Accountancy Cyprus - No. 133 - December 2018

No. 133 | december 2018

Millennial

Accountants

t h e v i e ws o f E l e v e n yo u n g e r g e n e r at i o n p ro f e s s i o n a l s

DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS

The Journal of the Institute of Certified Public Accountants of Cyprus

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

Can you protect your future growth in a changing geopolitical climate?

Š 2019 EYGM Limited. All Rights Reserved. ED None.

ey.com #BetterQuestions

4

contents

6 | THINKING AHEAD

8 | INSTITUTE NEWS

ACCOUNTING & AUDIT 34 | Business Ethics and Professional Accountants

By Pantelis Pavlou 36 | Customer Due Diligence – What is Actually ‘Due’ from the Auditor?

By Maria Aristidou 40 | Revised and Restructured Code of Ethics for Professional Accountants

By Eleni Ashioti 42 | Home or Away? The pros and cons of obtaining the ACA/ACCA in Cyprus

By Spyros Yiassemides

ECONOMY 46 | Reducing Public and Private Debt Should Be the Top Priority for Policymakers Interview with Demetris Georgiades, Chairman of the Fiscal Council

Issue 133 december 2018

50 | The Singapore Model

By Alexandros Sofocleous 52 | The Overheated Cyprus Economy Needs Good Management

By Marios Mavrides, MP 54 | Structural Reform: A Bet That Must Be Won in 2019

By Savia Orphanidou 55 | Alternative Investment Funds: An Evolutionary Vehicle

By Antonis Rouvas

TAXATION 56 | Tax Planning for High Net Worth Individuals

By Costas Markides

PROFESSIONAL SERVICES

57 | Equity at Risk

By Roderick Veldhuizen & Thomas Petrakos 58 | Buying land at 5% VAT is not allowed. But is it possible?

By Panayiotis Panayi 59 | Amendments to Cyprus VAT Legislation in 2019

By Michael C. Grekas

62 | A Growing Contribution Interview with Leandros Papaphilippou, Managing Partner, L. Papaphilippou & Co LLC 64 | Robust Compliance & Best Governance Practices – A Mere Control Mechanism or Business Enabler?

By Marios M. Skandalis

60 | Local Filing: A Closer Look

By Antonis Dimitriou

MEET THE CFO 72 | Marios Demetriades Interview with the Group Finance and HR Director at Mitsides Public Company Ltd

ACCOUNTANCY CYPRUS

accountancy cyprus | issue 133 | december 2018

No. 133 | december 2018

Millennial

Accountants

BUSINESS IN CYPRUS 68 | Bank of Cyprus Creates a New Jewel in the Capital Interview with Marios Kalochoritis, Senior Advisor to the CEO of Bank of Cyprus, and Chairman of Nicosia Mall Holdings 70 | Financial Modelling for Business Growth

By Susana Poyiadjis

FINANCIAL SERVICES 74 | Fifth Anti-Money Laundering Directive: Key Changes and Impact

By Alexandros Constantinou 76 | Ongoing Efforts to Develop Cyprus’ Financial Market

By Demetra Kalogerou

MANAGEMENT 78 | What Makes a Good Leader?

By Andrie Penta

PROFESSIONAL NEWS

OUT OF OFFICE

80 | New appointment for ACCA in Cyprus; IASB Amends Definition of Business in IFRS Standard on Business Combinations; IFAC Elects In-Ki Joo as New President; 65% of Governments to Report on an Accrual Basis by 2023

DIstrIct post oFFIcE cy-1901 nIcosIa, cyprus

The Journal of the Institute of Certified Public Accountants of Cyprus

postaGE paID LIcEncE no.33 sEaLED unDEr pErMIt no. 133 ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΡΟΜΙΚΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239

ISSN 1450-2380 Editor-in-Chief Ninos Hadjirousos, FCA The Institute Council Marios Skandalis (Chairman) Stavros Pantzaris (Vice-Chairman) Maria Pastellopoulou (Secretary) Members Nicos Chimarides, Odysseas Christodoulou, Pieris Markou, Gabriel Onisiforou, Petros Petrakis, Savvas Poyiadjis, Spyros Spyrou, Demetris Taxitaris, Demetris Vakis, Christos Vassiliou, Karlos Zangoulos General Manager Kyriakos Iordanou Address 11 Byron Avenue, 1096 Nicosia, Cyprus Mailing Address P.O.Box 24935, 1355, Nicosia, Cyprus Tel: +357 22870030, Fax: +357 22766360 e-mail: info@icpac.org.cy www.icpac.org.cy The publication is prepared by

Managing Director George Michail General Manager Daphne Roditou Tang Media Manager Elena Leondiou In-house Editor-in Chief John Vickers Coordination Pan Charalambous

82 | Go! Go! Go! Nicholas Roussos, Senior Manager in Business Consulting, Advisory at PwC Cyprus has been playing the ancient Chinese strategy board game, Go, for 18 years.

Art Direction Anna Theodosiou Design Alexia Petrou, Marios Kouroufexis Marketing Executive Kevi Chishios

COVER STORY

21

t h e v i e ws o f e l e v e n yo u n g e r g e n e r at i o n p ro f e s s i o n a l s

Millennial Accountants Eleven younger generation professionals share their views on work, how it compares with what they expected on joining an accounting firm, what they predict regarding the role of technology and why they are happy about their choice of career.

Commercial Manager Neofytos Constantinou Contact us for advertising Pavlos Giorkas pavlos.giorkas@imhbusiness.com Tel: +357 22505555, +357 22505566, Fax: +357 22679820 Address 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus, P.O.Box 21185, 1503, Nicosia, Cyprus Accountancy Cyprus is published quarterly by the Institute of Certified Public Accountants of Cyprus and is sent free to all members of the Institute as well as to a large number of other persons, companies and organisations.

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

THINKING AHEAD

6

2018 Is Gone.

Long Live 2019!

By Kyriakos Iordanou, General Manager, ICPAC

F

or ICPAC, 2018 was a year of many challenges and definitely not an easy one. We had to address a number of important issues and be active on various fronts at the same time, whilst developing and growing the Institute further.

During the year, ICPAC opened new doors of cooperation with well-established and renowned organisations from abroad, thus expanding its remit to the areas of compliance, governance and ethics, as well as to academic and other professional bodies. In addition, significant work was done regarding AML, preparation for the evaluation by international institutions (e.g. the National Risk Assessment project and Moneyval’s forthcoming evaluation), preparation for the implementation of the GDPR legislation and the Delegation Agreement with the Cyprus Public Audit Oversight Board regarding the Auditors Law, coupled by, inter alia, tax, VAT, audit, insolvency and public sector matters.

Our principal focus now is, as it should be, on 2019. The road ahead is both challenging and difficult and the implementation of ICPAC’s new strategic plan for 2019-2021 remains a primary task. Its four strategic objectives will underlie the core activities and priorities of the Institute over the upcoming three-year period. The strategic plan, inter alia, provides for the technological advancement and digital transformation of ICPAC, its processes and operations.

2019 will find Cyprus – and ICPAC – being reviewed and evaluated by international institutions like OECD and Moneyval. It is imperative to achieve a successful score in these evaluations, hence extensive work at

ACCOUNTANCY CYPRUS

all levels is clearly implied for everybody.

Brexit still looms as the big unknown factor for 2019. Whilst the scene remains opaque, we have to be prudent in our preparations, ensuring that there will be no “accidents” for ICPAC or the accountancy profession in Cyprus. Let us bear in mind that the huge majority of ICPAC members come from the UK professional bodies, so ICPAC will do what is needed to make sure that the interests of its members and students are not adversely affected.

In addition, the UK is giving Europe another challenge with respect to the audit profession and developments around the Financial Reporting Council (FRC) and the audit of public interest entities. Hence, the credibility and reputation of the profession may be considered as coming under scrutiny, so we must do our best in order to maintain the high standards of the profession in Cyprus. To this end, efforts are being made towards the further recognition of the status of professional accountants in the public service.

Despite the very positive progress observed in the economy over the last few years, it is acknowledged that we shall still need to walk through marshes until we find our feet back on dry and stable ground. The banking sector continues to face challenges as a result of the high volume of non-performing loans in both relative and absolute terms. At the same time, due to various sanctions and other anti-money laundering measures, we cannot fail to notice a significant reduction in international business activity, coupled with possible unfair treatment from abroad.

It is vital to work in close cooperation with both the State and the private sector to successfully address all of the above challenges.

It is also essential to cooperate in order to enrich the “menu” of the services offered by Cyprus as a regional jurisdiction for international business activity. We welcome initiatives that further enhance traditional economic sectors such as tourism and shipping as well as emerging ones like funds. It is also of paramount importance to continually enhance the competitiveness and attractiveness of the country in all sectors and ICPAC, as one of the primary stakeholders in the financial services industry, will continue to tirelessly work towards this goal. It is crucial that, as a country, we show that we have learned from the mistakes of the recent past and now behave more reasonably, carefully, constructively and prudently.

At ICPAC, what we definitely don’t spare is time, cost and effort for the achievement of our strategic goals, to which we are highly committed. Our members, Affiliates and Students constitute the principal concerns of the Council and the management, hence every action taken envisages the better servicing and safeguarding of their interests and advancement.

We stand ready and strong to confront all the challenges that lie ahead in 2019 and are more than determined to convert them into opportunities. We are also confident that, with the cooperation and contribution of everybody that constitutes the ICPAC family, we will be successful as we strive for a rewarding, productive, valuable and prosperous new year for our Institute, our profession, our members and our country.

THINKING AHEAD

7

Close to the employee, by the employer’s side EuroLife offers an integrated pension solution plan for your employees and an effective way of saving for retirement.

EuroLife Occupational Pensions Plan Features

Flexibility in design

• Flexibility in contributions • Flexibility in transferring from another Pension Provider • Flexibility in investing according to each individual investment profile

Tax

incentives

Flexibility in payment

• Flexible payment method on retirement • Flexibility in the payment of benefits in case of leaving the plan • Flexibility in facilities

Prudent

Investment Management

• Tax exemption on the employer’s contribution

• Cooperation with international asset managers

• Tax exemption on the employee’s contribution

• Expertise in managing investments and offering attractive long-term returns through effective diversification

• Tax exemption on withdrawals

• Qualified staff providing the best possible customer service and support • Specialized supporting tools for better retirement planning and plan forecasting

I

Service Line: 8000 8880

I

www.eurolife.com.cy

EuroLife Ltd. Head Office: EuroLife House, 4 Evrou str., 2003 Strovolos, 1511 Nicosia, Tel.: 22 124000, Fax: 22 341090

ACCOUNTANCY CYPRUS

8

institute news

News from the Boardroom

T

he fourth quarter of the year was particularly busy for the Council and the management of the Institute. Areas of particular importance related to the Central Bank of Cyprus, Brexit and the possible introduction of alternative assurance procedures for very small companies. The Council also approved ICPAC’s Strategic Plan for 20190-2021. It held four meetings during the period.

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: • The Council and management spent considerable time addressing the issues raised by the circular issued by the Central Bank of Cyprus on shell companies. The final document is about to be finalised and formally issued by the Central Bank of Cyprus.

• The period also included meetings with the Ministry of Finance to discuss the possibility of a mild review of the current tax regime, in an attempt to make it more effective and better address issues that are likely to arise in 2019.

17/10/2018: The President and the General Manager met with Kathleen Doherty, Ambassador of the United States of America to Cyprus, and discussed matters of mutual interest.

26/10/2018: The General Manager attended the conference organised by the Chamber of Financial Auditors of Romania (CAFR) in Bucharest. During the conference, ICPAC and CAFR signed a Protocol of Cooperation, to foster the closer cooperation and collaboration of the two bodies.

29/10/2018: The General Manager met with the Rector of the Cyprus University of Technology (CUT), Dr Andreas Anayiotos, to discuss the expansion of cooperation between the two institutions.

To this end, ICPAC and CUT signed a memorandum of cooperation.

2/11/2018: The President and the General Manager met with Nicos Christodoulides, Minister of Foreign Affairs. During the meeting, particular emphasis was placed on the economic diploma-

ACCOUNTANCY CYPRUS

cy initiative of the Minister and how ICPAC could play a significant part in it is promotion.

21/11/2018: ICPAC officials met with officers from the Ministry of Energy, Commerce, Industry & Tourism to discuss the results of the survey of Insolvency Practitioners and the way forward on the specific topic.

30/11/2018: The Council had a working breakfast with Michael Izza, CEO of ICAEW, where they had the opportunity to discuss current developments affecting the profession in the UK as well as Brexit.

11-12/12/2018: The President and the General Manager visited Brussels for the Accountancy Europe Statutory Members Assembly.

Other important meetings and activities • ICPAC started to consider the possible introduction of an alternative assurance procedure to replace statutory audit for very small companies. A specific working group was assigned to prepare a proposal which is expected to be finalised in the next 1-2 months.

• To counterbalance the effects of various additional contributions both by employers and employees (e.g. the introduction of the National Health Scheme), ICPAC prepared a set of proposals to the Ministry of Finance to better address the issues created.

• ICPAC and the International Compliance Association (ICA) held joint events on 8 and 9 October 2018 in Nicosia and Limassol respectively to launch bilateral cooperation between the two bodies.

The focus of this cooperation is on compliance and anti-money laundering issues and it encompasses a series of activities.

• On 10 October 2018, ICPAC and ACCA organised the event “Cyprus- Connecting Countries through the Belt and Road Initiative” with distinguished speakers from Cyprus and abroad.

• During the quarter, ICPAC undertook significant activity relating to the National Risk Assessment project and preparation for the upcoming Moneyval assessment of the country, as well as to matters relating to data protection and GDPR. • ICPAC representatives appeared before parliamentary committees dealing with matters relevant to the Institute.

• Both the President and the General Manager had various meetings during the quarter with other officials, stakeholders and Members of

institute news

Parliament on issues relating to the Institute and the profession. • ICPAC officials attended various business events and Annual General Meetings of organisations and bodies in Cyprus.

ICPAC NEWS Protocols of Cooperation Following up on the strategic plan of the Institute, ICPAC entered into cooperation and strategic agreements with renowned organisations from Cyprus and abroad, thus widening and enriching the activities and relevance of the Institute and its Members and, on the other hand, expanding the recognition of the ICPAC as a professional entity. More precisely, during the fourth quarter, agreements were signed with the Chamber of Financial Auditors of Romania (CAFR), Romania [26/10/2018] and the Cyprus University of Technology [29/10/2018].

ACCOUNTANCY CYPRUS

9

10

institute news

Strategic Plan 2019 -2021 At its meeting on 20 October, 2018, the Council approved the Strategic Plan for the period 2019-2021.

The Strategic Plan addresses all the major concerns, opportunities, challenges and environmental effects of the Institute, the profession and the economy in general. It comprises four strategic objectives, coupled with Supporting Activities and the required resources and means for its accomplishment.

ACCOUNTANCY CYPRUS

The new Strategic Plan contemplates developments and improvements in the internal structure and governance of the Institute’s Council and Management, in order to enable ICPAC to meet its strategic objectives and goals. Particular emphasis is placed on the adoption of advanced technology and digital systems, improved communication, enhanced value to the Members, Affiliates and Students, helping the economy grow and the protection and safeguarding of the public interest.

institute news

ACCOUNTANCY CYPRUS

11

12

institute news

Institute Committees Update

Larnaca-Famagusta Coordinating Committee

Educational Committee

During the final quarter of 2018, the Committee carried out the following activities: 22/09/2018: It coordinated a seminar entitled ‘VAT on Land and the Rental of Immovable Property’ at the Palm Beach Hotel, Larnaca.

10/11/2018: It initiated and organised a Corporate Social Responsibility campaign, aimed at cleaning Phinikoudes Beach and cultivating environmental awareness. The activity was organised in close cooperation with Larnaca Municipality, with the support of Larnaca Mayor Andreas Vyras.

07/12/2018 It organised a Happy Hour Reception for ICPAC members, students, associates and friends in the Larnaca-Famagusta districts at Re.Buke in the Mackenzie area of Larnaca.

During the fourth quarter of 2018, the Committee held three monthly meetings to discuss the organisation of training seminars. It subsequently organised the following 10 training events in all towns: VAT on Land and the Rental of Immovable Property: This one-day training event took place in Nicosia (16 September), Larnaca (22 September) and Limassol (23 September).

The new Standard on Lease – IFRS 16 and IFRS 15 – Revenue from Contracts with Customers: This one-day training event took place in Nicosia (29 November) and Limassol (13 December) respectively.

Auditor’s Report Training: This half-day training event took place in Nicosia (13 November) and Limassol (16 November) respectively.

Countdown to the National Health Scheme: This half-day training event took place in Nicosia (3 December) and Limassol (11 December) respectively.

Personal Insolvency: This half-day training event took place in Nicosia (14 December).

The Committee aims to organize seminars on the following six topics during the first quarter of 2019: Update on IFRS 9 and IAS 41, Tax Update on Benefit in Kind Treatment, How to Manage People (Soft Skills), Transfer Pricing, Auditors’ Liability and GDPR Update.

Christos Antoniou, Chairman

Public Sector Committee During the fourth quarter of 2018, the Committee held three meetings and carried out the following activities: It was informed about the letter sent by the General Manager of the Institute to the Deputy Head of the Public Administration and Personnel Department of the Ministry of Finance, confirming that the Public Sector Committee of ICPAC is ready and willing to contribute, whenever needed, to the discussions regarding the reform of the civil service. It was informed about the development of the new Public Sector Governance Code by the New Governance Team and provided the team with feedback on the final draft of the Code.

It organised a Seminar on the National Health Scheme on December 3 and December 11, 2018 in Nicosia and Limassol respectively.

The Committee Chairman, who is also a member of the Public Sector Committee of Accountancy Europe (ACE), updated members about the meeting of the Public Sector Group of ACE that was held in Brussels on 16 October 2018, regarding recent developments related to European Public Sector Accounting Standards (EPSAS) and International Public Sector Accounting Standards (IPSAS), as well as the other issues concerning public financial management.

Marios Hadjidamianou, Chairman

ACCOUNTANCY CYPRUS

Akis D. Kolokotronis, Chairman

Administrative Services Committee During the fourth quarter of 2018, the Committee discussed the following areas, all of which have a direct impact on Administrative Service Providers (ASPs): Circular from the Central Bank of Cyprus on Shell and Letterbox Companies: It reviewed and discussed the letter dated 2 November 2018 from the Central Bank of Cyprus addressed to AML officers of all Credit Institutions, clarifying the definition of Shell and Letterbox companies. The Committee noted that this was a positive development and, having analysed its contents, expressed its overall satisfaction. It is worth noting that the Committee reiterated its original position that accommodat-

institute news

13

Fast is too slow.

Is the rapid pace of innovation passing your company by?

By building innovation into your business and operating models, KPMG professionals can help your company increase its bottom line by continually delivering new value to your customers.

Learn more at kpmg.com.cy

Anticipate tomorrow. Deliver today.

©2019 KPMG Limited, a Cyprus limited liability company and member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. All rights reserved.

ACCOUNTANCY CYPRUS

14

institute news

ing banking facilities for companies with no substance and no real and legitimate business purpose should be avoided.

Amendments to the EU’s Anti-Money Laundering Directive (AMLD): It continued commenting on the main provisions of the amendments to the EU’s Anti-Money Laundering Directive (AMLD), as published in December 2017 and due to be transposed into law by summer 2019. The Committee concentrated on discussing the UBO registry requirements concerning companies and trusts and provided useful advice.

Action plan: It drafted and sent a letter to the management of ICPAC, summarizing the actions that, if taken, can enhance the competitiveness of Cyprus as an International Business Centre. In particular, the Committee referred to the initiative for the modernization of the trust law, the creation of foundation legislation, the drafting of cell company legislation, the finalization of engagement and disengagement letters for the provision of administrative services and the facilitation of issues encountered by ASPs in their dealings with Cyprus’ financial institutions. The Committee remains committed to pursuing these issues further and will draw up a plan of action in this respect.

Costas Christoforou, Chairman

Accounting Standards Committee During the fourth quarter of 2018, the Committee continued with the implementation of its action plan and dealt with the following: Projects in Progress and other actions • Revision of Technical Circulars relating to IFRSs: A subcommittee was formed to review and update, if needed, previous Technical Circulars issued by the Committee.

• Update on developments relating to IFRSs: The subcommittee updated the Committee on recent developments related to IFRSs on a monthly basis. During the meetings there was discussion on the updates to IFRS 17 and on current research projects, including the Financial Instruments with Characteristics of Equity, Disclosure initiative – Definition of Material (Amendments to IAS 1 and IAS 8), Disclosure initiative – Targeted Standards-Level Review of Disclosures and Business Combinations Under Common Control.

• Requirement for the presentation of the financial statements under a European Single Electronic format: The Committee is currently discussing the requirement of the European Transparency Di-

ACCOUNTANCY CYPRUS

rective for regulated companies to present their financial statements under a European Single Electronic format starting from 2020.

Exemption from preparation of a management report: Following a request by certain members of the Institute, a subcommittee was formed to clarify whether there is a requirement by the Companies Law for the preparation by a company of a management report, even when that company meets the exception criteria of the aforesaid law for the preparation of this report. A formal consultation request has been sent to ICPAC’s legal counsel regarding this matter.

• Preparation of separate and consolidated financial statements and presentation to the Annual General Meeting: Following the revision of the Cyprus Companies Law, the Committee has received a number of enquiries whether separate and consolidated financial statements should be presented together at a company’s Annual General Meeting. A subcommittee was formed to clarify this matter.

A formal consultation request has been sent to ICPAC’s legal counsel regarding this matter.

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

Projects Completed • Technical Circulars 29 and 40: The subcommittee has completed both the English and Greek versions of the combined technical circular, which replaces Technical Circulars 29 and 40 as a result, of amendments to the Companies Law. The new circular will be sent to members.

• Restriction on distribution of development costs: The EU Accounting Directive, which has been transposed into the Companies Law, entails provisions based on which no distribution of profits takes place unless the amount of reserves available for distribution and profits brought forward is at least equal to the costs of development not written off and recognised under ‘Assets’. The committee concluded that a legal consultation from the ICPAC lawyers need not be obtained.

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

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

• Disclosure of non-financial information and diversity information by large undertakings and groups: The Committee Chairman held meetings with the Directorate General for European

institute news

15

ACCOUNTANCY CYPRUS

16

institute news

Programmes Coordination and Developments regarding the application of the amendments to the Companies Law as a result of the harmonization of the 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 was prepared by another Institute Committee.

• Amendment to the Companies Law for compliance with the Accounting Directive: The Committee submitted the proposed amendments to the Law (article 142) for compliance with the Accounting Directive.

