An Overview of Accounting and Auditing in Cyprus
All companies registered in Cyprus must keep books of accounts and records. Books of accounts are necessary for the preparation of financial statements. Financial statements correctly reflect all transactions and enable the determination of the company's financial position, whether operating or not, companies registered in Cyprus are required to prepare and submit financial statements certified by an auditor as per the International Financial Reporting Standards (IFRS).
Cyprus is a member of the European Union (EU), so it has to comply with the accounting, audit, and financial reporting requirements set out in the EU regulations and directions incorporated in its national legislation. Financial statements must be prepared following IFRS, and they must comply with the National Companies Law Cap. 113. All Cyprus companies must prepare financial statements and tax returns annually and submit them to the Cyprus Registrar of Companies and the Tax Department, respectively. The Cypriot Companies law requires all Cyprus-registered companies to annually file the following documents:
- Financial Statements with Independent Auditor's Report
- Annual Return (Form HE32)
The above documents are filed with the Registrar. In Cyprus, the Annual Return is a snapshot of the company’s current structure and is prepared annually. The annual return usually includes identification data, details of secretaries and their resignations, details of directors and their resignations, information about the authorized capital of the company, number of shares issued, nominal value of shares, details of shareholders, and transfer of shares.
A tax return is to be filed with the Tax Department. These documents can be in any language, but a translation copy into English or Greek has to be provided. As per section 142 of the Companies Law, all Cyprus companies must prepare financial statements per the standards approved by the European Union, i.e., IFRS. The financial statements must be stored at the company's registered office in Cyprus. The financial statements must be stored for a period of 6 years from the date of the last statements.
Audit of financial statements
As provided by the Companies Law, financial statements of all companies must be audited and signed by a registered auditor. A company must appoint a certified Cyprus auditor to hold office in its annual general meeting. The audit must be completed per the International Standards on Auditing (ISA). The audit is mandatory for all registered companies irrespective of the company size, even if the company did not trade and is dormant.
The time limit for preparing and filing financial statements
The financial statements must be submitted for approval at the general meeting and filed with the Registrar of Companies along with the annual return (Form HE32) within 28 days of the general meeting. The annual return and the financial statements should be filed within 12 months from the previous annual return, irrespective of the calendar year. The end date of the reporting period is linked to the end of the calendar year to facilitate income tax accounting. Still, the reporting period for a company can be the calendar year. So whatever the case may be, the duration of the reporting period cannot exceed 12 months.
Penalty for delayed filing of financial statements
Delayed filing attracts penalties and actions against the company directors who have failed to fulfill their duties.
Consolidated Financial Statements
Cyprus companies that have subsidiaries are required to prepare consolidated financial statements with the following exemptions:
- Small and medium-sized groups of companies are exempted from preparing consolidated financial statements.
Small companies are company groups consisting of parent and subsidiary companies subject to consolidation. However, the consolidation should not exceed at least two of the following three criteria on the closing date of the parent company’s balance sheet:
- The total balance sheet is EUR 4,000,000;
- Net turnover is EUR 8,000,000; and
- The average number of employees in the reporting period is 50.
Medium-sized groups of companies are company groups other than small company groups consisting of parent and subsidiary companies subject to consolidation. However, the consolidation should not exceed at least two of the following three criteria on the closing date of the parent company’s balance sheet:
- The total balance sheet is EUR 20,000,000
- Net turnover is EUR 40,000,000; and
- The average number of employees in the reporting period is 250.
2. Groups whose holding or parent companies publish consolidated financial statements
Public companies listed on a stock exchange are not exempted from consolidation. The consolidated accounts of such public companies must be prepared in line with the Generally Accepted Accounting Principles and accepted by members of the International Organization of Securities Commissions.