volatility to the profit or loss. Some even characterise IFRS 9 as procyclical. However, empirical evidence shows inconclusive results on whether accounting standards can cause procyclicality. That said, recently published reports explain the interaction between IFRS 9, CET1 and Risk Weighted Assets (RWAs). Some of them go as far as to raise concerns with regard to the potential pressure on banks’ CET 1 in a stressed environment and to the fact that this could result in tightening credit availability, prolonging a downturn of the economy.

In my view, the extent to which (if at all), IFRS 9 is procyclical remains to be seen, and until the next financial crisis, it will be difficult to gather evidence to support any firm conclusions.

Change in credit risk since initial recognition Stage 1 Impairment recognition 12-month expected credit losses

Stage 2

Stage 3

Lifetime expected credit losses

Lifetime expected credit losses

When significant increase in credit risk occurs Interest revenue Gross basis

Gross basis

Net basis

‘Performing’

‘Under-performing’

‘Non-performing’ Source: IFRS Foundation

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MANAGEMENT

HIRING THE RIGHT PEOPLE FOR YOUR BUSINESS

HAVE A POSITIVE ATTITUDE: Every member of your organization is either serving an external customer or conducting an internal function that impacts the external client. Anyone from the IT to the Finance departments must have a positive attitude and a customer service mentality.

EXCEPTIONAL CUSTOMER SERVICE BEGINS WITH THE RECRUITMENT PROCESS

ARE TEAM PLAYERS: Serving customers, especially in large-scale organizations, requires effective teamwork. Team players can build a fast and strong rapport with all the team members and are comfortable working in a collaborative environment with colleagues, management and customers.

By Andrie Penta, Senior Manager, KPMG Limited

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restaurant or shop experience. he first step People have an important role towards deliverin service delivery and they ing exceptional are relied upon to deliver and service to your maintain transactional marketclients is getting ing. the right people Very often, businesses focus on onboard. The future of your simply filling a position rather business lies in the hands of your employees, no matter how than hiring the right person for the job. Sometimes the people clever you are or how distinct with the right qualifications, your service offering is.

What you should be concerned experience and skill set do not have the right attitude and about is how to find people mindset to blend in with your who can eventually be your ulteam and match your business timate customer service agents. goals. Moreover, if you simply Services tend to be produced focus on finding the “right” and consumed at the same moment and aspects of the cus- CV, you run the risk of missing out some possibly good tomer experience are altered to meet the individual needs of the candidates from different backgrounds. Also, a CV does not person consuming it. reveal much about the personalPeople buy from people they ity of the candidate. like, so the appearance, behavSometimes we may become iour and communication skills of the service agent can make or obsessed with hiring the ‘perfect’ candidate but, in fact, it break a customer relationship. is nearly impossible to find the People are the most important element of any customer service ideal candidate because (a) he/ she has already been hired experience. by someone else We can all recall cases and (b) you will where the service ofPEOPLE not be able fered by individuARE THE MOST to identify als has made IMPORTANT ELEMENT them based or spoiled a

OF ANY CUSTOMER SERVICE EXPERIENCE

only on a CV and interview.

The good news is that there’s no need to seek perfection.

The most important thing is to know what to look for in your potential candidates and keep that in mind during the interview. Here’s some tips to help you along the way.

You should aim at hiring people who:

CAN BE ROLE MODELS: People who can act as role models in their field of expertise tend to be good problem solvers, accountable and impartial. Leadership skills are critical in complicated situations when a customer expects someone to take the lead and provide a quick solution.

ARE GOOD COMMUNICATORS: Excellent communication skills are imperative in customerfacing roles. Effective communication, including active listening skills, creates lasting relationships built on trust.

Being a great listener is the key to understanding customers’ needs, wants and concerns, especially when they are dissatisfied or angry.

HAVE A CUSTOMER SERVICE MENTALITY: To serve customers effectively, employees need to have a service mindset. They are willing to go the extra mile to creating positive and memorable customer experiences and making their customers happy.

ARE FLEXIBLE AND ADAPTABLE: For employees to succeed in their role, they need to be flexible so as to learn, unlearn and relearn, to fit in many roles and have an open mind to accommodate change. A common problem facing many organisations is an employee’s rigid mindset and resistance to change.

