ACCOUNTANCY CYPRUS - No. 132 - September 2018

No. 132 | september 2018

The

Future

of Professional

Services in Cyprus t h e

v i e w s

o f

s i x

l e a d i n g

f i g u r e s DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS POSTAGE PAID LICENCE no.33

The Journal of the Institute of Certified Public Accountants of Cyprus

THE POWER OF BEING UNDERSTOOD

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

www.ancoria.com/en

In this Transformative Age, the opportunities that emerge from disruption are ready to be seized. ey.com/tax #BetterQuestions

Š 2018 EYGM Limited. All Rights Reserved. ED None.

Should tax keep pace with transformation, or help shape it?

4

ACCOUNTANCY CYPRUS

cont e nts Businesses are the Engines of Economic Growth

How is artificial intelligence changing the audit?

By Andreas Avraam

40

Leveraging IFRS 17 to Build the Finance Function of the Future

By Nicos S. Stavrou

42

A=L+E

By Pantelis Pavlou

44

60

The Cooperative Bank Saga: A Non-Populist View

The Endless Parade of Accounting and Audit Requirements

By Yiangos Charalambous

48

62

Estia: A Scheme Fit for Purpose

IFRS 15: The Application of a Five-Step Model

By Melina Menelaou

52

06

54 58

accounting & audit

24 THINKING AHEAD

Interview with Christos Michaelides, Chairman of the Employers and Industrialists Federation (OEB)

Planning Your Retirement – A Three-Step Approach

By Christis Michaelides

By Savia Orphanidou

By Renos Ioannides

economy

66

The Future of Tax Havens

By George Apostolides

taxation A Thriving Professional Services Sector for a Thriving Economy

Interview with Chrysis Pegasiou, Director, Crowe Cyprus

68

professional services

cover story

The Future of Professional Services in Cyprus

10

Six leading figures outline what they believe needs to be done to make the professional services sector more solid and sustainable.

institute news

Issue 132 september 2018 Creating a Competitive Advantage

By Dr Aspasia SimillidouTheodosiou

Working the Room

By Spyros Yiassemides

Responsibility Mapping

By Maria Krambia-Kapardis

Why Millennials are the Future of Business

By Andrie Penta

Prohibition of the Sale of Luxury Products via Third Party Internet Platforms

By Phaedra Exadactylou

70 72 74 76

Interview with the CFO of Hermes Airports

80

ISSN 1450-2380

The Present and the Future of the Cypriot Real Estate Economy

88

By Panos Danos

real estate The Rise and Rise of E-Learning

Interview with Spyros Goumas, Managing Director, SQLearn

92

Ten Educational Modules to Support the IFRS for SMEs Standard Now Available; IASB Announces Composition of its Management Commentary Consultative Group; Supporting IFRS 17 Implementation: Insurance Contracts Issued by Mutual Entities

A Trusted and Effective Financial Partner Interview with Ancoria Bank CEO Ioannis Loizou

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

ict

96

professional news

84 meet the cfo

82

86

By Antonis Loizou

78

business in cyprus

George Paschalis

Shocking Red Tape, Delays & Indifference

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

In-house Editor-in Chief John Vickers Coordination Pan Charalambous

Have a Cigar!

Alexis Tsielepis, Managing Director, Chelco VAT Ltd has a passion for cigars

98

out of office

financial services

A Spectacular Turnaround

Interview with Pantelis Leptos, President, Real Estate Developers Association

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

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

6

ACCOUNTANCY CYPRUS

THINKING AHEAD

By Kyriakos Iordanou, General Manager, ICPAC

Competitiveness is the Safest Way Forward

I

t was with pleasure that we received the news of the Government’s decision to establish the Economic and Competitiveness Council in June.

The Council will carry out the functions of the National Productivity Board as well as policy analysis, in consultation with key stakeholders and using external experts as necessary, aiming at providing recommendations to the Government for appropriate reforms that will enhance the economy’s competitiveness and productivity.

It is important to highlight the fact that the Council will operate autonomously and independently, with full transparency, publishing all its policy recommendations as well as annual reports on its activities. Its composition (eight members from the business community and academia, and one representing the Ministry of Finance) under the chairmanship former Finance Minister Takis Clerides is an indication that it will be driven by the private sector and the real economy, whilst emphasis will also be given to improving and advancing Public sector productivity.

ICPAC has long advocated the necessity to focus on the continual improvement of the country’s competitiveness and we have raised the issue on a number of occasions. The creation of the Economic

and Competitiveness Council has been warmly welcomed, since such a development was one of the main proposals submitted by the Institute.

Cyprus needs to redefine its economic model and adjust its products and lines of operations in a way that will give the country a competitive edge vis-à-vis its primary competitors, while keeping the country economically active and relevant. It is thus imperative to keep up in all areas, i.e. innovation, the breadth and quality of products/services offered, costs, business environment and culture, skilled human resources, as well as ease of doing business. The economic growth experienced in recent years, following our exit from the economic adjustment programme imposed by the Troika, can only be sustained if the economy continues to grow. Hence, investing in the development of the economy and enhancing the country’s competitiveness is, in essence, the safest way forward.

One of the best-known gauges of a country’s competitiveness is the Global Competitiveness Report (GCR), as released by the World Economic Forum (WEF).

The latest report (2017-2018) ranks Cyprus 64th among 137 economies, recording a remarkable improvement from the previous year’s 83rd place. However, despite the improvement in the overall

ranking, the GCR indicates that there exists vast room from improvement in four of the 12 pillars of the report, namely Access to Finance, Inefficient Government Bureaucracy, Inadequate Supply of Infrastructure, and Restrictive Labour Regulations. On the other hand, the Report notes government, tax and foreign currency stability in a secure civil environment.

I have no doubt that the newly established Economic and Competitiveness Council will carefully review all of the above and initiate the relevant actions.

I take this opportunity to thank the Chairman of the Council for the recent meeting that we, as ICPAC, held with its members, and the effective exchange of views and clearly serious willingness for cooperation. This is a clear demonstration of the Council’s eagerness to consult with all productive stakeholders of the economy. I also feel confident that the extensive proposals submitted by ICPAC will be a useful tool for the Council.

We shall continue to advocate in favour of competitiveness and the structural reforms that the whole project entails, underlining the WEF’s description of the GCR as providing an insight into the drivers of the productivity and prosperity of every economy and its belief that competitiveness is a key driver of growth and resilience.

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ACCOUNTANCY CYPRUS

institute news

Mediterranean Federation of Accountants in Turkey. During their stay, they had the chance to meet and discuss with the representatives of other accountancy bodies.

News from the Boardroom

T

he third quarter of the year was particularly busy for the Council and the management of the Institute, especially regarding matters relating to the Central Bank of Cyprus. The Council held two meetings during the period.

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

Meetings with Officials During the third quarter of 2018, the President, Council Members and the General Manager held a number of meetings with government, political, business and other officials, including the following: The Council spent considerable time addressing matters raised in the circular issued by the Central Bank of Cyprus on the subject of shell companies. To this end, there was extensive consultation with all productive stakeholders of the economy, as well as officials of the Central Bank of Cyprus, the Ministry of Finance and other relevant authorities. Eventually a letter co-signed by eight different organisations was submitted to the Central Bank of Cyprus with a common position and a suggestion for the definition of shell companies.

13/9/2018 The President, the General Manager and Ninos Hadjirousos met Ecumenical Patriarch Bartholomew and received his blessing. The meeting took place at Fanari in Istanbul, Turkey. The ICPAC President presented him with a copy of the book “A Historical Account of Accountancy and Accountants in Cyprus” sponsored by ICPAC. 17/9/2018 The President and the General Manager attended a meeting with the newly established Cyprus Economy and Competitiveness Council on. During the meeting ICPAC officials had the opportunity to put forward ICPAC’s views and suggestions, establishing thus a good communication channel for further cooperation and consultation.

19/9/2018 The General Manager attended a very interesting workshop organised by ECODA and ECIIA in Brussels on the Implementation of Audit Reform by Audit Committees.

26-30/9/2018 The President and the General Manager visited London for the Accountancy Europe Assembly meeting which was hosted by ICAEW. During their stay, they had the opportunity to meet and discuss issues of common interest with other accountancy bodies and have meetings with ICAEW officials.

29/9/2018 ICPAC officials met with the Director of the Institute of Business Ethics Filippa Foster Back in London.

ICPAC and IBE entered into a protocol of cooperation for the promotion of business ethics for the benefit of their members, their organizations and the public at large.

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.

4/10/2018 On the occasion of the presence of Bill Howarth, President of the International Compliance Association (ICA) in Cyprus, the President and the General Manager had a number of meetings with him.

23/8/2018 The President and the General Manager of the Institute met with the British High Commissioner to Cyprus, Stephen Lillie, to discuss areas of mutual interest and to present him with a copy of the book “A Historical Account of Accountancy and Accountants in Cyprus” sponsored by ICPAC.

4/10/2018 ICPAC officials and the ICA President met with the Chairwoman of CySEC, Demetra Kalogerou, and with Constantinos Herodotou, Executive Director of the Central Bank of Cyprus.

11/9/2018 The President and the General Manager met with the Speaker of the House of Representatives, Demetris Syllouris, to discuss issues of mutual interest and to present him with a copy of the book “A Historical Account of Accountancy and Accountants in Cyprus” sponsored by ICPAC. 12-14/9/2018 The President, the General Manager and Ninos Hadjirousos as the representative of ICPAC, attended the assembly of the

5/10/2018 The President and the General Manager of ICPAC met with Simon Osborne, CEO of ICSA, during his visit to Cyprus.

11/10/2018 A delegation of ICPAC’s Council and the General Manager attended a meeting with the Council of the Cyprus Public Audit Oversight Board to discuss the progress of the implementation of the Delegation Agreement as stipulated by the new Auditors Law.

ACCOUNTANCY CYPRUS

12/10/2018 ICPAC officials met with officers from the Ministry of Energy, Commerce, Industry & Tourism to discuss the results of a survey on Insolvency Practitioners and the way forward on the specific topic.

Other important meetings and activities 5/9/2018 ICPAC participated in the 4th International Compliance Forum, which was chaired by ICPAC President Marios Skandalis.

5/10/2018 ICPAC in cooperation with the Institute of Chartered Secretaries and Administrators (ICSA) held a workshop on how corporate governance can help companies thrive. The workshop was moderated by Simon Osborne, CEO of ICSA, and the panel was composed of experts from the business, academia and consulting sectors.

8-9/10/2018 ICPAC and the International Compliance Association (ICA) held joint events in Nicosia and Limassol to launch the bilateral cooperation between the two bodies. The

11

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

• During the quarter, ICPAC was significantly active regarding the National Risk Assessment project and preparations for the upcoming Moneyval assessment as well as matters relating to data protection and GDPR. • ICPAC’s representatives appeared before Parliamentary committees dealing with matters relevant to the Institute.

• The President and the General Manager held various meetings during the quarter with other officials, stakeholders and Members of Parliament on issues relating to the Institute and the profession.

• ICPAC officials attended numerous business events and general meetings of various organisations and bodies in Cyprus.

• ICPAC distributed the book “A Historical Account of Accountancy and Accountants in Cyprus” to all relevant stakeholders in the local political, economic and academic arena, as well as to various organisations abroad.

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ACCOUNTANCY CYPRUS

Institute Committees Update

Administrative Services Committee During the third quarter of 2018, the Administrative Services Committee discussed the following issues, all of which have a direct impact on Administrative Service Providers (ASPs): Circular from the Central Bank of Cyprus on Shell/Letter Box Companies The Committee commenced discussing the contents of the said circular, which was issued on 14 June 2018 and addressed to Anti-Money Laundering Officers of all Credit Institutions, as this will have a direct impact on ASPs. The Committee analysed the content of the circular and discussed how it will affect clients that are already administered by ASPs and how future engagements may be approached. Emphasis was placed on practices that will enhance substance, as this was one of the key points raised in the circular. The Committee concluded that accommodating banking facilities for companies with no substance and no real and legitimate business purpose should indeed be avoided, although it noted that certain changes should be made to the circular to better reflect the intentions of the Central Bank.

Amendments to the EU’s Anti-Money Laundering Directive (AMLD) The Committee continued to comment on the main provisions of the amendments to the EU’s Anti-Money Laundering Directive (AMLD), as published in December 2017 and due to be enacted into law by summer 2019. Having researched the topic and compared it with other jurisdictions’ laws, the Committee discussed the likely impact on ASPs. However, due to the fact that amendments will be introduced shortly, it decided to postpone issuing a discussion paper until national legislation has incorporated these amendments.

General Data Protection Regulation (GDPR) The Committee continued discussing the implications of GDPR and concentrated on their implementation by ASPs. Due to the burden on ASPs for implementing GDPR requirements, the Committee prepared itself to address any issues members may raise.

US/EU Sanctions The Committee discussed issues arising from the continuing expansion of sanction lists issued by both the US Office of Foreign Asset Control (OFAC) and the EU Council and addressed the implications these may have for ASPs servicing clients that are affected by sanctions. The Committee noted the importance of adhering to the restrictions imposed by the sanction lists and expressed its approval of the circular issued by ICPAC. It will continue monitoring developments and have further discussions on the implications of sanctions.

Costas Christoforou, Chairman

Financial Services Committee During the third quarter of 2018, the Committee provided guidance to the Cyprus Securities and Exchange Commission (CySEC), including the illustrative audit report on eligible funds and financial instruments of clients.

The Committee Chairman attended a meeting with the Deputy Accountant General and other Committee representatives to discuss and agree on the scope of work of auditors for the application of Provident Funds, regarding the recovery of losses on their impaired bank deposits. The new template has been released by the Treasury of the Republic.

Constantinos Kallis, Chairman

Public Sector Committee During the second quarter of 2018, the Public Sector Committee held three meetings and carried out the following activities: The Committee was informed about a letter sent by the General Manager of the Institute to the Minister of Finance, regarding the recognition of ACCA and ACA as equivalent to a Master’s Degree in the UK, Ireland and Malta. In the same letter, the Institute asked the Min-

ister of Finance to examine the possibility of ACCA and ACA members being treated in the same way in Cyprus.

The Committee organized a seminar on “Principles of Public Administration Law” in Nicosia on 14 June 2018.

The Committee Chairman, who is also a member of the Public Sector Committee of Accountancy Europe (ACE), updated Committee members on the meeting of the Public Sector

Group of ACE in Brussels on 29 June 2018, regarding recent developments regarding European Public Sector Accounting Standards (EPSAS) and International Public Sector Accounting Standards (IPSAS), as well as the other issues concerning public financial management.

Marios Hadjidamianou, Chairman

14

ACCOUNTANCY CYPRUS

Taxation Committee The main activities of the Taxation Committee during the third quarter of 2018 were the following: 1. We sent letters to, and held meetings and discussions with, the Tax Department (TD) on various issues, including: • The publication date of the 2017 TD4 return and the problems faced due to its late publication.

• Finalisation of the regulations on the taxation of benefits in kind and the date on which they will be come into force.

• The issuing of a circular on non-return capital contributions to non-resident companies.

• The implications of circular 14 dated 14.11.2017 relating to the interpretation of article 5(2)(z) of the Income Tax Law. • The publication of updated tax residency and other certificates.

• The preparation of guidelines on transfer pricing.

• Confirmation of specific examples on the application of article 8(23) of the Income Tax Law following the publication of the relevant tax circular.

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

2. We set up a working group together with the Ministry of Finance for the purpose of identifying whether current tax legislation requires an update.

3. We worked with the Ministry of Finance and the TD on the preparation of draft transfer pricing legislation and regulations.

4. We worked with the Ministry of Finance and the TD on the transposition of the provisions of Council Directive 2016/1164 (ATAD) into national legislation.

5. We studied tax bills, submitted our comments when deemed necessary and attended parliamentary meetings during which such bills were discussed. These included bills on Funds, the audio-visual industry and the Tax Tribunal.

6. We supported the Association of Cyprus Banks on tax matters arising from new reporting and other standards.

7. We continued to provide technical support to the Ministry of Finance when requested. 8. Examples of such support relate to CCTB and DAC6 discussions at a European level.

Committee Members continued their involvement in DTT negotiations.

George Markides, Chairman

NEW MEMBERS 4874

MARIA

LOIZOU

ACCA

4875

ATHINA

SYNADINOU

ACCA

4876

VERONIKI

PRINGI

ACCA

4877

ANDREAS

VENIZELOS

ICAEW

4878

DESPINA

HADJIGEORGIOU

ACCA

4879

VASILIS

VASILIADES

ART. 155

4880

PANAYIOTIS

CHRISTODOULOU

ACCA

4881

CHRYSTALLA

SOLOMONTOS

ACCA

4882

MARIA

GREGORIOU

ACCA

4883

JOSEPH

KEFALAS

ACCA

FRANTZI

ACA

4884

HARITHEA

4885

PETER

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ACA

4886

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TSIARTA TERRY

ACA

4887

CHRYSTALLA

CHRISTODOULOU

ACCA

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MICHALIS

PEKRIS

ACCA

4889

ATHOS

MICHAEL

ACCA

4890

CHRISTINA

CHARALAMBOUS

ACCA

4891

IOANNIS

PIERIDES

ACCA

4892

MARIOS

CHARALAMBOUS

ACA

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ELPINIKI

SAVVA

ACCA

4894

NATALIE

LEONIDOU

ACCA

4895

ANTONIA

SOLOMOU

ACCA

4896

ELENA

IVANOVA

ACCA

4897

ANDRI

ANDREOU

ACCA

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THEOGNOSIA

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ACCA

4899

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ICAEW

CHRISTOFI

ICAEW

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THEOLOGOU

ACA

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CHRISTODOULOS

CHRISTODOULOU

ACA

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CONSTANTINA

CHARALAMBIDOU

ICAEW

4904

SYMEON

PAPHITIS

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ICAEW

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ACCOUNTANCY CYPRUS

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ACCOUNTANCY CYPRUS

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NEOCLEOUS

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IOANNOU

ACA

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MICHAELIDES

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TAKIS

CHRISTOFI

ACCA

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MARINOS

MARINOU

ACA

5005

STELLA

IOAKIM

ACCA

5049

KIKI

CHRISTOUDIA

ACA

5006

MICHALIS

MICHAEL

ACCA

5050

ERMIS

PETSAS

ACCA

5007

ELENI

GEORGIOU

ACA

5051

CHRISTINA

ROTSIDOU

ACA

5008

IRENE

LISANDROU

ICAEW

5052

CHRISTIANA

PSARA

ACA

5009

PANTELITSA

PANAGI

ACCA

5053

AGGELIKI

THEODOROU ALAMPRITI

ACCA

5010

CHARIS

JOANNIDOU

ACA

5054

EVDOXIA

NICOLAOU

ACA

5011

CHRYSANTHIE

AGISILAOU

ACA

5055

ANNI

IERONYMIDOU

ACCA

5012

ANDREA

CONSTANTINOU

ACA

5056

NICOLAOS

KOUPPIS

ACCA

5013

MYRIA

MAPPOUROU

ACA

5014

IAKOVOS

CHRISTOFI

ACCA

5015

MICHALIS

KARATZIS

ACCA

5016

VASILIKI

GEORGIOU

ACA

5017

IRENE

CHRISTOFIDOU

ACA

5018

IRENE

PANAGIOTOU

ACA

5019

CHRISTOFOROS

TSELEPOS

ACA

5020

ANASTASIA

CONSTANTINIDOU

ACA

5021

ANDREAS

MENELAOU

ACA

5022

STEFANOS

IOANNOU

ACCA

5023

KYPROS

KYRIAKOU

ACA

5024

ERODOTOS

HADJIPAVLOU

ACA

5025

NEOPHYTOS

APOSTOLOU

ACA

5026

LOUIZA

STYLIANOU

ACCA

5027

ANNA

METOCHI

ACA

5028

POLINA

CHIMONIDOU

ACA

5057

IRENE

SAVVIDOU

ACA

5058

CHRISTINA

YIALLOUROU

ACCA

5059

DEMETRIOS

ASLANIDES

SOEL

5060

MARIA

KALLITSI

ACA

5061

KYRIAKOS

DEMETRIOU

ACCA

5062

STAVROS

CHRISTOFI

ACA

5063

SOCRATIS

MANENTZOS

ACA

Reregistrations 2368

Annita

Tziarridou

ACCA

2435

Vasilis

Aggelides

ACCA

2918

Loizos

Theofilou

ACA

3285

Georgios

Lazaris

4(1)(a)

105

Savvas

Papadopoulos

ACCA

2351

Andreas

Iosif

ACCA

5029

CONSTANTINOS

PHILIPPOU

ACA

5030

ELEONORA

SERGIDOU

ACCA

5031

EMILY

CHARITOU

ACCA

5032

THEMIS

THEMISTOCLEOUS

Art. 23

5033

GEORGIA

IOANNOU XENOPHONTOS

ACCA

5034

BARTOSZ ANDRZEJ

DEPTULA

ACCA

Deregistrations

Removal

5035

MARIA

ZAPITI

ACA

72

Orestis

Georgiou

ACCA

5036

NESTORAS

CHARALAMBOUS

ACCA

628

Panayiotis

Siakkas

ACA

5037

GEORGIOS

MICHAELIDES

ACA

1090

Spyros

Christofi

ACCA

5038

MARIOS

MICHAEL

ACCA

1949

Panayiota

Nicolaou

ACA

5039

MARIELLA

KALLINIKOU

ACCA

3266

Alexandros

Politakis

SOEL

5040

CONSTANTINOS

KOUMI

ACA

4582

Prodromos

Kyriacou

Art. 23

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institute news

ICPAC NEWS

Head of Technical and Professional Matters appointed ICPAC is pleased to inform its Members that Eleni Ashioti has joined the Institute as Head of Technical and Professional Matters. This new addition to the staff is clear proof of the Council’s commitment to the continuous upgrading of the Institute’s services and the enhancement of services offered to its Members.