Yiannis Leonidou, Chairman

Limassol-Paphos Coordinating Committee During the period 1 July 2018 to 31 December 2018, the Committee carried out the following activities: 27/09/2018: It coordinated a seminar on ‘The ABCD of Technology for Accountants: Spotlight on Blockchain’ at the Kanika Elias Beach Hotel in Limassol.

22/10/2018: It coordinated a seminar on ‘VAT on Land and the Rental of Immovable Property’ at the St Raphael Resort in Limassol.

13/11/2018: It coordinated a seminar on ‘Auditor’s Report Training’ at the St Raphael Resort in Limassol.

11/12/2018: It coordinated a seminar on ‘Countdown to the National Health Scheme’ at the Columbia Plaza in Limassol.

13/12/2018: It coordinated a seminar on ‘The New Standard on Lease – IFRS16 Leases and the New Standard on Revenue recognition – IFRS15 Revenue from Contracts with Customers’ at the Columbia Plaza in Limassol.

• We continued to work with the Ministry of Finance and the Tax Department for the preparation of the transfer pricing legislation and regulations which are intended to come into force in 2019.

• We continued working with the Ministry of Finance and the Tax Department for the transposition of the provisions of Council Directive 2016/1164 (ATAD) into national legislation.

• Following the release by the Tax Department of the informative booklet on Benefits in Kind, we prepared an English translation of the booklet and sent it to the Tax Department for review and publication. We also clarified with the Tax Department that the provisions on Benefits in Kind as detailed in the informative booklet will apply as of 1.1.2019.

• We studied, submitted our comments when deemed necessary, and attended parliamentary meetings during which tax bills were discussed, the most recent being the bill relating to the audiovisual industry.

• We discussed the Code of Conduct Group’s report to ECOFIN on work performed during the Austrian EU Presidency, based on which the notional interest deduction regime of Cyprus should remain under review.

• We reviewed the draft Stamp Duty Law and expressed our comments to the Tax Department following its publication for public consultation.

• We continued to provide technical support on EU matters to the Ministry of Finance when requested. Examples of such support relate to CCTB and DAC6.

• We attended the Tax Department’s presentation of its 20192021 Strategic Plan.

• Members of the Committee continued their involvement in DTT negotiations.

George Markides, Chairman

Neophytos H. Neophytou, Chairman

Taxation Committee The main activities of the Committee during the last quarter of 2018 were the following: • We addressed to the Tax Department various problems that have come to the Committee’s attention.

• We submitted to the Ministry of Finance a list of suggestions for the purpose of improving our current tax regime. Our proposals address pro-investment matters, areas of improvement regarding the ease of doing business and the clarity of applying existing provisions of the Tax Laws.

ACCOUNTANCY CYPRUS

Compliance Committee The main initiatives undertaken by the Committee during the 4th quarter of 2018 were the following: • Issuance of guidance on Suspicious Activity Reporting • Preparation of guidance on the Risk Based Approach (to be issued in Q1 2019) • Preparation of guidance on KYC Documentation from certain jurisdictions (to be issued in Q1 2019) • Inclusion of articles by members of the Compliance Committee in a feature on Compliance/Regulatory issues in Accountancy Cyprus Niki Charilaou, Chairwoman

institute news

17

ACCOUNTANCY CYPRUS

18

institute news

NEW MEMBERS 5093

PANAYIOTA

CHRISTOFI

ACCA

5064

GIANNIS

PANTELI

ACCA

5094

ORESTIS

CHRISTODOULOU

ACCA

5065

GEORGIA

PARASKEVA

ACA

5095

ANGELA

KOSHI

ACCA

5066

NIKOLETTA

IOSIFAKI

ACA

5096

IRENE

ANDREOU

ACCA

5067

CHRYSOVALENTINA

AVGOUSTI

ACA

5097

ELENI

IOANNIDOU

ACCA

5068

ANGELOS

NIKOLAIDES

ACCA

5098

IOANNA

DIMITRIOU

ACCA

5069

SOPHIA

PINGOU

ACA

5099

POLINA

EFTHYMIOU

ACCA

5070

GEORGE

PATIS

ACCA

5100

MARINOS

CHRISTOFI

ACA

5071

ORESTIS

PAPACHARALAMBOUS

ACA

5101

ELENA

FOKA

ACA

5072

NEOPHYTOS

CHRISTOPHIDES

ACCA

5102

THEKLA

KOURTI

ACA

5073

NATALY

NESTOROS

ACCA

5103

CHRISTODOULOS

XEROS

ACCA

5074

MARIA

CONSTANTINOU

ACCA

5104

DEMETRA

PAPAKYRIAKOU

ACCA

5075

CHRISTOS

CONSTANTINOU

ACCA

5105

ARIADNE

KARAMANOU

ACA

5076

STELLA

CHRISTOFOROU

ACA

5106

LOUIZA

YIANGOU

ACCA

5077

FOTEINI

EVANGELIDOU

ACCA

5107

STEFANOS

MICHAELIDES

ACCA

5078

EVELINA

ELEFTHERIOU

ACCA

5108

FROSO

ROUSOU

ACA

5079

ANASTASIA

KATSARI

ACA

5109

FRIXOS

DEMETRIOU

ACCA

5080

CONSTANTINOS

CHRISTOFOROU

ACA

5110

CHRISTIANA

GEORGIOU CHADJIKKOU

ACCA

5081

ANNA

EPAMINONDA

ACA

5111

STEFANIE

YIANNAKI

ACA

5082

MARIA

ARGYROU

ACA

5112

ELENI

KYRIAKIDOU

ACCA

5083

THEODORA

ZINONOS

ACA

5113

ELENA

GALAZI

ACCA

5084

ALEXIA

MICHAEL

ACA

5114

DESPOINA

NIKOLAOU

ACCA

5085

MARINA - LEFKI

SAVVIDOU

ACA

5115

OLGA

KINNI

ACCA

5086

ANTONIS

LAGINAS

ACCA

5116

CONSTANTINOS

POUPA

ACCA

5087

GEORGE

KOUZALIS

ACCA

5117

MARIOS

IOANNOU

ACCA

5088

GEORGIOS

GEORGIOU

ACCA

5118

ANTRIA

SAVVA

ACA

5089

MIRTO

MILTIADOUS

ACCA

5119

ORESTIS

XENOPHONTOS

ACCA

5090

MARIA

STYLIANOU

ACCA

5120

KIKA

GEORGIOU

ACCA

5091

KOULA

THEOFANOUS

ACCA

5121

ANDROULA

PANAYI

ACCA

5092

KYPROULLA

PAVLOU

ACCA

5122

ALEXIA

PAPAPRODROMOU

ACCA

ACCOUNTANCY CYPRUS

institute news

19

Smart decisions.

Lasting value.

Specialising in International Tax Planning and Structuring as well as in Accountancy and Audit, we provide business solutions and advice to a diverse clientele in the local market and abroad.

Our extensive experience in the industry, combined with our worldwide network of associates, ensure lasting value for our clients, our people, and our profession.

Audit / Tax / Advisory

www.crowe.com.cy

Crowe Cyprus Limited is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a seperate and independent legal entity. Crowe Cyprus Limited and its affiliates are not responsible or liable for any acts or ommissions of Crowe Global or any other member of Crowe Global Š 2018 Crowe Cyprus Limited.

ACCOUNTANCY CYPRUS

20

institute news

5123

DEMETRA

LOIZOU

ACCA

1002

Savvas

Savva

ACCA

5124

ELENA

TTINIOZOU

ACCA

1049

Demetrios Andreou

Efstathiou

ACCA

5125

STEFANOS

EVRIPIDOU

ACA

1173

Tasos

Anastasiou

ACA

5126

STEFANOS

CHRISTOFOROU

ACCA

1206

Stella

Christodoulou

AICPA

5127

KONSTANTINOS

GEORGIOU

ACCA

1580

Elena

Kalaitzi

ACCA

5128

ELENA

GREGORIOU

ACCA

1842

Antonia

Valis

SAICA

5129

MARIA

PAPA

ACCA

1936

Stephen

Spill

ACA

5130

ANDREAS

THRASYVOULOU

FCCA

1937

Theodoulos

Lefkatis

ACA

5131

ANTREA

KOKKINOU

ACA

1953

Hilmi

Konde

AICPA

5132

IOANNIS

KONTOYIANNIS

ACA

1995

Anna

Smyrniou

ACCA

5133

KYRIAKI

MICHAELIDOU

ACA

2006

Alexandra

Ioannidou

ACCA

5134

SOFIA

PANAYI

ACA

2293

Alexis

Lyssandides

ACCA

5135

GEORGIOS

PANAYI

YEBT

2431

Xanthoulla

Merakli

ACCA

5136

MARCO

CASSERA

ACCA

2473

Christos

Nicolaou

CPA

2620

Alexia

Tsolaki

ACCA

2625

Mariana

Constantinou

ACCA

2626

Andreas

Andreou

ACCA

2988

Yiannis

Kleanthous

ACA

3101

Maria

Kyriakou

ACCA

3185

Ioannis

Spanos

ACA

3236

Antonis

Antoniou

ACA

Reregistrations 1292

Ioannis

Christodoulou

ACCA

3328

Myria

Dorati

ACA

deregistrations 61

Leontios

Savvides

ACCA

3248

Melina

Chrysanthou

ACA

226

Andreas

Stephanides

ACA

3316

Tasos

Zachariou

ACA

233

Marios

Kyprianou

ACA

3399

Christos

Melas

ACCA

271

Marios

Kassapis

ACA

3416

Antriani

Giagkou

ACCA

440

Panayiotis

Komodromos

ACA

3488

Marios

Chrysanthou

ACCA

494

Vasos

Komodromos

ACCA

3580

Alexandra

Zagorskaya

ACCA

568

Andreas

Economides

SAICA

4047

Constantina

Paparidou

ACA

697

Ioannis

Christoudias

ACCA

4710

Kristina

Karmanova

ACCA

790

Andreas

Kourtellis

ACCA

883

George

Charalambides

ACA

993

Georgia

Paphiti

ACCA Tefkros A.

Kanari

Article 155

removed 2088

ACCOUNTANCY CYPRUS

COVER STORY

21

Millennial Millennial Accountants Accountants unger ls Eleven yo fessiona ro p n io generat n ir views o e h t re a h s pares w it com work, ho t they with wha an n joining o d ecte p ex what ing firm, t n u cco g the a regardin ict d re p they and hnology tec f o t e rol ppy abou a h re a why they reer. ice of ca o h c ir e h t

M

illennials (those born between the mid-1980s and the late 1990s) are slowly but surely taking over businesses, large and small, which are consequently adapting to the unique needs of this generation. Unlike the baby boomers (born between the mid-1940s and the late 1950s), whose needs and attitudes shaped business models for decades, millennials view work and job satisfaction differently.

Millennials have grown up during a time of rapid technological change and it came as no surprise when, in 2016, Microsoft surveyed 1,000 millennials and found that 93% believed that access to the right technology was important when choosing an employer. Providing young employees with the right tools doesn’t just increase their productivity – it also means that they can share their knowledge with clients and customers. Whether the team is adopting a new system, revising a standardized pro-

cess, or moving from fixed fees to a value-pricing model, young staff members are quick to adapt.

The accounting profession – one of the most vibrant and successful contributors to the Cyprus economy and partly responsible for the country’s enviable reputation as an international business centre, thanks to the excellence of its highly qualified professional accountants, auditors and tax advisors – has naturally been affected by the new requirements and attitudes of their millennial employees.

To find out how this particular generation of accountants views the profession and sees it developing in the future, we asked eleven millennials, all in senior roles in their firms, to share their opinions on the challenges facing the profession, the growing role of technology in their work and how Cyprus compares with other countries in their area of activity.

ACCOUNTANCY CYPRUS

22

COVER STORY

Myrto Adamidou

36

Senior Manager, Nexia Poyiadjis What made you decide to become an accountant?

Becoming an accountant traditionally was – and is – an ideal choice as it provides the skill base, knowledge and foundation of all industries and businesses.

Accountants are not the stereotypical mindless ‘desk jockeys’ tangled up in endless paperwork but professionals who provide direct value and drive an organisation’s goals and outputs.

From the experience you have gained so far, has your opinion about the profession changed from what you imagined it would be like when you first joined the firm?

The initial education system leads one to believe that accounting equals bookkeeping, which is certainly not the case.

When I joined Nexia Poyiadjis, the expected activities seemed to be limited to the traditional audit. That was obviously a misconception; the range of roles and services tangent to accounting include a lot more than assurance engagements. Tax compliance, planning & advisory, business corporate strategy development, cost reduction consulting, funds, trusts and insolvencies services, as well as compliance are just some aspects of the work.

What are the main challenges that you see the accounting profession having to deal with

ACCOUNTANCY CYPRUS

Cyprus’ professional services sector is one of the cornerstones of our economy and is manned by a large welleducated, well-skilled and multilingual workforce in 2019 and beyond? How can they be resolved?

There are challenges across the board; for example, the increasing regulatory frameworks including the CBC Circular 20/2018, stricter Anti-Money Laundering laws, General Data Protection Regulation, MiFID II, etc., all have an impact on efficiency, as services can no longer be offered in a timely and cost-efficient manner to the same degree as in the past.

Cyprus also faces tough global competition, with numerous laxer and cheaper jurisdictions offering similar services, so clients might pursue more favourable alternatives. To combat these challenges, we should remain focused on the diversification of our portfolio of services, in terms of the geographic location of clients and the services rendered.

Has the profession changed over the past five years? In what way?

The profession has indeed changed over the past five years. The global financial crisis and, more specifically, the Greek economic crisis, the Cyprus banking crisis, changes to Russia’s foreign controlled entity regulations and pressure

imposed by the US, as well as new regulatory legislation and the emergence of e-money and cryptocurrencies have all played a role in the development of our profession. These changes have created the need for the development of a different skill base, expertise and the diversification of services beyond the historically dominant assurance service.

An ease with adopting technology is a well-known characteristic of your generation.

How important is technology in your work? Do you see its role increasing in the future?

Files, paperwork and storage are being replaced by automated data management systems, specialized software and Cloud providers, making the ‘accounting file’ as we know it obsolete. Technology is an integral part of our profession, which is also evident when liaising with government authorities, which are now using automated systems for processing and storing information.

We are faced, however, with unconventional security concerns, which were not a risk in the past: safeguarding electronic data is just as important, if not more so, as the safeguarding of physical data.

In other words, technology is essential to our work and its role will definitely increase in the future.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? Cyprus’ professional services sector is one of the cornerstones of our economy and is manned by a large well-educated, wellskilled and multilingual workforce. Furthermore, Cyprus is an attractive hub and thus ahead of its competitors for a number of reasons such as its transparent legal system based on UK Common Law Principles, the full application of EU Directives, the preparation of audited financial statements in accordance with the International Financial Reporting Standards requirement, advanced telecommunications networks and much more.

What are your long-term career aspirations?

My aspirations are to have a strong track record with satisfied clients, who receive an excellent standard of service that adds value to their business. My endeavours focus on transferring my knowledge and passion for the profession to my colleagues and team members. It is imperative for me to contribute towards the professional and personal growth of our clients and colleagues, while achieving the Firm’s objectives.

COVER STORY

Ninos Mangis

32

Senior Auditor, Eurofast Ltd What made you decide to become an accountant?

At school I found accounting a fascinating subject to study.

Furthermore, the accounting profession in Cyprus provided good opportunities for employment and gave accountants the possibility of working in various positions within businesses.

From the experience you have gained so far, has your opinion about the profession changed from what you imagined it would be like when you first joined the firm?

I consider the accounting profession to be as challenging as I expected it to be. However, apart from the technical accounting knowledge that one needs to have, it also requires increased soft skills, such as good time management practices and interpersonal relationship skills, that help deliver high quality work within the required tight time schedules.

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

Business in Cyprus and, consequently, the account-

ing profession is affected by the international economic and political changes. The ability to understand and adopt evolving technology is becoming a big challenge.

It is also important to deal with changes to taxation, new regulations and controls such as anti-money laundering and data protection, and changes to banking practices.

As a result, accountants need to acquire the necessary knowledge and experience so as to adjust to the new requirements of the profession.

Due to its many complexities, it is possible that, in the future, accountants will specialise in specific areas so as to better support their clients.

It is possible that, in the future, accountants will specialise in specific areas so as to better support their clients Has the profession changed over the past 5 years? In what way?

The profession was impacted by the global recession and the financial crisis in Cyprus.

The majority of businesses in Cyprus are small to medium size and they were the worstaffected by the crisis. Lacking the know-how to deal with the new situation, they relied on their accountants for assistance. This had an impact on the profession as more effort was required to support and advise customers. Further-

23

more, technology automated various previously manual processes, reducing the time required to complete work and leading to human and environmental savings.

An ease with adopting technology is a well-known characteristic of your generation. How important is technology in your work? Do you see its role increasing in the future?

Technology is important in any business, including accounting. Using technology to automate manual processes results in tasks being executed in a faster and more accurate way. It streamlines operations and increases efficiency, reduces cost and human intervention and has environmental savings. Automation through technology will increase, especially in areas of repetitive work. For example, blockchain technology is expected to revolutionise the accounting profession. Nevertheless, it will never replace it in the area of judgment and offering advice to clients.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why?

In Cyprus there are a lot of highly qualified and experienced accountants that provide excellent services. The fact that the economy relies heavily on financial services attracts many foreigners to invest in Cyprus and this has helped the accounting profession maintain high standards.

Although one could say that, due to the size of the economy and the absence of multinational companies, Cypriot accountants lack the experience of dealing with such companies, it is my personal belief that the accounting profession is at the same standard as in the most advanced countries in the world.

What are your long-term career aspirations?

I pursue the continuous development of my professional skills, capabilities and professional status. Furthermore, I wish to acquire more experience by becoming involved in sectors of the profession in which I have not yet had the opportunity to work.

ACCOUNTANCY CYPRUS

24

COVER STORY

Nicolas Papapanayiotou

38

Director, Head of Taxation, Costas Tsielepis & Co Ltd What made you decide to become an accountant?

I always loved to control numbers and was fascinated by how numbers can tell a story and even predict the future. I enjoy solving financial challenges and making strategic recommendations. The fact that accounting allowed me to work individually or in a team also played a significant role in my specific choice of profession.

From the experience you have gained so far, has your opinion about the profession changed from what you imagined it would be like when you first joined the firm?

It has been and always will be a lucrative profession. It provided and still provides opportunities for rewarding employment but it also allows professional growth and advancement within the industry. Increased competition, constantly keeping up with regulations and following new trends makes it even more challenging. This is also the reason why I specialised in taxation, which makes it even more interesting.

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond?

How can they be resolved?

Just some of the challenges that our profession will need to deal

ACCOUNTANCY CYPRUS

with in 2019 are the unprofessional practices of some colleagues in the industry, the globalisation of the profession, the proposed EU unified tax system, the overly zealous scrutiny of Cyprus companies by foreign authorities, the increased dependence on technology, confidentiality issues, data security and the necessary cultural change of the banking sector. These could be resolved if the authorities and the relevant bodies became more proactive in (a) defending and safeguarding the interests and reputation of Cyprus internationally and (b) better enforcing the professional practices of companies and colleagues and curtailing government bureaucracy.

Has the profession changed over the past five years? In what way?

The profession has changed dramatically over the last five to eight years. Since the 2013 crisis, the profession has grown, despite the difficulties faced, mainly due to interventions from abroad. There are now stricter reviews, Cyprus has been excluded from many grey or black lists, and there is increased transparency and exchange of information. ICPAC has also grown with the profes-

sion. It has taken on a proper regulatory role, providing more guidance and support to its thousands of members.

An ease with adopting technology is a well-known characteristic of your generation.

How important is technology in your work? Do you see its role increasing in the future?

Rapid advances in technology present both opportunities and threats for our profession.

Technology and broader data accessibility allows professionals to go beyond the confines of company data and analyse broader industry information that was previously inaccessible. At the same time, professionals have more time to carefully examine more complex and higher risk engagements that require increased judgment. In the future, paperless – or rather using less paper – engagements will become commonplace while advanced software will allow consultants to complete most procedures electronically and/or online.

The future of the profession will be determined by how successfully it handles networking technology.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? Unfortunately, we are followers and not innovators and certainly not market leaders.

We follow in the footsteps of more advanced markets (i.e.

Netherlands, UK, Belgium, Luxembourg, etc.). We try to implement what has been tried and tested in other countries, sometimes with success. Two of the main reasons we are successful as a jurisdiction are (a) our tax efficient system and (b) our cost-effectiveness.

The future of the profession will be determined by how successfully it handles networking technology What are your long-term career aspirations?

I want to grow as a professional, as a colleague, as a team member and as a partner to my clients and associates, in addition to maintaining our firm as one of the leaders in the market.

COVER STORY

trusted business advisor, not to mention having to develop decisionmaking, leadership and strong organisational skills and, of course, maintaining a positive attitude when working under pressure.

Elena Cocconi

38

Director, CSC Christodoulou Ltd What made you decide to become an accountant?

Having had a passionate accountant for a father, I was particularly motivated to pursue a career in the same field. Although the stereotype idea that “accounting is boring” was pulling me backwards, I reluctantly took up his advice, only to realize, however, even at the very beginning, that I actually liked it. But it was not before I obtained the professional qualification that I realized how prestigious and full of opportunities it was.

From the experience you have gained so far, has your opinion about the profession changed from what you imagined it would be like when you first joined the firm?

I used to think that the profession was about having the knowledge and technical skills to provide the numbers. After gaining some experience, I realized that this is the easy part. In reality, it goes way beyond that.

The focus is on building effective working relationships with clients and assuming the role of a

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

Industry regulators appear to have become more demanding and stakeholders are placing additional reliance on our reports, a fact which implies potential exposure. It would certainly be a challenge to try and narrow the expectation gap between what stakeholders and regulators think we should be doing and what we actually do, based on our framework. This can be achieved through communication and engaging in constructive discussions with them. In addition, keeping up with changing technology – without being replaced by technology – is another challenge. Automated technologies provide greater efficiency but they cannot replace human judgement and scepticism skills, at least not yet.

Has the profession changed over the past five years? In what way?

Since the financial crisis in 2013 and the introduction of

Nikos Katsaris

35

Senior Tax Manager, BDO Limited

What made you decide to become an accountant?

The accounting profession can be generously rewarding, both financially and experience-wise. In general, accountants are useful and neces-

Anti-Money Laundering (AML) legislation, we have found ourselves assuming duties that we were unprepared for. Nowadays, compliance with AML requires that we establish ‘KYC’ procedures to obtain evidence regarding the identification of ultimate beneficial owners, their sources of income, as well as reviewing our clients’ substance of operations and circumstances from a tax evasion perspective.

An ease with adopting technology is a well-known characteristic of your generation. How important is technology in your work? Do you see its role increasing in the future?