Having people who are able to deliver outstanding service is what creates loyal and repeat customers and a positive brand image. Your people are the face of your brand and they can make or break your company’s reputation. Once you hire the right people, you need to put enough effort into regular training to ensure that they not only know your products/services perfectly but are able to serve your customers efficiently with the highest level of professionalism.

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REAL ESTATE

HOLIDAY HOMES: PREPARATION AND MAINTENANCE

By Antonis Loizou, FRICS, Antonis Loizou & Associates Ltd, Real Estate Valuers & Estate Agents

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s the summer season comes closer, visits to your villa or apartment need to be arra.

It is not advisable to check if everything is OK at the last minute! Things that have often gone wrong after a somewhat protracted absence are the following: • The electricity has been cut off, so any food in the fridge must be thrown away and, of course, replaced.

• The air conditioning does not work and needs to be serviced and/or repaired.

• The garden has been left unattended, even if you employ a gardener.

• White goods such as the dishwasher and washing machine need a thorough checking, so that you do not have any nasty surprises.

• If you have an alarm system, make sure that it works – this should be done periodically anyway.

• The much-loved barbecue equipment may not be working. Batteries go flat, bits of unused equipment get stuck, etc.

• If you have a swimming pool, it should have been protected by a cover in order to save in running costs (it can be costly both in electricity and chemical consumption) and you will need about 10 days to bring it back to working condition with “sparkling” water.

As reasonable as you might think the above advice is, very few people bother to prepare their holiday home in advance, expecting that everything will be OK. Unfortunately, if something does go wrong, technicians are nowhere to be found during the summer season, especially from July-September, and if you do manage to locate one,he will charge you the maximum. So, in addition to routine maintenance, you should budget €200€300 either for yourself or others, depending on how lucky/unlucky you are and how often you keep an eye on your property.

People are quite happy to pay several hundred thousand euro to buy a property but ignore the need for maintenance, especially places with common expenses, which they often fail to pay, forgetting that if they don’t take care of routine maintenance, they may have to pay several times more in the months to come (in addition in keeping their asset marketable).

It is also important to have proper insurance.

Properties that are left unoccupied for a period of more than 30 days (unless there is a special proviso in the policy) automatically have their insurance cancelled. If your property catches fire from the surrounding bushes, it will be uninsured, unless your policy includes a special clause.

Properties located near the beach require more maintenance due to humidity and you will discover, for example, that metal door

and window frames become corroded within in 2-4 years, which renders the property more vulnerable to burglary, etc.

It is not unreasonable to suggest a maintenance cost of around ±1/2/‰ per annum, so, for example, a house worth €300,000 needs €1,500, one worth €500,000 needs €2.500 a year, etc, depending, of course, on the desired standard of maintenance.

Of special concern is the maintenance of high-cost, multi-level projects. It only takes a couple of units to be run down to cause reduced demand, while rude neighbours and misbehavior can cause all sorts of problems.

In certain projects, there is a fixed period for maintenance that an owner can carry out.

This is rarely adhered to, mind you, but it’s good in theory since it restricts noise and prevents the interruption of people working at all times.

Upon completion, all new buildings require upkeep but, more often than not, after a couple of years due to the non-workable common expenses law, they fall apart (some 20%-25% of buildings fail to maintain their common expenses, which reduces their value). In Cyprus, we have a tendency to consider that buildings over 30 years old as “old”, whereas in other countries there is no such age limit and property owners focus on keeping their investment steady through good maintenance.

People are quite happy to pay several hundred thousand euro to buy a property but ignore the need for maintenance

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ICT

HOW TECHNOLOGY IS TRANSFORMING BUSINESS IBM HAS BEEN A WORLD LEADER FOR OVER A CENTURY AND ITS LONGEVITY AND ONGOING SUCCESS IS, IN PART, DUE TO THE WAY THAT IT HAS KEPT REINVENTING ITSELF, SAYS MARIOS KAPIRIS, MANAGER OF IBM CYPRUS. IBM is a global business and technology leader. What is the key to its success?

