Category: Audit



13/05/2024

Preparation of Consolidated Financial Statements

in 2024, Audit

All the Important Information from the Cyprus Auditors at Yiallourides & Partners.

Many Cyprus auditors will claim to help you with the preparation of consolidated financial statements, but not many Cyprus audit firms will do it right. We at Yiallourides & Partners have been handling these and other types of financial responsibilities for a long while now.

In this blog post, our Cyprus auditors will walk you through the intricacies of consolidated financial statements, and explain key terms and regulations.

Definition of consolidated financial statements: The obligation to prepare Consolidated Financial Statements arises when a parent company buys shares in another company (subsidiary), through which it gains control.

Control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, and it is presumed that control is granted when the parent owns more than 50% of the entity’s voting rights.

Consolidated Share Capital and Reserves:

The Consolidated Statement of Financial position includes the Parent’s Equity and Reserves plus the parent’s share of subsidiary’s post-acquisition reserves. The subsidiaries’ reserves at acquisition along with its share capital are cancelled against the parent’s cost of investment in subsidiaries. The same calculation is used for each reserve separately.

Acquisition of a subsidiary mid-year:

Irrespective of the date when the subsidiary was acquired, the Consolidated Statement of Financial Position (CSFP) needs to show the picture of the Company as of that date (i.e. 31 December) and the figures are not apportioned on the period which the subsidiary belonged to the parent.

However, the Consolidated Statement of Profit and Loss (CSPL) should show only the consolidated results from the date of acquisition onwards until the year end. Feel like you need to know more? All esteemed Cyprus audit firms like ours will know how to assist.

Goodwill:

Normal Goodwill:

  • Arises when the parent pays a consideration to buy the subsidiary of a value more of the subsidiaries’ net assets.
  • The value of goodwill is only calculated and used on the consolidated FS.
  • Goodwill is not amortised but it is subject to annual impairment review (IAS 36).

Bargain Goodwill:

  • Arises when the parent pays a consideration to buy the subsidiary of a value less of the subsidiaries’ net assets.
  • In such cases, the FV of the subsidiaries’ net assets need to be assessed to ensure they are correct.

Approach to calculate Goodwill:

Consideration transferredX
Plus: Non-Controlling Interest at acquisition (net assets * NCI%)X
Less: Net Assets as acquisition(X)
GoodwillX

Non-Controlling Interest (NCI):

NCI is something that most experienced Cyprus audit firms will know how to handle. In short, it is the percentage of ownership which is not attributable to the group. The Fair Value method is used as per IFRS 3 to calculate NCI and this usually results in a higher amount of NCI (compared to the old method used).

Approach to calculate NCI

FV of NCI at acquisitionX
Share of post acquisition profits and other reserves (NCI%*post acquisition)X
NCI at year end     X

Preparation of consolidated FS

  1. Identify % of ownership
  2. Obtain net assets of the subsidiary at the year end and at acquisition (to determine post-acquisition NA)
  3. Calculate goodwill
  4. Calculate NCI
  5. Calculate Retained Earnings at the year end

*Note that our Cyprus auditors at Yiallourides & Partners can take care of these tasks for you, and we have plenty of experience with it.

Elimination of intra-group balances:

The purpose of the consolidated results is that the results of the Group as a whole are shown as one Company. Therefore, any balances between the Group Companies need to be eliminated. Such balances include:

  • loans, debentures or preference shares
  • cost of investments
  • intra-group trading
  • Dividends (however, dividend paid to NCI are not eliminated and are shown in Equity)

Reminder: If you are not sure what this means, please consult any of the available Cyprus audit firms.

Treatment of other group transactions

  1. Unrealized intra-group profit

The group should only show the profits generated from third parties. When intra-group transactions give rise to profits, these are unrealized as far as the group as a whole is concerned. Unrealized profits are eliminated.

2. Inventories

    Where goods transferred at a profit are still held at the year-end by group companies, the unrealized profit must be eliminated on a consolidation (provision of unrealized profit PURP). This adjustment is always made in the books of the seller on the consolidated FS (not stand alone of seller).

    3. Transfer of Non-Current Assets

      The CSFP must show the assets at their cost and the depreciation should be made on that cost. The group accounts should reflect the NCA as if the transfer was never made.

      Carrying amount of NCA at year endX
      Less: CA of NCA at year end if transfer had not been made(X)
      Unrealized profitX

      While this may seem confusing at first, your Cyprus auditors will know how to simplify it for you.

      Other factors to consider:

      – All foreign currencies of the subsidiaries are translated to the currency of the Parent’s company as per the requirements of IAS 21 Foreign Exchange Currency.

      – The NCI is shown under Equity in the consolidated FS. If there is an acquisition of a non-fully owned subsidiary during the year, this should be reflected as ‘NCI added on the acquisition of a subsidiary” and in case of a disposal it is shown as “NCI eliminated on disposal”.

      – The investments in Associates and Joint Ventures do not fall under the scope of preparation of consolidated FS. The CSFP are prepared on a normal line by line basis for the parent and subsidiary. The associate should apply equity accounting (share of profit/loss of associate).

      – The disposal of a whole subsidiary falls under the scope of IFRS 5 Non-Current Assets held for Sale and Discontinued Operations and should be presented as such. Therefore, no assets are shown in the SFP and on the SPL this is shown under a single line as a ‘Profit/Loss’ from discontinued operations.