Technology is at the heart of everything we do and our profession could not have remained unaffected by technological developments. Nowadays, emerging technologies empower the judgment, experience and scepticism of auditors. Data analysis tools, based on Artificial Intelligence, enhance audit quality and enable auditors to work more efficiently, from scanning large volumes of data to identify anomalies and outliers that are more likely to be worthy of investigation, to extracting information using preselected criteria, instantly and accurately. sary in all sectors (corporate, financial) and in many industries from fashion to education. In addition, the employment rates for accountants are stable, even during difficult economic conditions.

From the experience you have gained so far, has your

25

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? It is generally agreed that the accounting profession in Cyprus is considered as equal to that in the UK, the US and other developed countries, thanks to the abundance of highly educated and skilled professionals, who ensure excellence in the provision of services.

What are your long-term career aspirations?

It has always been my aspiration to become a professional who is trusted and respected by my clients and my colleagues. I let the rest come naturally. opinion about the profession changed from what you imagined it would be like when you first joined the firm?

My view of the profession is that it is continuously evolving (due to changing tax/accounting rules, political conditions, etc.) and that each accountant should keep abreast of recent

ACCOUNTANCY CYPRUS

COVER STORY

26

changes. This is in line with my expectations when I first joined the firm.

There is a noticeable trend in accounting firms in the US, EU, and Australia towards outsourcing services to India and China for the purpose of minimising costs What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

The main challenges for the accounting profession in the foreseeable future include evolving smart and digital technology, the continued globalisation of reporting/disclosure standards, and new forms of regulation.

Technology could replace the current working approach of accountants. There is a noticeable trend in accounting firms in the

US, EU, and Australia towards outsourcing services to India and China for the purpose of minimising costs. For instance, increased regulation (US Sanctions list), and disclosure rules may impact the profession (i.e. the ‘Panama Papers’) as governments combat profit shifting and tax avoidance.

Has the profession changed over the past five years? In what way?

The accounting profession has changed considerably over the past five years. Technological advancements have affected the industry and stricter regulation has been enacted as a means of improving the transparency of financial transactions. In this regard, the higher level of scrutiny and regulatory oversight have brought changes to accountants who need to keep abreast of shifting legal and political expectations and demands.

An ease with adopting technology is a well-known characteristic of your generation.

How important is technology in your work? Do you see its role increasing in the future?

to popular belief that it is boring and monotonous, I believe that it is extremely relevant and exciting. I am pasAssociate Partner – sionate about Financial Services what we do Industry – Audit, Forensics and happy that the profession & Integrity, EY Cyprus is constantly evolving, with What made you decide to benew developcome an accountant? ments and challenges that offer The accounting profession is one amazing career opportunities of the oldest on Earth. Contrary and the chance to make a dif-

Nicolas Pavlou

34

ACCOUNTANCY CYPRUS

Cloud-enabled computing has brought improvements to mobility and connectivity for accountants, who can work from home and access clients’ data remotely on various devices, regardless of location and time.

We can perform advanced computations on the fly and retrieve real-time analytics. Technological advancements in accounting have automated inputs and calculations that were previously performed manually.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? In 2013, Cyprus went through a financial adjustment programme, which included the provision of financial assistance of up to €10 billion. Cyprus exited the programme in early

ference and to work together in amazing teams.

From the experience you have gained so far, has your opinion about the profession changed from what you imagined it would be like when you first joined the firm?

There is indeed a gap between the expectations of a newly qualified accountant or student and the actual day-to-day exercising of the profession. No two days are the same. No two challenges are identical. I have been lucky to travel around the world, work with inspirational mentors

2016 (having drawn only €7.2 billion) and cut its debt/GDP ratio to below 100% in 2017.

The country’s return to the international markets has restored confidence and credibility. Bearing all this in mind, it is clear that Cyprus can adjust quickly to global changes since it is a small economy and I believe that the accounting profession here is at the same level as the rest of the world.

What are your long-term career aspirations?

My aspirations for the future are to further enhance my knowledge of Cyprus’ direct/indirect taxation and to keep abreast of recent tax changes.

and great teams through difficult times for the industry. It pleases me, also, that the profession continues to expand its spectrum and footprint on society, despite the many challenges it faces.

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

It is no secret that the profession has fallen under scrutiny in the last few years at a global level.

Despite their gradual and stable recovery, markets are still trying to find the new equilibrium be-

COVER STORY

tween profitable and innovative growth, fair regulation, investment opportunities, cushioning for surprises and adjusting their business to deal with globalisation. The fact that many of these factors may pull businesses in different conflicting directions places great responsibility and challenges on accountants. It is important, now more than ever, for them to keep their eye on the ball and take the right decisions in an ethical and honest way, by working objectively, collectively and professionally.

ditional regulatory reporting and adopting innovative technology within a global market.

An ease with adopting technology is a well-known characteristic of your generation.

How important is technology in your work? Do you see its role increasing in the future?

Technology is vital. Businesses are expanding their reach through the use of big data, blockchain and digital currencies while, at the same time, innovating through new technologies.

It was only natural that the accounting profession would follow in order to be able to service businesses in all the above functions. So yes, technology is a crucial tool and its importance will definitely increase in the future but, in my opinion, it still remains a tool. And even

though I am a huge science fiction fan, I believe that human accountants (albeit more technologically savvy than today) will continue to have a primary role in the financial universe.

I see young, fresh talent being transfused into firms and the older generation of accountants evolving to adapt to the new order

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? In the past fifteen years, I have had the luck to travel and work all around the world within my organisation and meet clients in numerous industries and economies. I honestly believe that the quality of our profession is equal to that of our global counterparts. Even though Cyprus may lack the critical mass and size of businesses, I still feel that we are not far from re-establishing our reputation as one of the leading financial centres. Our small yet versatile infrastructure, the huge growth in technical expertise and future geographic, political, financial and energy opportuni-

accountant within a professional services firm, I would be given the opportunity to develop verDirector, Audit and satile business Assurance, Deloitte Limited skills which would support me in accomWhat made you decide to beplishing my career aspirations. come an accountant?

I had always been interested From the experience you in pursuing a career in finance have gained so far, has your and felt that by qualifying as an

opinion about the profession changed from what you imagined it would be like when you first joined the firm?

I began my career in the UK and, after obtaining my professional qualification, I returned to Cyprus and have since worked in the audit and assurance department of Deloitte. During this time, I have been fortunate enough to work

Has the profession changed over the past five years? In what way?

It most definitely has! The changing agenda of businesses and regulators, the lessons learned from the failures of entire financial ecosystems have left their mark on the profession, which has adapted and changed its DNA. I welcome this change as I see young, fresh talent being transfused into firms and the older generation of accountants evolving to adapt to the new order, which is more focused on forward-looking strategic accounting, measuring value, balancing risk and growth, ad-

Savvas Savva

34

27

ties, coupled with our proven resilience and determination as a people and industry, are the things that fuel this belief.

What are your long-term career aspirations?

My aspirations are to continue to grow, adapt and contribute to the best of my knowledge and ability to our profession.

Collectively working to build a better working world is one of my key ambitions. Everyone wants to leave their own legacy and I aspire for mine to be built on trust, investment in people and relationships, the provision of exceptional client service and always based on doing what is right, as our values prescribe.

alongside talented individuals from diverse backgrounds, I was given the responsibility to lead early on

ACCOUNTANCY CYPRUS

28

COVER STORY

in my career and have experienced first-hand how businesses operate across many countries.

Through my work, I feel I have made an impact that matters, assisting clients in turning emerging challenges into opportunities in a rapidly changing business environment. For these reasons, I can confidently say that accountancy as a profession has exceeded my expectations.

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

I would say that the main challenges for the accounting profession are the constant evolution of the global tax policy landscape, increased regulation across all sectors of the economy (for the auditing profession in particular) as well as the emergence of new technologies. I believe that the best way to tackle these challenges is to embrace them and take advantage of the opportunities that they bring. Regarding the evolution of tax policies internationally, we can work with our clients to suggest new business models, which increase business value whilst allowing

them to comply with their international tax obligations.

As for increasing audit regulation, we can collaborate with our regulators to achieve our common goal of improving audit quality for the benefit of all stakeholders whilst, at the same time, remaining competitive. Lastly, embracing technology can help accountants and auditors work smarter and more effectively, both within the firm and with clients.

Has the profession changed over the past 5 years? In what way?

In my view, new laws and regulations have predominantly driven the changes that we have seen in the profession over the past 5 years. As a result, the procedures and processes when conducting our work have been enhanced further and, at the same time, monitoring by our regulators as well as by our global network has become more rigorous.

An ease with adopting technology is a well-known characteristic of your generation.

How important is technology in your work? Do you see its role increasing in the future?

who became an ACCA member when I was eight years old Group Finance Director, and, since Baker Tilly South East Europe then, his career has advanced What made you decide to berapidly. This, in combination come an accountant? with my interest in accounting As a child, I admired my father and finance from high school,

Socrates S. Efstratiou

34

ACCOUNTANCY CYPRUS

Indeed, millennials tend to be more fluent in emerging technology than the previous generation. However, the pace at which technology is changing is, I believe, daunting even for millennials. Currently, technology is important in our everyday work but, on occasion, it can be difficult to use and with inconsistent levels of performance. At the same time, it is evident that in the very near future, what are now considered technological breakthroughs such as blockchain technology, Artificial Intelligence and robotics, will be part of our daily working lives. This is expected to reduce the time needed to collect and reconcile data, thus allowing accountants and auditors more time to analyze and interpret data to provide concrete insights, which can support strategic decisions.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? Having also worked in the

were the two main reasons that drove me to pursue a career in this profession.

From the experience you have gained so far, has your opinion about the profession changed from what you imagined it would be like when you first joined the firm?

It is exactly how I imagined it would be and I am blessed for the opportunities I have had so far in the profession.

I can confidently say that accountancy as a profession has exceeded my expectations UK and also through the interaction I have had with various colleagues, both within Europe and outside Europe, I can safely say that, as professionals based in Cyprus, we have a lot to be proud of. Of course, in our effort to up our game and enhance our momentum, we should draw from the knowledge and experiences from other countries, which due to the size of their markets have, naturally, had the chance to develop further in certain areas.

What are your long-term career aspirations?

My long-term career aspiration is to continue being part of Deloitte, where diversity, innovation, learning and development are at the forefront of its culture and where I can thus continue to grow both personally and professionally.

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

Increased demand from clients, government authorities and banks is the main challenge for 2019. Bureaucracy, combined with clients’ detailed and extensive need of valuable advice for their businesses, have created a

COVER STORY

alism, diversification and an emphasis on detail, which really make the difference.

requirement for a new line of services. Τhe only way to cope with these challenges is through planning, profession-

In order to survive in the future, we need to adopt all technological changes immediately, irrespective of our age and/or position

Has the profession changed over the past 5 years? In what way?

As already mentioned, it’s becoming more demanding.

The financial crisis of 2013 forced most companies to proceed with an in-depth restructuring of their operations in order to survive, stabilize their economic position and resume growth.

An ease with adopting technology is a well-known characteristic of your generation.

How important is technology in your work? Do you see its

28

an intern for the audit firm for which I am now working. I liked the environment and the nature of the work and we agreed that I would start as a trainee accountant the following year.

What made you decide to become an accountant?

Actually, circumstances helped to get me involved in the profession, as my studies and background were not relevant. I was studying Mathematics and Statistics and, in the summer before my final year at university, I worked as

From the experience you have gained so far, has your opinion about the profession changed from what you imagined it would be like when you first joined the firm?

I don’t believe anybody can imagine the whole picture of the profession at the start.

Everything looks simpler at the beginning. However, over the years you understand the

Antonia Kyprianou Manager, Crowe Cyprus Limited

role increasing in the future?

Technology will play the major role in the very near future, not only in our profession but widely. Just consider that, in previous times, significant changes in technology occurred perhaps every 10 years, whereas nowadays they are happening on a yearly basis and perhaps even more often. This indicates that, in order to survive in the future, we need to adopt all technological changes immediately, irrespective of our age and/or position.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? I think that Cyprus has excellent professionals who compare favourably with their colleagues in any country. That is why I

importance of your work and the increased responsibilities.

Accounting is still very inter-

29

believe that the services we provide should target global clients and not only local ones. Being a member of a strong network can provide these opportunities.

Baker Tilly South East Europe, with a presence in five countries in the region, achieves just that and I feel proud to be part of it.

What are your long-term career aspirations?

I embrace our new slogan “Now for tomorrow”. My aim is to give myself 100% to satisfy our clients, which directly gives value to the firm and its stakeholders and circles back to its employees.

My goal is to be successful in my position as the Group’s Finance Director and help the firm grow even more. My purpose is to take decisions now to shape a successful tomorrow for our clients, our people, our profession, our communities and to build a sustainable business.

esting for me.

What are the main chal-

ACCOUNTANCY CYPRUS

30

COVER STORY

lenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

The main challenges, I believe, are competition and the increased regulation that is being implemented nowadays. The number of people involved in the profession has increased compared to previous years, which, in turn,

Technology is continuously changing and improving and I believe its role in our profession will increase further in the future

means that the level of competition is higher. However, if you work hard and you are conscientious, you can achieve good career development. Regarding increased regulation, accountants need to remain informed and educated to ensure compliance and avoid any deviations from it.

Has the profession changed over the past five years? In what way?

As I have mentioned, the number of people interested and involved in the profession has increased, which makes it more competitive.

In addition, new regulations, require continuous development and constant updating. However, they are improving standards in the

profession and the quality of the work.

An ease with adopting technology is a well-known characteristic of your generation. How important is technology in your work?

Do you see its role increasing in the future?

Technology is very important. It makes life easier. It helps you remain organized, the automatic systems help reduce errors and omissions and, generally, save us time.

Technology is continuously changing and improving and I believe its role in our profession will increase further in the future.

When you look at the profession globally, do you think that the way it oper-

Dimitrios Chioureas

36

Partner, Grant Thornton (Cyprus) Ltd What made you decide to become an accountant?

I grew up in a family of entrepreneurs with a great talent for trading but poor skills in analyzing and interpreting numbers. This is a common characteristic in family-run businesses. It didn’t take me long to realize the power of

ACCOUNTANCY CYPRUS

reading behind the numbers and the fact that it gives you the ability to make sound business decisions. Mastering this art became my career

goal, hence my chosen path as an accountant.

From the experience you have gained so far, has your

ates in Cyprus is ahead, behind or the same as in the rest of the world? Why? I believe we are at the same level as the rest of the word.

The education and the qualifications we receive are the same and our clients are located worldwide. We follow international standards and our profession is regulated and inspected by the relevant body.

What are your long-term career aspirations?

First of all, to continue increasing my knowledge and remain up to date with all the changes. Regarding my career, I do not have a specific aspiration in mind. I want, of course, to continue to have a good career development, which will reflect the hard work I put in.

opinion about the profession changed from what you imagined it would be like when you first joined the firm?

Absolutely. I quickly realized that the role of our profession is multidimensional.

The various economic scandals and the recent financial crisis put the profession in the spotlight, which exactly proves this point. Serious efforts are being made to restore public confidence in the profession through the constructive participation of firms like Grant Thornton in shaping the global regulatory framework and, at the same time, setting international

COVER STORY

professional standards for public interest.

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

The accounting profession is being challenged to demonstrate its relevance and its ability to evolve through the latest incidents and public expectations are high. Providing reliable financial information is crucial and so it is the role of accountants to educate the public and the regulators.

Creating a proper regulatory framework and maintaining an early-warning system for the profession are essential if firms are going to be able to develop a consistent position on regulatory and legislative initiatives in anticipation of developments, rather than in reaction to developments.

Has the profession changed over the past five

years? In what way?

We’re living in an age of uncertainty and the pace of global change feels more profound than ever before. Technological disruption, political instability and economic volatility are transforming the business environment – and our profession – as a result.

An ease with adopting technology is a well-known characteristic of your generation. How important is technology in your work?

Do you see its role increasing in the future?

Technology gives us the opportunity to collaborate across borders in a way we have never been able to before. Businesses that adopt new and emerging technologies have a fundamental understanding that common practices need to evolve and it’s not an ‘opt-in/opt-out’ situation. We are living in demanding times where time is precious and work/ life balance is on the agenda

counting qualification presented: a gateway to the world in Assurance Partner business In charge of Accounting which always Consulting Services, PwC fascinated me.

What made you decide to

become an accountant?

From the experience you I was attracted by the proshave gained so far, has pects that a professional acyour opinion about the

Anna Loizou

41

The accounting profession is being challenged to demonstrate its relevance and its ability to evolve of many organisations that look after the well-being of their employees. Technology can increase innovation and productivity but, at the same time, act as a catalyst in achieving work/life balance.

Technology ‘enables’ but companies still need to invest in people to add value.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world? Why? The profession in Cyprus comprises well-educated professionals, many of whom have previously worked overseas, servicing clients from all over the world and are

31

fluent in English. This equips our profession with a global perspective and puts Cyprus ahead of many other countries in the region. Additionally, and in contrast with the majority of our neighbouring countries, Cyprus finds it easy to adapt best practices from abroad and, in some instances, leads change as a result of its strategic geopolitical location and economic situation.

What are your long-term career aspirations?

As noted earlier, our profession is multidimensional and, to this end, my aspiration is to create value for my colleagues, clients and our society through my work.

This might be hard to define in terms of setting strategic goals but, as long as you live up to your values and conduct business with integrity, professionalism and a lack of egocentrism, value is “magically” created for the people around you.

profession changed from what you imagined it would be like when you first joined the firm?

I started my training as an ACA in 1999.

Back then I believed that the role of the profession was to build trust

ACCOUNTANCY CYPRUS

32

COVER STORY

in the capital markets and solve important businesses problems. This role still holds true today and is as important as ever. What I could not have imagined at the time, though, are the technological advancements, especially in the areas of data and cyber and the constantly changing regulatory landscape. These developments have meant that the profession is called upon to assist clients navigate much more complex and dynamic problems, and in areas which we could have not predicted 20 years ago, like IT consulting, data analytics and cyber security.

The order of the day in the past five years has been constant change

What are the main challenges that you see the accounting profession having to deal with in 2019 and beyond? How can they be resolved?

According to a recent survey

by Accountancy Today, the overarching concerns in the minds of the accounting profession’s leaders are the impact of new technologies and the ability of the profession to embrace and adapt to change in the new digital era.

Technology’s exponential advancement is impacting

ACCOUNTANCY CYPRUS

the profession in profound and unprecedented ways.

The introduction of data analytics and innovative technologies, such as artificial intelligence, bots and drones, are transforming what accounting and finance professionals do and what they need to know so as to help their clients create the value they are looking for. In staying relevant in this new digital era, we need to disrupt ourselves; we need to harness the benefits of technology, embrace new ways of working and invest in up/re-skilling ourselves to remain relevant in the accounting profession of the future.

Has the profession changed over the past five years? In what way?

In the past five years there has been an avalanche of new regulatory developments affecting our clients, and we, as a profession, have had to get to grips with them and assist our clients on them. These include new regulations in the banking and financial services sector, major international tax developments like the OECD’s Base Erosion and Profit Shifting (BEPS), which have changed the landscape on international tax structuring; the introduction of new major International Financial Reporting Standards which have overhauled accounting for revenue, financial

instruments and leasing, data protection regulations, etc. At the same time, the audit profession has been faced with European Union Audit Reform, which has introduced among others mandatory firm rotation, restrictions on the provision of non-audit services, long-form audit reports and enhanced reporting to Audit Committees for public interest entities. The order of the day in the past five years has been constant change.

An ease with adopting technology is a wellknown characteristic of your generation. How important is technology in your work? Do you see its role increasing in the future?

Technology is extremely important in our work and it infiltrates everything we do: our interactions with clients and our people, the way we carry out and document our work, and our deliverables.

We rely heavily on technology to deliver higher quality work in the most efficient and effective way. For instance, in our audit practice, we use data analytics tools to extract, validate and test large data sets which, in the absence of such tools, would require the gathering and testing of a monumental amount of documentation. Such tools allow us to deliver more efficient, quality audits and enable us to analyse such data and

Technology is extremely important in our work and it infiltrates everything we do provide insights to clients. I believe that the role of technology in the profession will increase exponentially in the future. We need to embrace this change and leverage technology to get better at doing what clients need most – providing proactive insight, analysis and guidance through capabilities that go beyond traditional services, around strategy, business transformation, IT consulting, data analytics, outsourcing, cybersecurity, and other complex problems that our clients are facing, which are higher up the value chain.

When you look at the profession globally, do you think that the way it operates in Cyprus is ahead, behind or the same as in the rest of the world?

Why? We generally have very high quality standards in the profession in Cyprus due to the high-calibre individuals that the profession attracts.

What are your long-term career aspirations?

They include a leadership position within the PwC global network.

COVER STORY

Cloud Cloud

33

ERP ERP

55 SERIES SERIES

Change Changethe theway way you youdodobusiness business

Manage Manage your your financial financial operations operations with with a true a true Cloud Cloud ERP ERP solution solution Soft1 Soft1 Cloud Cloud ERP ERP provides provides youryour business business withwith an all-in-one an all-in-one financial financial management management solution, solution, enabling enabling you you to fully to fully automate automate every every partpart of your of your financial financial operations. operations.

Soft1 Soft1 Cloud Cloud ERP ERP alsoalso features features an an advanced advanced accounting accounting suitesuite thatthat assists assists you you streamline streamline all accounting all accounting processes, processes, offering offering significant significant costcost and and timetime savings savings as well as well as ensuring as ensuring full compliance full compliance withwith regulatory regulatory and and corporate corporate policies. policies.

Financial Financial Management Management

Accounting Accounting

www.softone.com.cy www.softone.com.cy

Payroll Payroll

ACCOUNTANCY CYPRUS

34

ACCOUNTING & AUDIT

Business Ethics and Professional Accountants A number of high-profile scandals have cast a shadow over the ethical behaviour in the business world. Often unrecognised, the accountancy profession is playing a part in restoring public faith.

By Pantelis Pavlou ACA, IFRS expert – KBC Bank and Verzekering*

E

nron, WorldCom, Parmalat, Lehman Brothers, Carillion (UK) and the list keeps growing… A look at the beginning of the 21st century reveals quite a long list of big corporate failures in the western economies. Each and every one of them failures is accompanied by a failure of business and professional ethics, including fraud, concealment of debt, greedy investments and deception.

The discussion around ethics is almost as old as human civilisation. It has been with us since the time of Aristotle all the way to the establishment of our capitalist society, from the struggle between labour and capital, through modern economic theories to the post-crisis era that we now live in. Given that ethics is a very broad subject, I will focus on a small part: business and professional ethics.

I want to start by stating that, at a time when the public is losing faith in business ethics, professional accountants need to take up their role in raising confidence and adding trust to society.

Ethics and Professional Studies In the business world, following the lessons learned from all the high-profile business failures, ethics has gained great importance over the past few decades.