Ms Ashioti, who assumed her new duties on August 20, 2018, will be responsible for matters relating to corporate reporting, accounting and auditing standards and professional ethics. She will also be the liaison between ICPAC and the international associations and bodies with which Institute works, for the specific areas of her competence.

From 2010-2014, Eleni worked at Ernst & Young in Nicosia, where she gained experience in the audit of international and local private and public companies. In 2014-2015, she worked as an auditor at WTS Cyprus Ltd and from 2015-July 2018 she was at the European Federation of Accountants (Accountancy Europe) in Brussels, handling matters relevant to corporate reporting as well as accounting and auditing standards.

She holds a BSc (Hons) degree in Business Management from the University of Surrey, UK and is a member of the Institute of Chartered Accountants in England and Wales (ICAEW) as well as of ICPAC.

Meeting between the British High Commissioner, Stephen Lilly, Marios Skandalis and Kyriakos Iordanou.

Protocols of Cooperation Following up on the Institute’s strategic plan, ICPAC has entered into cooperation and strategic agreements with renowned organisations from Cyprus and abroad, widening and enriching thus the activities and relevance of the Institute and its Members, while expanding the recognition of ICPAC as a professional entity. More precisely, during the third quarter agreements were signed with the Cyprus Integrity Forum (8/82018), the Institute of Business Ethics, UK (28/9/2018) and the Cyprus Association of Certified Fraud Examiners (2/10/2018).

Kyriakos Iordanou and the Vice President of the Cyprus Integrity Forum, Elena Tanou, at the signing of the Protocol of Cooperation.

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Value

We support you to create the value you are looking for by providing specialised solutions based on quality. Together we build relationships based on trust and we say things as they are, to assist you to deal with issues that tomorrow will prove important. We adapt our expertise and the power of our global network to your We support you to create the value you are looking for by specific needs helping you make the difference. providing specialised solutions based on quality. Together we build relationships based on trust and we say things as they are, to assist you to deal with issues that tomorrow will prove important. We adapt our expertise and the power of our global network to your specific needs helping you make the difference.

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institute news

Meeting between the Speaker of the House of Representatives, Demetris Syllouris, Marios Skandalis and Kyriakos Iordanou.

Visit to Ecumenical Patriarch Bartholomew by Marios Skandalis, Kyriakos Iordanou and Ninos Hadjirousos.

Meeting of the President and Members of the Economic and Competitiveness Council with Marios Skandalis and Kyriakos Iordanou.

Meeting between the Minister of Transport, Communications & Works, Vassiliki Anastassiadou, Marios Skandalis, Stavros Pantzaris and Kyriakos Iordanou.

Kyriakos Iordanou and the Director of the Institute of Business Ethics, Philippa Foster Back, at the signing of the Protocol of Cooperation.

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Break free from limitations of the past with SAP S/4HANA® edition for SAP Business All-in-One 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.

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cover story

The Future of Professional Services in Cyprus

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T

he professional services sector has been one of the main pillars of the Cypriot economy for the past 30 years, thanks to the fact that the country is an attractive destination for foreign companies and, to a lesser extent, High Net Worth Individuals, who make good use of the island’s top class accounting, audit and tax advisory firms, law offices, asset managers and Administrative Service Providers. Thanks in part to the low tax regime, as well as Cyprus’ high standard of living, attractive lifestyle and year-long sunshine, more and more foreign companies are relocating their headquarters or opening branch offices here. However, ever-increasing regulation and a clampdown on so-called shell companies are driving change in the sector, with many firms being forced to look to new markets and business models as issues of substance and transparency gain more importance.

Before gaining EU membership in 2004, Cyprus took advantage of its status as an ‘offshore’ business centre and ended up with a widespread reputation as a tax haven, with all the negative connotations that the description has come to imply.

Fortunately, and of necessity, things changed when the country joined the European Union and it worked hard to be seen as reputable low-tax business centre. Some might say that it worked too hard, given that five years after its EU accession, the banking sector was equivalent to nine times the country’s GDP. By the time of the 2013 banking and financial crisis, it was believed in many of the world’s financial centres that much of the money in Cypriot banks belonged to a small number of less than trustworthy foreign companies and individuals who were involved in shady dealings, to put it mildly.

Over the past five years, the banks and the Government have been forced to take measures to rescue and maintain the island’s reputation and both are currently trying harder than ever to prove that Cyprus is a reliable destination that can provide top quality, trans-

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parent and compliant services to international businesses.

Most professional service providers here recognize that transparency, compliance and substance are key components of their survival. The days of gaining a healthy income by simply registering ‘brass plate’ companies in Cyprus are now over.

The EU and the US are pressurizing the Government and the Central Bank to do more to ensure that anti-money laundering measures and KYC processes are implemented strictly and there is an unspoken understanding that local firms cannot continue to ignore the problems of what is rightly or wrongly referred to as “Russian money” and need to look elsewhere if the sector is to thrive in the new era of strict regulation.

It would appear that ‘quality, not quantity’ is a key aspect of the revised model of professional services that Cypriot providers will need to adopt. It may mean fewer clients but they will be better clients and the requirement for substance will ensure that they make a greater contribution to the economy by employing local talent as well as relocating their own people, who will also contribute.

While Cyprus and its professional services sector may be coming under increasing pressure to reform, improve and comply, the country continues to have an abundance of talent, assets and benefits that make it stand out from competing jurisdictions; the low corporate tax rate of 12.5%, its strategic location between Europe and the Middle East. Its EU membership providing safe access not only to a market of 500 million people but also to the developing markets of the Middle East, Asia and Africa, and all the benefits arising from more than 60 double taxation treaties with other countries.

On the following pages, we present the views of six leading figures who outline what they believe needs to be done to make the professional services sector more solid and sustainable and also how to ensure that it is affected to the minimum by developments within or outside Cyprus.

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cover story

Christis M. Christoforou

Cautious Optimism Thanks to the economic recovery and the lessons learned from the 2013 crisis, the professional services sector is now in a position to take advantage of global changes, says Christis M. Christoforou, CEO of Deloitte in Cyprus.

How do you see the future of professional services to foreign companies and individuals in Cyprus, given the changes that are taking place internationally?

Despite the recent local banking challenges and international changes in the political and tax environment, the future of the provision of professional services to foreigners in Cyprus is, in my view, promising. There are three main reasons for my cautious optimism: First, S&P’s recent upgrade of Cyprus to investment grade, which will likely open the road to institutional investors such as pension funds to invest in Cyprus’ bonds, given their investment grade-only policies. This is expected to have a positive impact on the bonds’ pricing, and opens the road for potential upgrades to Cyprus’ banks. This can only mean more investments coming through to Cyprus.

Second, having spent the past five years managing the worst economic crisis, the

sector is now mature enough to anticipate the consequences of such changes and responsive enough to withstand competition from other countries. The professional services sector is, by nature, dynamic and able to swiftly adapt to changes in the international agenda. And third, the sector has been clever enough to reduce its overdependence in certain services and economic sectors, by aiming to achieve a presence within a broad range of services such as Risk and Financial Advisory. I do not believe that recent developments should or will be viewed as a threat but more as an opportunity. As the saying goes, “Never let a good crisis go to waste”!

Which services should companies in this sector be offering today and to whom?

It is imperative for companies in the sector to diversify in services in order to be able to attract good quality clients and not be rendered extinct by the competition.

The professional services sector is, by nature, dynamic and able to swiftly adapt to changes in the international agenda

This is of particular importance for local firms as, in the past five years, we have seen an increased rate of international consultancy and professional services firms with no local presence offering services to large local clients. To paraphrase Darwin, “If you don’t adapt, you die”. Locally, we have seen a shift in the services that the sector has been offering, from traditional audit, tax, accounting services to more exotic services such legal services, regulatory strategy, cyber services, digital transformation, etc.

Clients, and especially international clients, who are used to a different way of doing business, should be able to feel that they are being served by a “one-stop shop”. In other words, a client should be able to have all his issues and concerns resolved under one umbrella, with a professional services company able to proactively provide effective solutions and successfully assist and meet his needs. Companies should try to enhance the palette of services they provide, creating expertise in other sectors and niche markets.

Geographically, which markets do you think we need to develop?

Developing countries should be our prime focus, in my opinion. Cyprus should continue to take advantage of its

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geographical position to create initiatives (such as the recent establishment of the South East Asia-Cyprus Association) to attract clientele and investors. Countries like Iran are obviously a big market for us but, given recent US sanctions, we should proceed cautiously with enhancing our relationships with the Iranians. China has also become increasingly interested in doing business in Cyprus over the past few years and we should aim to continue to attract business, building on our experience and good relationship. Interestingly, due to Brexit, we have seen an influx of companies enquiring about setting up EU subsidiaries in Cyprus. This is particularly prominent in the financial services sector, where firms are looking to obtain an EU licence to conduct services out of Cyprus.

This is something we should definitely be actively pursuing. The recent S&P upgrade may give us a reputational boost that could be beneficial for such business.

What should change in Cyprus, in both the public and private sectors, so that we are more competitive?

Cyprus’ favourable tax regime and extensive network of international treaties, in combination with its liberalised policies with regard to FDI, make it particularly attractive to prospective investors from all

Due to Brexit, we have seen an influx of companies enquiring about setting up EU subsidiaries in Cyprus over the world. However, for Cyprus to retain and build on the competitive advantage it currently enjoys, it should carefully consider additional reforms to the judicial system in order to further facilitate the registration of foreign companies and funds on the island. The new AIF legislation passed in July is a step towards enhancing Cyprus’ funds sector, which is currently one of the most dynamic and emerging sectors of our economy.

The Government, policy-makers and regulators should continue to fight against bureaucracy and lean towards modernisation. Government officials should aim to cooperate with the private sector, as honest communication between the two is vital for fostering a spirit of mutual collaboration and continuous improvement, enhancing the island’s competitiveness.

What is more, the government should continue to create and offer engaging packages to attract foreign investment, likewise the current tax relief to High Net Worth Individuals, and stress the benefits of financing business operations through equity and incentives granted for investing in innovative SMEs.

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Christos Michael

all about quality The future of professional services is no longer about client/investor numbers, says Christos Michael, President of the Cyprus Fiduciary Association.

How do you see the future of professional services to foreign companies and individuals in Cyprus, given the changes that are taking place internationally?

In today’s world, where transparency and fair business practices – as developed by international institutions like the OECD and promoted by all developed countries – are imposed directly or indirectly on less developed ones and offshore jurisdictions, the professional services sector has no choice but to adapt to these new realities and undergo a transformation process that will enable it to adjust its offering in order to meet the new or differentiated needs of the market.

The market is changing rapidly and international business is no longer about anonymity and tax avoidance but rather about optimizing information disclosure and the tax burden by providing high quality value-added services in the most cost-effective way. Cyprus has benefited over the last 30 years from the traditional ‘offshore’ regime that was implemented in the late ‘80s and then successfully transformed into a low tax jurisdiction with an extensive network of Double Tax Treaties, taking advantage of Russian and Eastern European private business seeking asset protection, as well as of other

European and US Corporate businesses looking to utilize DTTs to enter foreign markets and reduce their taxes with holding or financing structures that were simple to implement and run.

Which services should companies in this sector be offering today and to whom?

Although Cyprus continues to be a lowtax jurisdiction (with one of the lowest corporate tax rates in Europe) and the use of international structures through Cyprus still provides asset protection, they do not necessarily provide absolute tax advantages, since transparency and anti-abuse regulations impose reporting obligations of their activities and profits in their home country (as with Russian and other CFC rules) and trading, asset or IP holding and finance companies can only benefit from the use of DTTs if they have substance in Cyprus and utilize fair business practices, including the requirement to prepare and implement transfer pricing studies. As a result, traditional nominee/fiduciary services are already obsolete and international companies have to establish real substance in Cyprus, hire their own employees for the day-to-day operations and carry out routine banking, administration and bookkeeping functions while, at the

same time, utilizing high-calibre director services, AML compliance, legal, M&A support, accounting and reporting, tax and VAT, valuation and financial management and other value-added services.

This means that the professional services market has to be transformed. The smaller service providers, including fiduciary, accounting and legal firms, will have to merge and grow in order to be able to cope with high regulatory and compliance requirements and cost and then attract sufficient quality and talent to offer these value-added services, otherwise the

Traditional nominee/ fiduciary services are already obsolete and international companies have to establish real substance in Cyprus

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Our tax, legal and international business models have to be reengineered, simplified and enriched

vast majority of their employees will join the ‘substance’ offices and operations that will be established. Those who stay in the professional services sector will need to have critical mass and financial strength, invest heavily in technology and people and be ready to follow tough regulation and a strict code of conduct.

Geographically, which markets do you think we need to develop?

Although I believe that we should not underestimate the importance of new markets, our primary focus should be to retain and enhance our competitiveness in our existing markets and ensure that the international investors and companies who are currently using Cyprus will continue to do so in the future. Most of the new markets, like Africa and the Far East, are at a very different level of maturity in their needs for international professional services, and we have limited political, cultural and other ties with them to facilitate the flow of business.

Moreover, most of our competitor jurisdictions are ahead of us as significant business already flows through them.

Additionally, in the absence of the ties referred to, business can only be effectively gained through a reputationbuilding strategy, which is still one of

our competitive limitations.

What should change in Cyprus, in both the public and private sectors, so that we are more competitive?

In my view there is only one way forward: the Government and the private sector need to coordinate on the establishment of a coherent strategy that will address the many challenges, secure international business, provide employment for our highly educated and skilled workforce and maintain fiscal revenues by enhancing the country’s reputation, transforming and extending its offering and ensuring compliance with international regulation. Our tax, legal and international business models have to be reengineered, simplified and enriched to reduce red tape, uncertainty or ubiquity of treatment or implementation, to align public sector processes with business needs and requirements in a way that ensures the efficient regulation of the market. The future of this industry is not about the large number of clients/investors but about the quality of those clients and the quality of the service providers, that will enhance the reputation of the country and secure a sustainable future, one that is built on our only competitive advantage: our human capital.

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cover story

Marios Klitou

CEO, Baker Tilly South East Europe

Dealing with Change Hard work and constructive cooperation between the private sector and state authorities is needed if the sector is to survive and thrive.

W

e live in a world where rapid changes are taking place and our sector’s future depends on how we manage these changes, in order to comply with the obligations of national and international bodies towards the OECD, the European Union and others.

In recent years, we have witnessed a substantial increase in the activity management of large firms, which are demanding higher quality services. The transparency required to operate a company in any international business centre has changed the professional sector in Cyprus and, in the coming years, we will see changes to the entrepreneurial formats on the island.

Regarding new fundamental applications in professional services, the development of Undertakings for Collective Investments In Transferable Securities (UCITS) will significantly contribute to the expansion of businesses in Cyprus, where the legislative framework will effectively develop this sector.

Services offered to the maritime industry are also vital to the local economy and should be supported and strengthened. To expand our services into these new areas, Investment Banking and Shipping services should be upgraded to reach European standards, with a greater emphasis on training and staffing.

The banking sector in Cyprus is currently struggling to implement the Central Bank’s requirements and no business centre can develop without an effective and strong banking sector. Cyprus’ greatest asset is its community of professionals with the neces-

sary knowledge and understanding of how international companies operate. This is where we excel over other nations that may offer lower tax rates but have so far failed to attract international business.

Over the last ten years, important steps have been taken to upgrade the standard of public services offered in the administrative sector.

We hope and believe it will continue to strive in this direction, enabling us to achieve our goal of making Cyprus one of the greatest business centres in Europe.

The number of companies registered in Cyprus has been maintained at approximately 13,000 per year, even though 45% of them were registered in 2007. Since many of these companies have been removed and are considered inactive, the profession will possibly shrink. However, our expertise will strengthen, due to the rigorous procedures applied by banks to combat money laundering, an effort that is fully supported by all professional service providers.

For 20 years, Cyprus has depended mainly on the Russian and CIS market. This dependence, as well as recent changes in tax legislation, has diversified the professional

services sector. Several Russian investments have restructured their operations and compliance concerns, according to their requirements, in terms of Control and Management, Transfer Pricing, etc.

We have also seen significant efforts in recent years by the professional services sector to get involved in other markets such as India, China, Greece, other EU member countries and even the US. The positive particulars of these markets will increase and, at the same time, will reduce Cyprus’ current dependencies.

Movement regarding a ‘Single Tax Base’ and its possible application, especially following the UK’s exit from the EU, would create further problems for Cyprus, as it would eliminate important benefits offered by our national legislation.

If the necessary changes are made so that we comply fully with the new state of international affairs, Cyprus will have a key role to perform in Europe. With hard work and constructive cooperation with the state authorities, other bodies and the professional community, we can achieve our ultimate goal.

Cyprus’ greatest asset is its community of professionals with the necessary knowledge and understanding of how international companies operate

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Polys Polyviou

Advisory Services Gaining Ground Audit will remain a key element but fees from advisory and tax compliance services are steadily gaining ground, according to Polys Polyviou, a Partner with Grant Thornton (Cyprus) Ltd. How do you see the future of professional services to foreign companies and individuals in Cyprus, given the changes that are taking place internationally?

Despite international changes and the financial and banking crisis of 2013, the professional services sector remains one of the major contributors to the economy. Cyprus managed to exit the crisis without losing its competitive advantage as an investor-friendly jurisdiction. On the contrary, due to the reforms imposed mainly on the banking sector, the business environment has been modernized to some extent, although there is still scope for big improvements. At the same time, the national legislation of Cyprus is aligned with international regulations and norms and OECD guidelines and the country is very well placed to become a hub for the regional headquarters of international companies for in the Middle East and South East Europe. In this respect, there is potential for growth in the professional services provided to foreign businesses but with a possible shift in the nature of these services.

Which services should companies in this sector be offering today and to whom?

The current trend internationally is to tackle tax avoidance and tax evasion by imposing stricter rules and regulations on businesses operating in many countries. These rules range from increased AML regulation and transfer pricing to requirements for substance and the obligation for transparency via CRS and FATCA. Certainly, all these changes will have an impact on many foreign-owned Cyprus registered companies. Some professional services,

Some professional services, such as the provision of fiduciary services, may progressively decline as more companies decide to set up their own offices

such as the provision of fiduciary services, may progressively decline as more companies decide to set up their own offices in Cyprus due to substance requirements. The demand for other professional services, however, such as advisory, will increase due to the expertise required to comply with new laws and regulations. A good example, is the provision of transfer pricing studies on intra-group financing arrangements, which need to be prepared by relevant experts. Moreover, there is huge potential for growth in new service lines such as cybersecurity, compliance with GDPR as well as the further development of existing ones, including the provision of fund administration and asset management services. Specifically, in the accounting profession, fees from advisory and tax compliance services are steadily gaining ground against audit fees, which, however, remain the main source of income for most of the profession. This is the expected trend in the foreseeable future.

