Importance of Ethics in Accounting

The International Federation of Accountants (IFAC) was formed with a mission to “strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high quality professional standards”.

Ethics in accounting are concerned with how to create good and moral choices regarding the preparation, presentation and disclosure of financial information. During the last two decades, a series of accounting scandals brought the issue of ethics into the forefront. Regulators have made it clear that blatant corporate greed and the pursuit of money at all costs is not acceptable. Ethics have always been, and will always be, fundamental to proper accounting practice.

In their daily tasks, accountants handle a wide range of privileged and sensitive information of their clients. This includes social security or bank account numbers, extent of wealth and available cash. This gives accountants a good deal of power in regard to their clients and it is important that the trust among them not to be abused. In the same way it is important that the industry itself does not become stigmatized as being unethical, something that could potentially harm business for all accounting firms. As they work with numbers that can have repercussions on bonuses and stock prices, they may face ethical issues in accounting more often than, say, actuaries or budget analysts.

The ethical dilemmas that accountants sometimes face include conflicts of interest, requests to breach payroll confidentiality, pressure from clients to inflate earnings and clients who request manipulation of financial statements.

As an accountant you need to ensure that you always put the interests of your clients ahead of your own, that you safeguard client information doggedly and never behave in a way that could be, or be perceived to be, unethical. In many firms, training in ethical behaviour is now central to the professional developments of accountants.

There can be a range of adverse consequences which will result from poor ethics in accounting practices. Ranging from the most innocuous to the most serious. Accounting firms heavily rely on word of mouth for promotion and reputation, therefore it’s all too easy for a few bad stories about unethical behavior to sway prospective clients away from a particular firm. There can also be serious legal repercussions for those who are found to be violating legal codes and standards for their jurisdiction.

While a person’s professional ethics are certainly important, organizations should also have their own code of ethics and make sure all employees are familiar with it. Not only are more organizations providing ethics training to their employees, but they’re also collecting and reporting ethical information.

If your employer does not have a code of ethics and standards, you and your team should advocate for one. An effective protocol will not provide a solution for every scenario, but it will act as a guide for the decision-making process. When creating a code of ethics from scratch, include guidelines on acceptable behavior, examples of ethical dilemmas and solutions, implementation and cost details, and the consequences for misconduct.

It can be tempting to ignore ethical issues in accounting practice. However, you owe it to your career, your profession and your firm to consider your business ethics in all aspects of your career.

Persefoni Shiakallis

Press Release

It is with a mixed feeling of sadness and pride that we announce that Michael Milonas is stepping down as CEO of Parparinos Milonas and ultimately our Group.

Michael, one of the two founding members of our Firm, has been appointed as CEO of Hanseatic Brokerhouse Global Markets a CySEC Regulated Investment Firm with License number 204/13.

This represents a substantial honour and responsibility for Michael; it is a recognition of his skills and charisma as well as being a culmination of his assiduous work.

Our entire Firm wishes Michael all the very best on his new role and we express our faith that his new duties will be crowned with success!

Michael will remain on the Board on Parparinos Milonas as a non-executive director and he will henceforth assume the role of the Chairman of the Board.


Cyprus Investment Firms (CIF)

In the last few years the Cyprus Regulated Market has grown to the maximum due to the increase of Companies who wish to provide investment and ancillary services. According to the Law 144(I)/2007 the scope of the Law is limited to foreign and local firms that provide, or offer to provide, investment and ancillary services to persons who stay, reside, or are domiciled in Cyprus or where the relevant transaction is concluded within Cyprus or persons that stay, reside, or are domiciled in Cyprus who act on behalf of a third party based outside of Cyprus in providing investment and ancillary services, whether as an employee or in another capacity.

A Cypriot investment Firm (CIF) is a company that is established in Cyprus and authorised by the Cyprus Securities and Exchange Commission (CySEC)[i] to provide one or more investment services to third parties and/or perform one or more investment activities which can be the reception and transmission of orders, execution of orders on behalf of clients, dealing on own account, portfolio management etc.

A CIF is not allowed to provide professional investment services without prior authorisation from CySEC. In order to obtain authorisation, the applicant needs to provide all necessary information to satisfy CySEC and once approved by CySEC the license is valid through all EU member states. A result of that is that the CIF can operate through EU via a branch or directly once approved by CySEC, for the services and activities the CIF is entitled to operate. The register of CySEC is open to the public and it contains the CIF’s name and license number, the registration date, the investment and ancillary services which is authorised to provide and the investment activities which it is authorised to do. A CIF must have a website in order to have its license number and the name of the regulator on the website and all official documents.

