Which Cyprus Private Limited Companies are now Exempt from Statutory Audits?

On 9 June 2022, the Cyprus Companies Law Cap 113 was updated to introduce a statutory audit exemption for private limited companies and instead these companies will be subjected to an assurance review under much less demanding standards than an audit.  Companies which meet both of the following criteria are exempt from statutory audit:

• Annual turnover of less than €200.000
• Total assets worth less than €500.000

The above criteria should not be exceeded or ceased to be exceeded for two consecutive years.

The above thresholds mean that the vast majority of companies in Cyprus are not required to have a statutory audit but can opt to have their financial statements undergo a review engagement.

Conducting a review engagement instead of a statutory audit applies to the financial statements for reporting periods ending on or after 31 December 2022.

The companies that meet the criteria and choose a review engagement rather than an audit, are still subject to the same filing requirements to the Registrar of Companies and tax filing requirements to the tax department.  

What is an assurance review engagement and who undertakes it?

The aim of a review engagement of financial statements under ISRE 2400 (revised) is to provide limited assurance by conducting inquiry and analytical procedures, ensuring that the financial statements are free from material misstatement.

This standard ensures a consistent level of limited assurance while allowing efficient delivery of the service, based on the complexity of the financial statements under review.

An assurance review is an adaptable service, focusing on specific areas of the financial statements to meet a company’s needs. Auditors collaborate with the company to identify high-risk areas, conduct specific tests, and provide recommendations for improvement and informed decision-making.

The Companies Law Cap. 113 (Article 152A (1)(d)) specifies that a review engagement can only be performed by a licensed statutory auditor or a statutory audit firm.

Scope

The auditor will determine materiality and acquire a sufficient understanding of the entity to identify potential areas of material misstatements in the financial statements.

Procedures will be tailored to cover all significant items and target areas susceptible to material misstatements. They will include both planned analytical procedures and any supplementary procedures deemed necessary.

Review procedures may include but are not limited to:

• An analytical review of the year-on-year figures.
• Review of all Financial Statement areas that exceed materiality
• Areas where material misstatements are likely to arise.
• Review of specifically targeted areas within the Statement of Financial Position and the Income Statement.
• Assessment of significant accounting estimates
• Related party balances and transactions
• Going concern uncertainties

Auditor’s Review Report

The final step in performing a review engagement is to form an appropriate conclusion based on the evidence obtained. The conclusion of a review engagement does not provide the same level of assurance as an audit opinion. Instead, it typically includes a conclusion of what came to the auditor’s attention. Typically, an unmodified conclusion would read that nothing has come to the attention of the auditor causing the auditor to believe that the financial statements do not give a true and fair view. Similarly to the audit opinion, the auditor can express a qualified, adverse or a disclaimer of conclusion of the financial statements.

Benefits of a Review Engagement

A review engagement of the financial statements as per ISRE 2400 (Revised) is a limited assurance engagement as no audit opinion is provided. Nonetheless there are several advantages to appreciate, often resulting in time and cost savings compared to statutory audit fees. Some of these benefits include:

• Cost-effective and time efficient
• Provides confidence and accountability to the users of the reviewed financial statements.
• Offers reassurance regarding the reliability and credibility of financial statements.
• Identifies issues and areas of concern and offers recommendations for enhancing systems and processes accordingly.
• Focuses on areas where Directors or Owners seek assurance, thus tailoring testing and avoiding unnecessary expenditure of time and fees on processes already deemed satisfactory.

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Conclusion

Although a review engagement is different from an audit of financial statements, it’s crucial to acknowledge that the inherent risks identified during an audit will still be present. During a review engagement, material misstatements within the financial statements may not be detected, regardless of the thoroughness of the auditor. Nevertheless, a review engagement instills confidence in the users of the Financial Statements regarding critical areas of the accounts. A review engagement offers a practical alternative for those companies that meet the criteria and are not required to undergo a full audit.