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Summary of financial reporting requirements for companies incorporated in Cyprus

McMillan Woods Cyprus > Articles > Articles > Summary of financial reporting requirements for companies incorporated in Cyprus
MCMILAN ARTICLE TEM 25.8-01 (1)

This summary is intended for general guidance only and does not constitute a legal opinion.

1. Requirement to keep books of account and to prepare financial statements under International Financial Reporting Standards (IFRS) as adopted by the European Union

Under the Cyprus Companies Law, the directors of every company are responsible to maintain proper books of account defined as those books deemed necessary for the preparation of financial statements and which are adequate for the presentation of a true and fair view of the company’s affairs and an explanation of its transactions.

The Directors are also responsible to ensure that the company prepares a full set of financial statements that give a true and fair view in accordance with IFRS as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap 113. (s142.1.a & s143.1&2)

The financial statements are accompanied by the Management Report, the contents of which are specified in the said law and whose preparation is the responsibility of the Directors. Financial statements are to be presented to the shareholders at the Annual General Meeting (AGM) held in each year. (s152.1)

A company’s first AGM can take place within 18 months from the Company’s incorporation. Subsequently, the AGM must take place within 15 months from the time of the previous AGM.

Non-compliance with this obligation is considered a criminal offence and the Directors are liable on conviction to imprisonment for a period not exceeding one year or to a fine or to both penalties.
(s142.4.a&b, s143.5)

2. Requirement for audit

Under the Cyprus Companies Law, all companies must have their financial statements audited and signed by a Cyprus registered auditor. (S152A & 155)

The law requires that the audit is conducted in accordance with International Standards on Auditing (ISA).

Every company shall at each AGM appoint an auditor to hold office from the conclusion of that AGM, until the conclusion of the next AGM. The first auditors of a company may be appointed by the directors at any time before the first AGM, and auditors so appointed shall hold office until the conclusion of that AGM. (s153)

The Cypriot tax authorities, also require companies to prepare standalone financial statements, as they form the basis of the company’s income tax return.

3. Requirement for consolidated financial statements

Companies which have subsidiary companies are required to prepare consolidated financial statements in accordance with IFRS as adopted by the European Union. (s142.1.b)

The consolidated financial statements shall be presented to the shareholders of the parent company at the Annual General Meeting. (s152.1)

Non-compliance with this obligation is considered a criminal offence and the Directors are liable on conviction to imprisonment for a period not exceeding one year or to a fine or to both penalties.
(s142.4.a&b)

Exemptions from the requirement to prepare consolidated financial statements

  • i) Under IFRS
    International Financial Reporting Standard (IFRS) 10, paragraph 4, provides for an exemption
    to parent companies from the requirement to prepare consolidated financial statements,
    provided all of the following criteria are met:
    a) the parent is itself a subsidiary and its owners do not object to the parent not
    preparing consolidated financial statements;
    b) the parent is not listed or in the process to be listed; and
    c) the ultimate or any intermediate parent of the parent produces consolidated financial
    statements available for public use that comply with IFRS as issued by the IASB.
    ii) Under the Cyprus Companies Law
  • The Cyprus Companies Law exempts a (non-listed) company from the requirement to prepare
    consolidated financial statements if its parent or ultimate parent publish consolidated financial
    statements prepared in accordance with Generally Accepted Accounting Principles accepted
    by the members of the International Organisation of Securities Commissions (IOSCO).
    (s142.1.f)
  • The Cyprus Companies Law also provides that “small and medium sized groups” are exempt from the obligation to prepare consolidated financial statements. (s142.1.d) Small and medium sized group means a group of companies, of which the companies that are subject to consolidation:

(a) are not public companies;
(b) the preparation of their consolidated financial statements is not subject to other legislation; and
(c) together fulfil two of the following three criteria at the balance sheet date of the parent

company: total assets <€20m, net turnover <€40m, average number of employees < 250.
Note: Where, on its balance sheet date, an undertaking or a group exceeds or ceases to exceed the limits of two of
the three criteria set out above, that fact shall affect the application of the exemption only if it occurs in two consecutive
financial years.

Along with consolidated financial statements, the Cypriot Company and tax laws require companies to also prepare the stand-alone financial statements. These form the basis of the company’s income tax return. Both consolidated and stand-alone financial statements should be presented at the AGM.

In case no consolidated financial statements are prepared (due to the company utilising the above exemptions), the company should prepare and present at the AGM its parent separate (stand-alone) financial statements.

Important notes:

The above exceptions are from preparing consolidated financial statements and NOT from filing them if
prepared i.e. a Cyprus entity that meets one of the above consolidation exceptions, is required to file its
consolidated financial statements with the Registrar of Companies if such financial statements have
been prepared and are presented to the shareholders at the AGM, irrespective of it being eligible to
claim any of the exceptions from the preparation of such financial statements. Per the Companies Law,
section 121 “there shall be annexed to the annual return copies of all documents presented to the
general meeting of the company in accordance with subsection (1) of section 152” – Non-compliance is
considered a criminal offence.