Almost every business school has a topic related to business ethics in its curriculum, big companies have established an internal code of conduct (or code of ethics) and, last but not least, professional bodies have embraced the notion

ACCOUNTANCY CYPRUS

of ethics, treating it as one of their main priorities, especially in the curriculum for professional exams.

Focusing on professional accountants, ethics, education and oversight are at the core of our profession. On the journey towards becoming a qualified accountant, young professionals have to digest a tough syllabus, with ethics embedded in each and every course, from auditing to taxation and from financial reporting to banking.

There is a strong correlation between the proportion of professional accountants in the workforce and a more favourable score on the Transparency International Corruption Perceptions index Like a few other professions, accounting has a robust, comprehensive and enforceable code of ethics. The key word here is “enforceable”. Professional bodies have the power to review a member’s conduct and, if they conclude that it contradicts or violates the Code of Ethics, they can either impose a penalty or, in extreme cases, even strip people of their membership. Enforceability makes a difference as it gives a very strong mes-

sage about the importance of ethics to our profession and this, in turn, enhances the public’s opinion of professional accountants.

From Theory to Practice As well as education and training, professional accountants have a different and more important role to play.

Many of us are Professional Accountants In Business (PAIB) or external auditors or consultants. Irrespective of their role, all professional accountants are bound by the same code of ethics and act with the public interest in mind.

Singling out PAIBs, I think that our role is more important than that of the others, as, by our behaviour, we can influence the businesses that we work for through their corporate culture. The ‘ethical gatekeeper’ within an entity is the established governance process, including the design and operational effectiveness of internal controls, and PAIBs play a big role by actively participating in corporate governance. In its February 2017 publication The Accountancy Profession – Playing a Positive Role in Tackling Corruption, the Internatonal Federation of Accountants (IFAC) stresses the role of the accountancy profession in tackling corruption, and it proudly notes that there is a strong correlation between the proportion of professional accountants in the workforce and a more favourable score on the Transparency International Corruption Perceptions index.

ACCOUNTING & AUDIT

playing major positive role Professional accountants are playing a major positive role in tackling corruption, along with other key actors in the global economy.

Transparency International Corruption Perceptions Index correlation with % professional accountants in the work force 100

R2=12.8%

90 80 70 60 50 40 30 20 10 0 0.00%

0.50%

1.00%

Setting high standards of governance in an organisation is a challenging task. Companies struggle to find the optimum level of governance structures, costs and complexity and, at the end of the day, their agility and adaptability to an ever-changing world are what will help them. Professional accountants, using their expertise, training and the resources at their disposal, can help develop the structures that can achieve the optimum result in a way that is effective but, at the same time, does not jeopardise the ability of the organisation to evolve and adapt to its environment.

I strongly believe that the right ap-

1.50%

2.00%

35

accountants is this: Don’t struggle alone.

Help is out there should you need it.

Learning from the past and the difficult times around corporate failures, we come to realise that ethics is becoming ever more important to those conducting business. Looking ahead, it is obvious that business ethics needs to play a bigger role and serve as one of the ‘weapons’ that will help prevent the next scandal and, hopefully, mitigate the impact of the next business failure.

Achieving this ambitious objective, requires a collective effort by all professional accountants. I encourage everyone, before taking a business decision, to pause for a moment and question whether it is being taken within the spirit of integrity. I define ‘integrity’ as “doing the right thing when no-one’s watching”.

proach to professional ethics, together with the growing involvement of our profession in business (the number of PAIBs is increasing), will serve as the best defence mechanisms in efforts aimed at avoiding the next big business scandal.

Setting high standards of governance in an organisation is a challenging task

Looking Ahead Defining ethical boundaries is not an easy task and many ethical dilemmas end up in the so-called “grey zone”.

That said, being part of a profession can help, as has been demonstrated by numerous examples of fellow professional accountants or professional bodies’ dedicated helplines providing advice. What I would say to all my fellow

*The views expressed in this article are those of the author and do not represent KBC Group.

ACCOUNTANCY CYPRUS

36

ACCOUNTING & AUDIT

Customer Due Diligence – What is Actually ‘Due’ from the Auditor?

By Maria Aristidou, MBA, FCCA Member, ICPAC Compliance Committee

C

arrying out Customer Due Diligence (CDD) is not always a straightforward task, especially for obliged entities (as defined by the EU Anti-Money Laundering AML directives), which are not directly involved in the financial transactions of their clients (i.e. auditors as opposed to banks). This article aims to provide ‘food for thought’ for the auditor in exercising due diligence when designing the audit plan but also where suspicion arises of money laundering/terrorist financing (ML/TF) or other illegal/ fraudulent activities.

Regulatory Framework CDD measures: a. Identifying the customer and verifying the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source b. Identifying the beneficial owner and taking reasonable measures to verify that person’s identity so that the obliged entity is satisfied that it knows who the beneficial owner is, including, as regards legal persons, trusts, companies, foundations and similar legal arrangements, taking reasonable measures to understand the ownership and control structure of the customer c. Assessing and, as appropriate, obtaining information on the purpose and intended nature of the business relationship d. Conducting ongoing monitoring of the business relationship, including scrutiny of transactions undertaken throughout the course of the relationship to ensure that the transactions being conducted

ACCOUNTANCY CYPRUS

are consistent with the obliged entity’s knowledge of the customer, the business and risk profile, including where necessary the source of funds and ensuring that the documents, data or information held are kept up-to-date.

When performing the measures referred to in points (a) and (b), obliged entities must also verify that any person purporting to act on behalf of the customer is so authorised and identify and verify the identity of that person.

Obliged Entities must apply customer due diligence measures: a. when establishing a business relationship b. when carrying out an occasional transaction that: i. amounts to €15 000 or more, whether that transaction is carried out in a single operation or in several operations which appear to be linked; or ii. constitutes a transfer of funds, as defined in point (9) of Article 3 of Regulation (EU) 2015/847 of the European Parliament and of the Council (1), exceeding €1,000 c. in the case of persons trading in goods, when carrying out occasional transactions in cash amounting to €10,000 or more, whether the transaction is carried out in a

The possibility of a client being charged with illegal activities imposes major risks on the audit firm

single operation or in several operations which appear to be linked d. for providers of gambling services, upon the collection of winnings, the wagering of a stake, or both, when carrying out transactions amounting to €2,000 or more, whether the transaction is carried out in a single operation or in several operations which appear to be linked e. when there is a suspicion of money laundering or terrorist financing, regardless of any derogation, exemption or threshold f. when there are doubts about the veracity or adequacy of previously obtained customer identification data.

Where an obliged entity identifies areas of lower risk, it may apply simplified customer due diligence measures. Before doing so, obliged entities must ascertain that the business relationship or the transaction presents a lower degree of risk.

Materiality vs Risks According to ISA200, the purpose of audit is to enhance the degree of confidence of intended users in the financial statements. The auditor’s objective is to obtain reasonable assurance about whether the financial statements are free from material misstatement. The fact that auditors apply the principle of materiality may reduce the auditor’s ability to detect fraud or other illegal activity, especially when the impact is, at least at the time of the audit, immaterial to the financial statements.

However, the AML regulatory framework does not make any provisions for materiality. Instead, it allows relationships to be

ACCOUNTING & AUDIT

37

aThe auditor must maintain professional scepticism throughout the audit

managed, based on the risk factors of each client. One should bear in mind that illegal activities may not have an immediate material financial impact but may potentially cause going concern issues to the involved client due to bad reputation or huge regulatory fines or even sanctions imposing restrictions on operations, thus ultimately materially impacting the financial statements. Additionally, the possibility of a client being charged with illegal activities imposes major risks on the audit firm, such as bad reputation and/ or regulatory and/ or criminal and/or civil fines and/or in some cases even the loss of licence.

Below are seven suggested measures to tackle both materiality and risks.

1. Understand who the client is and what the business entails It is important to ensure that prior to onboarding a client, the auditor receives the necessary information regarding the people controlling and/or managing and/or exer-

cising significant influence on the operations of the client. Additionally, to design an effective audit programme, the auditor must take all due steps to understand the business of the client very well. It is thus important to obtain information on the legal and operational structure of the client’s business and gain a clear understanding of the flow of operations, including an understanding of the risks arising from: • the structure’s complexity • the products and/or services offered by the client and • the key counterparties of the client and • the jurisdictions involved in the client’s operations.

2. Collect information from the previous service provider Following confidentiality and/or other regulatory constraints, the auditor should obtain information on the integrity of clients by communicating with current and/ or previous service providers.

3. Assess threats Having considered all the information collected, the auditor, before accepting a client, must determine whether acceptance would create any threats to compliance with the relevant regulatory principles.

4. Design the audit according to materiality and risks involved The auditor may not be able to directly prevent financial crime from happening but he/she can tailor the audit work to increase the chance of detecting it. By reviewing the client’s internal controls and information systems, the auditor may identify areas susceptible to fraud and/or manipulation and, therefore, design the audit to check those areas more thoroughly.

5. Maintain professional scepticism The auditor must maintain professional scepticism throughout the audit. This is an important factor in the context of the audi-

ACCOUNTANCY CYPRUS

38

ACCOUNTING & AUDIT

tor’s role in detecting fraud or any other illegal activity. The decision of the auditor whether to elaborate or not on certain areas of the business under audit must be sufficiently supported by the reasoning used when considering the risk assessment results and/or any other factors.

The auditor must be able to demonstrate to competent authorities or self-regulatory bodies that the measures taken are appropriate in view of the risks of fraud and money laundering/terrorist financing that have been identified.

6. Continuous calibration of the audit plan In the normal course of their work, auditors are likely to learn more about their client’s business. This information will help them reassess, where necessary, the Fraud/ ML/TF risk and calibrate their audit plan to focus on those areas of higher risk.

7. Review of client relationships Customer Due Diligence measures should not only be applied to all new customers but also at appropriate times to existing customers on a risk-sensitive basis, including at times when the relevant circumstances of a client change.

When Suspicion Arises It is awkward to handle situations in which, during the provision of audit services, the audit team identifies indicators of possible fraudulent or illegal activities.

The auditor will be confronted with

ACCOUNTANCY CYPRUS

By reviewing the client’s internal controls and information systems, the auditor may identify areas susceptible to fraud and/or manipulation several dilemmas regarding the extent of disclosures in the audit report, including: (1) whether to conclude the audit or withdraw, (2) whether to disclose the information found to the Client’s management team or the internal auditor, and (3) whether the finding is, indeed, suspicious and must be reported to the relevant authorities.

Below are four suggested measures: 1. Re-evaluate the initial findings In the case where the audit team identifies an area of possible fraudulent or illegal activity, it must re-evaluate such findings prior to raising the matter outside the audit team. Therefore, when such indicators are identified, it is advisable to proceed with further investigation and corroborate the initial findings prior to taking any further action.

2. Disclose the findings to the Client If the findings do not involve the senior management or the beneficial owner of the client, the auditor should immediately disclose the findings to the senior management and/or the beneficial owner (as applicable) and propose remedial action, including reporting the involved individuals to the police or other relevant authorities, according to the type of illegal activity.

3. Disclose the findings to

the relevant authorities If the findings involve the management or the beneficial owner, the auditor, following verification of the facts leading to suspicion, must proceed to report the findings to the police or other relevant authorities and consider the option of withdrawing from the audit. It is clarified that, in any case, whether the management is involved or not, the auditor must file a suspicious transaction/activity report to the Unit for Combating Money Laundering (MOKAS) in relation to the client in accordance with the provisions of the AML regulatory framework, i.e. if the suspicion involves an illegal activity covered by the AML Law. Within the scope of engagement, the auditor should be mindful of the proscription on “tipping off” the client when a suspicion has been formulated. In such a case, any actions should be discussed and agreed with MOKAS. 4. Qualifications in the financial statements Depending on the expected impact that the finding may have on the financial statements, the auditor must consider the necessary qualifications to include in them.

There is no pre-defined procedure that fits all cases. The auditor’s main attribute of critical judgment must be fully activated throughout the audit, always bearing in mind that the extent of due diligence carried out will be fully reflected in the risk assessment exercise and the auditor must be in a position (when challenged) to document and support the reasoning behind any decisions taken.

ACCOUNTING & AUDIT

39

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

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

© 2019 PricewaterhouseCoopers Ltd. All rights reserved ACCOUNTANCY CYPRUS

40

ACCOUNTING & AUDIT

Revised and Restructured Code of Ethics for Professional Accountants

By Eleni Ashioti, Technical and Professional Matters, ICPAC

P

rofessional accountants in Cyprus, whether in public practice or in business, are bound by the Code of Ethics for Professional Accountants drawn up by the International Ethics Standards Board for Accountants (IESBA). Renamed the International Code of Ethics for Professional Accountants (including International Independence Standards), the new Code will become effective as of June 15, 2019.

The 2018 edition of the handbook of the new Code has been completely rewritten under a new structure. The aim of IESBA is to enhance the understandability and usability of the Code, enabling its adoption, effective implementation, consistent application and enforcement.

The new Code replaces the 2016 edition of the Handbook, as revised by the Noncompliance with Laws and Regulations (NOCLAR) pronouncement and two other close-off documents. It also provides substantive revisions to ethics and independence provisions.

NOCLAR Pronouncement – Responding to Non-Compliance with Laws and Regulations The NOCLAR standard provides guidance to professional accountants in what actions to take in the public interest when they become aware of a potential illegal act caused by a client or employer. The standard also clarifies the legal and regulatory responsibilities of the professional accountant when encountering non-compliance or suspected non-compliance.

The standard came into effect July 15, 2017 and applies to all professional ac-

ACCOUNTANCY CYPRUS

countants. The new Code does not override this effective date.

Close-Off Document – Changes to the Code Addressing the Long Association of Personnel with an Audit or Assurance Client There are strengthened provisions addressing long association. The cooling-off period for key audit partners (KAPs) changes. Previously, a KAP was allowed a two- year cooling-off period before returning to the audit engagement. The new cooling-off period provides for five years for engagement partners, three years for engagement quality-control reviewers, and two years for all other KAPs. Professional accountants must be aware that the new long association provisions that were prepared under the drafting conventions for the existing code became effective as of December 15, 2018 and should thus be applied before the new Code becomes applicable in June 2019. The standard also allows for an exemption where a shorter cooling-off period is established by law or regulation to facilitate the transition to the new period. If applied, this will have effect only for audits of financial statements for periods beginning prior to December 15, 2023.

Close-Off Document – Changes to Part C of the Code Addressing Preparation and Presentation of Information and Pressure to Breach the Fundamental Principles (effective as of June 15, 2019) Changes to the existing Code include expanded guidance dedicated to professional accountants in business (PAIBs)

relating to preparing and presenting information.

• There is a more explicit requirement for PAIBs to record, maintain, prepare, approve or present information in accordance with the fundamental principles.

• PAIBs are now required not to exercise discretion when preparing or presenting information with the intention of misleading or influencing contractual or regulatory outcomes inappropriately.

The section on pressure to breach the Fundamental Principles is also revised.

Guidance is added, and examples are provided to show different situations in which pressure might arise.

Other substantive revisions in the new Code include: • Enhanced conceptual Framework: It offers clearer and more vigorous provisions for safeguards, better aligned with threats to compliance with the fundamental principles and to independence.

• Inducements provisions: The Code clarifies the appropriate boundaries for offering and accepting inducements by professional accountants. The revised provisions do not permit offering or accepting inducements with the intention to improperly influence behaviour. It is clarified that the conceptual Framework should be used when there is no actual or perceived improper intent.

• Applicability of PAIB Provisions to professional accountants in public practice (PAPPs): The new Code provides clear guidance for PAPPs that relevant PAIB provisions set out in Part 2 of the Code are applicable to them when

ACCOUNTING & AUDIT

41

performing professional activities pursuant to their relationship with the firm, whether as a contractor, employee or owner. Examples of such situations are illustrated.

• Non-assurance Services (NAS): There is new guidance to assist in application of the conceptual Framework, i.e. new factors for evaluating threats and enhances guidance on addressing these threats. There are also new prohibitions for recruiting services (certain services now apply to all entities).

• Professional Judgement and Professional Scepticism: There is new application material to emphasize the importance of understanding facts and circumstances when exercising professional judgment. Also, new application material explains how compliance with the fundamental principles supports the exercise of professional scepticism in an audit or other assurance engagement.

Professional accountants need to always bear in mind that they are not only responsible for satisfying the needs of an individual client or employer. They have a commitment to serve the public interest.

Acting in the public interest, a professional accountant should observe and comply with the ethical requirements of this Code. This will help enhance public trust in the accountancy profession and, thus, the profession’s standing.

ACCOUNTANCY CYPRUS

42

ACCOUNTING & AUDIT

Home or Away?

The pros and cons of obtaining the ACA/ACCA in Cyprus or the UK

By Spyros Yiassemides BA, MSc, FCA, Partner Yiassemides & Co

T

he year was 2003, the month November. Newcastle was at its coldest, and rain competed with snow on which element would fall down from the sky the most. Snow won, if memory serves me right.

My friends and I were in our final year of academic studies, Accountancy being the subject of our Bachelor’s degree.

Reaching the end of that long yet beautiful tunnel bearing the sign “student life” brought questions about the light waiting for us upon exiting. Naturally, he/ she who undertakes accounting studies in his/her first degree (especially if this someone is a Cypriot!), follows such up with a professional qualification in the same field – either the ACA (Associate Chartered Accountant) or ACCA (Associate Chartered Certified Accountant), and we were not exceptions to the rule.

So, the main question was not what to go for once the graduation caps had landed back in our hands, but where to go for it – should we pursue our professional qualification in the UK or return to Cyprus and do so at home?

What we were asking ourselves, effectively, was “Should we stay or should we go?”

There’s never an easy answer to that.

What we did was to embark on an interrogative trip, asking every single qualified accountant we knew for their opinion on the matter. Specifically, we were interested in finding out if extending our stay in the UK for the further 3-5 years that our professional training would last would pay dividends later in our career.

As you have probably guessed, we ended up with a mixture of opinions – those

ACCOUNTANCY CYPRUS

who had pursued their qualification in the UK argued in favour of this practice, noting that they were battle-hardened in the audit drill by being exposed to a large array of clients, industries and working conditions, coming across learning opportunities that wouldn’t have presented themselves in Cyprus, at least not in the early years of their traineeship. On the other hand, those who had done their training in Cyprus claimed that the market here was just the right size to produce well-rounded professional accountants.

“To each his own,” we thought.

Confused as we were, we decided to give it a shot and apply to some UK audit firms for traineeship. The applications went out in late November and, by early December, we heard back from them, just before breaking for Christmas. We were invited to take some entry exams right after the holiday period. The pressure was on, and our thoughts were running wild.

Working from 9 to 5 may be typical for the British workforce but it is not for the average ACA/ACCA trainee working in the UK Come January, we went in and tested with the firms – five hours’ worth each time. After the exams were over, it was (academic) business as usual for us, except for the obsessive peeking inside our

letterbox every other hour, to see if a reply had arrived (snail mail was the preferred means of letting somebody know if they had been accepted for traineeship back then).

They surely took their time and, as if on a synchronized mission, the replies came in almost simultaneously, one after the other. As we were ripping our way into the letters faster than you could say “International Financial Reporting Standards”, we saw smiles on some faces, tears on others. Some got in, others didn’t but, in the end, not all of those who received an offer stayed in the UK and not all those who were rejected applied straight away for traineeship to a Cyprus firm. Instead, they tried to get in with other UK firms and eventually succeeded in their endeavours.

As for me, I took the decision to continue my academic journey with a Master’s in Computer Science at UCL, not because I needed the degree but with a view to prolonging those wonderful but fleeting years of being a student, before breaking ground on my career. So off to London I went and, before I knew it, July 2005 came. I packed my bags and returned to Cyprus, knowing in my heart that doing the qualification at home would serve my career best. And, while the jury is still out on that one, 13 years down the road, I can tell you with certainty that, taking the decision to come home undoubtedly served my life best, as three months after commencing my ACA traineeship with Deloitte, I stumbled upon my future wife at the firm’s staff Christmas party!

ACCOUNTING & AUDIT

43

Photo by rawpixel.com from Pexels

A good professional will thrive in any company, industry, work environment and, even, country

Cut to the present. I recently caught up with my university friends, over drinks.

As we reminisced about the good old times, the conversation unavoidably turned to where we stand in our individual career paths and what got us here.

At this point, I should note that all my friends from my student days who decided to stay in the UK and pursue their ACA or ACCA qualification eventually returned to Cyprus and capitalized on their work experience obtained abroad.

Curious as to whether their stint in the UK had benefited their careers, I started questioning them about their pertinent experience, so as to have a benchmark against which to compare my own experience of doing the ACA in Cyprus.

not for the average ACA/ACCA trainee working in the UK! The “5” end usually stretches well into 9 or 10pm. Going the extra mile in terms of hours and effort while in your traineeship is the rule, not the exception.

2. Working away from your base for long stretches of time is typical: A trainee working in Newcastle may be dispatched to Manchester to help out with an engagement. On a single day’s notice. Probably for a month or two.

Bummer? Not exactly. This change of (work) scenery is what builds a wellrounded professional personality, according to my friends. Plus, you are just a train ride away from returning to base during the weekends.

Here’s what they had to say about it: 1. 9-to-5 does not apply when you are a trainee: Working from 9 to 5 may be typical for the British workforce but it is

3. The prestige of the qualification is the same, whether obtained away or at home: Both the ACA and the ACCA represent international professional pass-

ports, meaning that those who have the certificate of membership on their wall and the credentials after their name, can walk tall, knowing that the blood, sweat and tears they have put into obtaining the qualification will not go unnoticed in the business world.

4. The starting salary is higher compared to Cyprus but… the higher cost of living eats away most of it! Even if you cut down on your monthly expenses, by making some lifestyle changes (e.g. limit your beer intake, cook at home rather than take out, etc.), the chances are that you won’t be able to put aside much in terms of savings during the 3-5 years of your traineeship.

5. After-work drinks become a part of (everyday) life: This can be perceived either as a blessing or a curse, depending on various factors, some of them being your energy levels, stamina, your budget

ACCOUNTANCY CYPRUS

44

ACCOUNTING & AUDIT

and how well you can hold your liquor, to mention a few. One thing is certain, though – you really need to fit this hardcore British tradition into your life somehow, otherwise you run the risk of being ostracized by your more outgoing colleagues!

6. Commuting is hell: This goes mostly for London but it can also be a nightmare in smaller cities as well. Forget Cyprus and the merry 15-minute car ride to work, while listening to your favourite music on the radio. Unless your flat is located near where you work, thus enabling you to walk to your job, you will need to resort to public transport, such as the underground and buses to reach your professional destination. Moreover, you’ll be using them during the rush hour, together with hundreds of other people, so you may have to let a few buses/trains leave before finding one with just enough space for you to slip into.