Accounting firms will also be requested to provide guidance and training to companies on implementation of the new more complex IFRSs. Geographically, which markets do you think we need to develop?

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It is vital that we explore new markets in order to sustain growth It is an undisputed fact that the traditional economic links with Russia and the CIS region have been a major factor in the development of the Cyprus economy and, more particularly, the professional services sector. However, a number of factors, such as Russian de-offshorization rules, the economic sanctions imposed on Russia due to the Ukrainian crisis and the devaluation of the rouble, have made it difficult to sustain the level of these links. Therefore, it is vital that we explore new markets in order to sustain growth.

The presence of US investors and US funds in our banking system gives us a good starting point to develop further cooperation with the biggest economy in the world. Moreover, China, India and South East Asia are the driving force of the growth of global GDP

and attracting investments from these countries will have huge benefits. Finally, Brexit, depending on whether there will be a deal or not between EU and the UK and what this deal will be, may offer opportunities for the professional services sector in Cyprus.

What should change in Cyprus, in both the public and private sectors, so that we are more competitive?

A major reform will be the establishment of Commercial Court which has been announced by the Government and which will expedite the resolution of commercial disputes.

Delays in the issuing of title deeds on properties are a source of constant complaints from international clients.

The enhancement and simplification of e-Government will also add additional value to our competitiveness.

As the legal and compliance framework becomes more and more strict and complex to safeguard investors, it also adds additional costs to start-ups and SMEs. The profession, together with ICPAC and other regulators and counterparties, should consider the benefits of having a “lighter� regulatory and reporting framework for such businesses.

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Stavros Pantzaris

Transparency, Compliance, Substance In the view of Stavros Pantzaris, Country Managing Partner at EY Cyprus, these are essential components of the continuing success of Cyprus as an international business centre and provider of professional services.

How do you see the future of professional services to foreign companies and individuals in Cyprus, given the changes that are taking place internationally?

Amidst the fast-paced shift of international interests and trends, Cyprus has managed to overcome the challenges of recent years and reclaim its status as a serious contender amongst European FDI destinations. The country’s solid growth and improved economic climate in recent years, coupled with new large-scale projects in the pipeline and flourishing prospects in the real estate, maritime, energy and investment fund sectors, have triggered a renewed boost in confidence on the part of foreign investors. This is not at all far-fetched as our population is one of the most highly educated in the EU and the expertise of our professional service providers has established Cyprus as a major financial services centre over the years.

Which services should companies in this sector be offering today and to whom?

Cyprus is determined to stay at the forefront of industry developments by offering unique access to high-growth markets, as well as a professional and cost-efficient jurisdiction for funds, thus aiming to emerge as a key regional domicile for asset managers as well.

Additionally, businesses, both local and foreign, are now more open to collaborat-

ing, converging and following long-term strategic business plans, while at the same time they are more interested in growing their businesses rather than simply trying to stay afloat. Prime mediators and enablers in this growth process are companies that offer professional services such as EY. For us, it is not just about how to broaden the services we currently offer but also to make sure that we offer the highest quality services in the market. In this way, we can provide services that are of immense value in supporting well-informed capital markets and in the public interest.

Geographically, which markets do you think we need to develop?

Today, we can confidently say that the Cyprus economy is on a steady path of growth and development, maintaining its status as one of the fastest growing economies in the eurozone and thus boosting investor confidence. The island’s prime geographic location attracts investors from around the globe. It offers an opportunity for non-EU companies to establish themselves in the greatest single market in the world, while, at the same time, it is the ideal steppingstone for EU and non-EU companies alike wishing to exploit the lucrative markets of the Middle East. We need to continue our efforts to enhance the country’s profile and

attract real business that will create substance in Cyprus. Considering the current global market trends and challenges, we also need to diversify our client base by attracting business from new markets such as China, India and the South East Asia.

What should change in Cyprus, in both the public and private sectors, so that we are more competitive?

In order to have a strong and successful business environment and also to secure Cyprus’ reputation as an attractive destination for investments and business transactions, we need to offer transparency in our services and to comply with international standards and regulations. A competitive business environment offers accuracy in information and transparency in business procedures, transactions, markets and risks. We need to continue working on our weaknesses such as bureaucracy and inefficiency. EY’s commitment to our clients and our people is to continue to invest in the development of our competitive tax and legal framework and the high quality professional services we provide in the industry. This is key to ensure trust in the capital markets and thus help our clients grow their businesses and investments, which, in turn, will contribute to the overall development of our economy.

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Angelos Gregoriades

New Approaches Needed The Government and the private sector need to work together on targeting new markets and areas for investment while redoubling their efforts to combat bureaucracy and implement reforms, says Angelos Gregoriades, President of the Cyprus Investment Funds Association (CIFA).

How do you see the future of professional services to foreign companies and individuals in Cyprus, given the changes that are taking place internationally?

Cyprus has managed to exceed international expectations and kept a steady pace in improving efficiency and boosting investor confidence. This is due mainly to the provision of its robust professional services, which have succeeded in adapting to the new needs and demands of foreign investors, society and international enhanced regulation. Despite the constant challenges of today’s ever-changing political and economic environment, Cyprus remains a competitive financial centre with high-skilled professionals and significant comparative advantages, such as a stable and attractive tax system, its geographical location and the large double taxation agreement network that it has created with 64 countries. Cyprus has

fully implemented EU directives with regard to money laundering and, since 2017, has implemented the Common Reporting Standard (CRS) for the automatic exchange of information (AEOI). In addition, new financial products such as the licensing of mutual funds and investment firms are being promoted but, given the international changes, the industry and the Government must continue innovating new financial products to cater for the needs of international business.

Which services should companies in this sector be offering today and to whom?

In 2018-2019, I expect the Funds industry to continue to provide the best opportunity for growth and foreign investment. Therefore, various fund-related services should be offered to fund managers and investment vehicles. Comprehensive audit, risk ad-

I expect the Funds industry to continue to provide the best opportunity for growth and foreign investment

visory, tax and regulatory services to fund managers and investors setting up and operating through Cyprus are services associated with funds industry. Funds industry players seek guidance in areas such as fund set-up and structuring, regulatory interpretation and support, proactive tax advice, investment acquisitions and due diligence, fund liquidation, re-domiciliation and/or restructuring. Cyprus offers numerous unique advantages, providing operational flexibility whilst achieving the right balance between freedom of operation for the asset manager and protection to investors.

Geographically, which markets do you think we need to develop?

Apart from the traditionally associated markets of Europe and Russia, there has also been enhanced interest in collaboration and investment in or through Cyprus from new markets that we need to develop further, such as Asia (e.g. China, India), Africa, the Middle East and the Arab world. New campaigns should be organised, coupled with a new, innovative set of incentives, tailored to the specific needs and diverse envi-

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ronments of the foreign investors.

What should change in Cyprus, in both the public and private sectors, so that we are more competitive?

The Government and the private sector need to abandon their traditional approaches, to constantly research the markets and embrace open-mindedness, in order to secure all the competitive advantages that Cyprus offers as a business centre but also as a place to live. We need to establish synergies to maintain the current positive momentum of the Cypriot economy and work on resolving major issues such as unemployment and non-performing loans. Considering the measures adopted by other competitive countries, more fiscal incentives and naturalisation schemes are needed. They have already contributed to the increase in demand in the real estate sector, as evidenced by the numbers of sales contracts. Furthermore, new regimes for film, audiovisual and Research & Development are expected. Alongside the efforts to combat bureaucracy and implement all necessary reforms, the majority of industries must continue performing at their best and adhere to enhanced regulation, especially in

Cyprus has managed to exceed international expectations and kept a steady pace in improving efficiency and boosting investor confidence relation to compliance and exchange of information. Lastly, the Government should consult with the Attorney General’s office to find ways of speeding up the process for introducing new legislative measures that require specialised skills. To be competitive in the market, we need to be proactive and the delays that we are currently encountering are not helping the financial services sector to progress in a timely manner.

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ACCOUNTING & AUDIT

How is artificial intelligence changing the audit?

By Andreas Avraam, Associate Partner Assurance, EY

A

rtificial intelligence (“AI”) is a rapidly evolving area of technology that promises to be a game-changer for various industries and professions.

The term AI describes computing systems that exhibit some form of human intelligence. It covers a number of interlinked technologies, including data mining, machine learning, speech recognition, image recognition, etc.

AI is already being applied in areas as varied as driverless cars, home energy systems and investment portfolio management. But how is the audit profession being affected?

Taking a Dive into Deep Data There has been a rapid expansion in the types and volumes of data that companies produce, providing richer sources of information to be used when conducting an audit. AI and digital analytics tools are enabling auditors to look at businesses in a different way by analysing these bigger data populations. This provides a deeper understanding of risk, performance and opportunities.

Now, with the majority of transactions conducted electronically, powerful data analytics tools and techniques enable auditors to analyse more data points than ever before, which can enhance audit quality and confidence in the capital markets.

The audit is set to be further transformed

by ‘deep learning’, a form of AI that can analyse unstructured data such as e-mails, social media posts and conference call audio files.

One example of how AI can be applied to the audit is in contract review. Machine learning tools allow humans to analyse a larger number of contracts, such as leases, in a much shorter timeframe than is possible with a traditional manual review. In a recent pilot, AI tools were able to accurately extract information from lease contracts using preselected criteria in the vast majority of cases – a higher level of precision than the average human reviewer is capable of.

By making it possible for auditors to work better and smarter, AI will help them optimize their time, enabling them to use their human judgment to analyse a broader and deeper set of data and documents. It also enables them to ask better questions and to interact more with CFOs, audit committees and company boards, adding value to the audit process.

Transforming the Audit – but not Replacing the Auditor While the excitement over the potential applications of AI is understandable, there are some misconceptions – and indeed fears – developing. Central to that is the fear that AI will, in fact, replace humans in the value chain – doing the tasks we currently do but faster and more accurately, and thus render-

The next generation of professionals will need to understand accounting, the relevant industry and AI, blockchain and machine learning ing many of us redundant.

We may likely need differently skilled people who are able to work across a wider range of disciplines and the development of AI may well change the way talent is recruited. The next generation of professionals will need to understand accounting, the relevant industry and AI, blockchain and machine learning – as well as grasping how all these disruptive elements work together in a faster-paced, more complex world – to continue to deliver an added- value, highquality audit.

These technologies, if applied thoughtfully and effectively, will improve quality, reduce risk and enhance confidence. In fact, the biggest challenge for both companies and their auditors goes beyond the technology: it’s about change management and the potential confusion over how AI is applied.

The next decade promises to see huge leaps forward. Be reassured though; AI can do a lot, but there’s also a lot it cannot do, and we cannot rely on it to deliver auditor scepticism and judgment…at least for now.

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ACCOUNTING & AUDIT

Leveraging IFRS 17 to Build the Finance Function of the Future

By Nicos S. Stavrou, Director Assurance & Advisory, PwC Cyprus

IFRS 17

,

the new accounting standard for insurers, will result in profound changes across multiple functional areas, systems and processes; it is accordingly paramount to use the standard as a springboard for broader change.

Insurers increasingly need greater business insight from their finance functions and are constantly seeking timely, forward-looking analysis to facilitate the decision-making process. Companies are seeking ways to leverage both their volumes of historical structured data and emerging unstructured data to support strategic decisions. IFRS 17 is adding to these growing urgencies, as stakeholder groups try to apprehend the numerous implications of the new standard on the financial position of their organisations, along with the evolution and sustainability of their profits.

According to the PwC publication The finance function of the future – Use IFRS 17 to build your competitive advantage, the speed and sophistication of management dashboards will have to improve to be able to deliver more

analytical power. Business users should be able to ‘self-serve’ their analysis and process data with very little help from finance, actuarial or IT, and results should be presented in a more visual way. It is also important that users are able to perform ad hoc analysis on a needs-basis in addition to the standardized, periodic management reporting.

These objectives create a unique opportunity for finance to leverage new technologies, such as virtualisation (e.g. remote data conditioning), high-performance Cloud computing capabilities (e.g. actuarial calculation engines in the Cloud), new analytical tools (e.g. those that couple machine learning with reporting capability) and blockchain architecture.

While such technologies enhance the customer experience, they also lead to a sizeable generation of new unstructured data that can provide insurers with valuable competitive insights. For example, having real-time operational data enables proactive risk management and loss reduction, which ultimately helps reduce overall claims and expenses.

Predictive analysis, can be used, not only in the more conventional areas of insurance underwriting or customer

There is real potential for automated front-to-back transaction processing, which would considerably reduce costs acquisition but across all areas of the organisation.

Finance and actuarial functions will have an opportunity to cut across organisational and data boundaries to look at opportunities and risks in new ways. Specifically, the finance function of the future can help determine potential areas for growth and investment by providing real-time data for market inputs, claim assumptions and scenario analysis to swiftly understand potential disruptions and opportunities. It will also provide a robust means of measuring business performance through a better understanding of vital drivers, as well as

ACCOUNTANCY CYPRUS

managing risks more effectively through enhanced data governance and stress test plans.

Delivering on this vision of the future will require a strategic modernisation of finance, actuarial and risk into an integrated model that will entail, amongst others: • Integrated reporting/management information (MI) capability for finance, risk and operations.

• Shared data or sources of data that limit the need to reconcile across functions.

• Cloud and Cloud-based finance applications as opposed to on-premise solutions.

• Highly automated processes and workflows to expedite close, enhance governance and minimise manual handoffs.

• The right skills allocated to the right processes rather than structured by qualification.

• Role rotation and career paths across the integrated function and within the business.

The key to making such modernization work is a new approach to connectivity, not just among siloed groups but between people and machines, to create a bionic function. There is real

potential for automated front-to-back transaction processing, which would considerably reduce costs. Machines

The vision should be for a future in which finance can monitor business performance real-time and provide results to stakeholders as and when they need them

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would be able to complete routine tasks that do not require judgment, emotional intelligence or perception. This would allow finance specialists to remain focused on relationships, interpreting the future requirements for the organisation and figuring out how to encode these requirements as evolving business rules for the machines to use in execution.

The data, system and process changes required by IFRS 17 create the opportunity for finance functions to leverage those changes to deliver more value and insight to their business partners. The vision should be for a future in which finance can monitor business performance real-time and provide results to stakeholders as and when they need them. A future in which finance can identify profitable customer segments, guide sales to those customers, scan the horizon and prepare contingency plans to address market disruptions. It all boils down to building up a finance function that provides timely, actionable insight and is a key partner to strategic decision making. This future is possible today and modernised insurers with this capability will significantly outperform their peers. IFRS 17, if looked at as more than merely a compliance requirement, provides the business case to start building this finance function of the future now.

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ACCOUNTANCY CYPRUS

ACCOUNTING & AUDIT

A=L+E The simple equation that explains why accounting needs a more robust underlying rationale

By Pantelis Pavlou ACA, IFRS expert, KBC Bank and Verzekeringen

A

ccounting is pretty simple and can be explained with a single equation: Assets (A) = Liabilities (L) + Equity (E) or, as the latter two are known together, “claims”. The equivalent of “E=mc2” if you wish: simple yet comprehensively reflecting the complexity of a company’s resources and claims; just beautiful!

Apart from sharing a common name, Liability and Equity have a number of fundamental differences. To start with, the amount of risk that a creditor undertakes is different from, and smaller than, the risk undertaken by a shareholder.

Accounting tries to make a clear distinction between the two. One of the main arguments put forward by the International Accounting Standards Board (IASB) in its standards and other publications, is that making the distinction provides useful information to the users of financial statements.

Liabilities and Equity Even though equity and liabilities are referred to as claims, they have much more differences than commonalities.

A liability is positively defined as a present obligation to transfer an economic resource as a result of a past event while

equity is merely the residual interest in the assets after deducting all liabilities; [A= L+E = > E= A-L (basic algebra)].

Linked to these basic definitions, the standard-setter defines income and expenses. Income and expenses are directly linked to changes to assets and liabilities that result from transactions other than those relating to contributions from holders of equity claims, in particular they are defined thus: Income is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.

Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

Hence it is very important that the principles underlying the distinction between Liabilities and Equity are very clear in the IFRS literature as it affects not only the financial position but also the financial performance through income and expenses.

Complexity When one is merely looking at a simple creditor and a simple ordinary shareholder, the distinction is pretty straightforward and one might reason-

ably wonder, “What is this all about?”

The complexity arises when it comes to financial instruments. In the financial instruments universe, the terms and conditions which are included in certain contracts make it very hard to reach a conclusion on where a (or part of a) financial instrument should be accounted for as Liability or Equity (e.g. embedded derivatives on own equity with alternative settlement outcomes).

International Accounting Standard 32 (IAS 32) – Financial instruments: Presentation – brings some clarity to this discussion. IAS 32 works pretty well with simple bonds, ordinary shares and some more complicated instruments (like convertibles and preference shares) but the standard has barely caught up with the evolution of financial instru-

It is very important that the principles underlying the distinction between Liabilities and Equity are very clear

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ments in today’s global economy. In the not too distant past, the IASB published some changes to the standard by introducing specific requirements for particular transactions (see puttable instruments, fixed-to-fixed and foreign issues exceptions) with some success.

However, the basic principles behind these new requirements are not well developed in the text. The lack of clarity and the introduction of these specific exceptions with detailed rules (bearing in mind that the literature is principlebased) resulted in increased complexity and diversity in practice.

To this end, it comes as no surprise to know that those with an interest in the IASB’s work have asked the Board to put the research project on the distinction of financial liabilities and equity as one of its top priorities during the Board’s latest agenda consultation. This project is formally known as Financial Instruments with Characteristics of Equity (FICE); those who follow this closer call it the “Gamma approach” (Alpha and Beta approaches being not very good!).

Financial Instruments with Characteristics of Equity (FICE) With the FICE project, the Board is aiming at developing an approach that does not fundamentally change the existing requirements of IAS 32 but, instead, aims at articulating the principles for classification of financial liabilities and equity instruments with clear rationale. In addition, through this project, the IASB considers how instruments with a wide variety of features are classified and whether entities should also provide information about some aspects of claims through presentation and disclosure rather relying solely on classification.

In June 2018, the IASB published a Discussion Paper (DP) where it put together its research on this topic and

its preferred approach for public consultation. In developing these proposals, an important anchor is the continuation of the binary distinction between liabilities and equity; therefore, the DP only defines the criteria of classifying a financial instrument as a liability – everything else is equity (remember: E = A - L).

The Board’s Preferred Approach The DP sets out the Board’s preferred approach, which describes the preferences of the IASB which have emerged after its research and long internal discussions.

In developing this approach, the IASB had in mind the needs of the users of financial statements: the users of the financial statement are trying to (i) analyse funding liquidity and cash flows and (ii) to analyse balance sheet solvency and returns. In the DP these are linked to a “time feature” (criterion (a) below) and an “amount feature” (criterion (b)).

Applying the Board’s preferred approach, a claim will be classified as a liability if it contains: a. an unavoidable obligation to transfer economic resources at a specified time other than liquidation (time feature);

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and/or b. an unavoidable obligation for an amount independent of entity’s available economic resources (amount feature).

Using this approach, we can end up with the following three types of liabilities: those which meet both criteria, those which meet only (a) and those which meet criterion (b). In particular: 1. Liabilities which affect the liquidity and cash flows as well as the balance sheet solvency and returns (e.g. simple bond). An entity has obligation to transfer cash or another financial asset at a specified time other than liquidation and it has an obligation for an amount independent of the entity’s available resources (both (a) and (b) from above) 2. Liabilities which only affect the liquidity and cash flow (e.g. shares redeemable at fair value): An entity only has an obligation to transfer cash or another financial asset at a specified time other than liquidation but no obligation for an amount independent of the entity’s available resources (only (a) above).

