Law 97(Ι) of 2016, which was published in the official gazette on 23 September 2016, amends the Companies Law Cap 113 in order to comply with the EU Accounting Directive (2013/34/EU) and also results in amendments to the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013 regarding the new management report.
One of the most substantial changes is the abolition of the exemption from producing consolidated financial statements that was formerly only available to small or dormant companies.
Furthermore, now there are additional changes in connection with the exemptions from specific accounting disclosure regulations available to companies or groups that are considered to be small or medium-sized.
According to numbers of gross assets set out on the final balance sheet date in regards to financial year turnover (excluding VAT) in correlation with the average number of employees, a company to fall within a specific category it must fall under 2 out of the 3 requirements set out below:
Total gross assets Turnover Employees
Small Less than €4 million Less than €8 million Fewer than 50
Medium-sized Less than €20 million Less than €40 million Fewer than 250
Large More than €20 million More than €40 million More than 250
New provisions of Exemption from consolidation: Article 142.A.(5)
Preceding the recent amendments of the Companies Law Cap 113, small groups of companies were exempt from having to gather consolidated financial statements. The amendment now allows for the exemption to apply to medium sized groups as well provided that there is no associated company that is a public interest company.
Furthermore, the previous provision of the Companies Law that exempts groups of companies from preparing consolidated financial statements if the parent company publishes consolidated financial statements still remains.
The compulsory Directors Report under the Companies Law has been renamed the Management Report with the majority of the required content to be specified within the report remaining as it was before with a few amendments.
At present, individual financial statements and consolidated financial statements are to be accompanied by the management report whereby the financial strategic positioning and the forecasted financial projections of the company are set out.
What’s more, small companies whose shares remain unlisted from any EU state and qualify for the exemption of preparing consolidated financial statements are also exempt from preparing a management report as long as any measures taken by the small companies to acquire their own shares are set out in the notes of their financial statements.
Additionally, small and medium-size groups are both exempt from producing a consolidated management report as long as there is no associated company that possesses public interest. The management report must contain an unbiased evaluation of the forecasted financial projections and performance in collaboration with a report detailing potential business and financial risks.
In order for there to be a clear picture of the company’s progress, performance and strategy positioning, the management report must contain both financial and non-financial particulars including details regarding the internal environment and human resource policies of the organisation.
Lastly, there are also new amendments applicable to European public companies whereby the management report must also contain the corporate governance statement.
The Management Report must cover the following:
Any modifications made during the financial year in regards to the business strategy of the company or its subsidiaries’ or in the category of business in which the company has an interest, whether as an associate of another company and particularly in any planned or finalised takeover or merger;
Forecasted financial projections in respect of the company’s activities;
Specification the company’s activities in regards to research and development;
Any information related to associated branches;
Disclosure of any use of financial instruments used by the company within the financial year;
Disclosure of the company's plans and internal policies in regards to its financial risks, including its policy for hedging all forms of projected transactions;
Disclosure of the company's recovery strategy to price risk, credit risk, liquidity risk and cash flow risk;
Amendments to the company's share capital;
Particulars of any acquisition by the company of its own shares capital;
Substantial amendments in the structure, responsibilities or remuneration of the Board; and,
Specification of any recommendations regarding the distribution of profits, absorption of losses and creation of reserves.
Additional disclosures required by the amendments to Article 142 of the Companies Law Cap 113
Medium-sized companies, large companies and public interest entities are required to provide additional disclosure in regards to their individual and consolidated financial statements regarding the following matters:
The HR costs of the financial year; specifying remuneration, social insurance and pension costs;
The legal name and address of the auditing or holding company that prepares the consolidated financial statements.
Additional amendments to article 142 of the Companies Law include that it is no longer required for small or medium-sized companies to disclose their auditory fees for their statutory audit for the financial year. Furthermore, there now exists a ban on the payment of dividends if any costs are included as assets in the balance sheet and have not been completely written off, except if the amount of the reserves available for distribution and profits brought forward is at least equal to that of the costs not written off.