7. You may feel a little disoriented, work-wise, upon returning home: If, some years post-qualification, you decide that it’s time to return to Cyprus, as my friends did, be warned that, at first, you may get the feeling that what you have learned during your stint in the UK does not apply to how things are done here.

Don’t worry. It is simply a matter of time and acclimatization for your professional modus operandi to be fine-tuned and become compatible with the one found in Cyprus’ firms.

8. It’s light years away, compared to being a student: “Duh!”, I hear you

ACCOUNTANCY CYPRUS

saying, but allow me to elaborate, based on my friends’ views. Being a working man (or woman) in the UK is the polar opposite of being a student there, as the laid-back way of life is traded for a more stressed, always-on-the-go daily routine.

This is not to say that undertaking the qualification in Cyprus enables you to continue living the life of a student but, in the UK, the change in roles seems to be more noticeable.

9. You get to meet some interesting people: One of my friends was lucky enough to form part of a team that pitched an organisational structure set-up proposal to business magnate Sir Stelios Haji-Ioannou. “Priceless” was the word he used to describe the experience. Another friend of mine had the honour of attending a speech delivered by the great Stephen Hawking on the campus of Oxford University, thanks to an invitation he received from his firm. He told me that his hair stood to attention the whole time.

10. You really get into the nuts and bolts of an audit engagement: The British are legendary when it comes to doing things “by the book” in any and all situations. Audit engagements are no exception to this. All my friends agreed that carrying out statutory audits in the UK is similar to planning and executing the strategy of invading a small country! From setting the audit materiality to sampling to field work to completion, and everything in between, the whole process feels like a long-winded road towards audit perfection.

The British are legendary when it comes to doing things ‘by the book’ and audit engagements are no exception to this My friends spoke very highly of the time they spent in the UK, training as Chartered or Certified Accountants, in terms of being shaped into the professionals they are today.

The consensus, though, was that they were glad to have taken the decision to relocate to Cyprus some years after obtaining their qualification, the main reason being that Cyprus is the best place to raise a family while picking up from where their career left off in the UK. We ended the conversation on a high note, agreeing unanimously that a good professional will thrive in any company, industry, work environment and, even, country. Then we took a time machine back to our student days, reliving every party attended, pint downed, girl met, and the occasional embarrassing moment when the professor asked us to leave the lecture theatre for talking loudly among ourselves, all typical Cypriots!

As a concluding remark, if you are reading this while considering a career in audit/accounting via the route of the ACA/ACCA professional qualification, let me say this: Do it where your heart tells you to do it, in the UK or Cyprus. It doesn’t matter, as long as your whole heart is in it. Having the qualification under your belt comes with a guarantee of a professional life full of excitement in any geographic region you choose to practise!

ACCOUNTING & AUDIT

45

Building a strategy today can empower your tomorrow

Delivered by Aon

Multi-Employer Aon Hewitt Provident Fund

Website: www.map.fund | Email: contact@map.fund | Telephone: +357 22 458011 ACCOUNTANCY CYPRUS

46

economy

Reducing Public and Private Debt Should Be the Top Priority for Policymakers Low inflation, a strong growth rate, a fall in unemployment and a reduction of the public debt are all expected to continue, at least in the short term. However, the current favourable macroeconomic environment cannot be taken for granted, says Demetris Georgiades, Chairman of the Fiscal Council.

H

ow would you describe the present state of the economy and what are your predictions regarding GDP growth in 2019?

As the Fiscal Council, we do not produce our own forecasts but we do have the task of assessing those made by the Ministry of Finance. For 2019, real GDP growth rate close to 4% was considered to be reasonable and, given the latest developments and data, I do not expect any deviations from this. Low inflation, a strong growth rate, a reduction in unemployment and the public debt are expected to continue, at least in the short term. Nevertheless, this favourable macroeconomic environment cannot be taken for granted. Central banks have already started to tighten monetary policy and interest rates can be to rise. This will have a major impact on countries with high public and private debt levels, like Cyprus. It will also make it harder for local banks to tackle their major challenge, reducing NPLs. A substantial increase in interest rates, accompanied by an economic slowdown, might easily reverse the current downward trend.

Cyprus is a small and open economy and a great part of its economic growth is driven by external demand (tourism and construction). The construction

ACCOUNTANCY CYPRUS

boom, based on the Citizenship by Investment policy, cannot continue for much longer. The external environment is also very volatile and the threat of a damaging global trade war is still with us. The eurozone’s banking sector also faces major challenges and a major banking crisis in one eurozone bank might easily have spillover effects on others. For all these reasons, reducing the public and private debt, and the creation of buffers should be the top priority for policymakers and remain so for the foreseeable future.

What, in your opinion, would be the best strategy for the Government and the banking sector to follow in order to tackle the problem of NPLs? I do not believe anyone can be certain of the perfect ‘cure’. Never in economic history has a similar situation been observed, with NPLs at this level in such a relatively large banking sector. This is the reason why I believe the Troika was sceptical about the enforcement of specific measures in other less significant areas. They did not want to assume responsibility for dictating a cure never tested before on such a scale and then be blamed for its failure. Having said this, I believe the best way is to speed up the processes, both at customer/ bank level and within the judicial system. At the same time, a level playing field should be established for all parties involved. Delays, with the expectation that property prices and incomes will rise substantially, will most likely widen the financial gap (the ultimate loss), increase administration costs and delay the economic recovery. If this

happens – and, in part, it already has – both the banks and borrowers will have a higher deficit to cover and this will increase the risk of financial instability again. The social issues should be addressed independently through policies/ schemes like Estia.

Taking such decisions is neither easy nor simple. Most of us learn to use a single cost benefit analysis with probabilities and expected financial reruns.

In the case of such areas, the upside and downside risks do not and should not have the same weight. A 50% chance of solving the NPL problem by waiting does not have the same weight as a 50% chance of not resolving it, as the latter might lead to the collapse of the whole system – an outcome that should be avoided at all costs.

In its revised form, do you think the ‘Estia’ scheme is fair?

The ‘Estia’ scheme or, indeed, any such scheme can never be 100% fair. The transfer of wealth from one section of the population to another can never be fair. As the Fiscal Council, we expressed our concerns that, in their initial form, the Estia criteria were too wide and allowed for the support of so-called strategic defaulters. This would have created more hazard issues and a precedent for new demands. The revised scheme had several improvements. My personal

The ‘Estia’ scheme or, indeed, any such scheme can never be

100%

fair

economy

opinion is that further/stricter criteria could have been prescribed. This would not only limit the moral hazard issue but would also make the scheme more effective as more funds would have been available to more people.

On the other hand, I do appreciate the importance of resolving the issue as quickly as possible since the objective is not just the provision of assistance to citizens in need. As mentioned earlier, the NPL problem needs to be addressed as soon as possible so as to preserve financial and fiscal stability, which benefit everyone. Finally, we should never forget that a substantial amount of NPLs with collateral are owned by the taxpayer. Maximizing the take from these NPLs will benefit the taxpayer and vice versa.

How successful has the government’s Citizenship by Investment Scheme been? Do you think that it should be extended indefinitely?

After each major economic crisis, such as the one faced by Cyprus in 2013, governments are expected to take drastic and even unorthodox measures that will kick start the economy. The Citizenship by Investment Scheme is one such measure and very few can doubt its success in this respect. But such schemes have several side effects and need to be monitored and re-evaluated continuously and, if necessary, withdrawn. By its very nature, this scheme cannot continue indefinitely. Land and the local capacity to accommodate such developments are finite. The EU, either for valid or other reasons, will try to limit and even stop it. Furthermore, the

By its very nature, the Citizenship by Investment scheme cannot continue indefinitely economic benefits of the scheme are distributed unevenly and issues of rising inequality are already present. Not only this, the scheme will cause most of the effects of ‘Dutch Disease’, whereby the increased activity in one sector affects other productive sectors negatively. It is clear that, for a new hotel to be built in Limassol today, a much higher cost will be incurred. Both land prices and construction costs have gone up substantially. This will affect the long-term competiveness of a sector that can have positive and long-term effects, unlike the construction boom we observe now.

For these reasons, it would be wrong to extend this scheme much further as the current boom in luxury property construction is not sustainable and might also create a bubble in the economy.

47

Secondly, major reforms need to be implemented to make the economy more competitive. Bureaucracy, the slow justice system, problematic education and closed professions and trades are some of the areas identified by several institutions and academics that need to be addressed urgently. Strong and transparent institutions, which ensure rule of law and equal treatment, are also important. If this is done successfully, Cyprus will become a more investment- friendly destination and can expect stronger growth rates with more and better paid jobs. Most importantly, all these reforms will put Cyprus in a much stronger position to absorb future shocks.

What measures do you consider imperative for job creation?

Given the country’s size and the importance of economies of scale in today’s financial arena, its potential for diversification is relatively limited. Cyprus needs to concentrate on two areas: First, it must protect and even raise the level of trust in the economy.

This can be achieved by continuing its disciplined fiscal policy, reducing debt and creating buffers for unexpected shocks.

ACCOUNTANCY CYPRUS

48

economy

Do you believe that the economic/ financial inequality caused by the crisis has been tackled and reduced successfully?

Since ancient times, this is a key question that philosophers – and more recently economists – have been trying to address. There isn’t and there will never be 100% consensus on the issue but that does not mean that we should ignore this real and fundamental challenge. Not only does it affect the lives of ordinary people but, if ignored and allowed to grow, it might lead to civil unrest and even to the collapse of society. I would add that increased inequality is the natural outcome of every major economic shock. Each economic crisis affects sectors of the economy differently. Economic policies that help an economy recover have, understandably, as their priority economic growth and not equality. Once an economy exits the danger zone, then the issue of equality can be addressed. Cyprus is, I believe, in this position. The best way to address this is to enhance economic activity and to create jobs. Increased demand for workers will lead to higher emoluments. One point we need to be careful about is the correct assessment of the effects of minimum wage policies. There is a risk that, if the minimum wage is set too high, some jobs will vanish. As noted earlier, the best way to increase wages is to create jobs and demand for labour. If the opposite is done, contrary to the objective of the minimum wage policy, wages in other sectors will remain subdued and unemployment higher for longer.

There is also the issue of the mismatch

ACCOUNTANCY CYPRUS

of skills available and skills required in the economy, either because of shifts in economic activity between sectors or the creation of new sectors, or because students choose subjects for which there is no local demand. The latter was observed and identified as major fault in our education system years ago but no-one has been willing to address it effectively. One of the global experts in this field is our compatriot and Nobel Prize-winner, Professor Christopher Pissarides, and his expertise should have been utilized. It is high time that education and retraining-reskilling policies were reassessed.

Do you fear that there is a danger of a return to the bad practices of the past, now that the economy appears to be on track?

Definitely yes. Strong economic growth and substantial budget surpluses unavoidably create demands for additional benefits/emoluments/subsidies/tax relief by organised groups with substantial political leverage. At the same time, political parties and the Government become reluctant to refuse to accommodate these demands. The 2013 crisis and the period that led to it should serve as a reminder to everyone. Creating permanent expenditure on what might prove to be temporary revenues leads to large and persistent deficits.

A country runs into trouble when the markets refuse to refinance its debt.

Both the public and private debt remain extremely high and the markets are well aware of this. The Government’s capacity to create recurring primary surpluses should be preserved at

The slow justice system, problematic education and closed professions and trades are areas that need to be addressed urgently.

all costs. I reiterate the need to correctly weigh up the upside and downside risks of each policy decision.

Do you believe that the Government is serious about reform? If so, can it deliver?

A number of measures have been taken both by the public and private sectors that brought back stability and growth.

Personally, I believe that a lot more was needed and could have been achieved.

But that is for the voter, the opposition and the media to judge. Our role as a Fiscal Institution is to stress the importance of proceeding with reforms and the increased level of risk associated with not doing so. We always stress that a country is in a much better position to proceed with reforms in relatively good times, even though politically this might not always be the case. In good times, unemployment rates are lower and lost positions that are the result of reforms can be replaced much faster.

At the same time, governments are in better position to provide effective support, either in the form of social benefits or through retraining-reskilling schemes.

economy

49

Get Set... GO!

Empowering Professionals

The Infocredit Professional Education (IPE) launches the training program for January - June 2019. Our certified trainers share their expertise on specialised seminars targeted to the professionals of each sector.

Infocredit professional Education offers first-class education to professionals and organisations, aiming to exceed your strategic goals The content of the courses are upgraded regularly to ensure that all material is up-to-date with the latest industry requirements and best practices.

Subsidized Seminars

Registration

January – June 2019

• • • • •

Tel: +357 22 398 000 // info@ipe.com.cy

CySEC - Cyprus Investments Firms Advance Certification DPO ( Data Protection Officer ) Credit Risk Policy & Debt Collection Excellent Customer Service Sales Skills

• • • •

Anti-Money Laundering & Counter Terrorism Financing – Basic Principles and Practices Anti-Money Laundering & Counter Terrorism Financing – Blockchain and Information Security Improvement of business productivity using the Project Management Methodology (PMI) Win-Win Negotiations: Tactics & Skills

All courses are available: In-house and Open Seminars in Greek and English

Infocredit Professional Education (Part of Infocredit Group)

Tel: +357 22 398 000 // info@ipe.com.cy // www.ipe.com.cy ACCOUNTANCY CYPRUS

50

economy

The Singapore Model What Cyprus can learn from Singapore’s success story

By Alexandros Sofocleous, Board Member, KPMG Ltd

T

he Cypriot economy was left teetering on the brink of collapse during the banking crisis of 2013.

Though the banking sector is still reeling from the effects of that crisis, the wider economy has recovered more rapidly and robustly than most had anticipated.

Nevertheless, one may argue that the recovery is as much due to circumstance as to economic fundamentals and Cyprus’ competitive advantages. The tourism sector boom is, at least in part, driven by problems faced in neighbouring tourist destinations and the construction sector is, to an extent, driven by the Cyprus Investment Programme (formerly known as the Citizenship by Investment scheme). Therefore, having turned the corner and entered a period of economic growth, it may be a good time to reflect on lessons that can be learned.

Singapore is also an island state which gained independence in the 1960s and whose economy is predominantly driven by the financial, tourism, construction and shipping sectors. It is a model of how a free and open market can lead to economic success, having built itself to 10th position in the average GDP per capita rankings globally.

The ability to interact with the government online not only increases efficiency but also encourages transparency There are, of course, numerous factors that have enabled Singapore to trans-

ACCOUNTANCY CYPRUS

form itself from a newly independent yet underdeveloped country without obvious natural resources in 1965 to what it is today. First and foremost, Singapore has successfully capitalised on its strategic location, using its deep harbour to develop what is now one of the largest ports in the world, through which it is estimated that 40% of world maritime trade passes, thanks to China’s own astonishing economic development.

Secondly, Singapore’s free market economy and low-tax philosophy has enabled it to attract foreign investment and multinational groups that have setup base on the island. Complementing this is a public sector that has remained small and operates with speed, flexibility and efficiency. These characteristics are critical in turbulent times as they enable decisions to be taken both rapidly and effectively. Yet even in prosperous periods, a government and public sector that functions with fluidity is able to identify and seize opportunities as they present themselves. It is worth noting that Singapore’s government departments regularly undertake studies to benchmark themselves against their equivalents in other countries, in order to identify, assess and potentially adopt any areas of best practice that can be integrated locally.

Finally, Singapore was one of the first countries to adopt technology in all walks of life but particularly in the public sector. The ability to interact with the government online not only increases efficiency but also encourages transparency, which is another tenet that characterises the island. Residents and businesses can conduct the vast majority of

their business with government through online portals, quickly and painlessly, without ever having to set foot in a government department or come into contact with public officials.

Lessons for Cyprus Despite the challenging geopolitical environment, Cyprus is moving forward with plans to exploit its recently discovered offshore hydrocarbon deposits. Importantly, measures are also being taken to ensure that the proceeds will be used fairly and transparently.

However, given the multiple levels of uncertainty embedded in this process, the country cannot afford to ignore those sectors making up the lion’s share of the economy, and in particular the

economy

financial services sector.

The financial crisis experienced by Cyprus and the banking crisis that continues to this day were both ultimately a result of fundamental failures within our regulatory framework and oversight systems. Following the financial crisis, Cyprus took a number of courageous first steps in the right direction to tackle these systemic weaknesses, in the banking system and public sector in particular, under the auspices of the IMF. However, the unexpected improvement of the economy may well stunt progress in this direction as the government coffers swell and the pressure to move forward on reform subsides.

Singapore is a prime example of a country that has succeeded by securing and

then maintaining key advantages over its competitors. Taking the financial sector as a case in point, the government has built into its system procedures to actively and continuously identify the needs of businesses at all levels and then to take immediate action. These procedures are underpinned by a culture in which the government always works together with the private sector in a constructive manner.

Multinational corporations have a plethora of countries to choose from when looking to establish or relocate their businesses, and a friendly tax system is only one of the criteria they consider.

Other important aspects include the extent of bureaucracy, the efficiency of regulation, the adoption of technology

51

and the general ease of doing business.

Our focus in Cyprus has always been on protecting and improving our tax system and this, of course, remains of the utmost importance. However, we must recognise that we lag behind some competing jurisdictions in other areas that matter to modern businesses. Given the importance of this sector to our economy and the ability of businesses to relocate with relative ease, we must learn from Singapore’s example. Cyprus is currently 53rd in the World Bank’s ‘ease of doing business’ rankings, whereas Singapore is 2nd. There are very good reasons for this and Cyprus can gain significant benefits by taking all the necessary measures that will enable it to reach its true potential.

Singapore is a prime example of a country that has succeeded by securing and then maintaining key advantages over its competitors

Photo by Mike Enerio on Unsplash

ACCOUNTANCY CYPRUS

52

economy

The Overheated Cyprus Economy Needs Good Management

By Marios Mavrides, MP, Professor of Economics European University Cyprus

F

or the third consecutive year, the Cyprus economy has grown above its long-term average. Such growth rates may not be sustainable in the future, which is why the economy needs good management in the coming years, so that the landing is as smooth as possible. The experience of the past decade’s economic bubble during 2003-2008 should provide guidance for the Government and other decision-makers.

The Cyprus economy has been moving in cycles over the past 20 years, sometimes expanding above its long-term growth rate and sometimes below it. It is the responsibility of the Government and the Central Bank to apply countercyclical fiscal and monetary policy, in order to reduce output fluctuations.

Such fluctuations cause large changes in employment and income, with dramatic social consequences.

For five years, the economy has been going through a period of positive and increasing growth. There is nothing wrong with positive economic growth but growth rates above the norm may harm future growth. Economic growth for 2019 is expected to be above average as well, which is why it is time for the Government and the Central Bank to take action with countercyclical measures today: the Government must reduce spending and the Central Bank needs to apply stricter monetary policy.

It is actually a very good opportunity for the Government to reduce the public debt, which is above 100% of GDP, due to the purchase of the non-performing loans of the

ACCOUNTANCY CYPRUS

Central Cooperative Bank a few months ago. The Government should reduce spending and, in combination with the large increase in state revenues, a significant portion of the national debt can be paid off.

It is important for policymakers to realize that the economy is growing at a rate that may not be sustainable in the future, and that a possible downturn may cause significant problems to Cypriot society. International organisations, such as the International Monetary Fund, the European Commission, and independent rating agencies have made reference to the factors causing temporary economic growth and they have issued friendly warnings about future growth.

The drivers of Cyprus’ economy right now are tourism, construction and massive Foreign Direct Investment as well as domestic investments. Domestic consumption and investment are on the rise due to the low interest rate environment. Tourism has increased by over 50% in the past four years due to geopolitical developments in the Middle East and fears of terrorist attacks in other competitive tourist destinations, such as Turkey, Egypt and some European cities. The construc-

tion sector is also on the rise due to the ‘golden visa’ programme developed by the Government, which has attracted billions of euros in foreign investment.

All these factors may prove to be temporary and cease to exist in the future.

Prudent management of the economy is vital for sustainable growth and for maintaining social cohesion. Large fluctuations of output cause fluctuations in employment and income. Excessive expansion may be followed by a recession.

We have seen the same scenario during the last decade, when the economy experienced the phenomenon of “boost and bust” and, as we all know, the “bust” was accompanied by many social problems which last a long time.

Overheating is not bad in itself when it is managed properly. The government should assess the economic situation and take measures to stabilize the economy.

It may be wise to sacrifice some growth today in order to achieve sustainable growth in the future. Sustainability is key to our long-term prosperity.

Prudent management of the economy is vital for sustainable growth and for maintaining social cohesion

economy

53

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

ACCOUNTANCY CYPRUS

54

economy

Structural Reform: A Bet That Must Be Won in 2019

By Savia Orphanidou, Economist

C

yprus has been through six admittedly rough years, mostly because of the financial crisis in 2013 that severely affected all of us but also due to the difficult but necessary decisions taken in the banking sector in the aftermath of the crisis.

Today, growth is accelerating at around 4%, one of the highest growth rates in Europe, and covering the loss of around 11% of GDP during the years of the crisis. Unemployment has fallen from its peak of 17% to 7.5%, which is below today’s EU average. The Government is operating with budget surpluses, reaching the historic fiscal surplus of €850 million during the first 10 months of 2018. In addition, the public debt, even when taking into consideration the burden from the acquisition of the assets of the Cyprus Cooperative Bank by Hellenic Bank, remains at manageable levels, with the aim of it being 100% of GDP in 2019.

The banking sector has been significantly strengthened and, following the acquisition of the CCB’s assets and the sales of loans by the Bank of Cyprus, Non-Performing Loans have decreased from €28 billion to €11 billion, while the Banks have returned to normal business by providing loans to young couples and viable businesses. Consumers’ disposable income has increased as a result of the 17 tax relief measures promoted during the past three years, wages are increasing, though at a slower pace, and many sectors of the economy – in particular construction, tourism and retail – are reporting spectacularly positive results. Foreign Investors’ confidence has been restored, leading to the

ACCOUNTANCY CYPRUS

upgrading of the economy to investment grade, after seven long and painful years.

Undoubtedly, the economy still faces a number of important challenges – the further reduction of NPLs, the need to increase low wages, especially in the private sector, and to further reduce unemployment in order to reach full employment conditions by 2020. Nevertheless, one cannot question the fact that we are back on the right track of growth and prosperity.

However, in order to stay on this positive path, we need to make sure that the new economic model of sustainable growth and lower taxation is built on strong foundations, through the implementation of the necessary structural changes. A number of significant reforms have taken place during the last five years, in the banking sector, in the management of public finances, in the welfare system, pensions, the tax system, the introduction of the Guaranteed Minimum Income, major investments in casinos and marinas, the establishment of two Deputy Ministries of Shipping and Tourism respectively and in many other areas.