3. Liabilities which only affect the balance sheet solvency and returns (e.g. bonds with an obligation to deliver a carriable number of entity’s own

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Improving the classification requirements for making the distinction between liabilities and equity would result in more robust financial reporting share with a total value equal to a fixed amount of cash): An entity only has obligation for an amount independent of the entity’s available resources but no obligation to transfer cash or another financial asset at a specified time other than liquidation (only (b) above).

This classification is depicted in the following table:

Building on the Board’s objective, it is not expected that the classification of the majority of financial instruments will change as a result of this project.

Instead, this will just strengthen the rationale behind the current conclusions. Having said that, for some – more complex – instruments, a reclassification might be inevitable. The DP also describes how its preferred

approach can be implemented to derivatives on own equity in an effort to bring more clarity on these complex transactions.

Next Steps Given the complexity of the topic, the IASB has set a deadline for comments by 7 January 2019, which will give adequate time to constituents to read, understand and digest the complex proposals and to form their own opinions and comments.

I would strongly encourage ICPAC members and others who have an interest on this topic to actively contribute to the IASB’s effort and provide their comments on the DP. Improving the classification requirements for making the distinction between liabilities and equity would result in more robust financial reporting, better and more informed decisions and a better link between risk and return that would ideally meet the investors’ risk appetite.

All in all, it would strengthen the underlying components of the basic formula: A = L + E.

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ACCOUNTING & AUDIT

The Endless Parade of Accounting and Audit Requirements

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

E

xternal Auditors involved in the audits of small, medium and large companies, especially financial institutions (banks), face the challenge of having to audit diverse lines of business. Such challenges increase when the audited entities operate in multiple geographies. In such cases, External Auditors are confronted with legal and regulatory issues that may be different from those applicable in the Head Office where such entities operate.

Internal Auditors, Chief Compliance Officers and the appropriate executives and members of Committees (Internal Audit Committee, Risk Committee, etc.) are also confronted with similar challenges. And all this is happening in an ever- changing regulatory and legislative environment within the wellknown 41 IAS that were enriched with 18 IFRS, adding more burdens to External and Internal Auditors, with IFRS 9 currently leading the parade of ‘heavy armour’ standards.

External Auditors can no longer depend

for the necessary knowledge on their five years’ practical training and the then famous books by Spicer and Pegler on Audit or the later Coopers and Lybrand Manual of Auditing, which were available at the time of my own professional training.

Today, depending on the nature of audit, External Auditors refer for guidance and compliance to International Auditing Standards (the famous ‘blue books’ as notified by ICPAC) or International Standard on Assurance Engagements (ISAE), but these alone do not provide all the required information, hence auditors need to refer to EU directives or EBA directives and guidelines on common procedures and methodologies,

External Auditors can no longer depend for the necessary knowledge on their five years’ practical training

e.g. the supervisory review and evaluation process (SREP). Furthermore, apart from the necessary knowledge of audit of computerized systems, they need to learn – and remember – countless abbreviations such as NPLs, NPEs, EAD, ICAAP, ILAAP, etc. not to mention the terminology used by the younger generation of External Auditors. The result is that listening to clients and to investors, listening and learning about the changes that are taking place in the sectors and geographical areas where clients are operating comes second for most firms of External Auditors. In Greece, for example, statutory audits are poor relatives in terms of importance compared to taxation audits.

External Auditors and the Management of financial institutions are expected to have a thorough knowledge of Directive 2013/36/EU, thus building on the technical criteria listed in Article 98, including assessment of the organization and treatment of risks, especially to cover overall risk management and governance (Article 76), to know the use of internal approaches for risk cal-

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culation (Articles 77 and 78), credit and counterparty risk (Article 79), residual risk (Article 80), concentration risk (Article 81), securitization risk (Article 83), market risk (Article 83), interest rate risk from non-trading activities (Article 84), operational risk (Article 85) and liquidity risk (Article 86) To wrap up all the unknown or possibly non-examined (audited) areas, clients prepare, sometimes at the direction of their External Auditors, financial statements of more than 250 pages, all starting with a list of IAS or IFRS applicable or not applicable.

Professional associations are finally recognizing the strain on External Auditors In a recent urgent assignment, when I was asked to advise an institution on whether to invest part of its funds, I had to read the financial statements of four reports that ranged from 250-320 pages, plus other working papers on risk prepared by a well-known consulting firm, only to conclude that the information provided in the financial statements did not provide reasonable grounds for the specific institution to make an investment.

Professional associations are finally recognizing the strain on External Auditors. For example, a recent ACCA announcement for a forthcoming conference states: “The idea of audit as a single, universal service that is the same for all types of entity anywhere in the world is under unprecedented strain! [May I remind readers of what was stated when IAS were first implemented – “uniformity”!]

The complexity and global interconnectedness of today’s business environment

have resulted in a growing demand for assurance that information is disclosed fairly and accurately whilst dealing with the challenges that technologies such as Big Data and Blockchain represent. But one pace of development may not suit all.

The accountancy profession must adapt by understanding who the users are, what information they need from an audit and how they will use it…”

Through seminars, External Auditors are prompted to acquire a knowledge of topics such as Data Analytics, Artificial intelligence, Blockchain and Natural language systems and processes that are strengthening analysis and documentation, speeding up the time that they invest in audits. In my opinion, the use of such tools will, without any doubt, speed up the process of checking and analysis but they do not focus on what is demanded or needed by investors – concise and yet complete information so that even an unskilled investor can extract his/her conclusions.

Finally, I would draw your attention to what McKinsey has stated in one of its working papers on Mastering ICAAP: Achieving Excellence in the New World of Scarce Capital: “Given banks’ widely varying and continually evolving approaches, the disparities in their risk-related results, and regulators’ discretionary powers to interpret the depth and content of Pillar 2 requirements, the current situation is fraught with uncertainty.”

A situation fraught with uncertainty is a possible consequence of IFRS 9, due to “more income statement volatility”, “earlier recognition of impairment losses on receivables and loans including trade receivables” and “significant new disclosure requirements”. Something needs to be done and not tomorrow but yesterday if we, as External Auditors, wish to avoid coming under fire from the press and the justice system in the jurisdiction where we are operating.

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we’re

Hiring

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ACCOUNTANCY CYPRUS

R

iding the wave of growth, we proudly announce that as of 1st October 2018, RTBS Limited becomes RSM, a member firm of RSM International, and is fully operating under RSM Cyprus Limited, with offices in Limassol, Nicosia and Paphos.

The business world is evolving rapidly.

Through advances in technology, communications and infrastructure, business barriers are disappearing and each day we become ever more global.

In this fast-paced environment, you need an adviser that thinks ahead and rapidly responds to your changing needs. At RSM, we build strong relationships based on deep understanding of what matters most to our clients.

We believe in striving to be an essential part of our clients’ business environment, thinking ahead and responding promptly to changing needs seamlessly worldwide. We are generous with our expertise and believe that our clients deserve access to our skills, quick and effective thinking, collective knowledge and the activation and exploitation of our resources on a global scale.

By sharing the ideas and insights of our most senior professionals, we bring our expert local and global knowledge and resources to your environment, so you feel understood and empowered to move forward with confidence. It is our strong, collaborative approach that differentiates us. It is the power to truly understand the strategies, prospects and desires of our clients. This is the power of being understood.

This is the RSM experience.

OUR SERVICES Audit and Assurance We provide audit and related services based on advanced methodologies and tools in accordance and fully complied with the International Standards on Auditing and the International Accounting Standards, responding to the modern business needs and information requirements of supervising bodies and authorities.

Advisory Our professionals have the experience and deep knowledge to implement realistic and workable solutions to assist you in minimizing the running costs of your company, developing your business, enhancing your operations and improving your internal processes. Moreover, we can assist on mergers and acquisitions, business plans, financial analysis and feasibility studies, debt restructuring and other services.

Taxation Our tax department consists of executives with significant experience and specialisation in tax matters. Our comparative advantage is the direct and immediate information to our associated of all changes in the tax legislation and the ability to design integrated and innovative solutions tailored to the needs of our clients.

Management Consulting Companies may face management problems at any time. In today’s rapidly changing and competitive business environment, corporate transactions have become more complex.

We are always available to support your operational, financial, marketing and project management needs.

We work closely with each firm’s directors and key employees to learn about their respective internal operating systems. Through this process we are able to develop a customized approach, develop innovative solutions, make recommendations for improvement and offer assistance with, or take full responsibility for the implementation of each activity.​

Startups Being a Startup means a great deal. It means vision and innovation but also strategic thinking, thorough planning and sales. Based on our deep knowledge and experience, handpicked experts and associates, we can assist you from day one. We can assist you in planning your every step, setting up processes, identifying key players and opportunities, in setting up effective sales teams and implementing a strategic growth plan.

George Themistocleous

Challenges? We see opportunities.

We are excited to announce that as of 1st October 2018, RTBS Limited is a member firm of RSM International, and is fully operating under RSM Cyprus Ltd, with offices in Limassol, Nicosia and Paphos.

RSM International • network •

Member firms in 120 countries in each of the top 40 major business centres throughout the world

•

Combined staff of more than 43.000 in over 800 across the Americas, Europe, MENA, Africa and Asia Pacific

Experience RSM | rsm.global/cyprus

RSM Cyprus Limited is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London, article 60 et seq of the Civil Code of Switzerland whose seat is in Zug. © RSM International Association, 2018

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ACCOUNTANCY CYPRUS

ACCOUNTING & AUDIT

IFRS 15:

The Application of a Five-Step Model

By Melina Menelaou FCCA, Audit Director and IFRS expert, RSM

IFRS 15 provides guidance on accounting for revenue from contracts with customers. It was adopted in 2014 and became effective for annual periods beginning on or after 1 January 2018 with earlier adoption permitted. The objective of the new IFRS 15 which replaces the old IAS 18 and IAS 11 is to present a single model for revenue recognition to be applied across all businesses and marketplaces.

This single model will promote greater comparability across industries and a more robust framework as well as greater disclosures and easier guidance.

The fundamental principle of IFRS 15 is that a company will identify revenue to portray the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

To apply this principle, a five-step model frame-

work is implemented as below: Step 1: Identify the contract with the customer A contract by definition is an agreement between two or more parties that creates enforceable rights and obligations. Therefore, such contract must have the following attributes: a. The contract is approved and the parties are committed to perform it b. The rights and obligations of each party are identified c. The payment terms are set d. There is a commercial substance e. There is a high probability of collectability IFRS 15 provides also further guidance on contract combinations and modifications.

Step 2: Identify the performance obligations in the contract A performance obligation

is in essence a promise in the contract to transfer goods or services to the customer. The performance obligation may be implicit, explicit, written or even verbal.

As mentioned in IFRS 15, Appendix A, the performance obligation may be either: • A single good or service that is distinct; or • A series of distinct goods or services that are essentially the same and have the same pattern of transfer.

“Distinct” is the key word in this step, meaning something that is separable or separately identifiable. It is important to highlight that IFRS 15

The new IFRS 15 requires a new mindset for assessing each contract

sets criteria that must be assessed in order to conclude whether a performance obli-

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transaction price

gation is distinct or not.

Step 3: Determine the

The transaction price is the amount of consideration than an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (IFRS 15 Appendix A).

Management must estimate the amount of consideration to which it expects to be entitled in order to recognize revenue which is not always the price agreed in the contract.

The transaction price may include a variable consideration, a significant financing component, a non-cash consideration or a consideration which is payable to customers. All these factors must be evaluated when estimating the amount of consideration.

Step 4: Allocate the transaction price to the performance obligations This is the step where, having identified the contract’s performance obligations and the transaction price, we split the transaction price and allocate it to the individual performance obligations. The allocation will be based on the relative standalone selling price, which is the price at which an entity would sell goods or services to the customer.

The relative standalone selling price can be determined by the observable price of goods or services when sold separately or, if such price is not available, other methods can be used such as the adjusted market assessment approach or the residual approach.

Step 5: Recognition of revenue Revenue is recognized when a performance obligation is

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satisfied and the control is transferred to the customer.

A performance obligation may be satisfied “over time” (i.e. divided over the period of the contract term) or at the “point in time” (i.e. upon completion of the contract). For revenue recognized over time a measurement of the progress towards the completion of the performance obligation is required to be made.

This can be done by various methods such as the output method or appraisals of results etc.

For some entities, the impact of the new IFRS 15 will be nominal where for some other companies and industries such as telecom and real estate, the challenges for implementing the new rules will be greater.

In conclusion, the standard requires a new mindset for assessing each contract and ensuring the 5-step model is followed thoroughly and correctly.

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economy

Businesses are the Engines of Economic Growth Christos Michaelides, Chairman of the Employers and Industrialists Federation (OEB), on the state of the economy, what still needs to be done, how to retain talent and the role of women in business.

In 2014, you said that “Solving social problems created by the economic crisis will eventually start from the businesses and therefore high priority should be given in ensuring their sustainability.”

Do you think that you have been proven correct?

Yes, OEB has been proven correct and there is considerable evidence to support this. Cypriot households experienced the effects of the financial crisis directly, in many cases to a devastating extent. At the height of the crisis, tens of thousands of private sector employees had lost their jobs and many more saw a reduction in their wages and benefits as businesses struggled to weather the financial storm and safeguard as many jobs as possible. In many instances, businesses retained their workforce despite becoming profitless. The cause and effect relationship between the economic crisis and unemployment is selfevident. A government’s ability to support its citizens in times of hardship through social transfers relies, to a great extent, on the ability of the private sector to finance said policies. Although social transfers can help mitigate the effects of the crisis, they are no substitute for gainful and productive employment and the creation of new jobs remains, primarily, the prerogative of the private sector. As our economy improves, we see a reduction in unemployment, a gradual restitution of wages and benefits,

and an increase in consumption. Businesses are the engines of economic growth and we must do everything in our power to help ensure their sustainability. Simply put, making businesses and the economy a priority is the most effective way of helping create jobs.

ternational companies operating in Cyprus tend to bring along new methods which are used worldwide and their presence here helps Cyprus adopt such practices faster.

So they certainly have both a direct and indirect impact on the economy in various forms and ways.

Do you believe that Cypriot businesses have been strengthened and improved by the influence of the many international companies that have set up in Cyprus?

The increasing presence of international companies in Cyprus has had a positive impact on Cypriot businesses and our economy in general. It has enriched the professional services that are provided on the island, improved competitiveness between businesses and helped enhance the quality offered by local enterprises. New jobs created by international companies have resulted in both an inflow of skilled workers as well as the training of the existing personnel. They have also brought an exchange of knowledge and expertise. In-

You have also stated that “to revive entrepreneurship, the state`s contribution must be significant to support businesses”. Are you satisfied with the state’s contribution and support? Could it do more?

A lot has been done so far by the Government, some at the request of OEB, for the revival of business activity. The results have had a positive effect on the economy, in areas such as the diminishing unemployment rate, the rate of growth, record tourist arrivals, the rebounding of the construction sector, retail, etc. On the other hand, we strongly believe that further measures are needed to tackle the structural problems of the business ecosystem and to create a more business-friendly environment. We have to manage the major challenges of the economy, namely to eliminate red tape, facilitate easy access to finance, resume public sector reform, consider digital transformation, strengthen incentives for investment and undertake reorganisation for the optimum utilization of the public sector, particularly in the form of effective and targeted incen-

Making businesses and the economy a priority is the most effective way of helping create jobs

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tives for mergers & acquisitions, export orientation, etc. At the same time, we are deeply concerned by the decision of the House of Representatives and the Government to restore salary cutbacks for workers in the public sector and by labour unrest in critical sectors of the economy, which poses serious threats to economic growth and public finances. We hope that the economy will continue to grow at a high rate in the following years, to enable a gradual and reasonable restoration of employees’ wages, within the economy’s potential.

companies being generated on the island.

All these opportunities are constantly creating vacancies for a skilled workforce and there is proof that many young and talented Cypriots who worked abroad are now returning to Cyprus. The unemployment rate in Cyprus has dropped significantly over the past few years. More specifically, during the last 12 months, there has been a decrease from 10.7% to 7.7%, which is creating a higher demand for skilled professionals and good job opportunities even at the highest level.

Many young Cypriots with high educational qualifications are choosing to start a career abroad rather than stay in Cyprus, where they may not find a job and a salary commensurate with their expertise. What can be done to retain talent?

The ‘brain drain’ is a serious issue that small countries often face, especially after a long and intense economic recession like the one experienced in Cyprus. Highly-skilled young individuals tend to seek employment abroad in order to fulfil their expectations and aspirations of building a better future for themselves and their families. The key to retaining talent in Cyprus is economic growth. We believe that Cyprus is already on the way to economic recovery and we now see many new businesses opening up new large-scale investments being materialized and initiatives for startups and hi-tech

How do you view this decrease and how can it be reduced further?

This reduction in unemployment is testament to the resilience and perseverance of our economy, made possible by the sacrifices of businesses and workers, fiscal discipline, the implementation of various reforms and hard work. We are proud of what we have achieved and we are very happy for the many unemployed who are finding jobs as the economy recovers. If anything, this success makes us even more determined to continue along the same path. Unemployment has fallen because businesses have created new jobs and the only way that this trend can continue is through sustainable private sector growth.

OEB has submitted numerous proposals to this end, on issues such as reducing bureaucracy, public sector reform, the continua-

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The key to retaining talent in Cyprus is economic growth tion of subsidised employment schemes, shop opening hours liberalisation, entrepreneurship promotion and other structural and legislative reforms.

How do you see the economy progressing over the next few years?

As mentioned earlier, Cyprus is on the way to economic recovery. The economy is recording growth rates close to 4% and unemployment has fallen significantly. If we manage to maintain a similar discipline in the years to come, I believe that we can reach the economic stability that we have been longing for. The recent rating of the economy as investment grade will automatically improve the outlook of Cyprus to potential investors. Furthermore, we believe that recent developments in the banking sector and the action taken regarding the management of non-performing loans (NPLs) will have a positive impact on business activity and on the financial services sector in Cyprus. This is crucial for the creation of liquidity in the market. Other sectors of the economy, such as construction and tourism, have improved tremendously in recent years but strategies, effective

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mechanisms and actions are needed. The experience gained and the level of expertise in the services that Cyprus provides are guarantees of further growth in the near future. We also have to ensure that a wellorganised Deputy Ministry will effectively manage the tourism industry and resolve, amongst others, the sector’s horizontal problems. Last but not least, I would like to focus on Health and Education – two social issues of critical importance to the quality of life in Cyprus. Recent developments in these areas are causing unrest in the workforce of these sectors. However, we believe that this turbulence is temporary and will eventually lead to the best possible resolution for the benefit of the people living on the island. Throughout history, the people of Cyprus have proved that, in the most difficult of times, they can demonstrate the necessary sobriety and solidarity in order to surpass any obstacles that may arise.

On 1 August, OEB noted that the lack of suitable staff especially in the tourism sector should be considered as an ‘emergency situation’. Have there been problems? In what ways can this issue be resolved permanently since tourism is a key sector of the economy?

Tourism is one of the most vibrant, versatile and promising industries of the economy. It is currently on a growth trajectory and this is evident from the considerable sums invested in increasing our tourism capacity. Unfortunately, the local and EU labour markets fail to meet the industry’s needs. Cypriots shun work in the hospitality sector, which often involves working in shifts, and prefer pursuing other career opportunities. Tourism is a considerable source of revenue to the country and the failure to cover the sector’s needs in human

capital truly creates an emergency situation and may limit development opportunities.

OEB has submitted various proposals to help reinvigorate the interest of Cypriots in the tourist industry, as well as proposals to re-evaluate our national policy for the employment of third country nationals, making it easier for businesses to meet their needs. Although the employment of third country nationals cannot and should not be a permanent solution to staff shortages in the tourism sector, it is an immediate and practical solution to the challenges faced with a direct positive impact to the economy.

At the 107th ILO Conference Plenary in Geneva, OEB referred to the progress Cyprus has made regarding the Women at Work Initiative. What can you tell us about this?

The ILO’s Women at Work Initiative aims to advance and secure decent work for women and addresses four key areas identified through research and consultation: discrimination, low pay and the absence of equal pay, the lack of recognition of care work, and violence and harassment.