A company utilizing any of the above exceptions, so as to not prepare consolidated FS should make an
express statement to this effect (i.e. that no consolidated FS have been prepared), stating also the
exception it has used, in the “basis of preparation” of the parent separate financial statements, which
FS are signed by the Directors and validated by the auditor.

 

Cyprus Company Law Extracts

118. (1) Every company having a share capital shall, draw up only once per calendar year a return containing with respect to the registered office of the company, registers of members and debenture holders, shares and debentures, indebtedness, past and present members and directors and secretary ….

121-(1) (a) Subject to the provisions of this Law, and without prejudice to paragraph (b), there shall be annexed to the annual return:

(i) copies of all documents presented to the company at each general meeting that took place after the last reporting date or in case of the first annual return after the date of incorporation of the company, in accordance with the provisions of subsection (1) of section 152; such documents may also be filed in the English language as well as in any other language which is customary in the international financialsector and which has been pre-specified by the registrar of companies by-means of instructions;

(b) The obligation of annexing the copies in accordance with paragraph (a) shall not apply –
(i) To all optional statements that the company may wish to lay down; and
(ii) To the management report;
but only if a copy thereof is available to the public

(3) If a company fails to comply with this section, the company and every officer of the company who is in default shall be liable to a default shall be guilty of a criminal offence and shall be liable on conviction to a default fine.

For the purposes of this subsection, the expression “officer” shall include any person in accordance with whose directions or instructions the directors of the company are accustomed to act.

(3A) In addition and notwithstanding the provisions of subsection (3), if the company fails to comply with this section, the registrar of companies may impose thereto an administrative fine not exceeding eight thousand five hundred and forty three euros.

142- (1) (a) The directors of the company shall cause to be made, for every company, a full set of financial statements as this set is prescribed on the basis of IFRSs.

(b) Without prejudice to the provision of section 142A, each company which has subsidiary companies shall consolidated its financial statement with those of its subsidiary companies as prescribed by IFRSs; in any event, the said consolidated financial statements shall be presented before the general meeting of the parent company.

(d) small-sized groups and medium sized shall be exempted from the obligation to draw up consolidated financial statements referred to in paragraph (b) of this subsection, except where any affiliated company is a public-interest entity, or where the drawing up of their consolidated financial statements is governed by a different legislation.

(f) Groups of companies of which the ultimate holding or parent companies publish consolidated financial statements on the basis of GAAP shall be exempt from the obligation to prepare consolidated financial statements

(4) (a) The directors of every company shall have a joint duty towards the company to ensure that annual financial statements and, as the case may be, the annual consolidated financial statements are  prepared and published in accordance with the requirements of this Law and in accordance with the International Financial Reporting Standards.

(b) Without prejudice to the joint civil liability of directors towards the company in the event of breach of the duty referred to in paragraph (a), if the director of a company fails to take all reasonable measures to comply with the duty referred to, in paragraph (a), he shall commit an offence and shall be liable on conviction to imprisonment for a period not exceeding one year or to a fine not exceeding one thousand seven hundred Euros or to both such penalties:

Provided that, subject to the provisions of any other special law, in any proceedings against a person in respect of an offence under this paragraph, it shall be a defence to prove that such person had reasonable grounds to believe, and did believe, that a competent and reliable person was charged with the duty of seeing that those requirements set out in paragraph (a) were complied with and was in a position to discharge that duty.

143. (1) The financial statements shall present a true and fair view of the company (hereinafter referred to as “true and fair view”)

(2) The true and fair view of the company shall be presented by applying the International Financial Reporting Standards; it shall be obligatory for all companies to comply with the said Standards.

(5) If a director of a company fails to take all reasonable steps to comply with the provisions of this section, as well as with other requirements of this Law, in relation to the matters that must be
presented in the financial statements, he shall commit a criminal offence and shall be liable on conviction to imprisonment for a period not exceeding on year or to a fine not exceeding seventeen thousand and eighty six euros or to both such penalties.

149. (1) The financial statements of a company shall be signed on behalf of the board of directors by two directors of the company, or, if there is only one director, by that director.

(3) If a copy of the financial statements which has not been signed as required by this section is issued, circulated or published, the company and every officer of the company who is in default shall be liable to a fine not exceeding four hundred twenty seven euros.

150. (1) Whenever the financial statements are publishes in full, they must be published in the form in which they had been presented by the auditor and must be accompanied by the full text of the auditor’s report. In any event, all observations, reservations and refusals, to express an opinion which the auditor expressed must be presented.

(2) It shall be a criminal offence to issue, circulate or publish any copy of the aforementioned accounts without complying with the provisions of subsection (1) and the company as well as every officer responsible for such omission shall be liable, on conviction, to a fine not exceeding eight hundred and fifty eight euros.