But they are not enough. Extremely serious decisions remain to be taken and very important legislative bills have to be approved by the House of Representatives. They concern the implementation of the National Health Scheme, local government reform, the completion of the public administration reform, the investment law, which will enhance strategic investments in our country, the partial privatisation of Cyta and the transfer of its management to a strategic investor, the institutional reorganisa-

We need to make sure that the new economic model of sustainable growth and lower taxation is built on strong foundations, through the implementation of the necessary structural changes tion of the Central Bank of Cyprus, the holistic reform of the Judicial System, the implementation of the e-governance project, the establishment of new Deputy Ministries of Digital Transformation and Innovation & Culture, etc.

There will always be resistance to change. Many “kingdoms” will fall, many benefits will be lost and many perceptions must be changed. Nevertheless, there should be a common goal, a common vision for Cyprus: the establishment, and, most importantly, the preservation of conditions of security, prosperity and growth for all Cypriots.

This can be achieved through consultation with all stakeholders and through the cooperation of all political parties.

Most significantly, the implementation of the necessary structural changes can be achieved through determination and consistency, regardless of the political cost and the increasing voices of populism and self-pity. This is definitely a bet that must be won. It is a bet that will benefit the whole of Cyprus and all its people.

2019, Welcome!

economy

55

Alternative Investment Funds: An Evolutionary Vehicle

By Antonis Rouvas, Board Member, KPMG Ltd

T

he overall assets and the number of investment funds in Cyprus have significantly increased, according to statistics from the Central Bank of Cyprus (CBC). The number of investment funds increased from 114 in December 2017 to 130 in June 2018, while total assets reached €4.7 billion compared to €4.5 billion in March 2018, recording an increase of 6%.

The metrics announced by the Central Bank of Cyprus refer to authorised investment funds whilst a significant number of new licensing applications are currently being considered by the Cyprus Securities and Exchange Commission (CySEC). Interest in Cypriot-registered investment funds is coming from numerous countries around the world.

The enactment of the new Alternative Investment Funds Law 124(I)/2018 (“AIF Law”) in July 2018, which introduced improvements to the legal and operational framework of investment funds, has significantly enhanced Cyprus’ international position as a jurisdiction of choice for the creation or transfer of AIFs and Alternative Investment Fund Managers (AIFMs).

The new law ensures that Cyprus not only remains competitive on the international scene as a funds jurisdiction but it also serves to provide even more flexibility to those wishing to establish Cypriot funds and fund management entities.

The Registered AIF (RAIF), which is one of the new products introduced by the new AIF Law, is not subject to supervision by CySEC or any other supervisory authority.

An RAIF can only be externally managed by an AIFM with certain exceptions for RAIFs with illiquid assets. A key benefit of the RAIF is that it reduces significantly the required time for the launching of such

fund. Within one month from the date of filing a duly completed “notification pack”, CySEC will proceed to add the AIF to the list of Registered AIFs. The quick and cost-efficient launch of an RAIF enhances the suite of types of funds that can be established in Cyprus.

The enactment of new and revised laws has created new momentum in the fund management sector in Cyprus Furthermore, the new AIF law regulates the minimum share capital requirement that is now only required for self-managed vehicles, irrespective of the category of the AIF. There are also revised requirements imposed on AIFs with a limited number of persons to take advantage of the depositary exception, as well as a requirement for an internal regulatory compliance function for AIFs with an unlimited number of persons.

Also, for AIFs with a limited number of persons, the maximum number of investors is reduced to 50 from 75 and look-through provisions are introduced.

A number of tax changes have also been introduced. For example, no permanent establishment is created by investors for their investments in common funds and partnerships established in Cyprus. As a result, the income of investors acquired from such investments is taxable only in their tax residence country.

Under new provisions introduced in the Special Contribution for the Defence Law, Cypriot tax resident and domiciled individual investors will be subject to deemed divi-

dend distribution at the rate of 17% instead of 3% previously applicable. This amendment has no effect on investors (individuals or companies) that are neither Cypriot tax residents nor domiciled in Cyprus, as such investors are completely exempt from this provision. This applies to funds that are set up in a legal entity form and does not apply to common funds or partnerships.

A key incentive has also been introduced through a special method of taxation of the variable remuneration of the executives of a Fund Manager (when remuneration varies in accordance with the profitability of the fund), providing for a flat tax rate of 8% and a minimum payable tax amount of €10,000 per year. As expected, antiavoidance provisions are in place. In order for the favourable rate to be applied to such variable remuneration, the net asset value of the fund should exceed the amount of the initial investment by the unitholders. The purpose of this additional incentive is to attract and host experienced and prominent fund managers to Cyprus.

The enactment of these new and revised laws has created new momentum in the fund management sector in Cyprus. Undoubtedly, they also serve in further establishing Cyprus as a reliable, efficient and attractive funds jurisdiction. At the same time, the competitiveness of the Cypriot economy is increasing, with numerous benefits from this industry. For example, new employment opportunities are created for staffing the newly created funds and fund management entities and increased taxation contributes to public finances. Generally, the establishment in Cyprus of international firms which are active in this industry will only increase investor confidence in the country and the specific sector.

ACCOUNTANCY CYPRUS

56

taxation

Tax Planning for High Net Worth Individuals

By Costas Markides, Board Member, KPMG Ltd

T

he interconnection with HNWIs, miniHNWIs know ing between the concept mising taxes has never better than been a zero-sum game. of Tax Planning and most that the minimisation of taxes is It will not even be one money can be of the top-three reasons almost impossible to avoid.

In the past, tax advisors (my- an important for which HNWIs retain factor in the expert advice from a tax self included) would always well-being of professional. Non-tax start a conversation on Tax Planning by trying to explain a family but related reasons will, in my the difference between legal the well-being professional experience, tax avoidance and universally of the family is always lead and dominate hated and totally illegal tax the discussion, underlinpriceless evasion. In today’s posting the great importance BEPS (Base Erosion Profit assigned to them by the Shifting) world, the concepts of tax avoidHNWIs. The most common non-tax ance and tax evasion have inexplicably reasons are the following: personal and become two sides of the same coin. family safety, securing the unity of the The passionate argument around tax family, preservation of the current level avoidance states that what is legal is not of family wealth and turbulence-free necessarily moral. As a result, the term “tax succession planning. With no exmorality” has been abruptly introduced ceptions, these are all factors that into the glossary of international taxation, HNWIs consistently rank higher one that the overwhelming majority of than the mere minimisation of their professionals in the field would have flatly taxes. rejected at its first mention a few years It is very common for the imporago. Not anymore! In these undoubtedly tance placed on the safety of the interesting times we live in, the struggle for family to be the deciding factor tax morality has left corporations publicly regarding the optimal location for competing as to who will pay more taxes relocating the business and per(some even volunteering to pay more tax sonal affairs of a HNWI, which than the amount rightfully due) in an efmost often is at odds with the tax fort to win the approval of, and be viewed efficiency of the chosen location. more favourably by, the public at large, Also, consider a situation where which, in essence, comprises an overthe school of choice for the whelming part of their consumer base. children of a HNWI is in a country with high rates of Advising HNWIs encompasses taxation and no tax concesmuch more than minimising sions for expatriates. The their taxes desire for high-quality educaTax advisors and consultants alike will tion for their children and the surely agree that when it comes to dealneed to secure the unity of

ACCOUNTANCY CYPRUS

the family will in no doubt tip the scales against any tax savings.

No known recipe for optimal advice Tax planning for HNWIs defies most conventional tax planning practices and norms and is at a whole new level of its own, where the non-tax related factors play a much more important and decisive role than tax-related ones. The dilemma often boils down to monetary gains versus the well-being of the family. HNWIs know better than most that money can be an important factor in the well-being of a family but the well-being of the family is priceless.

Effectively advising HNWIs requires, above all, active listening and a deep understanding of their often unique personal and family circumstances, and trying to find solutions that balance their prioritised needs and monetary affairs as well as possible.

Offering one-sided solutions where the HNWI satisfies all or most of the non-tax considerations but are disastrous for his/her monetary affairs, or the opposite scenario where the advice provided fully serves the individual’s monetary affairs without catering for the personal needs of the family (which are most of the time nonnegotiable) will not keep an advisor in the job for long.

An all-round solution, which offers a healthy balance between the financial and business affairs of the HNWI while ensuring the wellbeing of the whole family, is often the best advice.

taxation

57

Equity at Risk

By Roderick Veldhuizen, Partner, Embridge Economics B.V. &

O

n 30 June 2017, the Cyprus Tax Authorities (CTA) issued a Circular introducing the transfer pricing framework for companies carrying out intercompany financing activities in Cyprus. The Circular provides additional guidance in terms of substance and transfer pricing requirements in line with the Organisation for Economic Co-operation and Development (‘OECD’) Transfer Pricing Guidelines. The Circular was effective as from 1 July 2017 and replaced the Minimum Margin Scheme (MMS), which was introduced by the CTA in July 2011 in an attempt to provide guidance with regard to the minimum accepted margins on back-to-back financing arrangements.

The Circular issued by the CTA resembles to a great extent the Circular on intra-group intermediary financing activities published by the Luxembourg Tax Authorities on 27 December 2016. In the course of 2017, a commonly accepted approach was developed among market participants on how to practically comply with the Circular. The approach is described in more detail in the following paragraphs.

Minimum Equity Requirement The Circular emphasises the importance for group financing companies to have the necessary capacity to

Thomas Petrakos, Consultant, Embridge Economics B.V.

accept, manage and assume risks associated with intercompany financing activities. From a financial perspective, an adequate level of equity is required to support the risks incurred.

To determine an adequate equity level, a comprehensive risk analysis should be determined on a transactional basis. This can be achieved by looking at the expected loss in the event of default, taking into account the creditworthiness of the borrowers.

This approach is also referred to as “Expected Loss” approach.

The higher the risk profile, the bigger the equity level and the higher the compensation

Expected Loss Approach The Expected Loss approach determines an arm’s length equity level through a two-step process: Step 1 - Determine the risk profile of the borrower through a credit rating analysis and/or by determining the probability of default of the entity.

The latter reflects the likelihood the borrower defaults; and Step 2 - Determine the expected loss amount in the event of default. This amount is considered to reflect an adequate amount of equity a comparable company would hold when performing intermediary financing activities.

Once an arm’s length equity level is determined, a return on equity can be computed in order to arrive at an arm’s length income for the intercompany financing entity. The Capital Assets Pricing Method (“CAPM”) is typically used for this purpose.

Conclusion The Expected Loss approach is an intuitive and relatively straightforward approach to determine an arm’s length equity level. The latter is used as a basis to determine an arm’s length compensation by applying the CAPM method. With the Estimated Loss approach, the compensation is dependent on the risk profile of the borrower. The higher the risk profile, the bigger the equity level and the higher the compensation, just as you would expect from independent market participants.

ACCOUNTANCY CYPRUS

58

taxation

Buying land at 5% VAT is not allowed.

But is it possible?

By Panayiotis Panayi, Director, Chelco VAT Ltd

One law for all It all starts with the obligation of European Union (EU) Member States (MS) to transpose and implement the Council Directive 2006/112/EC of 28 November 2006 on the common system of valued added tax, or as is commonly referred to the ‘VAT Directive’ into national law. It is up to each MS as to how the VAT Directive will be transposed into national law but they are obliged through national law to achieve the intentions and provisions of the VAT Directive within specific deadlines.

As such, national VAT laws must be in-line with the VAT Directive and cannot deviate from what the VAT Directive provides for.

It is for this reason that the European Court of Justice (ECJ) usually deals with cases brought before it to confirm whether specific parts of national legislation are in line with the provisions of the VAT Directive.

The VAT Directive was transposed into national law in Cyprus via the VAT Law N.95(I)/2000 as amended. And because our national law is so great and our judges on a national level have no doubts about the interpretation of the law (!), as a country we have never sent any VAT cases to the ECJ yet. Personally, I find this to be a weakness for us as a Member State as the ECJ is the top authority when it comes to law interpretation and its input can be very helpful for all involved parties (i.e. tax authorities, taxable persons, legislators) in improving our national legislation.

Reduced VAT rate on the sale of land Reverting to the matter at hand, we visit article 98 of the VAT Directive which provides that it is up to each MS whether to

ACCOUNTANCY CYPRUS

apply a reduced rate or not. However, such reduced rates may only be applied to transactions listed in Annex III of the VAT Directive.

And here is the catch. The sale of land is not listed in Annex III and, as such, MS are not allowed to apply a reduced VAT rate to the sale of land. So for as long as Annex III remains as is, the sale of land will always be subject to the standard VAT rate applicable in each MS. In Cyprus this means that the sale of land will always be subject to 19% VAT, which is currently our standard rate in force.

So the first thing to bear in mind is that the sale of land cannot be subject to a reduced VAT rate.

How can we achieve an effective reduced rate?

The imposition of VAT on the supply of land has been in place as of 02/01/2018 (although our obligation as a MS was to apply this as of 01/01/2008 as per article 383(a) of the VAT Directive). Since then, there have been discussions on a way of mitigating the impact of this for individuals buying a plot of land to build their family home which bears the full burden of the imposed VAT as they are not taxable persons with a right to recover input VAT. This is considered fair because, as per the current provisions of the Cyprus VAT Law, you are allowed to apply for a reduced VAT rate of 5% when you buy or construct a new house to be used your primary residence in Cyprus. This is based on point 10a of Annex III of the VAT Directive, which allows a reduced VAT rate to be applied on the ‘provision, construction, renovation and alteration of housing, as part of a social policy’. In Cyprus, we consider it ‘social policy’ to be

In Cyprus, we consider it ‘social policy’ to be able to apply for a reduced VAT rate when you buy a nice villa of 200 square metres by the sea for anything up to ϐ4million at current prices able to apply for a reduced VAT rate when you buy a nice villa of 200 square metres by the sea for anything up to €4million at current prices.

Nonetheless, it makes sense that the purchase of land for primary residence purposes should bear the same reduced VAT burden as the construction or purchase of a primary residence. So, as this is not allowed, our Parliament has been discussing for quite some time the idea of putting in place a grant scheme whereby eligible applicants will be refunded 14% of the VAT incurred on the purchase of building land with the intent to erect their primary residence on that plot. So in effect, at the end of the day such buyers will incur VAT at the reduced rate of 5%.

However, it is important to stress that, legally, the transaction will still be subject to the standard VAT rate of 19% and that the effective 5% will be achieved via means of a grant. The Council of Ministers voted in favour of such a grant scheme during its meeting on 05/12/2018. Now we await the draft law and its voting through Parliament in order to answer questions such as: • What will the criteria be for eligibility to apply for the grant?

• Will the grant scheme be applied retrospectively to cover purchases effected before the relevant law is in place?

taxation

59

Amendments to Cyprus VAT Legislation in 2019

By Michael C Grekas, Board Member, Indirect Tax Services, KPMG Limited

VAT

legislation is constantly evolving in order to keep pace with all current local and EU developments in the financial environment. For this reason, significant amendments are expected to be introduced to the Cyprus VAT Law (95(I)/2000) in early 2019.

1. Introduction of article 11E to the basic VAT Law As per the provisions of the proposed article 11E, any arising output VAT on the sale of mobile phones, desktop and laptop computers, as well as game consoles shall be self-accounted for under the reverse charge mechanism by the taxable person acquiring these goods in the process of or for the furtherance or promotion of a business carried on by that person. In relation to any transactions falling under article 11E, separate records must be maintained for a six-year period.

2. Amendment of Schedule 13 of the basic VAT Law Paragraph 18 of Schedule 13, currently referring to the place of supply in relation to telecommunication, broadcasting and electronically supplied services (‘digital services’) to non-taxable persons, shall be amended in order to transpose the relevant EU changes introduced by EU Directive 2017/2455 into Cyprus law.

Therefore, with effect as of 01/01/2019: (i) An EU-wide threshold of €10,000 for EU businesses supplying digital services will be set. More precisely, where providers of digital services are established in only one Member State and provide services to nontaxable persons residing in other Member States, as long as the total amount, net of VAT, of the supplied services does not

exceed during a calendar year the amount of €10,000 and nor did it exceed the said amount during the previous calendar year, the service providers may elect for at least two calendar years to account for VAT in the Member State of their establishment and not in the Member State where their non-business clients are established. Where the threshold of €10,000 is exceeded, the provider of digital services must either register in the Member State where the non-taxable clients reside or apply to register under MOSS in their Member State of establishment. (ii) Taxpayers with a revenue of less than €100,000 per year will only need one piece of evidence to prove where the recipient of B2C digital services is established.

3. Introduction of Schedule 14 to the basic VAT Law On 27/06/2016 the Council of the European Union announced the adoption of Directive 2016/1065/EU aiming at clarifying the definition of vouchers. The VAT Directive on vouchers refers to the issuance or the transfer of single purpose and multiple purpose vouchers (SPVs and MPVs), on the value of which output VAT is payable at the time when the voucher is issued (for SPVs) or at the time when the voucher is redeemed (for MPVs). The provisions of the EU Directive on vouchers shall be transposed in the Cyprus VAT Act by introducing a new Schedule, namely Schedule 14.

4. Increase in certain administrative penalties The Tax Authorities propose to increase the administrative penalty imposed for failing to submit VAT returns on time from €51 to €200. A penalty will also be introduced in cases of failure to self-account for 19% out-

put VAT under the reverse charge mechanism as per the provisions of articles 11, 11A, 11B, 11C and 11D of the VAT Act. 5. Deadline for VAT refund claims Cyprus’ VAT legislation is expected to be amended so as to restrict taxpayers from recovering input VAT on business expenditure they have incurred if the relevant VAT refund claims are submitted after a six-year period has passed from the end of the prescribed tax period in which the credit balance was created.

6. Businesses operated by deceased persons and companies under management The Cyprus VAT Act is expected to be amended by changing the taxable person liable under the VAT Act in cases of businesses carried out by deceased or bankrupt natural persons or persons whose property has been placed in escrow or are incapable of managing it as a result of which receivers/managers/personal representatives/ consignees/liquidators have been appointed.

The same changes apply for legal persons which go under liquidation, receivership or representation in which cases the appointed receiver together with directors allowed to participate in the running of the business are held jointly liable.

7. The substantial transfer of the right to dispose as owner of immovable property As of 01/01/2019, paragraphs 3 of Schedule Two and 1 of Schedule Eight shall be amended accordingly treating the transfer of immovable property under a long term lease agreement as a supply of immovable property being taxable under the normal rules.

ACCOUNTANCY CYPRUS

60

taxation

Local Filing: A Closer Look

By Antonis Dimitriou, International Tax Services, EY

Country-by-Country Reporting The Base Erosion and Profit Shifting (BEPS) initiative was designed by the Organization for Economic Cooperation and Development (OECD) to combat 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 base erosion and profit-shifting strategies, 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 to improve and enhance levels of transparency. Chapter V of Action 13 introduces a three-tiered approach to transfer pricing documentation: • A Master File, containing standardised high-level information about the group’s business, its global transfer pricing policies and agreements with tax authorities; • A Local File, containing detailed information about material business transactions such as related party payments, receipts for products/services/interest/ royalties of local taxpayer(s) of the MNE group; and • A Country-by-Country (CbC) Report containing high-level information relating to the group’s allocation of the group’s profits, revenues, taxes, employees and assets per jurisdiction.

The CbC Report introduces an obligation for MNE groups with consolidated revenue exceeding €750 million to report, on an annual basis, various details

ACCOUNTANCY CYPRUS

regarding their financials and presence in each jurisdiction that they carry out business. Cypriot CbC legislation requires the following type of entities to file a CbC Report: i. The Ultimate Parent Entity (UPE) of an MNE group which is tax resident in Cyprus; or ii. The Surrogate Parent Entity (SPE) of an MNE group which is tax resident in Cyprus and has been appointed by the group to act as the reporting entity.

Where a Cyprus tax resident entity is appointed as the SPE, Cypriot CbC Reporting legislation applies as if that entity was the UPE (i.e. it has an obligation to file a CbC Report with the Cyprus Tax Department on behalf of the entire MNE group).

Secondary Mechanism (Local Filing/Equivalent Filing obligation) Cypriot legislation provides that a constituent entity of the MNE group (other than the UPE or the SPE) may be required to file a CbC Report directly with the tax authority in its residence jurisdiction but only where one or more of the following applies: i. The UPE is not tax resident in Cyprus and it is not required to file a CbC report in its country of residence; ii. Although obligated to file the CbC Report in its country of residence, there is no exchange of information instrument in place between that jurisdiction and Cyprus; iii. Such jurisdiction has been designated as having a systematic failure on exchanging information.

Consequently, MNE groups falling into any of the above three categories should proceed with a local filing (i.e. the filing of a full CbC Report in Cyprus) either through a Cypriot constituent entity (thus satisfying the filing requirement of all the Cypriot constituent entities of the Group), or alternatively each Cypriot constituent entity to proceed with the filing of equivalent reports (i.e. CbC Reports containing only the information that a Cypriot constituent entity has in its possession).

Cypriot Exchange Relationships The tax authority in the jurisdiction where the reporting entity is tax resident will receive the group’s CbC Report directly from that reporting entity. Tax

taxation

61

Failure or refusal to comply with CbC Reporting legislation may result in an administrative fine of up to ϐ10,000

authorities in other jurisdictions where a MNE group has constituent entities will receive the CbC Report under the automatic exchange of information. At the time of writing (November 2018), Cyprus has signed and activated 56 bilateral exchange relationships for the automatic exchange of CbC Reports with tax authorities in various jurisdictions.

Recent Announcement by the Cypriot Tax Authorities According to the announcement published by the tax authorities on 19 September 2018, when examining their obligation status, taxpayers need to bear in mind that: • The agreement between Cyprus and other jurisdictions for the exchange relationship needs not only to be signed but

also activated; • The secondary filing obligation should not be triggered in situations in which the UPE or the SPE of Cypriot constituent entities is tax resident in a jurisdiction with an activated exchange relationship or in another EU Member State; • For certain jurisdictions, an obligation for local filing will arise for Cypriot constituent entities since the exchange relationship is activated from periods starting on or after 1 January 2018. In such cases, the secondary mechanism is triggered for FY 2017 because of the one-year overlap.

It is worth mentioning that the Cypriot tax authorities have made a specific reference to US-headed MNE groups, mentioning that no exchange of information agreement was expected to be signed

between Cyprus and the US prior to 31 December 2018. Consequently, a local filing obligation arises in Cyprus for fiscal years starting on or after 1 January 2017.

Further, the tax authorities clarified that any amendments to submitted CbCR notifications for FY17 as a result of the above announcement could be made by 31 December 2018 without the imposition of administrative penalties.

Administrative Fines and Penalties According to the law, failure or refusal to comply with Cypriot CbC Reporting legislation may result in an administrative fine of up to €10,000 which may be increased up to €20,000 for continuous infringements. These penalties are likely to apply per entity.

