Cyprus: New Financial Reporting Provisions Introduced

Last Updated: 8 May 2017
Article by Stella Koukounis


On September 23, 2016 Law 97(I)/2016 – the third amendment to the Companies Law (Cap 113) – took effect. Law 97(I)/2016 substantially amends the information which must be included in a company's financial statement reports. The director's report has effectively been replaced by a broader management report, which aligns with the increased transparency required in financial dealings. Further, the amendment enacts the EU Accounting Directive (2013/34/EC) regarding the submission of a company's:

  • annual financial statements;
  • consolidated financial statements; and
  • relevant financial reports.

Key amendments

The following terms have been amended:

  • The term 'international accounting standards' has been replaced with the term 'international financial reporting standards'.
  • The term 'organised market' has been replaced with the term 'organised or regulated market as defined by Section 2 of the law, which provides for the provision of investment services, exercise of investment activities and the operation of regulated markets'.
  • The term 'entity of public interest' has been introduced.
  • The term 'connected companies' has been introduced, defined as "any two or more companies within one group of companies".

Annual returns
Section 121(a) governing the obligation to file annual returns with the Registrar of Companies has been amended by:

  • the introduction of Sub-clause(a)(ii); and
  • the introduction of Part 13, which includes a requirement to attach to the annual return a consolidated report on payments to governments as per the Regulations on Payments to Governments, which were adopted in 2016.

Company definitions
The new Section 141A provides the following definitions:

  • 'Small-sized companies' are companies that fail to meet at least two of the following criteria:

    • a total balance sheet of €4 million;
    • net revenue of €8 million; and
    • an average of 50 employees.
  • 'Medium-sized companies' are companies other than small-sized companies that fail to meet at least two of the following criteria:

    • a total balance sheet of €20 million;
    • net revenue of €40 million; and
    • an average of 250 employees.
  • 'Large-sized companies' are companies which surpass at least two of the following criteria:

    • a total balance sheet of €20 million;
    • net revenue of €40 million; and
    • an average of 250 employees.

Preparation of consolidated financial statements
The new Section 142A provides exceptions to the preparation of consolidated financial statements, whereas amendments to the existing Section 142 provide the grounds on which consolidated financial statements must be prepared and submitted.

Management report
The new Section 151 outlines the information to be included in the management or consolidated management report. The report is intended to provide sufficient information and transparency regarding a company or group of companies' performance and operations and possible risks that may affect its performance and growth. The information that must be included is particularly relevant to companies whose shares are listed in a regulated market. In such cases, the company or group must attach a corporate governance report to its management report.

The management report must outline expected developments that will affect the company or group's financial reporting. Relevant information that must be provided includes:

  • an outline of the company or group's activities and any foreseeable risks that may affect performance;
  • information regarding research and development;
  • information regarding business that is conducted through branches of the company or group;
  • changes to share capital;
  • adverse events that may affect the company or group's ability to finance its operations, obtain credit and meet its financial obligations;
  • change in the composition of the company or group's board of directors; and
  • explanations and justifications on the distribution of profit or absorption of losses.

For companies whose shares are listed in a regulated market, the new Section 151 requires the management report to refer to the internal compliance and corporate governance procedures followed. Further, there is an obligation to report:

  • any participation (direct or indirect);
  • any voting restrictions; and
  • the regulations regarding the appointment or replacement of board members or changes to the company's articles of association.

A company or group of companies' directors are collectively responsible for ensuring that the management report is compiled and produced in accordance with the Companies Law and the Law on Requirements for Transparency (Securities Negotiated in a Regulated Market). They are also personally liable for failure to comply with the Companies Law. The publication of the management or consolidated management report contrary to the law constitutes a criminal offence and on conviction a fine of €855 will be imposed on the company and each of its officers. Failure to prepare a management report also constitutes a criminal offence and may lead to imprisonment of the company or group's officers and a maximum fine of €17,000.

Financial reports
The new Part 13 includes regulations regarding the information that must be included in the payment reports provided by companies or groups of companies to governments. Such a report must be filed alongside the company or group's annual return to the Registrar of Companies within 28 days from the date on which it is drafted. In accordance with the law, the reporting must concern the financial year starting January 1 2016. Failure to prepare the payment report constitutes a criminal offence and on conviction of the company or group's officers, the Registrar of Companies can impose an administrative fine of up to €8,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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