152. – (1) Directors shall lay before the company in general meeting-
(a) all financial statements and, as the case may be, the consolidated financial statements,
(b) the management report and, as the case may be, the consolidated management report
(c) the auditors’ report attached to the above where this is required by Law:

(2) A copy of every document referred to ’in subsection (1) shall be available at least twenty-one days before the date of the” general meeting. Such copy may be requested and provided by the company, free of charge, either in electronic or in printed form by:
(i) every member of the company irrespective of whether he is entitled to receive notices of general meetings of the company;
(ii) every holder of debentures of the company irrespective of whether he is entitled to receive notices of general meetings of the company; and
(iii) all persons except members or holders of debentures of the company who are entitled to receive notices of general meetings of the company:

(3) Any member of a company, whether he is or is not entitled to have sent to him in electronic or print form, copies of the company’s balance sheets, and any holder of debentures of the company, whether he is or is not so entitled, shall be entitled to be furnished on demand, without charge with a copy in electronic or print form, of the last balance sheet in electronic or print form, of the company, including every document required by law to be annexed thereto, together with a copy of the auditors’ report on the balance sheet.

(4)(a) If default is made in complying with subsection (1), every director of the company who is in default shall commit a criminal offence punishable with a fine not exceeding eight thousand five hundred and forty three euros.
(b) If default is made in complying with subsection (2), the company and every officer of the company who is in default shall commit a criminal offence punishable with a fine not exceeding five thousand one hundred and twenty five euros, and
(c) If, when any person requests any document that he is entitled to receive pursuant to subsection (3), default is made in complying with the request within seven days from the submission of the application, the company and every officer of the company who is in default shall commit a criminal offence punishable with a fine not exceeding eight hundred and fifty four euros.

152A. — (1)(a) The following companies shall have, in accordance with the provisions of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law, their financial statements and where their drawing up is required according to this Law, their consolidated financial statements, audited by one or more statutory auditors or audit firms1:
(i) Each company that is required under this Law to draw up consolidated financial statements;
(ii) Each public interest entity;
(iii) Each private limited liability company;
(iv) Every public limited liability company;

(b) The companies referred to in paragraph (a) shall also submit to statutory auditors or audit firms, the management report and the consolidated management report where this is required to be drawn up in accordance with this Law, for the purpose of auditing its compatibility with the financial statements that have been submitted.

(2) The financial statements, the consolidated financial statements, the management report and the consolidated management report, which have not been subjected to audit in accordance with the provisions of this section, shall be deemed not to have been published on the basis of subsection (4) of section 142.

153. – (1) Every company which has an obligation in accordance with the provisions of section 152A to submit its financial statements and management report to an auditor for audit, shall at each annual general meeting appoint an auditor or auditors and their appointment shall be valid from the conclusion of the annual general meeting until the conclusion of the next annual general meeting.

(2) At any annual general meeting a retiring auditor, however appointed, shall be reappointed without any resolution being passed unless-
(a) he is not qualified for reappointment; or
(b) a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be reappointed; or
(c) he has given the company notice in writing of his unwillingness to be reappointed:
Provided that where notice is given of an intended resolution to appoint some person or persons in place of a retiring auditor, and by reason of the death, incapacity or disqualification of that person or of all those persons, as the case may be, the resolution cannot be proceeded with, the retiring auditor shall not be automatically reappointed by virtue of this subsection.

(5) Subject as hereinafter provided, the first auditors of a company may be appointed by the directors at any time before the first annual general meeting, and auditors so appointed shall hold office until the conclusion of that meeting

155. – (1) No person shall be appointed as an auditor of a company unless he has previously acquired a licence pursuant to the provisions of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009.

 

Notes:

1. The Auditors and Statutory Audits of Annual and Consolidated Accounts Law, clarifies that this refers to joint audits – Section 69-audit report states:
(3) When the statutory audit was carried out by more than one statutory auditor or audit firms, the statutory auditors or statutory audit firms agree as to the outcome of the statutory audit and submit a joint report and opinion. In the event of disagreement, each statutory auditor or statutory audit firm shall submit its opinion in a separate paragraph of the audit report and justifies its disagreement.

(4) The audit report shall be dated and signed by the statutory auditor. If the statutory audit is carried out by a statutory audit firm, the audit report bears the signature of at least the statutory auditors who carry out the statutory audit on behalf of the statutory audit firm. Where more than one statutory auditor or statutory audit firms have been appointed at the same time, the audit report is signed by all statutory auditors or at least the statutory auditors who carry out the statutory audit on behalf of each statutory audit firm.

 

 

 

 

 

McMillan Woods Cyprus Ltd

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T: +357 22276000 | F: +357 22270807

[email protected] | www.mcmillanwoods.com.cy

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