ACCOUNTANCY CYPRUS

62

professional services

A Growing Contribution The broader Professional Services sector is not without its challenges but thanks to ongoing reforms, recognition of the need for strict compliance and the high standards of the country’s lawyers and accountants, it will continue to play a key role in the economy of Cyprus, says Leandros Papaphilippou, Managing Partner at L. Papaphilippou & Co LLC.

What are the main challenges currently facing the legal sector in Cyprus?

Brexit-related challenges and continuous changes to the regulatory environment, both at global and at EU level, such as the adoption of the 5th EU AML Directive, necessitate coordination and enhanced cooperation among advocates as well as between the competent Regulatory Authorities such as ICPAC, the Cyprus Bar Association and the Central Bank of Cyprus. Furthermore, advocates will have to adapt to the strengthened interaction between competition law

ACCOUNTANCY CYPRUS

The establishment of a specialized Commercial Court and the addition of new members to the Judicial Service will prove to be decisive steps towards resolving issues in relation to the speed at which justice is administered

and regulatory law.

The envisaged adoption and implementation of the Directive of the European Parliament and of the Council to empower the competition authorities in Member States to be more effective enforcers and to ensure the proper functioning of the internal market, also known as the ‘ECN + Directive’, will lay the foundations for reinforcing the independence and role of the Commission for the Protection of Competition. Such a role could be considered as decisive concerning the debate on the services-related landscape. To that effect, one must bear in mind the UK Competition & Markets Authority’s Statutory Audit Services Market Study published in December, which discusses, amongst others, the full structural or operational split between audit and non-audit services.

Within the ambit of this interoperability between market competition rules and the statutory regulatory environment, the EU Commission published in November 2018 its decision to close an antitrust investigation into the CBA’s minimum fee scale, based on the empowerment contained in the Advocates Law. Conclusively, the Commission welcomed the CBA’s decision to abrogate this minimum fee scale after it had raised concerns that these rules were not compatible with Article 101 of the Treaty on the Functioning of the EU. There are many challenges but the envisaged establishment within 2019 of the

Commercial Court and the intended appointment of 20 additional District Judges, five Senior District Judges and seven District Court Presidents are welcome steps, providing impetus in the enhancement of administration of justice.

Technology is changing business everywhere. How significant a role do you expect it to play in the legal profession in the future? What are the opportunities and/or threats involved?

The use of blockchain technology in processing, including the storing and transmission of data, thereby enabling remote access and speedier legal work performance, is indeed a possibility which could materialize in the near future.

However, the overarching need to comply with personal data protection-related legal obligations, as well as the potential threats of electronic unauthorized interventions, ought to be taken into consideration within the parameters of such a debate.

What are the main issues the legal profession is facing in relation to litigation and in what ways can it be tackled?

As already stated, the establishment of a specialized Commercial Court and the addition of new members to the Judicial Service will prove to be decisive steps towards resolving issues in relation to the speed at which justice is administered. Also, the requirement of holding all citizens, including civil servants and persons holding positions in independent institutions, legally accountable

professional services

towards the Constitution of the Republic and the laws of the land, has recently been seen to be upheld by both the courts and independent institutions. However, more could be done to that effect, including a constitutional amendment providing for the introduction of terms and the establishment of independent supervisory/review bodies.

Do you expect to see more Mergers & Acquisitions in the legal sector as competition grows?

An emphasis on internal reorganisation and the addition of specialised advocates in a number of fields, such as personal data protection law, AML and Sanctions-related law, protection of competition law, and fundsrelated law might be the answer to competition- related concerns.

The traditional model of services (offshore/shell companies) provided to clients appears to be dying. What does the future entail for firms that provide services to international clients? What should be our model?

International clients already value our contribution towards a legally sustainable environment of provision of services to legal entities established in Cyprus, either on a primary or secondary establishment basis, and offering services from or through the Republic.

Do you think that global pressure on tax avoidance schemes will affect firms such as yours? Is Cyprus becoming ‘too regulated’?

Cyprus ratified the OECD Common Reporting Standards (CRS) in December 2015. Further, the Republic has proceeded with the issuance of two detailed Second-

ary Administrative Regulations (SRAs), concerning the practical implementation of CRS in the Republic of Cyprus. To that effect, the OECD has included Cyprus in the list of jurisdictions committed to improving transparency and establishing effective exchange of information in tax matters and has not included it in the list of tax havens and non-co-operative jurisdictions. One must not omit to take into consideration the following statements in the ‘Guide to Global Citizenship Special Report’ published by the Financial Times in association with CS Global Partners (June/July 2017): ‘Cyprus, with its investors’ programme, seems to offer a clear path to citizenship, once the KYC hurdle is gone through’ and in the ‘Guide to Global Citizenship Special - The 2018 CBI Index’ published by the Financial Times in association with CS Global Partners (September 2018): ‘Cyprus was, once again, the most successful nation in Europe … it has attractive travel and residence requirements and a speedier citizenship timeline’.

In addition, it is noted that the commitment of the Republic of Cyprus to the application of International AML Compliance standards was recognised by Transparency International in its 15 February 2017 Report entitled ‘Top Secret Countries Keep Financial Crime Fighting Data to Themselves’, acknowledging, amongst others, that Cyprus disclosed the most complete set of anti-money laundering data among the 12 analysed countries, whilst, with France Cyprus presented the most complete data sets, covering aspects of monitoring, regulatory breaches and sanctions concerning AML supervision. On the basis of these, we do not believe that the Republic of Cyprus has been overreacting within the ambit of a regulatory

63

race to the top but it has complied with its required international legal obligations.

If Cyprus is to maintain its success in the provision of corporate services, should it be looking beyond the traditional markets? Where?

The enhancement of cooperation with UK-based service operators and businesses whilst complying with the EU applicable legal framework, as well as with counterparts in other Commonwealth countries such as Canada (taking advantage the provisional implementation of majority of It is our firm’s provisions of solemn belief the EU-Canada that the Comprehensive Professional Economic and Services sector Trade Agreewill increase its ment), could very well prove contribution to to be the spearthe country’s head for forging GDP over the a new era in the years to come provision of corporate services.

Do you believe that the broader Professional Services sector will continue to be a major contributor to the economy over the next decade?

It is our firm’s solemn belief that, in compliance with the evolving regulatory environment and entrenched with the legal certainty associated with the application of Common Law and the skills of the personnel that offer professional services, the sector will increase its contribution to the country’s GDP over the years to come.

ACCOUNTANCY CYPRUS

64

professional services

Robust Compliance & Best Governance Practices

By Marios M. Skandalis FCCA, CFC, CFE, FICA, FCIS President, ICPAC

E

ffectiveness is the top and foremost objective to achieve with compliance and the adoption of best corporate governance practices but once this has matured, compliance operational efficiency becomes the area of main focus and investment.

Building an effective and robust compliance function resembles the successful extraction of a raw diamond, while the workability and implementation of this robust framework into an operationally efficient one resembles the sculpting of this dull gemstone into an appealing shiny diamond. It is the brilliance of the diamond that will add tremendous value to it, just like the value derived by a corporation from the implementation of an operationally efficient compliance function.

It is this fine tuning and operational excellence of a robust compliance and corporate governance framework that will transform it from a mere control function into a value-added activity for a corporation.

However, the foundation of any effective compliance or corporate governance function is nothing but an ethical culture! Because mere efficient excellence is not sustainable without the right foundations to support and right values to drive it.

Efficiency is built on a two-tier structure, comprising a revolutionary procedural framework and revolutionary technology.

Simplicity in

ACCOUNTANCY CYPRUS

Financial criminals are becoming smarter in their efforts to conceal the origin of their funds the compliance procedural framework is not easy to apply unless we radically and ruthlessly change our mindset.

Unfortunately, most of us compliance and corporate governance officers come from an academic background that focuses mostly on rigidity in adhering to laws and policies, like accountants and lawyers. It takes a charismatic compliance and corporate governance officer to see beyond the stereotypes of the various regulatory obligations and design simple procedures that do not aim at adherence of the various tasks on a checklist or at the crude letter of the law, but at practically applying the principles of any regulatory requirement.

An effective risk-based approach provides the basis of creating an efficient procedural framework. But how many of us really comprehend the meaning of “risk-based approach”? Unfortunately, we often misinterpret this term and apply it to our effort to simply

reduce the amount of work we need to complete. A real risk-based approach, however, can even lead to an increase in the volume of work we need to execute if we actually operate in a highrisk environment. A real risk-based approach is one that: • Requires and assumes in-depth knowledge of the actual regulatory obligation • Identifies the various risks involved with this regulatory obligation • Prioritizes these risks, depending on their severity and impact on our business • Identifies what actions can effectively address or mitigate the risks that can have a potential effect on business • Leads to a conscious acceptance of those risks of insignificant impact on our business A simple understanding, therefore, of the regulatory obligation is not what is needed to design an efficient procedural framework. This is just the foundation, on which the focus, administration and management of the real risks and values we would like to achieve takes place.

High technical competency, critical thinking, intelligence, confidence and ethos form the magical blend that ensures that our procedural framework will guarantee attainment of all our compliance objectives in the most efficient manner.

Technology can be characterized as the edge of a breakthrough in efficiency. It is evident that, only recently, this has started being considered in the area of

professional services

65

A Mere Control Mechanism or Business Enabler?

compliance, triggered, of course, by its recent enhancement in terms of volume, complexity and complication.

Day by day, we come across more advanced technological solutions to the required due diligence process, in terms of both speed and quality.

Distributed Ledger Technology (or, as it is widely known, blockchain technology) is one such technological advancement with tremendous potential in the administration and exchange of KYC information, by employing a permissioned consensus mechanism to confirm transactions, thus heightening trust. Such technology aims at improving transparency, strengthening internal controls and providing greater assurance to all stakeholders.

Unfortunately, blockchain technology has become associated with the trading of certain unregulated commodities like Bitcoin, which is widely used in the new era of money laundering activity. But if criminals are using this technology, then why shouldn’t we?

With the development of private blockchain groups, this unique technology can be utilized in enhancing the completeness, reliability and timely exchange of KYC information, greatly reducing the time and effort required nowadays and, at the same time, enhancing its quality.

Artificial Intelligence is the new term in the compliance market and not only

there. It may make many of us think of science fiction books and movies but it is basically the technology that emulates human performance, typically by learning. Artificial Intelligence can be used to “learn” normal communication styles, enabling us to pick up on signs of deception, corruption or other compliance issues by identifying changes in the tone or patterns of communication.

When applied to the compliance function, Artificial Intelligence technology can be used in the electronic review of e-mails, contract terms and other unstructured data, which could potentially leave clues of bribery or corruption.

It can further determine behavioural patterns through a vast amount of information that can be gathered and fed into the system by us but also by the automatic gathering of information from the web.

Financial criminals are becoming smarter in their efforts to conceal the origin of their funds. Using the latest technology and often taking advantage of privacy and data privacy regulations, many criminals can take steps to hide their murky past. It is no wonder that many of us professionals are highly concerned that Europe is gradually losing the fight against financial crime.

Our organisations should focus on enhancing their operational efficiency if we are to effectively combat financial crime. Spending ever-increasing sums of money on compliance with little real tangible benefit is not the solution. Our focus should be on building purpose-designed technology to enable

real-time access to relevant information. The expansion of the Internet, combined with advances in global communications networks, means that the KYC information available to our institutions on individuals and entities doing business with us must be accurate and accessed in real time.

Blockchain, Artificial Intelligence and other RegTech solutions can only be as strong as our weakest link.

It is obvious to all that compliance is one of the key control functions of any modern organisation. How much this function enables the inflow of business, depends solely on the corporate values and ethos of the organisation itself.

Having strong values and uncompromised ethos is, unfortunately, the weakest link of most organisations today. It is not just the efficient procedures or enhanced technology that are in place

The compliance and corporate governance functions should be – and be seen to be – the pinnacle of an organisation’s values, vision and mission.

ACCOUNTANCY CYPRUS

66

professional services

Compliance and corporate governance officers have a vital role to play in helping ensure that financial crime is proactively identified and effectively prevented which determine this but simply the mindset and culture that the Board of Directors would like to build, how receptive and facilitative management is and how focused the staff are in applying this direction to their day-to-day work and behaviour.

Unfortunately, in today’s competitive world, we constantly crave more and more, forgetting that uncontrolled obesity eventually leads to death.

Successfully evolving compliance into a business enabler largely depends on aligning the corporate values of the Board of Directors with their underlying real value. The compliance and corporate governance functions should be – and be seen to be – the pinnacle of an organisation’s values, vision and mission.

Compliance and corporate governance

ACCOUNTANCY CYPRUS

will never be seen as business enablers, unless all management and staff can be persuaded that pursuing those corporate values can actually lead to: • Lower administrative costs • Lower legal costs • A better reputation • Increased and sustainable profitability • Enhanced credibility • Faster decision-making • More committed and engaged employees International money laundering is a serious problem and is getting worse day by day. Money laundering is not simply the unlawful increase in the wealth of some criminals. The real repercussions of money laundering and all forms of financial crime are its extensive devastating economic and social consequences for all nations and every single individual all over the world. It actually touches the well-being of our lives and our families. It is no wonder that governments globally are working hard to tackle the issue through legislation and collaboration with society and business.

Compliance and corporate governance functions should be business enablers as well as control mechanisms, not because of the corporate financial benefits that accrue, as mentioned earlier, or the significant fines that we may be called upon to pay in case of misconduct, but simply because we do not want our children dying or being potential targets of human trafficking.

We compliance and corporate gover-

nance officers have a vital role to play in helping ensure that financial crime is proactively identified and effectively prevented. Our vision should not simply be to fight isolated incidents of financial crime but, ultimately, to reach that ethical level and build a business environment where compliance or any other sort of control function is not actually needed.

I represent two of the leading institutions of the Cyprus economy that have actually adopted this vision: Bank of Cyprus and the Institute of Certified Public Accountants of Cyprus (ICPAC). They are two institutions with different objectives but they share exactly the same principles and values.

These values that have transformed Bank of Cyprus into a Bank for Cyprus and its people. These values also form the path on which ICPAC leads the way for the recovery and sustainability of the country’s economy.

Eliminating the need for our profession (the Compliance profession) should not only be our ultimate key success factor and objective but our prime obligation!

Aiming to end up out of a job because there will be no need for any control mechanism is what will ensure a bright future for our children!

professional services

67

ACCOUNTANCY CYPRUS

68

BUSINESS in cyprus

Bank of Cyprus Creates a New Jewel in the Capital Between November 21 and December 31, 2018, an astonishing 843,853 people visited the new Nicosia Mall.

This is a remarkable achievement but how many of those visitors were aware of the role of Bank of Cyprus in its creation? Marios Kalochoritis, Senior Advisor to the CEO of Bank of Cyprus, is Chairman of Nicosia Mall Holdings (ΝΜH), and Managing Partner of Loggerhead Partners Ltd. and, in this exclusive interview, he explains why the bank became involved and why he is more than pleased that it did.

N

icosia Mall has been comand intelligent business management pleted successfully with the systems and other unique technologies great contribution of Bank of installed in Nicosia Mall for the first Cyprus. Why did the bank decide to time in Cyprus, allowed all visitors go ahead and fund a shopping centre? without exception to enjoy their expeIn trying to restructure a complicated rience at the Nicosia Mall and return non-performing project with a complex home safe. This, for us, was equally financing arrangement, Bank of Cyprus important. By any standard of measurefound itself owning an almost derelict ment, the launch of Nicosia Mall was a semi-finished structure. The dilemma gigantic success. was whether to sell it as a skeleton and

realize a massive loss or to carefully take You have said that your overall stratover, finance and manage its compleegy is based on the philosophy of tion and commercialization and then “Doing things the proper way from sell it as a complete and operational the beginning”. What exactly do you world-class shopping centre, realizing mean by this? a much higher price. Following our asIndeed, this was a personal ‘bet’ for me. sessment and various market studies, we During my tenure on the Board of the concluded that the viability of a shopBank, we were confronted with several ping centre was, indeed, positive and, as poorly financed and poorly planned such, decided to proceed with bringing projects that ended up in losses. With the project to fruition. this project, having the backing of the

Bank and proper financing we engaged How satisfied are you based on Nicowith the contractors, subcontractors and sia Mall’s operation so far? Do you suppliers in a very professional manner. believe Bank of Cyprus made the corWe put strict deadlines for their work rect choice regarding its funding? and for our payments in place. On Objectively speaking, the results the leasing side, we invested in are astonishing. From the proper documentation and day the doors opened to a lot of preparatory work From the the public 31 Decemso that when the time date we opened ber 2018, a recordcame to engage with to the end of the potential tenants, breaking number of year, the number there were standard 843,853 people visof visitors was ited Nicosia Mall. No leasing documents in other single entity, in place and operations equal to the total any month or any city manuals for everyone population of in Cyprus ever achieved to sign.

With hindsight, the island this high number of visits.

I think we can say that, Also, the successful implewith proper planning and mentation of the smart parking proper leadership, successful proj-

ACCOUNTANCY CYPRUS

ects are achievable in Cyprus and for the Cypriots.

What is your key aspiration for Nicosia Mall?

As an operation to establish itself as a successful shopping centre and to have long-term sustainability, job creation, new opportunities for services and also for Nicosia’s western suburb to have a strong engine for growth. Also, to be a place that has a positive impact on society, not only by creating jobs but also by providing shopping and entertainment choices for our clients. For the bank, my aspiration would be to have a successful sale at a good price.

In Europe, shopping centres are an important pillar of the economy. Do you believe Nicosia Mall will boost the island’s economy? Have you seen any progress so far?

Absolutely. I would say that, in Cyprus, a smaller economy, a shopping centre like ours has a much bigger impact.

For starters, the completion of a semifinished project provided optimism and signalled progress from the events of 2013. Then, as a business opportunity, it elevated the entrepreneurial spirits of Cypriot business people who decided to join us and invested in setting up their shops and restaurants in the Mall. During the construction phase there were thousands of jobs at the Mall, whether for us or our tenants. And now, during the operation of these 150 shops, there are over 1,400 newly created jobs in retail, F&B, and an equal number in supporting services, cleaning, security,

BUSINESS in cyprus

69

Marios Kalochoritis

For many years to come, Cyprus will enjoy a stronger physical retail sector, while online will continue to be complementary logistics etc. When new jobs are created, there is a real impact on the economy. That is a fact.

Has Nicosia Mall faced any challenges since its opening? If so, how were they dealt with?

Definitely. One should understand that there are very few projects of this magnitude in Cyprus. The technology that is imbedded in the Mall far exceeds the visitation areas. A mall is a full and real operational factory and there are multiple disciplines that need to be designed, produced, installed, and managed in a synchronized fashion for it to operate properly and safely. From the date we opened to the end of the year, the number of visitors was equal to the total population of the island.

Therefore, one can imagine the stress on the building, the road network, parking etc. Dealing with several authorities to finalize or change road traffic, signage, security etc. was a challenge in itself.

Most of those challenges, though, have now been resolved.

Do you see online stores rapidly replacing traditional ones? Do you

think this trend could effect “traditional” shopping?

Recent studies reiterate what we believed. Online and physical are best when they coexist. They are not mutually exclusive. The shopping experience is now more than ever an important factor and Nicosia Mall was designed to provide a shopping experience and not merely a place to shop in. For many years to come, Cyprus will enjoy a stronger physical retail sector, while online will continue to be complementary. As a tourist destination also, physical shops are more important than access to a computer.

How does Nicosia Mall compare to those in other countries?

Before Nicosia Mall was completed, it was customary for Cypriots to return from a trip

abroad and say that we could only dream of having a shopping mall such as those they had seen in other successful western European countries. However, since Nicosia Mall opened its doors, it is safe to say that, after visiting it, people from abroad are the ones who will be wishing to have what has been achieved here. Nicosia Mall is a jewel in the capital of Cyprus and a reason for the entire nation to feel proud.

ACCOUNTANCY CYPRUS

70

BUSINESS in cyprus

Financial Modelling for Business Growth Businesses of all sizes can benefit from financial modelling to help reduce uncertainty and plan for growth with greater confidence.

By Susana Poyiadjis, Partner, Nexia Poyiadjis

U

ncertainty is a given for many businesses, whether it’s around where the next customer is coming from or the size of the next electricity bill. However, these uncertainties can multiply for businesses looking to scale-up. Growing too fast can be just as disastrous as not growing at all.

Avoiding business failure SMEs can easily overextend themselves as they expand. Incurring large liabilities that can no longer be serviced can lead to complete closedown. In many cases, the lure of an improving economy or expansion into an untested market can lead to failure. Using a well-designed financial forecast model to underpin a business plan can help to avoid these problems.

Financial forecast solution A financial forecast model shows a business how it is likely to perform, based on a series of assumptions. It can help determine the validity of a business’ expansion plans by forecasting expected revenues and costs.

Critically, a good financial model will highlight fixed costs to determine the required breakeven level of revenue. In many cases, costs such as

ACCOUNTANCY CYPRUS

leases and wages become unsustainable if demand for products or services falls away.

Scenario testing Proper business modelling includes forecasting what’s expected to happen, as well as alternative scenarios of what could happen. Scenarios will be built around a number of alternative assumptions to determine their impact on the business. These might include new projects, rent increases and factors affecting the underlying drivers of demand.

Scenarios help businesses reduce the uncertainty of a course of action by determining the upper and lower limits of

Financial modelling is a fundamental discipline that every business should use

the impact of both positive and negative factors. Armed with this knowledge, a company can act with greater confidence based on an understanding of whether actual results are within acceptable benchmarks. For example, effective financial modelling could have prevented a number of recent business failures in Cyprus by putting the companies

involved in a stronger position to consider the impact of large increases in leasing costs when opening new stores and their ability to secure the revenue required to meet these costs. They might have asked themselves whether demand would still be sufficient in, say, six or 12 months, and perhaps considered delaying opening a new store by a few months.

Financial modelling for all Financial modelling has traditionally only been available to large corporations or government-owned utilities but recent business failures show that it is a fundamental discipline that every business should use. Without a full picture of the possible consequences, the potential risks of aggressive growth plans are too significant to ignore.

Choose your adventure.

BUSINESS in cyprus

Ford EcoSport

Ford Kuga

€149 per month

€199 per month

From

71

From

ACCOUNTANCY CYPRUS

72

meet the cfo

Marios Demetriades

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 Marios Demetriades, Group Finance and HR Director at Mitsides Public Company Limited.

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

The role of the CFO is going through a major evolution. In today’s business environment, CFOs are becoming even more elevated as corporations increasingly rely on the financial and strategic guidance of their financial leaders.

Today, finance professionals are facing an array of new risks, responsibilities and challenges, from managing a globally diversified business to mitigating new technology risks. CFOs nowadays are responsible for reporting on the past, managing the present and creating the future. Their role has become

ACCOUNTANCY CYPRUS

vital to their organisations and their influence only appears to be growing.