      In sum, we have shown you what Consolidated Financial Statements are all about, and how you (or all Cyprus audit firms) can handle them. It is imperative, though, to choose the right Cyprus auditors to work with for this process, and we at Yiallourides & Partners have a skilled team of professionals who can help you. Want to know more? Feel free to reach out to us.

      For more details, please contact:

      Managing Director

      George Yiallourides

      yiallourides@yiallouridesconsultants.com.cy

      Beach
      12/07/2022

      Limited Assurance Review

      in 2022, Audit, Law

      The House of Representatives have approved amendments to the Companies Law and to the Assessment and Collection of taxes Law to facilitate and ease the obligations of small and medium size enterprises and of individuals.

      In summary if the below mentioned thresholds are met the enterprise will be subject to a limited assurance review instead of a full audit.

      The thresholds are:

      • Companies that the Net Turnover does not exceed €200.000 and total balance sheet does not exceed €500.000, for at least two consecutive years.  
      • Individuals whose Turnover and any other income from sources defined in articles 5(1)(c), 5(1)(f) and 5(1)(g) of the Income Tax Law are in the range  €70.000 to €200.000, and whose total balance sheet does not exceed €500.000, for at least two consecutive years.

      The amendment will enter into force on 1 January 2023 and its provisions apply to the Financial Statements of Companies ending 31 December 2022 or any other later date. 

      The above amendments do not apply:

      • Parent Companies that are required to prepare consolidated Financial Statements.
      • Companies which are regulated and supervised by the Central Bank of Cyprus, the Cyprus Securities and Exchange Commission and the Commissioner of Insurance.
      • Companies which acquire or hold a qualifying participation in such companies.

      Finally, they have approved a reduction to the penalty for late submission of annual returns relating to the years 2021 and 2022 from €500 to €150 for the period between 9 June 2022 and 31 December 2024 and extended the deadline for the payment of the 2022 annual company levy from 30 June 2022 to 31 December 2022.

      We are at your disposal for any clarifications.

      Please contact:

      George Yiallourides
      Managing Director 
      T: +35725443132
      E: yiallourides@ayca.com.cy 

      Panicos Charalambous
      Director 
      T: +35725443132
      E: panicos@ayca.com.cy

      Vineyard
      06/07/2022

      Temporary Tax – Preliminary Self-assessment for the year 2022

      in 2022, Audit, Tax

      We kindly remind you that under the provisions of the Income Tax Law, every Company must submit to the Tax Authorities by 31st July a preliminary self-assessment, declaring the Company’s estimated Taxable income of the current year as well as the respective Tax payable. The general income tax rate for all companies for 2022 is 12.5%.

      Note that the non-submission of such return is considered as submission of zero declaration, that is to say zero taxable income and zero tax.

      The estimated Tax payable must be paid in two equal instalments on or before 31st July 2022 and 31st December 2022. Effective deadline, without interest or penalty being imposed, is one month later.

      The original declaration can be revised at a later stage before December 31st of the current year. However, the revised Taxable income will be apportioned equally over the two instalments and the difference on the instalments already paid will attract interest at 1.75%.

      The declared Taxable income must not be less than 75% of the final Taxable income as determined by the audited Financial Statements otherwise an additional tax of 10% on the remaining tax payable will apply. We remind you that the tax return for 2022 needs to be submitted by 31st March 2024 although interest on the amount due is calculated from 1st August 2023.

      In view of the above you are requested to either provide us with your estimated Taxable Income for the year or to provide us with the necessary information to assist you in establishing the estimate.

      Please contact:

      George Yiallourides                                                                    Yiannis Charalambous                                  
      Managing Director                                                                     Tax Manager

      T: 0035725443132                                                                      T: 0035725443132                    

      E: yiallourides@ayca.com.cy                                                       E: ioannis@ayca.com.cy

      Cocoon to butterfly
      04/07/2022

      Transfer Pricing studies documentation compliance requirements

      in 2022, Audit, Tax

      On 30th June 2022 the Cyprus Parliament approved the amendments to the Cyprus Income Tax Law with immediate effect for the year 2022, introducing Transfer Pricing (“TP”) studies documentation compliance requirements, in line to the OECD Guidelines as amended from time to time.

      To view the guidelines click here.

      IFRS
      22/02/2019

      IFRS 9 – Financial Instruments

      in Audit

      IFRS 9 despite the wide perception actually affects not only financial institutions but much more organizations. This is the case especially when an entity has long-term loans, equity instruments or any other financial assets. Even entities with short-term receivables are also affected.

      IFRS 9 can affect entities in different ways such as:

      • It increases the volatility of the presentation of the income statement. More assets than before would have to be measured at fair value with any increase or decrease in their fair value to be recognized instantly as they appear in profit and loss.
      • Entities will now have to provide for any possible future credit losses on their receivables (including trade receivables) and loans. This provision shall take place even when a receivable (e.g. loan) is recognised for the first time in the entity’s financial statements; even if the possibility of future credit loss is highly unlikely.
      • IFRS 9 also introduces new disclosure requirements that some entities will have to adopt in order to process the required data needed to be disclosed.

      You can find the most significant changes introduced by IFRS 9 by clicking here.

      In case you need any further clarifications or assistance on how to adopt your company to IFRS 9, please contact us at: T: +357 25443132
      F: +357 25878948
      E: info@ayca.com.cy
      W: www.ayca.com.cy