Although problems and challenges persist, Cyprus has made considerable advances in these areas in the past few decades and the involvement of the social partners has been crucial in achieving that. It is worth noting that the gender pay gap is constantly decreasing: In 2016, the unadjusted gender

Unfortunately, the local and EU labour markets fail to meet the tourism industry’s needs

pay gap in Cyprus was 13.9% while the EU average was 16.2%. It is our view that actions speak louder than words and to prove that OEB takes equality issues very seriously, we have amended our Articles of Association to make equality part of our mandate. We were also the first social partner to publish and disseminate among businesses – way back in 2004 – a model code for the prevention of sexual harassment in the workplace. In 2012, OEB developed a Gender Equality Certification System as part of a Ministry of Labour project, under which businesses that implemented equal treatment and equal pay principles could be certified as ‘Equality Employers’. The Sound Labour Relations project we initiated in 2014, co-funded by the European Union and the Government, actively promotes gender equality at work. In 2016, together with the Cyprus Association of Women, we launched the Women’s Excellence Awards to promote positive role models and challenge stereotypes about women.

For more than half a century, OEB has played a key role on the business scene in Cyprus. What are its future goals and how do you aim to achieve them?

Throughout its 58 years of activity, OEB has been a key provider of social and economic development and prosperity in Cyprus, as the leading representative of businesses in decision-making centers, both locally and abroad. We can assure our members that the collective bodies of OEB and its Secretariat are working towards maintaining a stable, solid and sound business environment in which our businesses can unleash their potential, create jobs, innovate and progress. This will benefit both the economy and society.

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Around 40% of employers in Cyprus do not offer a pension scheme to their employees

economy

Planning Your Retirement - A Three-Step Approach

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

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aving towards retirement is a matter of discipline and proper planning.

The sooner we realise that retirement is not light years away but rather a fast approaching reality and starts planning accordingly, the likelier we are to reach our pension goals. How much pension savings will be required depends on lifestyle and spending habits. According to studies, most people fail to plan for their pension needs out of sheer neglect or due to a perceived lack of knowledge.

Planning and Implementation As a general rule, in order to maintain the lifestyle to which we are accustomed in retirement, pension income ought to be around 80% of the income prior to retirement. The latter can be achieved through the three-pillar retirement framework: Pillar 1 – Public pension The first pillar caters for social insurance and covers basic subsistence needs in old age. It aims to provide the elderly with a minimal level of income and is guaranteed by the Government.

Pillar 2 – Occupational pension This is a pension system which both employers and employees

pay into. In the private sector in Cyprus, it is usually in the form of a defined contribution scheme, which means that employees receive a lump sum at retirement, which will depend on the money contributed plus any positive or negative performance accumulated throughout their career. In government and semi-government organisations, a defined benefit system usually guarantees a salary throughout retirement.

Pillar 2 is the core of the three pillars and is the foundation for the continuation of the accustomed standard of living. The bad news is that around 40% of employers in Cyprus do not offer a pension scheme to their employees. This segment of the working population ought to turn to Pillar 3 and consider the various investment plans that exist in the market and, at the same time, encourage their own employers to consider setting up a pension scheme.

Pillar 3 – Private retirement savings These are voluntary private savings to cover additional retirement needs. They might include savings in bank deposits or fixed income products or investments in financial instruments. Whereas in many countries such savings can be set up in tax deductible schemes, in Cyprus such schemes are not

yet tax deductible.

Management of Assets With retirement needs calculated and A pension plan implemented via the three-pillar approach, the final and equally important step is how contributions made to Pillar 2 and 3 will be invested. The majority of pension savings in Cyprus, both in the public and private sectors, and social insurance funds are sitting in bank deposits earning close to zero interest. While they are seemingly safe, in actuality their value is deteriorating due to the rise in the cost of living. The inflation rate in Cyprus averaged 3.68% from1951 to 2018. This translates into a loss of approximately 50% of the buying power of money within 20 years if the funds earn no interest. In 20 years, the buying power of €20,000 in today’s money will be around €10,000.

Compound Interest According to Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t, pays it.”

Saving and investing, especially at a young age, will potentially maximise the benefits of compounding (compound interest means that you begin to earn interest on your interest,

resulting in money growing at an ever-accelerating rate and thus creating a snowball effect).

However, for this to materialise, investments must earn a return. Saving and investing in bank deposits that earn little to zero interest will not take advantage of the compounding effect. The following example illustrates why it is vital for pensions to be invested in financial instruments that have the potential of earning returns.

Investor A contributes €200 per month for 35 years with a yearly return of 0.5%. His contributions will be €84,000 and the estimated total after 35 years is €94,000. Investor B contributes €200 per month in financial instruments but instead earns a yearly return of 4% due to the higher risk undertaken. His estimated total return will be €182,746, almost double the amount compared to investor A. Thanks to the miracle of compound returns, the earlier you invest the more it will be worth when you retire, given, of course, that a well-thought investment strategy is followed with global diversification.

Pursuing one’s retirement goals is not a complicated affair. It involves three steps: planning, implementing and finally ensuring that a prudent investment methodology is adopted.

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economy

The Cooperative Bank Saga:

A Non-Populist View Following the approval on 8 July, 2018 by the House of Representatives for the implementation of the agreement between Hellenic Bank and the Cyprus Cooperative Bank, the island’s banking system is undergoing a hopefully smooth transition to the post-Coop era. We didn’t get here without a great deal of populist rhetoric, some of which is still being heard. Below is an objective view of what has happened and what it means.

By Savia Orphanidou, Economist

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ack in 2013, the DirectorateGeneral for Competition (DG COMP) of the European Commission approved state aid of around €1.7 billion to the Cyprus Cooperative Bank (CCB) under two very strict conditions: The Government should not, in any way, be involved in the management of the bank and it should gradually be denationalized. So it was evident five years ago that the Coop banks would eventually cease to exist in the form they had functioned in for decades. The CCB, as a systemic bank, had to abruptly adjust to the new European environment of strict supervi-

It was evident five years ago that the Coop banks would eventually cease to exist in the form they had functioned in for decades

sion by the European Central Bank and the Single Supervisory Mechanism.

The malfunctioning of the Coop system, its bad corporate governance and numerous corruption cases led to the CCB’s biggest challenge in 2013 – the creation of around €7.5billion in nonperforming loans (NPLs), constituting 55% of the Coops’ loan portfolio. Huge efforts were made by the new Management to drastically reduce the NPLS, which decreased to around €6.2billion.

While considered very significant, the reduction was not sufficient to solve such a huge problem in a short period of time. One of the main problems faced by all systemic Banks in Cyprus (not only the CCB), was the ineffectiveness and inefficiency of national legislation for tackling NPLs. In view of the upcoming advancement of the European banking union, the supervisory bodies in Frankfurt exercised strong pressure on Europe’s systemic banks to swiftly tackle the huge issue of NPLs, thus increasing pressure on Cyprus due to its much higher level of NPLS (43% on the total loan portfolio compared to the EU average of 6%).

The new accounting standard IRFS 9 came into force on January 1, 2018 and the SSM inspection of the CCB at the beginning of the year resulted in increased provisions of €820 million (the main reason being that the SMM assumed the value of the collaterals on most mortgage loans to be zero), thus leading to a very high unexpected level of capital needs of around €600m.

These developments, in conjunction with rumours of a possible “haircut” resulted in deposit outflows from the Coops of around €3 billion and led to the speeding up of the denationalisation procedure, which ended with the difficult but necessary solution of the acquisition of the CCB by Hellenic Bank.

In the context of the Agreement between Hellenic Bank and the CCB, Hellenic Bank took on board around €10 billion in liabilities (mostly deposits) and, in order to manage these liabilities, also received around €10 billion in assets. On the other side, the CCB’s NPL portfolio, along with the Coops’ immovable property and a number of performing loans, amounting in total to €8.3 billion, have been transferred

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to the newly established Cyprus Asset Management Company (CAMC).

With the implementation of the Agreement, all Coop bank deposits transferred to Hellenic Bank are secured against any theoretical scenarios in the future. At the same time, with around €6.2 billion of CCB NPLs exiting the banking system (along with the sale of around €3 billion worth of NPLs by Bank of Cyprus), the country’s banking sector is once again safeguarded against any adverse threats, thus enhancing the confidence of depositors and investors.

In addition, Hellenic Bank, which is now the 2nd largest systemic bank in Cyprus, is being transformed into a more powerful, well-capitalised financial institution with an NPL ratio of around 25%.

The establishment of the CAMC was a policy supported by almost all the political parties. The difference between 2013 and today lies in the fact that the Government now has the financial capability of proceeding with the establishment of such a company. The issuance of government bonds amounting to €3.5 billion has significantly burdened the taxpayer and further increased the level of public

debt but it was a necessary step for the completion of the agreement. In any case, no additional taxes will be imposed as a result of this measure. Most importantly, the CAMC has received substantial assets as collateral and in exchange of the burden of €3.5 billion.

As mentioned above, the need to amend national legislation was imperative for the smooth functioning of the banking system. Following the legislative changes approved by the House of Representatives on 8 July, the banks now have sufficient legal tools to tackle the issue of NPLs, mainly aiming at strategic defaulters who refuse to pay off their loans. The legislative amendments are even more important for the proper functioning of the CAMC, as they will enhance the restructuring efforts for the €6.2 billion in NPLS transferred to the CAMC, slowly repaying the €3.5 billion burden on the taxpayer and gradually decreasing public debt. In order to achieve this result, the CAMC should be managed prudently by a private company with expertise in the field of NPL management, with no state or political intervention.

It has not been easy, to say the least, to

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The decision to allow Hellenic Bank to acquire the CCB was a very difficult and painful one but it was a move in the right direction manage such a difficult situation in a short period of time. It is never easy to change a culture and the bad practices that have existed for decades. The decision to allow Hellenic Bank to acquire the CCB was a very difficult and painful one, accompanied by various administrative challenges but it was a move in the right direction. This is already evident from the four recent upgrades of the Cyprus economy by Fitch, Moody’s and DBRS, and especially by Standard & Poor’s, which has upgraded the economy to investment grade after seven whole years! This will support further progress in our banking sector, in the months to come.

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economy

Estia:

A Scheme Fit for Purpose?

This attempt to assist so-called ‘vulnerable’ families whose primary residence may be at risk is, in principle, a very welcome and valiant, albeit somewhat belated, move. But is it doing what it was created for?

By Renos Ioannides, Financial Analyst & Licensed Insolvency Practitioner

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t is an undisputed fact that home ownership is deeply engrained in – and oftentimes ‘imposed’ by – Cypriot society. It is also an undisputed fact that a great number of homes are collateralized to banks for housing, personal and business loans.

To complete the equation, Cyprus ‘boasts’ the highest private debt level, as a ratio of debt over Gross Domestic Product, in the EU. Non-performing loans among households and small to medium size enterprises account for well over 50% of the respective total loans.

It doesn’t take a genius to work out the maths. A very large proportion of local homes are encumbered in favour of banks and a sizeable part relates to loans that are non-performing. This cocktail is like a bomb which may detonate at any time if left untreated, given that the burden of home ownership exerts financial, socio-economic, psychological and health stresses on a sizeable number of our fellow citizens.

It is cases where the household cannot make ends meet that any State-backed social scheme should be addressing Protection of ‘Vulnerable’ Households It is for these reasons that the Estia scheme was set up, in an attempt to assist so-called ‘vulnerable’ households whose primary residence may be at risk. In principle, it is a very welcome and valiant, albeit somewhat belated, move. The rationale behind the scheme should be to support and assist truly vulnerable households by sharing the risks among borrowers, banks (possible loan write-down) and the State (the taxpayer’s money), which will be subsidizing one third of the loan’s instalment. This should be done in a fair and equitable way, stripping out strategic defaulters and preventing moral hazard.

A Tale of Two ‘Vulnerable’ Households Let us examine how the published scheme will work with two typical Cypriot households: All households with a declared (gross?) income of up to €50,000 will be eligible. The scheme seems to have ignored that around 80% of all households in Cyprus declare a total income within that range. It has not considered the fact that a number of self-employed people may not be declaring their full income.

It has failed to take into account the composition of the household and the resulting reasonable living expenses.

To put it simply, the scheme seems to assume that a household comprising a young single member who has his own

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professional practice and has not been particularly affected by the recent economic crisis is equivalent to a household consisting of a lowly paid worker, an unemployed spouse as a result of the crisis, and four young dependents.

The upper limits imposed on the household’s assets are not much more equitable either: €350,000 for the primary residence, which is by no means negligible, and a crude measure of up to 125% of the residence’s value in other assets.

The nature of these assets is not defined but what the scheme defines is that this 125% will be the net value of those assets (i.e. net of any debt obligations attaching to them). So, to continue with our above example, our young professional comfortably lives in his luxury 300 square metre penthouse which is valued at just below €350,000 and also maintains a nice beach house and a flashy sports car which are worth, say, €1 million with a corresponding debt on those assets of €600,000 (hence, the net value is less than 125% of the residence’s value). Our six-member family, on the other hand, lives in a working class, semi-detached 200

square metre house, valued at €200,000, have two cars collectively valued at €15,000 and no other assets. Both households will be classified as ‘vulnerable’.

In his effort to fund his expensive lifestyle, but also in light of the ineffectual judicial and enforcement regime in Cyprus and the recent public hype about potential loan forgiveness, our young professional has never made any substantial pay-downs into his loan. He is the very definition of a strategic defaulter. On the other hand, our family of six has been trying to make even the smallest, if irregular, contributions towards their loan out of the little wages they are earning.

No need to say that both households are eligible for the Estia scheme.

Actual and Fluke Effects of the Estia Scheme What are the traits then deriving from the very realistic and so common tale

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just described?

• It is not a bad deal at all for the young professional. He gets to keep all his wealth and grandiose lifestyle, has his housing loan written down, enjoys a low interest rate and has the State (i.e. the taxpayer) subsiding one third of his housing loan instalments.

• It is not such a bad deal for the bank either. It may have to write down its housing loan to the present value of the primary residence but, to all intents and purposes, one would reasonably expect that this write-down is already covered by impairment provisions. In all other respects, the bank wins, given that a non-performing loan will eventually be converted into performing and it will also get a welcome boost from the borrower’s repayment ability.

• What about the taxpayer? Well, this is not a very good deal, is it? The law-

The scheme has totally missed its overriding objective and been derailed from its underpinning principles

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The scheme has not been discussed openly and transparently as it should have been abiding taxpayer will be subsidizing a wealthy strategic defaulter’s loan instalments.

• And what about those lowly paid parents of four? Theirs is what would reasonably be defined as a truly deprived household. It is cases such as these, where the household cannot make ends meet and is certainly in no position to regularly service the two thirds of any reduced loan instalments, that any Statebacked social scheme should be addressing. As things currently stand, such households will be led to foreclosure.

Where is the State’s social housing scheme, then, to protect people from homelessness? Or a mortgage-to-rent scheme whereby the State buys the house, leases it back to the family at very low rent (with option to repurchase), allows the family to continue its life in the same surroundings and protects them from the social stigma and the psychological hit? Or, at the very least, where is a free scheme, an electronic platform, where families can look, without cost, for a home trade-down transaction (sale of their home, purchase of one of lower value) and possibly a simultaneous write-down of their debt in line with the Estia provisions?

And what about all those thousands of

conscientious households, which have sacrificed their way of living to make ends meet and to keep up with their loan repayments? On top of their own loan instalments, they will now find themselves subsidizing the young professional strategic defaulter’s lavish way of life.

Not fair, is it?

The Verdict Is the Estia scheme needed? Absolutely. There are so many primary residences collateralized for loans and so many households which cannot fully service their debts.

Is it fit for purpose? Not in the least, in the way it has been structured. The scheme has totally missed its overriding objective and been derailed from its underpinning principles. It seems to have been set up haphazardly, it gives a shield to wealthy strategic defaulters while leaving truly deprived households out in the cold. Although this is a nationwide issue which affects all strata of our society, directly (eligible borrowers) or indirectly (taxpayers), it has not been discussed openly and transparently as it should have been.

Can it be made fit for purpose? Definitely, through structured analysis and planning, proactive and holistic thinking to pragmatically right all the identi-

fied wrongs: • Tighten the eligibility criteria with respect to income and the value of the primary residence vis-à-vis the structure of the household, • Reduce the allowable free assets of eligible households to a reasonable and fair value, • Establish thresholds to eliminate strategic free-riders, • Institute social schemes to assist and support truly deprived households, • Look at borrowers’ true sustainable debt servicing capacity across the banking system and not in isolation (e.g. only housing-related loans), • Introduce uniform decision-making rules and assessment criteria for borrowers’ viability, which shall be applied universally by all participating banks, • Add provisions for a review of the eligibility criteria at regular future intervals, • Make it perfectly clear and beyond any reasonable doubt that, in cases going sour, the State will have first priority in foreclosure procedures over the disposal proceeds (including interest).

The take-away message is that the Estia scheme has been hastily put together in a reactive, piecemeal, fire-fighting approach, which is so typical of our overall way of handling the excessive private debt and the mountain of NPLs in this country. It’s time that our inefficient legacies of the past were changed. If we want to prosper as a nation, that is!

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taxation

The Future of Tax Havens

By George Apostolides, Deputy Head of Compliance, Eurobank Cyprus

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ignificant pressure has been mounting in recent years against the conducting of business in jurisdictions characterized as tax havens. While many international and multi-million organisations, as well as individuals, use such jurisdictions for perfectly legitimate business reasons, the legitimacy and transparency of such jurisdictions are continuously being questioned, mainly by governments as a result of their own loss of income.

The constant negative publicity about tax havens, resulting from the publication of the so-called ‘Panama Papers’ and later the ‘Paradise Papers’, might be considered as an intentional move to ‘demolish’ them and the international community’s perception of tax havens is certainly negative, with the specific jurisdictions being requested to take significant action towards promoting transparency and proving that their business is conducted on a true and fair basis.

One of the actions taken by international lawmakers to enhance transparency was the enactment of the Common Reporting Standard, which requires that information be exchanged between participating countries on the wealth accumulated by foreign individuals and entities and held in accounts in foreign financial institutions. Most of the so-called tax havens have elected to participate in the scheme, in an attempt to show a commitment to promote transparency and thus not be considered as non-cooperative in the fight against financial crime.

Cyprus is also in the sights of the international community due to its preferential tax rate, compared with that in other EU member states. A recent action taken by the Central Bank of Cyprus towards enhancing transparency in the Banking System was the issuance of a circular on the identification and treatment of shell companies. All regulated credit institutions in Cyprus are obliged to follow the specific guidance and perform client acceptance procedures for the entities that fall within the scope of the definition set by the regulator. It is worth noting that the US Department of Treasury issued in early August a report to the US Congress highlighting the issuance of the said guidance as positive.

In July, the Financial Action Task Force issued a publication entitled Concealment of Beneficial Owners, which provides a comprehensive analysis of shell companies and how they are used in building complex structures. The 5th AML Directive adopted by the European Parliament introduces a number of rules that will bring more transparency to improve the fight against money laundering and terrorism financing. Among the measures are the establish-

Cyprus is in the sights of the international community due to its preferential tax rate

ment of beneficial owners registers across the EU, limitations on the use of pre-paid cards, enhancing the access of Financial Intelligence Units to information, including centralised bank account registers, etc.

This serves to highlight the importance of collaboration among members of the financial community in Cyprus with the common goal of promoting transparency.

The Basel AML index, which is an annual ranking assessing country risk regarding money laundering/terrorism, places Cyprus 31st out of 146 countries worldwide, higher than other EU Countries like the Netherlands and Spain. The overall rating takes into account any shortfalls in the AML/CFT Framework, Financial Standards and Transparency, political rights and rule of law, the level of perceived corruption and the degree of public transparency.

Even though, Cyprus’ ranking suggests that local AML/CTF Laws are of a high standard, the effective application of these Laws needs to be secured.

Moneyval recently commenced its 5th round of mutual evaluation of AntiMoney Laundering and the Terrorism Financing for which an on-site visit to Cyprus will take place in 2019. In view of the upcoming visit, Cyprus will have the opportunity to show that the relevant Laws are consistently applied.

I am of the opinion that, with the collective collaboration of all interested parties, Cyprus will successfully continue to be perceived as one of the primary destinations for international business.