IBM has a long business and technology heritage in the world. Now 107 years old, IBM has managed to sustain its role as a leading business technology vendor by constantly reinventing itself to be able to address pressing clients’ needs. Take as an example what IBM is doing today. In the last 5 years, IBM has undergone one of its most ambitious reinventions, to become a cognitive solutions and cloud platform company. This was driven by the phenomenon of data and how it is transforming technology and business.

As an outcome of this reinvention, IBM today offers many new products and services and holds unmatched capabilities in the industry, deriving from our strategic imperatives and they already represent 45% of the company’s revenue.

Another important factor in IBM’s success is that, throughout all of this change, the company has remained faithful to its set of core values: Dedication to every client’s success, innovation that matters, and trust and responsibility in all relationships. What IBM wants to achieve time after time is to be essential to its clients and to the world, by helping businesses move successfully from one era to another.

What services does the company offer its clients and how do they benefit from these services?

The company creates value for clients by delivering integrated solutions and products that leverage data, information technology, deep expertise in industries and business processes. IBM’s solutions draw from an industry-leading portfolio of consulting and IT implementation services,

Cloud and cognitive offerings, enterprise systems and software, which are all bolstered by one of the world’s leading research organizations.

How important is it for businesses to make the necessary digital transformation and invest in modern technology?

Businesses are already undertaking – to one degree or another – their own digital transformation, rethinking what their customers value most and creating operating models that leverage what is available today in order to gain a competitive advantage. Interactions between brands and customers are constant and multidimensional and

the challenge lies in how fast and how far a company can go on the path to digital transformation. On top of this, social, mobile and Cloud Computing are revolutionalizing the way we do business. In order to succeed in this new era, companies should leverage data to develop actionable insights as today we have a proliferation of digital technologies that can unlock valuable insight from previously inaccessible data. External and internal data needs to be accessible in real time wherever it resides.

A digital foundation is, therefore, required; one that will allow the flow and exchange of information across chan-

CLOUD ADOPTION IS STEADILY MOVING BEYOND THE STAGE OF ACQUIRING TECHNOLOGY TO POWERING BUSINESS INNOVATION WORLDWIDE

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nels and business units so as to enhance collaboration and interaction and equip teams with the information that will enable them to exceed their customers’ expectations. For IBM, becoming a digital enterprise is not the destination of an organization. It lays the foundations for a new form of digital intelligence that can introduce an enterprise into the new cognitive era with the help of technology. Cognitive technologies allow the understanding of unstructured data, reasoning to form hypotheses, learning from experience and interaction with humans, naturally. Success in the cognitive era will depend on the ability to derive intelligence from all forms of data with this technology.

How important is Cloud Computing to today’s businesses?

This question again takes us back to the phenomenon of data. Today, companies must confront and manage their massive data workloads. There are many challenges in dealing with this data and how to put it to use, such as, for example, where should it be stored, how it should be analyzed and most importantly, how it can be turned into something of value. Today, most companies are still only beginning to think about the possibilities of what the Cloud can do for them in putting their data to work and Cloud adoption is steadily moving beyond the stage of acquiring technology to powering business innovation worldwide. Organizations were previously adopting the Cloud, primarily to streamline IT infrastructure and cut

BLOCKCHAIN, ARTIFICIAL INTELLIGENCE AND QUANTUM COMPUTING WILL TRANSFORM THE WAY WE ARE GOING TO DO BUSINESS IN THE FUTURE costs. Now they are working on a variety of goals and strategies. So what is really important is not only to move to the Cloud for efficiency purposes but to integrate Cloud adoption with business objectives for better business outcomes.

The most innovative companies are using the Cloud to move into new industries, transform customer experiences, develop new revenue sources and invent new business models.

Do you think Cypriot firms are taking advantage of the Cloud to the extent that you would expect?

First, we need to take into consideration the fact that today’s business transformation is evolving much faster than any previous one. I believe that within this environment, Cyprus companies have managed to adopt pretty fast to this technology especially compared to other markets of a similar or even larger size, and it is important to continue leveraging the Cloud’s benefits in the years to come so as to increase this competitive advantage. Organizations should continue leveraging the Cloud by fully integrating it into their business models so as to quickly build and test new product ideas, move into new industries or geographical regions or deliver new products/services more effectively and move ahead of the competition.

