On 23 September 2016, a number of amendments to the Cyprus Companies Law and to the Auditors and Statutory Audits of Annual and Consolidated Accounts Law were published in the national gazette.
All changes are effective for period beginning on or after 1 January 2016 and are summarised below.
The Companies Law was amended by Law 97(I) and the provisions of the Amending Law are the result of the transposition of the EU Accounting Directive (2013/34/EU) into domestic law.
Companies subject to statutory audits
From 2016 onwards all companies in Cyprus, including small/dormant companies, are subject to statutory audit and the exception that existed previously in the Law has now been abolished.
Categories of companies
Criteria for categorising companies according to their size have been established and are summarised below.
Small companies are defined as being the companies which as of their reporting date do not exceed at least two of the following three criteria:
- Total gross assets: €4 million
- Net Turnover: €8 million
- Average number of employees during the financial year: less than 50
Medium-sized companies are defined as being the companies which as of their reporting date, do not exceed at least two of the following three criteria:
- Total gross assets: €20 million - Net Turnover: €40 million - Average number of employees during the financial year: less than 250 Large companies
Large companies are defined as being the companies which as of their reporting date, exceed at least two of the following three criteria:
- Total gross assets: €20 million - Net Turnover: €40 million - Average number of employees during the financial year: more than 250
Note that ‘Net Turnover’ is defined as amounts derived from the sale/provision of products/services after deducting returns/rebates and VAT. Categories of Groups
Criteria for defining categories of groups have also been established which are again based on the above-mentioned criteria for categories of companies. For example, small sized groups are the groups which on a consolidated basis do not exceed the limits of at least two of the three criteria of small size companies as at the balance sheet date of the parent company. Medium sized groups and large groups are also determined along the same lines using the criteria of medium-sized and large companies respectively.
A number of consolidation adjustments are listed in the amended Law which are permissible not to apply for the purposes of calculating the above mentioned limits and include (1) Netting-off of the carrying value of the share capital of the group entities and the percentage of the share capital of the subsidiaries participating in the group against the percentage of their Net Assets and (2) offsetting of intercompany assets and liabilities, intercompany revenues and expenses, and unrealised profits/losses on intercompany transactions. In cases where these are not applied the limits for the above-mentioned criteria shall be increased by 20%. Exemption from consolidation
Prior to the Amended Law, the exemption to prepare consolidated financial statements was applied only to small-sized groups. With the Amended Law the exemption has been extended to apply also to medium-sized groups as defined above. This exemption will not apply if any of the affiliated companies is a public-interest entity in which case consolidated financial statements must be prepared irrespective of the size of the Group. Management Report
The revised Law introduced the term ‘Management Report’ to replace the term ‘Board of Directors Report’. Most of the provisions relating to the content of this report have remained the same. The revised Law mentions all new and amended provisions in detail.
The most significant change is that as per the revised Law small and medium-sized companies are exempted from preparing a management report, provided that certain criteria are met. Other provisions
The revised Law also includes additional disclosures to be included in the financial statements of medium and large sized companies. Examples include specific disclosures for staff costs, audit fees, number of employees, and details about the registered office.
Furthermore, other relevant provisions have been added in the revised Law which impact the corporate governance statement that is required to be included in the Management Report of companies whose shares are listed on the stock exchange of any EU member state. AUDITORS AND STATUTORY AUDITS OF ANNUAL AND CONSOLIDATED ACCOUNTS LAW Specific amendments to the auditor’s report have also been incorporated in the revised Law which are mainly the result of the specific provisions as mentioned in the changes of the Companies Law.