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professional economy services

A Thriving Professional Services Sector for a Thriving Economy Interview with Chrysis Pegasiou, Director, Crowe Cyprus How would you describe the present state of the Cyprus economy and what are your predictions regarding GDP growth in 2018-19?

From what we have observed in the first half of 2018, the economy has maintained its strong momentum with GDP growth rate around 4%. Taking into account the growing tourism and financial services sectors, I believe that this robust growth will continue in 2019.

Which sectors of the economy, in your opinion, have the potential to see growth in the next two years?

I believe the sector with the potential to have significant growth over the next two years is education services, mainly tertiary.

The significant increase in the number of students at both public and private universities will also have an indirect positive effect on real estate development & management and retail consumption.

What are the main economic challenges that lie ahead?

Firstly, Non-Performing Loans, together with the high level of household leverage, are preventing financial institutions from injecting funds for the development of the economy and households from increasing their level of consumption. Also, international turmoil and the uncertainties in the economy of countries that have traditional commercial and economic relationships with Cyprus are negatively affecting foreign investment in the island’s economy.

How much does the broader professional services sector contribute to the economy of Cyprus and to society as a whole?

It is evident that the professional services sector contributes greatly to the national GDP. It should be noted that, since the financial crisis of March 2013, the professional services sector has been the main driver, which helped overcome the crisis and triggered economic growth. At the same time, the professional services sector makes an extremely positive contribution to society via its high employment rates.

In your opinion, what would be the best strategy to be followed by the Government and the banking sector in order to tackle the problem of NPLs? In my opinion, the Government should encourage the sustainable development of secondary markets, whereby banks can sell their NPLs to investors and, at the same time, provide financial institutions with the means to facilitate the in-depth disposal of assets.

How can the professional services sector assist the Government in implementing best practices?

The Government should set up committees to deal with various issues and challenges and these committees should be composed to a significant extent of professionals with the relevant background and expertise from the private sector.

The sector with the potential to have significant growth over the next two years is education services

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BUSINESS in cyprus

Creating a Competitive Advantage

By Dr Aspasia Simillidou-Theodosiou BSc, MSc, PhD, Lecturer/Course Leader, Hospitality & Tourism, UCLan Cyprus and HRDA certified trainer

C

hange has never been easy.

Today, there are many changes happening, for which some organisations are not prepared. Due to this rapidly changing environment, it is very important to be able to adapt.

Organisations struggle to survive and adapting in the new era is not an easy task. One of the challenges that organisations face today is to create a competitive advantage. Unfortunately, there is no special recipe that can be followed.

Each case is unique. Some general rules apply but following them will be just the beginning of your journey.

What is a Competitive Advantage?

In simple terms, a competitive advantage is an advantage that an organisation has over its competitors, which allows it to generate more sales or retain more customers. An organisation may also have a competitive advantage in terms of cost structure, distribution network, products offered or customer support.

According to US academic Michael Porter, there are two main types of competitive advantage: comparative advantage and differential advantage. Comparative advantage (or cost advantage) is a firm’s ability to produce goods or services at

a lower cost than its competitors and thus sell them at a lower price than the competition or generate a larger margin on sales. A differential advantage is created when a firm’s products or services differ from those of its competitors and are seen by customers as better than the competitor’s products or services.

There is something that your competitors cannot copy: your internal culture Creating a competitive advantage, though, is not as easy as it sounds. It requires time and effort as well as teamwork. Having lots of people working together towards the goal of creating a competitive advantage is highly beneficial. The very first step, though, is to decide whether, as an organisation, you wish to create a comparative or a differential advantage. Each one will need a different approach. Once the decision has been taken, you need to start working in that specific direction. Taking some of the steps below can help organisations create a solid base as they seek the desirable competitive advantage.

Internal Culture The way people are treated within your organisation can actually determine whether you will create a successful competitive advantage. Competitors can copy a lot of the things that you do: even if you trademark, patent or do whatever is possible, competitors can see your end results and get close enough to “harm” you or even take what you do to the next level. This is what competition has been doing for decades now.

There is something, though, that your competitors cannot copy: your internal culture. It involves behaviours, relationships, attitudes, values and environment. The way that these components are put together forms your competitive advantage.

When people talk about a competitive advantage, they often mean excellent customer service. I couldn’t agree more! But how can people offer excellent customer service if the company’s internal culture is not motivating them enough to do so?

Since every organisation’s environment is different, copying someone else’s behaviours, relationships, attitudes and values will not produce the same culture. If you work hard on your internal culture, this will help you create a unique external identity. Your people will be happy to treat your customers in the same way that they are being treated internally and this will be your

ACCOUNTANCY CYPRUS

unique advantage. Whenever you adopt an attitude or behaviour or you create an internal value, stop for a moment and think: would you like your customers to be treated in such a way? Is this a step towards creating a unique competitive advantage?

New Ideas Creating new ideas is one of the most important factors in differentiation. As noted above, you can either create an advantage through your costs or through your products. Whichever way you decide to go, you will need to become more creative.

To begin with, start utilising your human resources more. Ask your people to give you ideas in a brainstorming session. Do not judge or disapprove any of their ideas at that stage. This may demotivate them.

Just listen and note everything that they suggest to you. Some of these ideas may end up being very successful if you build on them. A new idea may be your beginning to creating a competitive advantage. It will also motivate your employees and give them the opportunity to express themselves more openly.

Motivate Your Employees Motivating your employees is very important. They can help an organisation succeed or fail! Even if you have the most successful,

unique and innovative product, this on its own won’t be able to create your competitive advantage. Products need people to support, sell and advertise them. So focus on motivating your employees, inspire them and help them create your competitive advantage. You can use both monetary and non-monetary incentives. Once you have decided that you need to be unique, your people need to be aligned with your vision since, without them, your journey will be much more difficult.

Take It Personally!

Each person needs to feel unique. We all have need of a unique identity. This is true of your target market as well.

Get to know your current and potential customers even better. Understand their needs. Sell them what they really want and not what you suggest. Becoming more customer-friendly is a good start towards creating a competitive advantage for your organisation.

Stop Erecting Barriers.

We are sometimes our own worst enemy.

We erect barriers because we are afraid to do something different. If we avoid change and stick to the old-fashioned way of doing things, this will prevent us from creating a competitive advantage.

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Stop placing obstacles in your way today!

People are afraid to try new ideas due to the risk of failure but, most of the time, a new approach is the way to differentiate you from the competition.

If you work hard on your internal culture, this will help you create a unique external identity Creating a competitive advantage for your business is a highly innovative, creative and rewarding experience. It helps you not only increase your market share and your profits but lets you get to know your strengths and weaknesses even better. When planning to create a competitive advantage, you need to understand and build on your strengths, while working on eradicating your weaknesses. This will give you a great insight into your organisation and take you closer to becoming more successful. Finally, never forget the famous quote by Jack Welch: “If you don’t have a competitive advantage, simply don’t compete”.

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BUSINESS in cyprus

Working the Room Why Soft Skills Matter in the Business World

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

P

rofessional Expos.

Conventions. Business seminars. The occasional ball to which you are invited by the CEO of the legal firm with which you collaborate on a frequent basis.

All are social occasions, calling not only for your presence but, more importantly, for your active participation in them.

But how is “active” defined? It usually means mingling with the other attendees, discussing any given topic, from which team was supposed to win the World Cup to the latest developments in the tax landscape of five different jurisdictions, rather than staying in the shadows, with a glass of Old Fashioned in hand.

Networking is key when you are a professional. It doesn’t matter if you work for an organization or if you own it; you still have to put in the work.

Being able to effectively work a room, by adapting your conversational and interpersonal modus operandi to the different sets of characters found within

it, is one of the most important traits a professional can possess.

Some call it people skills. I call it being a social chameleon.

Either way, being socially adaptable will stand you in good stead when you are looking to enrich the old Rolodex with new contacts.

Within every highly sociable person lies an admirable set of soft skills. It is said that virtually everybody with a normally working brain and an intelligence quotient in the triple digits can acquire certain technical skills and even excel at them but soft skills are a whole new ballgame. Carrying out a Net Present Value analysis on a potential investment is learnable; being able to step in and resolve a conflict between two team members is not, at least not in the sense that a book can teach you how it’s done.

Soft skills cannot be taught and learned in a classroom, nor is there a manual that you can read cover-to-cover and, when you put it down, take a look in the mirror and see a people

Within every highly sociable person lies an admirable set of soft skills person where previously there stood an introvert. Social skills are innate; a set of traits that comes with the personality that we are born with. This is not to say, though, that they cannot be cultivated. On the contrary.

A good friend of mine, whom I have known since my university days, used to be a hardcore introvert. We would go out clubbing, and he would be the one sitting quietly on our booth’s sofa, sipping on a drink, waiting for luck to strike. Needless to say, it never did. All our efforts to get him onto the dance floor

and in close proximity to other clubgoers proved to be futile.

He just couldn’t muster the courage to go and start up a conversation with a member of the opposite sex, let alone dance with them. And it wasn’t just the girls; he also had difficulties in socializing with our classmates, whether in the student union over coffee or in the local pub over a pint. He just couldn’t cope with mixing with others.

Then we graduated.

Upon returning to Cyprus, nearly all of us secured traineeship contracts to do either the ACA or ACCA professional qualifications. My friend entered the mystical world of a Big 4 Audit Firm and, a year or two down the road, the most magical thing happened.

He switched from being an introvert to a can’t-wait-to-bethrown-into-a-room-full-ofpeople guy. I happened to see him in action when we both attended a technical seminar at a hotel in Nicosia, some ten years ago. During the first

ACCOUNTANCY CYPRUS

coffee break I was sceptical; I thought to myself that what I was seeing should be a onetime thing, that he must have woken up on the right side of bed. When the second coffee break came, I went from being sceptical to trying to understand how he had become so good at socializing. By lunchtime I was convinced. I took a seat next to him, and we reminisced about the good old times. Then I asked him about his transformation. I was direct in my question and so was he in his answer. He said, “You know, I really worked on my introversion, and I managed to get it under control. It took a great deal of effort and practice but the more I got out there, conversing and mixing with people, the more I grew accustomed to it. Now you really need to shoot a tranquilizer dart at me to keep me quiet!”

Boy, was I convinced! My friend had worked on his soft skills by cultivating them, through Practice, Perseverance and Patience – the triple-P formula. He is now thriving in his career, climbing the corporate ladder faster than a fireman to the rescue of an old lady from a burning building. Did I mention that he recently received an offer to teach accounting at one of the top colleges in Cyprus?

Soft skills comprise such traits as teamwork, adaptability, empathy, confidence and friendliness, to name just a few. Most of them, if not all, are not fuelled by conventional intelligence but rather by another type: emotional intelligence.

The two types work in interplay, exhibiting synergies, but take the latter out of the equa-

tion and you end up with the equivalent of a very powerful computer; capable of successfully carrying out complex work tasks and solving the toughest problems but completely useless when it comes to striking up an interesting conversation with a stranger.

So how do we cultivate these much-needed soft skills, to achieve that competitive edge that would see us winning in the corporate arena? Below are five tips on how to sharpen up your ‘people person’ side:

1. Go after them: When it comes to social functions, the more the merrier. You have heard of the adage “practice makes perfect”, right? Well, it really does. Seeking to mingle and engage in conversation with a plethora of people, spread over different occasions, makes you progressively more comfortable when attending any event that involves people. Put in the (conversational) work and you will be amazed to see that, after some time, you will be the one starting the conversations!

A willingness to put in life-changing work speaks volumes of a person’s personality 2. Try public speaking: They say that people fear public speaking more than they fear death. Like all phobias, you have to confront the associ-

ated fear so as to overcome it.

Engaging in public speaking is a failsafe way of becoming more comfortable in your social encounters, as it boosts one very important soft skill – confidence. Go low in audience size at first, and increase such gradually as you pick up speed. You will get there, don’t worry – it just takes patience, and a lot of practice, as the case is with any skill.

3. Say “yes” to those after-work drinks: Alcohol is affectionately known as a “social lubricant”. It is true that words flow easier over drinks, so partaking in those after-work outings could prove very beneficial in terms of cultivating a wide array of soft skills, such as friendliness and adaptability. That said, don’t forget to drink responsibly.

You don’t want to be the office joke when you go in the next morning, just because you decided to let everybody know what nickname you have come up with for each member of the top management!

4. Seek the companionship of extroverts: Jim Rohn said that “You are the average of the five people you spend the most time with”. Surrounding yourself with extroverts, while being an introvert, sees to it that some, if not all, of their (social) energy rubs off on you.

Eventually (and inevitably), you will go with the flow and join the ranks of the talkers.

5. Take the initiative to organize functions: From small gatherings in the local pub to the

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office Christmas party, when you take the initiative to organize a social function, something magical happens along the way. Word of mouth will send out the message that you are the man or woman responsible for all the fun, thus helping you to make a name for yourself.

People will then approach you, in an attempt to chat you up and find out just how interesting you are. There you have it!

I talked to my friend a week ago. He told me that he is interviewing people for a middle management position in his firm. He sees both extroverts and introverts in the process, and chooses to spend more time with the latter.

He has been one of them, so he knows them when he sees them. My friend chats them up, with a view to opening them up, to see what lies inside their psyche. He is looking for that one introvert who will be willing to make the switch and break on through to the other side, the more outgoing one. He confided in me that, should he come across someone that he perceives as truly determined to cultivate his or her soft skills, leading to increased emotional intelligence and a new extroversion hat, he will more likely than not hire that person.

Why? Because, in the words of my friend, a willingness to put in life-changing work speaks volumes of a person’s personality and its strength. Coming from an ex-introvert who did put in said work and now enjoys the results of it, this statement must be true!

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BUSINESS in cyprus

Responsibility Mapping How its implementation can contribute to better governance

By Maria Krambia-Kapardis PhD, FCA, CFE, Associate Professor of Accounting, Cyprus University of Technology, Founder & First Chair, Transparency International-Cyprus (2010-2017)

G

overnance describes the elements of organizational control and accountability that are necessary for the good management of any organization, private or public. The processes that are involved in Corporate Governance (CG) also play a key role in controlling corruption by promoting ethical behaviour and enhancing competence.

In addition, the effective implementation of a good governance system decreases the risk of fraud by encouraging a work environment that is not conducive for such behaviour. Governance enables better monitoring

and control of management and accountability of the board, which sets the tone at the top.

The OECD has defined CG as the system by which companies are run and controlled as well as the manner in which liabilities and rights are shared by the main actors of an entity. Thus CG is the set of processes, customs, policies, laws and institutions affecting the way an entity is administered and controlled with a view to increasing its performance and value.

The need for CG came about with the idea of the limited company, once the roles of ownership and control were spelled out and the agency theory was coined. At the same time, however, the issue of conflict of interest (Peters and Handschin 2012) and the risk of dishonest or incompetent managers were also introduced, both

of which have an impact on good governance for the public or private sectors. It was not until 1992 (and in the wake of some well-known company collapses in the United Kingdom) that the first version of the UK Corporate Governance Code was produced by the Cadbury Committee. In May 1991 a committee, described as the milestone on CG, under the chairmanship of Sir Adrian Cadbury, was commissioned to report on “the perceived low level of confidence both in financial reporting and in the ability of auditors to provide the safeguards which users of company reports sought and expected”. The 1992 Code defined CG as “the system by which companies are directed and controlled” and stated that “governance of companies is the responsibility of the board of directors”. The key principles

of accountability, probity, and transparency underpinned the Code. At the same time, the Code emphasized the governance responsibilities of non-executive directors and the responsibility of directors in maintaining adequate systems of internal controls, and it advocated the establishment of audit committees and the separation of the positions of Chairman and Chief Executive. Following further scandals in the UK, the Greenbury Report (1995), the Hampel Report

Time and time again, the shield of governance has not protected business entities from collapsing

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Trust cannot be regulated.

It has to be earned

(1998), and the Turnbull Report (1999) brought together the Combined Code, which was later revised to include the establishment of culture, values, and ethics of the company and the risks affecting longer term viability.

As in the UK, in the United States, the Committee of Sponsoring Organizations (COSO) of the Treadway Commission was formed in 1985 to improve organizational oversight, reduce fraud and improve organizational performance.

More recently, the British Prime Minister in her introduction to the Green Paper, talked about the need to “(a) strengthen decision making and accountability, (b) restore faith in big business, and (c) deliver opportunity and choice for all”. The first of these objectives is the reason why the CG framework was established; the other

two express the expectation that Corporate Governance can prevent – or at least reduce – the sort of behaviour that led to the loss of faith in business.

In Cyprus and abroad, there has been much talk of the need to rebuild trust in business. Trust, however, cannot be regulated. It has to be earned. The most one can hope for is to encourage company directors and management to display behaviours that will earn back the lost trust in businesses. It is not wise to blame systemic weaknesses and brand each corporate mismanagement as a governance failure. By doing so, one implies that adjusting the apparatus and raising the bar higher is the way to prevent them. In fact, many will simply choose to go under the bar. Revising the Code or adding more reporting or voting rights may often be

the right response but sometimes it will not be because most corporate examples are not examples of systemic failure but of poor judgement, bad behaviour, conflict of interest, vested personal gain or simply negligence. Their root cause lies in human nature, which is beyond remedy by regulation.

Whilst in some jurisdictions, the courts have found guilty management and board members, the sword was not sharp or long enough to hurt or damage the individuals or the corporations involved. Similarly, time and time again, the shield of governance has not protected business entities from collapsing. I would recommend the implementation of responsibility mapping and ensuring that the appropriate level of accountability is adjusted accordingly.

Responsibility mapping enables each level of author-

ity, by name and position, to set the role, duties and responsibilities concerned.

Those responsibilities ought to be publicly available and individuals on Boards or in Executive Management positions, or with decision-making authority will need to be made aware at the outset of their roles and responsibilities. ‘Responsibility mapping’ will enable governance to be implemented in an effective manner and investigating authorities will not find themselves looking to identify a needle in a haystack.

It may be concluded that both in Cyprus and overseas, governance has proven to be neither sword nor shield. If it had been, there would have been no need to revise the Code every time there was a corporate failure/mismanagement and to revisit it regularly in order to re-adjust the apparatus.

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BUSINESS in cyprus

Why Millennials are the Future of Business

By Andrie Penta, Marketer and Corporate Trainer

They expect their employer to allow them flexibility to pursue their lives with multiple activities taking place outside the office.

5. Training A lack of on-the-job, technical and soft skills training is the number one reason millennials start looking for another job. This generation is hungry for learning, self-development and gaining new skill sets. Providing access to learning opportunities will ensure that millennial employees remain within the organization and continue to thrive.

6. Value Alignment

T

here has been a great deal of discussion lately about how Millennials are impacting the workplace with attitudes and characteristics that have never been seen before. Millennials – i.e. those born between 1980 and 2000 – already account for a large percentage of the workforce. In fact, they are currently the largest generation currently in work and, as workplace demographics continue to shift, workplace practices have to shift as well.

First of all, we need to realize that Millennials are important to companies as technology continues to shift and grow and, while they are passionate about offering their talents to their employers, they need to be inspired, mentored and trusted.

It is hard to keep members of this generation happy for long, as they are wellknown for their frequent job-hopping but don’t rush to judge them before recognising that the main reason for the regular change of workplace is that millennial career happiness is falling and work disengagement is increasing. The reasons vary but the role of the boss plays a major part in their overall satisfaction level. Millennials consider it vital to have bosses who are supportive, give feedback, set goals and act as mentors. It seems that bosses who are actively involved stand a very good chance – nearly 60% – of keeping their employees engaged.

If it is true that “Millenials do not believe in money; they believe in themselves”, what can an employer do to keep them on board? Here are eight suggestions:

1. Supportive Behaviours Being accessible for discussion, focusing on their strengths and giving feedback are the behaviours that millennial employees are looking to find in their bosses. It seems that these behaviours determine the level of employee happiness, job satisfaction, productivity and overall performance. Almost half of unsupported employees will leave their job.

2. Healthy Working Relationships A healthy relationship between boss and employee is vital to company success and the growth of millennial careers as the workforce continues to age. Bosses shouldn’t be the reason that millennial employees leave. They should be the reason millennials stay and thrive in the workplace, pushing it toward greater success.