What are the new trends in the area of IT that businesses should be looking out for?

Technologies like Blockchain, Artificial Intelligence and Quantum Computing will transform the way we are going to do business in the future. Blockchain will do for trusted transactions what the Internet did for information.

Artificial Intelligence will increase and enhance human capabilities and cognitive systems will help us take faster and more accurate decisions and learn from the data.

Quantum Computing – a new paradigm that is built on the principles of quan-

tum mechanics – can run new types of algorithms to process information more holistically and one day it will lead to revolutionary breakthroughs.

IBM Research is investing heavily in these technologies so as to contribute in the advancement of the business world and society as a whole.

What are IBM Cyprus’ plans for the next 3-4 years?

IBM has been present in Cyprus for over 55 years. We want to continue being essential to our clients, by providing the right set of services and solutions to meet the business’ pressing needs. We want to continuously contribute to the country’s economy by combining innovative technology with deep industry expertise that will always be underpinned by security, trust and responsible stewardship.

Marios Kapiris

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PROFESSIONAL NEWS

NEWS FROM THE INTERNATIONAL FEDERATION OF ACCOUNTANTS (IFAC) KEVIN DANCEY TO BE IFAC’S NEXT CEO

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evin Dancey, FCPA, FCA – former President and Chief Executive Officer of CPA Canada – has been selected as IFAC’s next Chief Executive Officer. He will succeed current IFAC CEO, Fayez Choudhury, whose term expires at the end of the year.

Dancey has a long history of leadership in both the accountancy profession and public service. In addition to leading CPA Canada and the Canadian Institute of

Chartered Accountants, he has served as PwC’s Canadian Senior Partner and Chief Executive Officer. Prior to the firm’s global merger with Price Waterhouse, he was Coopers & Lybrand’s national tax practice leader. Beyond the profession, Kevin Dancey has served Canada’s citizens in a variety of public service roles. He currently chairs Finance Canada’s Departmental

AGREED-UPON PROCEDURES ENGAGEMENTS Agreed-Upon Procedures (AUP) engagements provide a great opportunity for small- and medium–sized practices (SMPs) to grow and deliver a valuable client service.

IFAC (The International Federation of Accountants) has released a new publication, Agreed-Upon Procedures (AUP) Engagements: A Growth and Value Opportunity. The publication describes AUP engagements, when they are appropriate, and, identifies key client benefits. It also covers examples of financial and non-financial information AUP engagements and provides six short case studies with example procedures that might be applied.

Audit Committee and is National Coordinator of the CPA Canada Martin Family Initiative, which mentors Canadian indigenous youth. Kevin holds a Bachelor of Arts (Hon.) in Mathematics & Economics from McMaster University. He will join IFAC on May 14, 2018 and will work closely with Mr. Choudhury to ensure a seamless leadership transition.

ENHANCING GOVERNANCE

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lobally there are 60 countries that do not have professional accountancy organizations (PAOs), and, there are an additional 93 PAOs that do not have sufficient capacity to function effectively at all levels. IFAC continues its work in providing effective guidance to PAOs for enhanced governance. Strong governance enriches PAOs’ mission and vision, resulting in improved quality of financial management systems in emerging economies.

IFAC has released a new publication, Focusing on Performance, to build awareness within the PAO community to provide guidance and encourage best governance practices and principles within their current governance arrangements. The publication also features a self-assessment tool for PAOs to utilize when reviewing their governance framework.

IFAC NAMED ANTI-CORRUPTION NETWORK PARTNER TO B20 The B20 has tapped IFAC (International Federation of Accountants) as a Network Partner to its Compliance & Integrity taskforce focused on anti-corruption, and has added three IFAC leaders to taskforces on Integrity & Compliance, Financing Growth & Infrastructure, and SME Development. Corruption undermines sustainable development and corrodes growth on a regional and global scale. In partnership, the B20 and IFAC are committed to anti-corruption efforts and effective policy critical to safeguarding integrity in the financial system.