Lastly, the role of the CFO is now very much one of a strategic business advisor. This often involves analysing how non-financial forces and factors could potentially influence future performance and profits.

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?

Yes. The CEO-CFO relationship has changed. Instead of the CFO being in reactive mode and delivering financial reports and details as required, he/ she now has a more proactive way of thinking and working. I am sure that in many organisations, the CEO-CFO relationship has become very important for future success. Overall, the CFO is faced with playing a role that is much more complex and wide-ranging than ever before. Data analysis skills, a consultative approach and the ability to

CFOs nowadays are responsible for reporting on the past, managing the present and creating the future

deliver business insides and strategic recommendations to the CEO will be key for success.

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

Yes. My evolution as CFO required a change in the mix of skills held by me.

Rather than being focused on gathering financial data and presenting reports and data analysis, I am very much involved in delivering strategic recommendations to the business. My role has evolved from being focused on processes to having a focus on strategy. Now, I have a much broader and deeper skill set than has traditionally been the case for a CFO. This covers areas as broad as cybersecurity, customer service, logistics and corporate branding. Also, as Group CFO, I need to spend much more time outside the finance department. Where the role previously could be handled from behind a desk, nowadays regular meetings with other departments, visits to various company facilities, and meetings with customers and business associates have become an important part of my daily schedule.

Technology is changing business in many ways. Has it had a direct impact on your work as CFO? As finance professionals, CFOs look to manage the new risks and challenges that have emerged. CFOs are leveraging new technology to help them thrive in the current modern environment. With the new technological tools available, finance leaders are able to drive corporate performance with real-time access

meet the cfo

to organisational and market data, to better assess and manage risk with increased visibility with a single, integrated view of their organisation and to grow their business with greater agility and efficiency. In this new era of finance, technology is empowering CFOs to transform their organisations by increasing the speed of doing business, driving success today and into the future.

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

Regulation has an enormous impact upon the role of the CFO. It aims to improve accountability and transparency across financial services, particularly in relation to capital funding and new reporting requirements. The broader regulatory environment across the global economy ranges from the adoption of International Financial Reporting Standards (IFRS), through Basel III and country-specific regulatory developments. The speed of regulatory change has become an even greater issue. CFOs now have an increasing personal stake in, and accountability for, regulatory adherence and compliance.

In your personal role at Mitsides, 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?

CFOs in any sector of industry need to acquire operational knowledge. Controlling costs and predictably growing margins has been the main purview of manufacturing CFOs for some time

73

CFOs in the manufacturing industry must have a thorough understanding of how to drive growth and find efficiencies in their operations and the supply chain but now investors are putting pressure on growth and innovation. CFOs in the manufacturing industry must have a thorough understanding of how to drive growth and find efficiencies in their operations and the supply chain.

Operational knowledge is invaluable for managing enterprise risk, which will continue to be closely scrutinised in the coming years. Operational knowledge and strong leadership abilities in the manufacturing industry will outweigh strong technical skills as CFOs become more of a partner in influencing the company’s future. Industrial companies tend to be among the most risk-averse when it comes to hiring talent. The executive ranks are largely populated with people who have grown up in the industry. Therefore, CFO candidates are frequently plucked from within an organisation’s own ranks or from a similar sector.

ACCOUNTANCY CYPRUS

74

FINANCIAL SERVICES

Fifth Anti-Money Laundering Directive: Key Changes and Impact

By Alexandros Constantinou, Director of Compliance Support Services, MAP S.Platis

W

hile Europe was still digesting and implementing the Fourth Anti-Money Laundering Directive 2015/849, a fresh legislative initiative was drawn up by the European Commission as a response to recent economic and political developments throughout the globe.

On 19 June, 2018, the European Parliament announced the adoption of the Fifth Anti-Money Laundering Directive 2018/843 (the “Directive”), the latest link in a chain of reforms targeting the elimination of money laundering and terrorist financing. The Directive has been effective since 9 July, 2018 and Member States have been urged by the EU Council to implement it into national law ahead of the already demanding deadline imposed (10 January 2020).

The Directive forms part of the European Commission’s Action Plan of February 2016 that was developed in the wake of terrorist attacks and devastating scandals, such as the Swiss Leaks and Panama Papers, that shook the European Union and highlighted significant vulnerabilities of the financial system.

Through the Directive, the European Commission aims to enhance transparency and leave no room for manipulation of the financial system for the facilitation of money laundering and terrorist financing.

The main changes brought by the Directive are the following: Greater Transparency on Beneficial Owners An important change, targeting the enhancement of transparency, concerns na-

ACCOUNTANCY CYPRUS

tional central beneficial ownership registers in the EU Member States. The Fourth Anti-Money Laundering Directive provides a broad framework for the collection, storage and access to information of beneficial owners of companies, certain trusts and other types of legal entities.

Currently, only government agencies, obliged entities and individuals with legitimate interest have access to the central transparency register, which is yet to be implemented in several Member States.

The Directive, though, now requires that the general public will have access to central beneficial ownership registers for corporate or other legal entities.

Furthermore, the Directive requires Member States to connect their central registers via the European Central Platform in order to facilitate cooperation and information exchange between the Member States.

While there are claims that this change could prove invasive, there are also arguments supporting that the requirement to register beneficial ownership and have that information publicly available is a vital step in detecting some of the vast flows of illicit funds transmitted through the financial system.

Bringing Virtual Currencies into Scope Following numerous warnings by national supervisory bodies regarding the lack of regulation and effective anti-money laundering measures in the virtual currencies market, the European Union has finally decided to take action.

In an effort to prevent the exploitation of platforms that offer virtual currencies

for money laundering and terrorist financing purposes, the Directive expands the scope of previous directives. Virtual currencies are now legally defined, while providers engaged in the exchange services between virtual currencies and fiat currencies, as well as custodian wallet providers, now fall under the scope of the Directive.

The virtual market is now forced to implement adequate anti-money laundering control frameworks and comply with the standards imposed to the rest of the market. Anonymity offered through virtual currency networks will be limited and the use of such networks will be closely monitored.

E-money Products and Remote Payment Transactions The Directive reduces further the monetary thresholds for identifying the holders of non-rechargeable prepaid cards from €250 to €150 and, in the case of payment transactions initiated via internet or through a device used for distant communication, the threshold has fallen from €100 to €50. As was the case with the previous legislation, when these amounts are exceeded, they will be subject to customer due diligence.

Furthermore, the use of anonymous, non-rechargeable prepaid cards will be prohibited where the payment originates from a jurisdiction that is not recognised as having equivalent anti-money laundering legislation with the European Union.

The implementation of these changes could prove cumbersome and costly to obliged entities as it could require a

FINANCIAL SERVICES

review of their current systems and processes for handling prepaid cards.

Harmonisation of Increased Due Diligence Obligations Regarding High-Risk Third Countries The Directive introduces enhanced due diligence requirements with regard to financial transactions with high-risk third countries in an effort to mitigate those risks and achieve harmonisation across the European Union.

Obliged entities will be required, inter alia, to obtain additional information on the customer, beneficial owner and business relationship, obtain approval from senior management for establishing or continuing the business relationship and to conduct enhanced monitoring.

Moreover, the Directive encourages Member States to adopt additional measures, where deemed necessary, including the refusal of the establishment of subsidiaries or branches or representative offices either from high-risk third countries or in highrisk third countries, the introduction of enhanced relevant reporting mechanisms and increased external audit requirements.

Enhancement of the Power of Financial Intelligence Units (FIUs) and Cooperation and Information Exchange Among Authorities The Directive obligates Member States to establish centralised automated mechanisms, such as central registries or central electronic data retrieval systems, which will allow the identification, in a timely manner, of any natural or legal persons holding

bank accounts and safe-deposit boxes.

At the same time, Member States shall ensure that the aforesaid information held in the centralised mechanisms is directly accessible to national Financial Intelligence Units (FIUs) in an immediate and unfiltered manner. The information shall also be accessible to other national competent authorities, whereas any FIU will be able to provide information held in the centralised mechanisms to any other FIU in a timely manner. FIUs should not refrain from or refuse the exchange of information to another FIU, spontaneously or upon request, for reasons such as a lack of identification of an associated predicate offence.

In addition, there is a possibility of creating a separate legal instrument to allow access to these centralised banks and payment account registers for other purposes such as criminal investigations and tax authorities.

These measures aim to achieve cooperation at an international level and address the misuse of the system by individuals who use jurisdictions and institutions which are more vulnerable.

PEP Lists The Directive requires Member States to compile and keep up to date a list of prominent Politically Exposed Persons (PEPs) entrusted with functions on a national level. The requirement extends not only to public functions but also to accredited international organisations.

These lists shall be sent to the EU and the EU will then draft a single list, which will include the consolidated national lists, and will publish the result.

It should be noted that PEPs continue

75

to be high-risk clients in terms of money laundering and institutions are required to apply enhanced due diligence measures according to the relevant requirements.

The move towards a more agile and digitally-driven financial market has come with inherent risks and the creation of a new platform for money laundering and terrorist financing. The need for a more robust anti-money laundering and counterterrorism framework is intended to be satisfied through the Directive.

There has been criticism that the Directive introduces more scrutiny and surveillance to the market, which borders the limits of breaching data protection rights. Others have voiced concerns that the market will struggle to implement ever-changing anti-money laundering legislation, as it only recently had to adapt to the Fourth Anti-Money Laundering Directive.

On the other hand, one cannot overlook recent money-laundering scandals and terrorist attacks which arguably evidence the need for improvement of the current legal framework.

Furthermore, the 12 November Directive 2018/1673 (dubbed as 6AMLD) was published in the Official Journal of the EU, aiming to complement and reinforce the application of the Directive by means of criminal law. While the effect of the Directive and other changes to come remain to be seen, market participants are expected to uphold high standards in combating money laundering and terrorist financing, while preparing for the implementation of a new and stricter wave of measures.

ACCOUNTANCY CYPRUS

76

FINANCIAL SERVICES

Ongoing Efforts to Develop Cyprus’ Financial Market 2018 was a year of important projects for CySEC

By Demetra Kalogerou, Chairwoman, Cyprus Securities and Exchange Commission

T

he Cyprus Securities and Excent financial crisis, thereby placing the change Commission (CySEC) Cypriot economy on a dynamic growth has been placing great emphasis path. The continuous growth that the on the development of an institutional financial sector has experienced in the framework that will govern the sector of past few years cannot be considered as collective investments and asset managelucky or circumstantial; it is a product ment, which has recorded significant of the significant efforts made and the growth, even within what is a fairly new initiatives taken at various levels. institutional framework.

CySEC currently supervises 172 Collective InThe collective vestment Funds and Asset investments Management companies, sector is compared with 102 in expected 2016, marking a 68% to play an increase. Furthermore, important total assets under manrole in the agement in the first six growth of the months of 2018 reached country’s real close to €5.4 billion, economy compared with €3 billion at the end of 2017, marking an 80% increase. The collective investments sector is expected to play an important role in the growth of the country’s real economy, as Latest Developments an alternative form of corporate financOne of CySEC’s most important projing. Moreover, it will establish Cyprus as ects during 2018 was its monitoring of an international services hub. the implementation of the new MiFID Cyprus has important competitive adII framework by the companies under its vantages, which make it an especially supervision. We successfully implementattractive investment destination. These ed all the information exchange systems include the country’s legal and taxation related to transactions. framework, a beneficial geographical Another important development was location, a highly educated workforce, a the passing in July of new legislation on low level of crime, traditional hospitalAlternative Investment Funds (AIFs) ity, mild weather conditions, etc. These by the House of Representatives, which advantages have been enhanced further, aims, among other things, to include following the way in which the country’s Registered AIFs within the scope of the productive elements reacted to the renational institutional framework. These

ACCOUNTANCY CYPRUS

specific AIFs will not be licensed by CySEC but will be overseen through their supervised administrator. The Commission also proceeded to announce tenders for the creation, management and monitoring of a Trust Registry, in line with the Law on the Prevention and Suppression of Money Laundering and Terrorist Financing.

Innovation Hub As part of its ongoing efforts to keep up with technological and other developments that are taking place globally in the financial sector, CySEC recently announced the creation of an Innovation Hub. This is a very important project, since it offers supervised and unsupervised entities that provide innovative services or products access to CySEC, thus allowing them to gain a better understanding of the implementation of the regulatory requirements. Furthermore, entities engaged in the Financial and Regulatory Technology sector will be able to access specialised supervisory expertise as well as round table discussions with market participants and academics. At the same time, through the Innovation Hub, CySEC will have the opportunity to gain a fuller picture with regard to the risks and benefits that innovative products, services and platforms entail, allowing for the creation of a better-informed regulatory environment.

FINANCIAL SERVICES

77

ACCOUNTANCY CYPRUS

78

management

What Makes a Good Leader?

By Andrie Penta, Marketer and Corporate Trainer

M

y views on leadership have fluctuated over time, partly as a result of my personal successes and failures at running my own businesses and of my experience of being an employee. I have learned that certain characteristics of leaders tend to prevail and repeat themselves under all circumstances. What is also evident, however, is that that not all situations require the same leadership style. There is no ‘one size fits all’ template.

Successful leaders have to be flexible and adapt accordingly. Being rigid will not take them very far, although having said that, I clearly recall how one particular boss early on in my career used to tell his people, “Too much democracy won’t do any good to any of us”. He was very fond of the ‘carrot and stick’ approach and, at the time, it gained him respect. Several years later, I question whether such an approach would still work and I am now more inclined to believe that a good leader’s mission is to create other good leaders, as well as to listen to, empower and support his/her people.

Not all situations require the same leadership style. There is no ‘one size fits all’ template Although most of us probably know what we need to do in order to become better leaders, we often find ourselves caught up in day-to-day issues and fail to act. Being a great leader requires

ACCOUNTANCY CYPRUS

constant personal and professional development, self-evaluation, regular 360° feedback, and taking action on that feedback. True leaders are rarely satisfied with their performance; they are constantly striving for better results.

Following in-depth reading on the subject and 15 years of personal involvement, I would like to pinpoint certain characteristics which, I believe, provide an indication of what makes a good leader.

1. Be a Source of Inspiration My mother, a powerful figure in the commercial sector and an accountant by profession, always used to tell me, “When the going gets tough, your people will look up to you to see how you react to the situation.” Being a source of inspiration is only possible if you motivate your team by setting the right example. At the end of the day, it’s not what you say, it’s what you do that matters. Probably the most difficult job of a leader is to persuade others to follow, not through fear but through respect.

Ultimately, a great leader creates and nurtures other leaders.

2. Have a Vision I have often been annoyed by the fact that organisations hire “experts” and then place them under a “leader”, who is normally of a different expertise and who undertakes the role of telling them what to do. A true leader is not intimidated by someone else’s expertise, knowledge and skills. A leader has a vision, is bold enough to try new things, is honest and humble. Great leaders

help people reach their goals, they are not afraid to hire people who might even be better than them and take pride in the accomplishments of those they help along the way.

3. Use Emotional Intelligence Two great leaders for whom I worked in the past had a common characteristic, which, in my eyes, appeared to be an immense positive trait. They were able to find time, in their busy schedule, to actively listen, to show empathy and tap into my emotions in a way that made me feel that they understood what it was like to be in my shoes. It was their ability to show that they cared. Nowadays, due to everyone’s hectic lifestyle, many leaders fail to make time to listen to and care about their people.

4. Know Your People The members of your team determine the success or failure of any project.

Knowing the strengths and weaknesses of every member of the team can facilitate the effective management of the outcome. From personal experience, however, I believe that this can be a trap, as leaders may end up with personal favourites (or disliked people) due to a similarity bias, i.e. showing preference to those individuals in whom they see parts of themselves. Successful leaders normally ensure that they act with diversity and stop themselves from falling in the unconscious similarity bias trap.

5. Communicate Effectively One of my most unforgettable – and traumatic – experiences as an employee

management

79

At the end of the day, it’s not what you say, it’s what you do that matters

occurred when I was working for a technology company. Coming from a background where great articulation skills are necessary, I was astonished by how so many people could spend their whole day, apparently without speaking to one another. I discovered that all communication was conducted through e-mail and online chatting, although the team members shared the same room! I later found out that this was the way “the leadership” wanted it to be. Oral communication was limited to daily or even weekly meetings with the CEO, during which employees would

try to understand the hidden meanings behind an irregular flow of words.

If you want to be a leader, you need to clearly communicate your vision to your team and give them the correct strategy to enable them to achieve the goal. Otherwise it will be very difficult for you to obtain the results you want.

Simply put, if you are unable to communicate your message effectively, you will never be a good leader. A good communicator can be a good leader.

Words have the power to motivate people to do more than you expect. If you use them effectively, you will achieve

better results.

Leadership is a topic about which there is much more to be said but, in my view, the above proposals are essential if you wish to succeed as a leader in any area. You must focus on your own key responsibilities and empower your people so that you can delegate the rest. People will not admire and respect you because you are doing their job for them, but rather because you inspire them to reach the next level, because you listen to them and care about their concerns, because you have a vision and are passionate about what you do.

ACCOUNTANCY CYPRUS

80

professional news

New appointment for ACCA in Cyprus ACCA (the Association of Chartered Certified Accountants) is pleased to announce the appointment of Lefki Panteli to the position of Member Engagement Manager, based in Cyprus.

Lefki has joined the Western Europe and Americas team, and is responsible for member engagement and the support of ACCA members working in the Western Europe region through a variety of channels including: member networks panels, the Professional Insights research programme, online publications and resources, relationships with external bodies, products, services, events and digital engagement Lefki brings with her nearly ten years of experience in politics, specialising in International Relations, and in higher education administration.

Speaking of her appointment, Abdul Goffar, head of ACCA Western Europe says: “We have a growing presence in Cyprus and across Western Europe, so it’s great that Lefki has joined the team. She brings a wealth of experience with her, which will be a great benefit to the profession in Cyprus and beyond as ACCA works on its strategy to be number one in developing the profession the world needs.”

IASB Amends Definition of Business in IFRS Standard on Business Combinations

IFAC Elects In-Ki Joo as New President IFAC (the International Federation of Accountants) has announced the election of Dr. In-Ki Joo of the Republic of Korea as its President. Dr. Joo will serve a two-year term until November 2020. A leading academic voice in accountancy, Dr. Joo is a Professor, Emeritus, of Accounting at the Yonsei University School of Business. He previously served as the Dean of the University College and the Dean of Academic Affairs at Yonsei University.

ACCOUNTANCY CYPRUS

The International Accounting Standards Board has issued narrow-scope amendments to IFRS 3 Business Combinations to improve the definition of a business. The amendments will help companies determine whether an acquisition made is of a business or a group of assets.

The amended definition emphasises that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others. In addition to amending the wording of the definition, the Board has provided supplementary guidance.

Distinguishing between a business and a group of assets is important because an acquirer recognises goodwill only when acquiring a business.

The amendments arose from a post-implementation review (PIR) of IFRS 3, an assessment carried out to determine whether an IFRS Standard works as intended. Following feedback from the PIR, the Board is also working on another project linked to IFRS 3 in which it is exploring possible improvements to the accounting for goodwill.

Companies are required to apply the amended definition of a business to acquisitions that occur on or after 1 January 2020. Earlier application is permitted.

65% of Governments to Report on an Accrual Basis by 2023 Within five years, 65% of governments will report on an accrual basis, according to a recent report by IFAC (the International Federation of Accountants) and CIPFA (the Chartered Institute of Public Finance and Accountancy). The report was drawn from the International Public Sector Financial Accountability Index, which captures current and future use of public financial reporting bases and frameworks by governments around the world.

professional news

81

Υπηρεσίεσ ΚαθαρίσμοΥ

εσωτερίΚων Καί εξωτερίΚων χωρων

● Γραφεία ● Καταστήματα ● επαγγελματικοί χώροι

ACCOUNTANCY CYPRUS

στοίχεία επίΚοίνωνίασ: Αισχύλου 2, Έγκωμη, Λευκωσία | Email: timosc@cytanet.com.cy | Tηλ: 22772945 | Κιν: 99606373, 99449574 | Φαξ: 22776948

82

OUT OF OFFICE

Go! Go! Go! 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. For the past 18 years, Nicholas Roussos, Senior Manager in Business Consulting, Advisory at PwC Cyprus has been playing the ancient Chinese strategy board game, Go, which was invented in China more than 2,500 years ago and is believed to be the oldest board game continuously played to the present day.

How do you play Go? Go is played on a board with a 19 x 19 grid. You start with an empty board, and the players alternately place pieces which don’t move (called stones) on the intersections of the grid lines. One player plays black stones and the other white stones. You try to surround areas of the board, while capturing your opponent’s stones by surrounding them and taking them off the board.

What got you interested in the game?

I encountered Go by chance, during my university studies in the United States when some friends who belonged to a Go club introduced me to it. I joined them at the club one afternoon and I was still there at midnight!

How long have you been playing?

About 18 years now.

What’s the main attraction of Go? It has very simple rules and concepts but it requires a complex strategy. The feeling that comes with improving is one of the most enjoyable parts of playing Go. With greater understanding, the experience of playing becomes richer. They say that it only takes a few minutes to learn the rules of Go but it takes a lifetime to master it – some would add that even a lifetime is not enough! I think this has been highlighted by the recent advances in AI and the wins by the AlphaGo computer programme against the top professionals.

ACCOUNTANCY CYPRUS

How can someone learn Go in Cyprus?

The best way is to join one of the weekly meetings of the Cyprus Go Association (CGA). New members are always welcome and someone will happily introduce you to the game. It is easier if somebody more experienced can show you and play with you. We meet every Friday in Nicosia and sometimes on Saturdays in Larnaca. The last couple of years we have been meeting at the Tehnis Dromena café in old Strovolos. The meeting place

and times are always posted on our website at www.cyprus-go.org.

Did you ever consider becoming a professional Go player?

Becoming a professional Go player requires great dedication and sacrifice. Kids in Asia start learning Go at the age of four or five and can aim to turn professional in their teens, so I was already late, discovering Go in my 20s. I think I’m much better off as a professional accountant!

What do your colleagues and friends think of your hobby?

They find it interesting but most of them think it’s much too complicated and difficult, and that prevents many of them from learning how to play. In reality, even though the game involves complex strategies, it’s one of the simplest games to learn and it can be enjoyed even at the very beginner level.

Would you recommend this hobby to others?

I heartily recommend it to everyone, as it can offer enjoyment for a lifetime. It is especially good for children, as it helps them think more broadly and activates both the left and right hemispheres of the brain. Go can help develop thinking power, memory, spatial sense, mathematical ability, strategy, and judgment. Learning how to play Go is also a very good opportunity for parents to spend time with their children. I would be happy to hear from fellow members of ICPAC and to introduce them to the game during one of the CGA’s weekly meetings.