Millennials want their company’s values to be aligned with their own. They want to be happier that their parents and to do purposeful work with the best companies. They expect the organization for which they work to share the same values and to set the right priorities.

Millennials want their company’s values to be aligned with their own 7. Inspiration Millennials want to work in an environment where they have people to look up to, an inclusive environment where, as they integrate into the workforce, mentors can be trusted to help them on their way.

3. Inclusion & Diversity

8. Non-Aggressive Competition

Millennials are very supportive of issues relating to inclusion & diversity and they expect the same from their employer. They have strong views, opinions and philosophies, are naturally enthusiastic and feel that diversity has been badly managed by previous generations. Thus, with more millennials soon taking up leadership positions, there is an expectation of a greater push towards inclusion & diversity.

The corporate world is well known for its competitive nature and the ‘survival of the fittest’. Millennials realised early-on that money and status can’t buy happiness and they would rather work with their colleagues than against them.

4. Work-Life Balance Family, friends, social life, exercise and travel are top priorities for this generation.

Don’t get me wrong: Millennials like to work hard but they are not into the 60hour week as the previous generation was.

Millennials are vital for the future of the business world, which will be endangered if employers get in the way of their professional growth. They want to work for companies that will nurture their career and provide opportunities for frequent training and education. It is therefore time for employers to forget stereotypes and to look to the future by supporting and empowering their millennial workers.

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BUSINESS in cyprus

Creating a Competitive Advantage

By Dr Aspasia Simillidou-Theodosiou BSc, MSc, PhD, Lecturer/Course Leader, Hospitality & Tourism, UCLan Cyprus and HRDA certified trainer

C

hange has never been easy.

Today, there are many changes happening, for which some organisations are not prepared. Due to this rapidly changing environment, it is very important to be able to adapt.

Organisations struggle to survive and adapting in the new era is not an easy task. One of the challenges that organisations face today is to create a competitive advantage. Unfortunately, there is no special recipe that can be followed.

Each case is unique. Some general rules apply but following them will be just the beginning of your journey.

What is a Competitive Advantage?

In simple terms, a competitive advantage is an advantage that an organisation has over its competitors, which allows it to generate more sales or retain more customers. An organisation may also have a competitive advantage in terms of cost structure, distribution network, products offered or customer support.

According to US academic Michael Porter, there are two main types of competitive advantage: comparative advantage and differential advantage. Comparative advantage (or cost advantage) is a firm’s ability to produce goods or services at

a lower cost than its competitors and thus sell them at a lower price than the competition or generate a larger margin on sales. A differential advantage is created when a firm’s products or services differ from those of its competitors and are seen by customers as better than the competitor’s products or services.

There is something that your competitors cannot copy: your internal culture Creating a competitive advantage, though, is not as easy as it sounds. It requires time and effort as well as teamwork. Having lots of people working together towards the goal of creating a competitive advantage is highly beneficial. The very first step, though, is to decide whether, as an organisation, you wish to create a comparative or a differential advantage. Each one will need a different approach. Once the decision has been taken, you need to start working in that specific direction. Taking some of the steps below can help organisations create a solid base as they seek the desirable competitive advantage.

Internal Culture The way people are treated within your organisation can actually determine whether you will create a successful competitive advantage. Competitors can copy a lot of the things that you do: even if you trademark, patent or do whatever is possible, competitors can see your end results and get close enough to “harm” you or even take what you do to the next level. This is what competition has been doing for decades now.

There is something, though, that your competitors cannot copy: your internal culture. It involves behaviours, relationships, attitudes, values and environment. The way that these components are put together forms your competitive advantage.

When people talk about a competitive advantage, they often mean excellent customer service. I couldn’t agree more! But how can people offer excellent customer service if the company’s internal culture is not motivating them enough to do so?

Since every organisation’s environment is different, copying someone else’s behaviours, relationships, attitudes and values will not produce the same culture. If you work hard on your internal culture, this will help you create a unique external identity. Your people will be happy to treat your customers in the same way that they are being treated internally and this will be your

ACCOUNTANCY CYPRUS

unique advantage. Whenever you adopt an attitude or behaviour or you create an internal value, stop for a moment and think: would you like your customers to be treated in such a way? Is this a step towards creating a unique competitive advantage?

New Ideas Creating new ideas is one of the most important factors in differentiation. As noted above, you can either create an advantage through your costs or through your products. Whichever way you decide to go, you will need to become more creative.

To begin with, start utilising your human resources more. Ask your people to give you ideas in a brainstorming session. Do not judge or disapprove any of their ideas at that stage. This may demotivate them.

Just listen and note everything that they suggest to you. Some of these ideas may end up being very successful if you build on them. A new idea may be your beginning to creating a competitive advantage. It will also motivate your employees and give them the opportunity to express themselves more openly.

Motivate Your Employees Motivating your employees is very important. They can help an organisation succeed or fail! Even if you have the most successful,

unique and innovative product, this on its own won’t be able to create your competitive advantage. Products need people to support, sell and advertise them. So focus on motivating your employees, inspire them and help them create your competitive advantage. You can use both monetary and non-monetary incentives. Once you have decided that you need to be unique, your people need to be aligned with your vision since, without them, your journey will be much more difficult.

Take It Personally!

Each person needs to feel unique. We all have need of a unique identity. This is true of your target market as well.

Get to know your current and potential customers even better. Understand their needs. Sell them what they really want and not what you suggest. Becoming more customer-friendly is a good start towards creating a competitive advantage for your organisation.

Stop Erecting Barriers.

We are sometimes our own worst enemy.

We erect barriers because we are afraid to do something different. If we avoid change and stick to the old-fashioned way of doing things, this will prevent us from creating a competitive advantage.

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Stop placing obstacles in your way today!

People are afraid to try new ideas due to the risk of failure but, most of the time, a new approach is the way to differentiate you from the competition.

If you work hard on your internal culture, this will help you create a unique external identity Creating a competitive advantage for your business is a highly innovative, creative and rewarding experience. It helps you not only increase your market share and your profits but lets you get to know your strengths and weaknesses even better. When planning to create a competitive advantage, you need to understand and build on your strengths, while working on eradicating your weaknesses. This will give you a great insight into your organisation and take you closer to becoming more successful. Finally, never forget the famous quote by Jack Welch: “If you don’t have a competitive advantage, simply don’t compete”.

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ACCOUNTANCY CYPRUS

meet the cfo

George Paschalis 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 George Paschalis, CFO of Hermes Airports.

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?

In my opinion, the “core” role and responsibilities of the CFO remain unchanged: as part of the senior management team to provide leadership and vision to the organisation and, more specifically as a CFO, to act as a “financial map and compass”.

In other words, to clearly analyse and set out the current financial state of the organisation as well as its future direction, both within the business strategy context.

What has changed over the last few years is the pace of doing business, as well as its complexity (interactivity, regulatory framework, risk profile), driven mainly by technology and digitisation. This means that the successful CFO has the same role and responsibilities in a fast-changing and more complex environment. The CFO has, therefore, had to develop new skills and competencies in order to remain effective.

It is said 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?

Definitely but the CFO is not the only one who needs to be in position to see the ‘big picture’. The whole of the top management team needs to be in place to do the same. The CFO has the distinct role of understanding, analysing and explaining the ‘big picture’, mainly from a financial point of view. This is an important but not the sole vantage point through which that big picture should be viewed and understood. The roles of CEO and CFO are certainly growing closer – not in a competitive way, in terms of one replacing the other but in a complementary way as core members of a well-functioning team.

Teamwork between the CEO and CFO remains a critical success factor for any organisation and is now more important than ever before.

The CFO is not the only one who needs to be in position to see the ‘big picture’

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

The acronym VUCA (Volatile, Uncertain, Complex, Ambiguous) has often been used to describe the current business en-

vironment. This makes the role of CFO more challenging and requires a whole new set of skills. I would focus on two broad categories: First, pace. Today, everything is moving at a faster pace than before. That’s a fact that all of us must deal with in our professional and personal lives. At the same time, the era of digitization has been a key factor in increasing the ease of obtaining information and data but also in multiplying the volume of information to which we are all exposed. Today’s CFO needs to understand and efficiently deploy the power of technology to analyse and understand information but, at the same time, he/she needs to be able, more than ever, to occasionally take a step back from the incessant noise of information in order to re-evaluate the big picture.

Second, the rate of change. In today’s business world, change is the norm and not the exception. A sound strategy today may quickly become outdated. A stable operating environment today can become volatile overnight. New regulation can have a game-changing impact on an industry. Such changes are often difficult to predict, which, from a CFO’s perspective, increases the company’s risk profile. What a CFO can do in such an environment is to ensure that he/she remains agile, adaptable and not afraid of change and, of course, to help instil these

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qualities in the organization’s culture.

Technology is changing business in many ways. Has it had a direct impact on your work as CFO? Absolutely. For example, at Hermes Airports, data analytics gives us the opportunity to better identify, analyse and understand passenger trends, with respect to queuing times and retail spending patterns. This allows us, as an airport, to deploy resources in an optimised fashion in order to maximize returns but also enhance the passenger experience. Obviously, as CFO, I cannot be expected to be an expert in new technology trends. Nonetheless, I should be able to specify and quantify the cost, risk and rewards of adopting or rejecting new technologies. A company cannot afford to fall behind on the technology front. At the same time, it is not difficult for a company to overspend on new technologies that may appear dazzling in terms of innovation but may have limited financial application or benefit.

A company cannot afford to fall behind on the technology front.

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

Even though Hermes Airports is not a listed company, it operates very much to the standards of a listed company from a corporate governance point of view. In practice this means that it is subject to many of the pressures of a listed company,

both regarding deadlines and reporting requirements. At the same time, the nature of Hermes Airports, as the company that has built and is operating a critical piece of the country’s infrastructure, as well as the company’s financing structure means that it has numerous regulatory and compliance requirements. Ensuring that Hermes Airports remains compliant with all its obligations is certainly a big responsibility but I wouldn’t say that it places undue pressure on my role as CFO. What is a fact is that strict regulation and compliance have a material financial cost.

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

The key skills of a CFO are the same but related experience certainly helps. In my opinion, coming from a related rather than the same sector can sometimes offer distinct advantages. Before joining Hermes Airports, I was the CFO of the Louis Group, one of the biggest tourist and leisure groups on the island. I believe that my knowledge of the dynamics of the tourism sector – especially from the perspective of a hotelier and tour operator – has definitely helped me better understand

some of the dynamics of the airport business. My prior financial knowledge and skills have also found application at Hermes Airports. This knowledge has not only helped me adapt to my role at Hermes Airports faster but, over time, it has also helped me be in a position to compare and contrast the way of doing business across different industries and provide a new and fresh way of looking at things.

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financial services

A Trusted and Effective Financial Partner Three years after its establishment, Ancoria Bank is progressing according to plan and well on the way to achieving its vision, says CEO Ioannis Loizou.

As CEO of Ancoria Bank, what would you say has been the main challenge of your career so far?

Certainly, the biggest challenge of my career so far has been setting up a greenfield bank in such a heavily regulated environment. In the past I was involved in starting up an insurance company but it does not come close to the extent of the challenges faced during establishing Ancoria Bank!

Together with a small team, I managed to put together a bank in less than 11 months, which included forming the team and providing training, setting up systems and internal processes that required Central Bank approval before proceeding to serve our first customers, preparing our products and services, as well as establishing our physical presence – namely our Banking Centres – and creating a strong corporate culture. I am extremely proud of such an achievement and thankful to all the members of my team as they are an integral part of it.

How would you describe the bank’s financial performance so far?

The financial performance of Ancoria Bank has been in accordance with its business plan for its early years of operation.

A bank requires a significant initial investment and Ancoria Bank is envisaged to reach profitability, as per its business plan,

at the end of five years of operations. I consider that the bank is progressing at a stable and robust pace towards a long-term, sustainable and productive presence in the Cyprus market.

What have been the main challenges faced by the bank in the last three years and how have you responded to them?

One of the main challenges faced by the bank in its early stages was to gain the public’s trust, as trust is one of the fundamental values that are essential in a banking relationship. The corporate values of honesty, integrity and professionalism that the bank has managed to develop and infuse in its relationships with all of our clients, have been the driving force in successfully overcoming this challenge. Ancoria Bank greatly values the trust of its clients who are, in turn, its most influential brand ambassadors.

Another major challenge that any smallsized bank faces is the disproportionate relative cost of compliance and reporting that it incurs. This is a constant challenge, due to the increased reporting requirements stemming from European as well

as local regulations. Ancoria Bank has strategic partners that, together with its highly-qualified and motivated team, assist it in successfully meeting these highlydemanding requirements. I must point out, however, that the resources allocation and the cost of overcoming this challenge are disproportionately high for small-sized banks like Ancoria Bank.

The reputation of the Cyprus economy and its banking system was dealt a severe blow in 2013. Has public and investor confidence now returned?

Indeed, both the economy and the banking system had to deal with the biggest reputational blow in their recent history.

Fiscal consolidation efforts since then have contributed to the economy regaining public and investor confidence, as evidenced by the continuous upgrades from the Credit Rating Agencies since then. The banking system has mainly focused on tackling the major issue of NPLs and significant steps have been taken but no-one can say that the problem has been solved.

However, it seems that investor confidence in the banking system has returned,

Ancoria Bank is envisaged to reach profitability at the end of five years of operations

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and this can be observed in the interest expressed in the various capital raisings that have taken place recently, as well as the number of new investors entering the Cyprus banking system. Public confidence in the banking system still has significant room for improvement and the recent experience with the Cooperatives indicates that public confidence is still fragile.

Some observers have been saying for some time that there are still too many banks for Cyprus’ small economy. You obviously don’t agree with this (!) but how do you intend to compete and retain a satisfactory market share?

Since 2013, when the idea of establishing a new, effective and agile banking institution was conceived, the banking sector has changed significantly, either through additional regulatory requirements or through mergers. In my view, Ancoria Bank’s offering is still sound, as we strive to provide Cyprus businesses and individuals with a differentiated offering in terms of enhanced professionalism and customer service of the highest standards, as well as innovative products and services. We will constantly strive to exceed expectations.

How much does the broader financial services sector contribute to the economy of Cyprus and to society as a whole?

The broader financial services sector contributes approximately 5% of the overall employment in Cyprus, which indicates that it is very high. Irrespective of this, a healthy financial services sector is necessary for the growth of the economy and the betterment of society. Financial services entities are capital providers to the true innovators of the Cyprus economy, who are no other than the country’s entrepreneurs and stewards of assets that have already been accumulated. Finance has an important role to play in the development of a robust and prosperous economy.

In your opinion, what would be the best strategy to be followed by the Government and the banking sector in order to tackle the problem of NPLs?

Current efforts undertaken by the banking sector to relieve their balance sheets of NPLs will provide opportunities to focus on lending to productive sectors of the economy, and therefore this is a positive step towards the resolution of the NPLs problem. However, in my view, the problem will not be solved by these actions, as the underlying issue of an economy that is heavily overleveraged will not be tackled.

Bold moves from both the banking sector and the Government will need to be devised if we are to tackle this issue.

How can the financial services sector assist the Government in implementing best practices?

The financial services sector can assist the Government through the consultation process, whereby financial services entities provide the Government with their feedback in the legislation drafting process that could provide for legislation accommodates the Government’s needs but, at the same time, be fast and effective in its implementation. The banking sector, through its participation in international and European fora, has access to best practices abroad and these are depicted in the responses of the Association of Cyprus Banks in their consultation feedback.

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Any small-sized bank faces the disproportionate relative cost of compliance and reporting high standard of services offered to its customers. We are now an established bank in the Cyprus market for both individuals and businesses, and I expect that Ancoria Bank will further achieve its vision of being the most trusted and effective financial partner to its clients within the next few years. Our aim is to continue expanding the spectrum of innovative products and services offered to our valued customers.

What are your expectations for Ancoria Bank in the next 3 years?

I expect that Ancoria Bank will maintain its constant growth momentum in terms of market share and customer acquisition and, at the same time, maintain the

Ioannis Loizou

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REAL ESTATE

A Spectacular Turnaround Five years after the financial and economic crisis, the real estate sector has made a remarkable comeback, says Pantelis Leptos, President of the Real Estate Developers Association.

How do you view the real estate industry in Cyprus five years after the 2013 financial crisis?

The industry has displayed clear signs of a spectacular turnaround. Real estate volumes are up, the number of transactions is up, unemployment is down, building permits are up. Also, demand seems to be coming from a large number of different nationalities and markets, which is a very healthy sign.

The potential is great. It’s based on Cyprus’ geographical location, climate, culture and quality of life.

How successful has the government’s Citizenship by Investment Scheme (now renamed the Cyprus Investment Programme) been?

Do you think that it should be extended indefinitely?

The Citizenship by Investment scheme and the permanent residency scheme, coupled with the Government’s tax incentives, have boosted the attractiveness of real estate in Cyprus and, indeed,

have given a much-needed injection of fresh money into the economy. I do believe, therefore, that these useful schemes and incentives should stay.

In an interview last year, you commented on how “the real estate industry has proved to be one of the most important contributors to the Cyprus economy by attracting foreign investments, mobilising funds, making new projects and creating jobs.” What are your views on this a year later? Has the sector evolved even further?

Yes, indeed. Real estate investment by foreign buyers brings much needed foreign funds into the country, funds which stay here and create employment. The real estate industry is evolving further through the introduction of new types of world-class projects and products. This variety of investment products, combined with the wide spectrum of buyers, will create even more real estate activity on the island.

There appears to be a local trend towards high-rise luxury properties at present.

Do you see this continuing in the foreseeable future?

With the limited amount of building land available in Cyprus, it is inevitable that we will move towards higher developments, allowing for more open space for the benefit of the community.

In your opinion, what would be the best strategy to be followed by the Government and the banking sector in order to tackle the problem of Non-Performing Loans (NPLs)?

The NPLs of borrowers who wish to pay but cannot, especially those who are backed by good real estate assets, should be given more time in order to find a way of repaying their loans.

With over 55 years of history, Leptos Estates has achieved a leading position in the Cyprus real estate industry. What would you say is the key

to this success?

Our industry is very complex and there is not a single factor that can make a firm excel. It is rather a combination of factors; having a good product, offering value for money, providing good service to clients, reliability and the ability to offer innovative products at the right time.

Finally, you need vision, which enables you to create new trends or identify them early on.

Of your many developments, what do you consider to be your flagship project right now?

It is difficult to single out particular projects but I would say our flagships for Paphos are Kamares Village, with 1,000 villas built to date, and Coral Bay Estate with the Coral Beach Hotel, Thalassa and many nearby residential developments around. For Limassol it’s Limassol Del Mar and for Greece, it is our Aphrodite Beach Villas in Chania, Crete.

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Pantelis Leptos

With the limited amount of building land available in Cyprus, it is inevitable that we will move towards higher developments

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REAL ESTATE

Shocking Red Tape, Delays & Indifference

By Antonis Loizou F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate Valuers, Estate Agents & Property Consultants

W

e have noted from time to time – and quite often – the delays caused to development projects due to bureaucracy. Red tape exists because those in charge, especially civil servants, are incapable of responding in a timely and efficient manner about the matter raised. Frustration is evident and it affects just about everybody, even the Government which occasionally expresses its disappointment through the mouth of the President himself. Yet even the Government appears not to know/not to want to address the problem. There has been no political will on the part of any previous Government to stop this inexcusable tolerance which gets worse and becomes more evident as time goes by.

• No Reply One is always surprised to receive a response from Government/local authorities to any question raised with them. As an example, we have undertaken a crusade against the Famagusta District Officer, who has allowed the development

of a beach snack bar within the seaside protection zone. We have written to him three times and not received even a single formal letter of reply.

• Sick Leave, etc.

It seems that the Government service attracts mainly the sick people since approximately 10% of them are on a sick leave at any given time (the way that the doctor’s certificate is obtained is a joke in itself which should have had criminal repercussions against the doctors).

• No Answer Have you ever dared to call the Government and other people in public service over the phone?

You should. It is an experience.

The phone will ring for a long time and no-one answers. If someone eventually does pick up, he/she will doubtless inform you that the person you want “is not in the office” God forbid that should ask to leave a message for the person to return your call. It won’t happen.