The B20 also adds to its taskforces three IFAC leaders to provide professional accountancy’s perspective on critical issues: • Carol Bellringer, IFAC Board Member – Integrity & Compliance • Dr. Richard Petty, IFAC Board Member – Financing Growth & Infrastructure • Manoj Fadnis, IFAC SMP Committee Member – SME Development

INTERNATIONAL ACCOUNTING STANDARDS BOARD ISSUES AMENDMENTS TO PENSION ACCOUNTING The International Accounting Standards Board has issued two amendments to pension accounting. Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) specifies how companies determine pension expenses when changes to a defined benefit pension plan occur. IAS 19 Employee Benefits specifies how a company accounts for a defined benefit plan. When a change to a plan – an amendment, curtailment or settlement – takes place, IAS 19 requires a company to remeasure its net defined benefit liability or asset.

The amendments require a company to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. Until now, IAS 19 did not specify how to determine these expenses for the period after the change to the plan. By requiring the use of updated assumptions, the amendments are expected to provide useful information to users of financial statements.

The amendments are effective on or after 1 January 2019.

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OUT OF OFFICE

VAMOS A BAILAR! All ICPAC members naturally have a life beyond accountancy and, in each issue of the magazine, we take a look at how one of them spends his/her free time. Kleovoulos Christodoulou is a Director of Baker Tilly Klitou and heads the firm’s Business Services Department in Limassol but he is also a Latin Dance instructor.

At what age did you discover your passion for dancing?

In my early teens, I was a fan of the song “Lambada” and video clips by Kaoma but Latin dance was not yet developed here and Cyprus was too conservative for such a hobby, so I focused on more acceptable things like basketball and football! It wasn’t until after I had finished my professional studies that I decided to take my first dance lesson.

What was it about Latin dance that attracted you more than any other style?

Looking at men and women dancing in couples, I was very impressed by the way they turned at such high speed to the rhythm, by their amazing body moves, their positioning, techniques, acrobatics and lifts.

Latin is the general term for a dozen or more different dances. Do you have a favourite?

The ones I like most are the Bachata-Sensual, the L.A.style Salsa and the Argentine Tango but I love all the different Social Latin dances because each one gives you the opportunity to learn different moves and to expand your knowledge and style.

When you become more advanced or experienced, you can demonstrate your own style and give your personal character to your moves.

What made you decide to become a Latin dance instructor as well?

Kleovoulos Christodoulou

When you first start a hobby, you never know how far you might be able to go.

Becoming an instructor or supporter of other Latin dancers or newcomers is not actually a decision but a necessity.

If you love dance, you will spend hours on practice, developing and improving your own ability and eventually others will want you to help them.

But you still need to obtain some kind of official qualificationr?

Yes. You have to pass the Latin examinations of the International Dance Teachers’ Association (IDTA) but by itself that is not enough. You need to spend hours on the dance floor with various partners and to attend as many Latin congresses and lessons as possible.

How much time do you spend on the

dance floor?

On average, 10-12 hours per week.

What do your friends and family think of your hobby?

They are more than positive in supporting and encouraging me to dance and improve myself in all aspects and types of dance. Close friends and relatives also encourage me to instruct, support and help them to improve their own dancing skills and knowledge.

Your professional schedule must be quite busy. How do you balance work with your dance lessons?

Although our profession is tough and highly demanding, I always try to find as much time for myself and my hobby as I can. It is not easy and I often have to sacrifice something else but Latin is my passion and my way of ‘escaping’ from my daily routine and reducing stress. Dancing gives me pleasure and happiness.

There must be times when you wish that your hobby was your full-time job! Did you ever consider giving up accountancy for dance?

I strongly believe that even if you love both, work and a hobby cannot be the same. Latin dance is how I keep myself balanced and forget work issues. If I were to transform my hobby into my profession, l am sure it would never be the same.

Would you recommend Latin dance to others? What can it give people?

Dancing is highly recommended for people of all ages and it can change your life.

Studies show that social dance improves memory, it reduces everyday stress, helps you stay active and healthy since you exercise your whole body, makes you happier, boosts confidence and helps build long-term friendships. Get dancing!