• Arrogance The arrogance of civil servants towards members of the public is astonishing. In reply to a recent query of the Municipality of Limassol about a particular planning clarification, we re-

De shou lays in r ep ld be punis lying to req he on thd by an ex uests fr om e per e son r mplary p the pub l e espo nsibl nalty imp ic e osed

ceived a reply (after two reminders) which, in effect, said that we should “look it up” ourselves in the 300 page book on local town planning!

• Secret Dealings When we complained on behalf of a client of ours about how municipal business taxes are calculated, given that the client has similar offices in all towns but the Limassol one – smaller in size and employing the fewest local staff – was being charged more than those in the other towns. We did not receive a single reply, let alone an explanation.

• Disappointed Investors We have recorded in the past how many disappointed investors (foreign ones in particular), who originally believed that Cyprus was a European country in every way, have been so frustrated by red tape and the narrow-mindedness of the civil service that they have expressed it in full-page ads placed in the local press (see St. Raphael Marina, The Eden Project, McKenzie Hotel, Larnaca Port and Marina, Ayia Napa, the Limni Project, etc).

Regarding certain projects, about which we have come to know the details, it should be noted that political decisions have been taken but

then held up due to the Civil Service dragging its feet (reminiscent of the TV series “Yes Minister”).

We are of the opinion that delays in replying to requests from the public should be punished by an exemplary penalty imposed on the person responsible.

In a recent case in Greece, where the local postman did not deliver a letter on time, he was fined personally by the court – a beautiful example of correct justice.

In our field of work – real estate – recent cases that have been held up due to objections by Government/semi-Government bodies include: • Troodos Adventure Park: Three years waiting for the Department of Lands & Surveys and still waiting for a rental assessment.

• The multimillion Eden hotel and real estate development on state land at Yeroskipou: Four years waiting for the Department of Lands & Surveys.

• St. Raphael Marina: No reply from the Ministry of Energy, Commerce, Industry & Tourism for two years.

The present Government seems to be trying to correct things but so far the results are not encouraging.

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REAL ESTATE

The Present and the Future of the Cypriot Real Estate Economy

By Panos Danos BSc FRICS, C. Env., VRS, IPF - CEO DANOS/BNPPRE Group

The Cyprus Property Market Sales Property sales boomed in the first 8 months of 2018, according to figures released by the Land Registry, showing the rapid growth of the land market.

Property Sales Sales Contracts An important factor that has influenced the domestic real estate market and the real estate market is foreign investors, as well as the improved economic climate coupled with Government tax measures, mainly the Citizenship Scheme, significantly increase property sales, while

the relaxation of criteria by banks for lending. In 2018, the upward course of development that began in 2017 has continued throughout Cyprus, particularly in the coastal areas.

Property Investment in Cyprus by Sector The Cyprus real estate market has historically been divided into the major urban centres of Nicosia, Limassol and Larnaca and the seaside resort areas of

Paphos and Famagusta. Traditionally, the Cyprus property market is dominated by the residential sector, with the island’s geography and historical reasons partly dictating the dynamics of the var-

The supply of space will be much more constrained than during previous cycles

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ious submarkets. However, the trend of development companies in recent years has been in the construction of office facilities intended mainly to the multinational companies which the island attracts.

Residential Market An increase in sales of residential properties in all districts was recorded during the first 8 months of 2018. The level of demand is higher for ‘end products’ rather than empty

plots of land. The main interest in buying residential products is from foreigners, who choose Cyprus for the purchase of their second/holiday home, or investors, who are taking advantage of the incentives offered by the Government to obtain a passport, and they are mainly buying apartments and houses in the coastal areas or in prime locations in Nicosia.

The prices of residential real estate slightly increased during the first 8 months of 2018.

Residential Sector Prices – January-August 2018 Detached houses, high quality materials, up to 5 years old.

Flats, high quality materials, up to 5 years old.

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Retail Market Retail development is concentrated in Nicosia, Limassol, Larnaca and Paphos.

Over the first 8 months of 2018, occupancy on major commercial streets increased, the main tenants being clothing and footwear chains.

However, the attractiveness to consumers of Malls or Department stores is still high due to the fact that they are more convenient for shopping and they also offer entertainment and fun. Easy parking and accessibility in all weather conditions make malls the ideal place for all ages.

Office Market During the first 8 months of 2018, the office market in Cyprus remained stable.

Grade A offices were particularly in demand for rent and the investment return is 5.5%- 6%. Organisations such as IRIS, the Agents Association, the EAC, Ministries, The Department of Registrar of Companies and others are actively looking to relocate their services to Class A office premises. ​​ Industrial Market The recovery of the supply sector led to positive development in the first 8 months of 2018. The industrial and logistics market is being examined by companies involved in the energy, wholesaling and transport sectors.

Predicting The Future The next decade will be different from the cycles of the last three decades. Most economists predict moderate but stable demand growth. The technology revolution is similar in opportunity and employment impact to the industrial revolution but the major difference is that we now have a global economy and the magnitude of economic growth may be substantially greater than the past.

What will the “New Economy” mean to

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Retail Market - Rentals January-August 2018 Street

City

Arch.Makarios III Avenue, Stasikratous St., Ledra St.

Rent price sq.m/month (€) 20-25

Nicosia

20-25 30-35

Anexartisias St.

Limassol

20-40

real estate? The technology revolution has created more employment opportunities and the need for more space: office space, warehouse space, and places where people work, sleep, shop, eat and play.

The supply of space will be much more constrained than during previous cycles for a number of reasons. First, constraints on building have increased.

Over the past two decades, the number of impact studies, permits and approvals necessary to build projects have more than tripled in cost and time. Environmental impact studies, traffic impact studies, storm water runoff management and other societal impacts must now be analyzed and mitigated before development approvals are given. The cost of construction labour and materials has soared. Starting a development company is now much more difficult than it was in previous cycles and many major commercial developers have become longtime investors by turning their companies into REITs. Also, it is now much more difficult to justify new space without an analysis of existing compet-

itive construction and user demand for existing space.

Millennials are creating a new dynamic in the real estate market. They are much more likely to rent, to congregate in urban areas, and to be cautious when taking on debt. As result, their purchasing and lifestyle habits are also shaping the real estate market economy. The millennial generation favours renting over buying property for a number of reasons: They wait to commit to homes, they wish to live in trendier, more expensive areas; they want the freedom to pick up and go with relative ease. Millennials don’t feel ready to manage a property and prefer having a landlord to take care of maintenance issues.

Almost all Millennials still use a real estate agent or broker to purchase a home, but they prioritize those with websites that include photos, interactive maps, and detailed home information. Many of them like the ideals of minimalist living – fewer possessions and smaller spaces – because it provides them with the flexibility and financial stability they crave.

Similarly, they also value energy-efficient appliances to help keep their bills and carbon footprints low. Millennials are comfortable in small spaces because they see their living quarters as a home base, not necessarily where they want to spend all their time.

Millennials won’t take a loan to buy real estate for investment or even for holidays or work. They see immovable property as a need rather than as a valuable asset worth risking money.

Millennials are creating a new dynamic in the real estate market Real Estate in Cyprus: A Good Investment?

Keep in mind that real estate is locationand property-specific and just because there is a shortage in one area does not mean this is true everywhere. In addition, supply and demand can vary among homes in different price ranges, so we may see a shortage of homes for sale in the €100,000 to €200,000 price range but an oversupply of homes for sale over €1 million. Valuers have always been required to research and analyze market conditions in their appraisal assignments. The Cyprus Real Estate Market is volatile at present but there is a positive momentum and trend and it is definitely a good area of investment for the future.

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ICT

The Rise and Rise of E-Learning SQLearn is the only Greek company that provides specialised e-learning services, including the development of learning management systems (LMS), certified course libraries for sectors of interest using multimedia elements, mobile learning applications and custom courses based on customers’ needs, as well as the design of tools for the evaluation of training processes and the provision of consulting services for introducing e-learning to companies and organisations. Spyros Goumas, Managing Director of SQLearn explains about the company and its work.

SQLearn has been in Greece for 12 years now. What would you say is the secret for its success?

SQLearn was founded in 2006 and is indeed a well-established company in e-learning services, having earned the trust of many large companies and organisations. I don’t believe in “success secrets”. Investing in skilled staff, focusing on quality standards, avoiding easy and short term solutions, recognising market needs and being vigilant in developing innovative and useful services are perhaps some of the factors which have led to increasing trust in SQLearn from a continuously growing number of companies.

What makes SQLearn differ from other e-learning companies?

SQLearn is the only Greek company specialising in e-learning, covering all e-learning activities related to this training method for adult vocational training, such as counselling, train the trainer, administrator training, etc. Beyond this unique point, another competitive advantage is that we apply distance learning theories at all stages of the design and development of the content that we provide, whether it is a course, a platform or a management system.

Technology is an essential tool for us in order to provide learning and training services and the technical solutions we provide and develop (systems, applications, etc.) mainly aim at quality distance learning.

Are the services offered in other languages?

Our services are offered in Greek and English but there is always a possibility of incorporating more languages if required by the project.

SQLearn has been shortlisted in the ‘Training’ category of the 2018 Safety4Sea Awards. What does this nomination mean to you and the company?

SQLearn is the first company to actually use e-learning for the advancement of training in the maritime

It would be a great pleasure for our experience, quality and efficiency to be recognised and embraced by the Cyprus market!

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sector, incorporating flexible and reflective learning techniques. SQLearn’s services in this field, which come to meet the needs of shipping companies, contribute to reducing the training budget while, at the same time, increasing the performance of the training process. For this reason, being nominated for an award such as this Safety4Sea Award is always an honour, regardless of the outcome, especially when among our co-nominees are multinational companies which operate in the field of maritime training.

In what ways does SQLearn help make the maritime profession easier?

The shipping industry is governed by numerous regulations and directives, applied by international organisations such as the IMO, and instructed by large multinational companies which work closely with the shipping market. It is crucial to achieve flexibility in the training of seafarers, who may be anywhere in the world, and offer quick adaptation to the new institutional demands and changes that digitization brings, as well as to ensure the effortless management of training activities. In order to accomplish all the above at minimum cost and for maximum effective results, e-learning stands out as the best solution, as money and time can be saved (training whenever and wherever the trainee wishes, reality simulation environment through technology,

etc.) and offers increased return on investment.

For the insurance and banking sectors in particular, e-learning is without doubt the future of training Do you believe the training provided in the maritime industry is sufficient?

What would you suggest needs improving?

Technology and education are now aligned and inseparable while, at the same time, technology affects and enhances the training process.

As a result, training in the maritime industry needs to be adapted to offer training without time and location limitations, which is directly accessible to everybody.

The technology used by e-learning and the innovative methods that can be devised and applied to it make it an essential tool for maritime training. Training needs in this field are constant, continuously changing and a quick adaptation to this reality is more than necessary.

Besides maritime professionals, who else can use the SQLearn services?

Maritime is not the only field in which SQLearn operates. Another main field, which was the first in which SQLearn became involved and gained valuable experience, is finance. All the staff employed in a bank, regardless of their job description, as well as all the associates of insurance companies, can benefit from our services – and trust me the majority does! Taking into account the fact that a bank has an extensive network of branches and numerous staff, a multitude of regulations and institutional guidelines to get in line with, and constantly changing demands applied by internal regulations, elearning is the most efficient

and cost-effective solution to meet its educational needs.

Likewise, an insurance company needs to face issues in terms of certification, the application of new regulations and specialised training for external and internal associates. All this can only be managed in a timely and effective way through elearning.

I would like to point out that, for the insurance and banking sectors in particular, e-learning is without doubt the future of training.

SQLearn provides services to both sectors, in order for insurance brokers and bank executives to access the training material anywhere and anytime, certified by highly respected institutions such as Bank of Greece.

Apart from shipping and finance, SQLearn offers corresponding services to any company or organisation with similar training needs. As a result, professionals in the fields of health, energy and others can use our services and products.

Is SQLearn planning to create other exclusive platforms for other industries like The Dolphin Platforms?

Spyros Goumas

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Yes and very soon! At this point, SQLearn is preparing to launch its new branding for its areas of expertise.

After Dolphin Platforms, which include the suite of services and products for the maritime industry, Profit Platforms will enter the finance field, with services dedicated to banks and insurance companies, while Master Platforms will follow, which will include our services to every other field.

In your opinion how will the GDPR directive affect businesses in Greece?

The General Data Protection Regulation which came into effect in May is already affecting companies operating in Greece and, I suppose, in Cyprus as well. As you will be aware, we are now obliged to act in line with new facts and proceed with specific actions. Thus, any company which processes personal data in any manner needs to be informed regard-

ing the new regulations, train its staff in a specific or general area, and appoint a Data Protection Officer (DPO) for implementation and observation purposes. It is obvious that this will add a cost to a company’s budget, which cannot be overlooked, especially when it has a large number of employees.

SQLearn offers a solution through e-learning and we have already developed an e-learning course with comprehensive information about GDPR. Are you thinking of expanding SQLearn to other countries?

The development and expansion of SQLearn beyond Greece is among our plans for the near future. As a result, we are carefully studying countries such as Singapore, the UK, Germany and Holland and examining the chances of entering their markets by covering their specific training needs. It

would be a great pleasure for our experience, quality and efficiency to be recognised and embraced by the Cyprus market! It is worth mentioning that, especially

We have already developed an e-learning course with comprehensive information about GDPR for the insurance market in Cyprus, SQLearn can provide a complete and reliable solution with reference to the implementation of the European directive on IDD (Insurance Distribution Directive), which comes into effect at the beginning of October 2018 and will bring significant changes to the regulatory framework for

the distribution of insurance products.

What are your goals for SQLearn over the next 5 years and how do you aim to achieve them?

As the technology used for e-learning is a tool without borders, there is always a possibility to expand into international markets and, on the other hand, to develop innovative products and applications, such as virtual or augmented reality environments, and simplified management systems among others. However, in the near future, an internal restructuring of the company is scheduled, together with the development of our investment action plan and the strengthening of synergies with institutional and business players in the finance and shipping industries. As for the next five years, allow me to reveal more another, with even more details!

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PROFESSIONAL NEWS

Ten Educational Modules to Support the IFRS for SMEs Standard Now Available

T

he IFRS® Foundation is developing educational modules for the 2015 version of the IFRS for SMEs Standard. These materials have been designed to provide stakeholders with additional support in preparing and reading financial statements prepared in accordance with the Standard.

Each module focuses on one of the Standard’s 35 sections and gives a comprehensive overview of the section it covers; it contains the text of the Standard enriched with practical examples that illustrate and explain the requirements simply. In addition, the modules outline differences between the IFRS for SMEs Standard and full IFRS Standards.

Stakeholders can test their knowledge by

answering multiple-choice questions and by analysing case studies included at the end of each module. These self-assessment questions and case studies will help users to develop skills needed to account for transactions and events applying IFRS for SMEs Standard.

The IFRS for SMEs Standard sets out accounting requirements for small and medium-sized companies which are estimated to account for over 95 per cent of all companies around the world. The Standard is less complex than full IFRS Standards and focuses on primary information about cash flows, liquidity and solvency.

The first ten modules available to download are: • Module 1—Small and Medium-sized Entities

• Module 3—Financial Statement Presentation • Module 5—Statement of Comprehensive Income and Income Statement • Module 6—Statement of Changes in Equity and Statement of Income and Retained Earnings • Module 7—Statement of Cash Flows • Module 11—Basic Financial Instruments • Module 12—Other Financial Instrument Issues • Module 13—Inventories • Module 17—Property, Plant and Equipment • Module 32—Events after the End of the Reporting Period The remaining 25 modules will be published in the forthcoming months.

IASB Announces Composition of its Management Commentary Consultative Group The International Accounting Standards Board has announced the membership of its Management Commentary Consultative Group, established to advise the Board as it develops proposals for updating its guidance on management commentary in financial reports. The Consultative Group was established to help inform the Board’s project to update IFRS Practice Statement 1 Management Commentary. In undertaking the project, the Board will consider how broader financial reporting could complement and

support IFRS financial statements.

The Consultative Group comprises members and observers from a variety of jurisdictions and backgrounds, including users of financial reports, auditors, preparers of financial statements, securities regulators and standard-setters. The Consultative Group will give the Board access to people and organisations with practical experience and expertise in developing and implementing management commentary regimes and in using information disclosed in management commentary.

Supporting IFRS 17 Implementation: Insurance Contracts Issued by Mutual Entities

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s part of the activities to support the implementation of IFRS 17 Insurance Contracts, educational materials have been for insurance contracts issued by mutual entities.

This 12-page document covers (a) what a mutual entity is, (b) accounting for contracts issued

by a mutual entity, and (c) whether a mutual entity could have equity.

This educational material has been prepared by staff in response to implementation questions submitted to the Transition Resource Group for IFRS 17 regarding how IFRS 17 applies to insurance contracts issued by a mutual entity.

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ACCOUNTANCY CYPRUS

OUT OF OFFICE

Have a Cigar.

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. Alexis Tsielepis is the Managing Director of Chelco VAT Ltd and in addition to his passion for VAT-related issues, he also loves cigars.

C

igar smoking is something that many people enjoy, either as an occasional pleasure or a regular habit. Alexis Tsielepis, Managing Director at Chelco VAT Ltd, is not only a big fan of cigars but also an award-winning expert.

“Puffing away on a cigar has a calming effect on me, something I attribute to the smell, which brings back memories of my happy childhood when my uncle smoked cigars,” he explains.

Tsielepis became hooked on cigars for a variety of reasons, beyond their calming effect. “There is an interesting complexity a cigar can have in the development of its taste,” he says, adding that there is a certain notoriety attached to the very image of cigars. He cites the example of Karl Marx, who would discuss Economics in cigar smoke-filled rooms into the early hours of the morning. “And then there’s Winston Churchill, who took decisions that changed the course of mankind, carrying the weight of the world on his shoulders and a cigar in his hand. Against the backdrop of such historical figures, I humbly find myself deep in thought, examining and analyzing VAT matters, accompanied by a cigar,” Tselepis says. He’s not joking.

Taking his passion for cigars to a whole new level, Tsielepis not only took part in the February 2018 finals of the Habanos World Challenge cigar competition in Cuba, he and his partner won it.

“When we were announced as the winners, it was surreal. Emotions ran wild!” he says with pride.

Interestingly, cigars do not seem to have the negative connotations as cigarettes,

Alexis Tsielepis

which Tsielepis explains as being due to the fact that “smoking a cigarette is a short process with a specific goal, which has to do with the nicotine draw.

Smoking a cigar is an experience involving all the senses – the pleasing colour of the wrapper to the eye, the smell that whisks you away to the plantations of Pinar del Rio, the touch of the wrapper’s silkiness and oils, the crispness of the cigar when rolled against the ear and, of course, the complexities of the taste that change as the cigar is smoked.”

While studies have shown that around 75% percent of cigar smokers don’t inhale, nor do they smoke on a daily ba-

sis, the question whether cigars are more or less harmful than cigarettes remains unanswered. AlexisTsielepis’ opinion is that, because one does not inhale cigar smoke, its effect on the lungs is less harmful than inhaled cigarette smoke.

Nonetheless, he has no problem with acknowledging that any type of smoking is harmful but he also believes that, “It is the right of the individual to smoke and to be afforded a place to do so, so long as it does not adversely affect other people.”

Anyone who thinks that there is nothing more to cigar smoking than lighting up is mistaken. Things are not so simple.

Tsielepis reveals that there are 27 brands of Cuban cigars alone and over 250 different standard production cigars. In addition to these, there are special productions including limited editions. They all differ in strength, flavour, look and even feel. “A person needs to understand what his or her palate likes, and the only way to do that is to try many different cigars, across the brands,” he says. “Over time, that person will develop a preference for specific cigars, and even pair such preferences with the time of day, a drink, food or emotion. The journey is a long one, perhaps never-ending, but that journey is also the prime purpose. May it never end!”.

Asked if he would recommend this admittedly unhealthy interest to others, Tsielepis replies, “I am passionate about the things I do in my life, cigars included. In this case, health considerations, at least for now, do not come into play. So I would recommend this hobby to everyone and I would be glad to join them for a smoke!”