The initial capital requirement for granting a license to a CIF depends on the investment services that the CIF offers. There are four different types of CIF (Cypriot Investment Firm) that require different initial capital in order to fulfil the conditions for approval to operate.

(1) A CIF that provides one or more of the following investment services and holds clients’ money or/and client’s financial instruments, must have an initial capital of at least two hundred thousand euro (€200.000)

(2) A CIF that does not hold clients’ money or/and clients’ financial instruments, resulting not to put themselves in debt with their clients, may have an initial capital of at least eighty thousand euro (€80.000) or at least forty thousand euro (€40.000) and professional indemnity insurance covering all member states for at least one million euro (€1.000.000), per claim, and in aggregate at least one million five hundred thousand euro (€1.500.000) per year.

(3) A CIF that is also registered to provide insurance services, may have an initial capital as half as the above and if the CIF is covered by professional indemnity insurance covering all member states then the initial capital requirement is twenty thousand euro (€20.000).

(3) A CIF that is dealing on own account, underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis and/or placing of financial instruments without a firm commitment basis and/or operation of multilateral trading facility shall have an initial capital of at least one million euro (€1.000.000).

The Law prescribes a number of organisational requirements. A CIF must:

  • Establish adequate policies and procedures to comply with its legal obligations, and the appropriate rules governing personal transactions, of its managers, employees, tied agents and other relevant persons.
  • Maintain and operate effective organisational and administrative arrangements to prevent conflicts of interest from adversely affecting clients’ interests.
  • Ensure continuity and regularity in performance of services and activities, by employing appropriate and proportionate systems, resources and procedures.
  • Ensure avoidance of undue additional operational risk when outsourcing functions to third parties.
  • Ensure robust governance arrangements are in place including clearly organised organisational structures with well-defined, transparent and consistent lines of responsibility.
  • Have sound administration and accounting procedures, internal control mechanisms, effective risk-assessment procedures, and effective control mechanisms in place.
  • Keep records of all services and transactions in line with the Cyprus and EU legal requirements.
  • Apply appropriate client identification procedures in line with the Prevention and Suppression of Money Laundering Activities Law and relevant EC directives.
  • Make adequate arrangements to safeguard clients’ ownership rights when holding cash or financial instruments belonging to clients, particularly in the event of insolvency of the CIF, and prevent the use of these clients’ funds and investments for its own account.

[i] Cyprus Securities and Exchanges Commission (CySEC) is the supervisory authority of the investment firms and it has the responsibility to establish, maintain and regularly update a public register of all persons acting on behalf of a CIF or an IF of another member state.

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All terms of the present sale agreement are of essence

The time of exercising the right to terminate a sale contract due to a breach of any of its terms determines the way the innocent party should act in order to terminate the agreement validly and effectively.

The tolerance shown by one of the contracting parties when the other does not fulfil his obligations deriving from the sale contract giving him time to do so, prevents the innocent party from terminating the sale contract immediately without giving reasonable notice to the other party. The intention of the parties to make the time for the  execution of a contractual term of the essence of the agreement is a factor to be examined, as well as the parties’ behaviour when the innocent party tolerates a breach and gives more time to the other to execute his obligations under the sale agreement. The party showing tolerance should not terminate the agreement without giving a prior written notice to the other party requesting him to comply with and fulfil his contractual obligations as provided in the agreement despite the fact that the presence of an expressed term in the agreement that reads ‘’all terms of the present sale agreement are of essence’’.

In a recent judgment, the Supreme Court examined the issue with regard to a house sold under a sale contract, whereby a clause stated the following: “If the purchaser shall be in default as regards the payment of any amount as hereinabove provided then any balance shall become immediately due and payable and the vendor shall have the option either to call upon the  purchaser by notice in writing to pay the whole outstanding balance and any accrued  interest with a time limit to be specified in the said notice or to cancel this agreement forthwith without prejudice to any other of the rights.” Another term in the agreement read the following: ‘’All the terms of the present sale agreement are of essence.’’ Moreover, the sale contract provided for the last payment to be made upon delivery of the house to the purchaser. The delivery took place but the payment was not made by the purchaser. The vendor did not terminate the sale contract at the time and gave the purchaser time to pay.

Two years later after the purchaser took possession of the property, the vendor sent a letter of termination to the purchaser referring to the amount due and of his right to terminate the agreement as provided therein. The issue was referred to the District Court through an action filed by the vendor, claiming that the agreement was lawfully terminated due to the purchaser not paying the purchase price, an order for the sale of the house and delivery of its free and vacant possession, an order that the purchaser had no right to enter the house and the vendor also raised a claim for the recovery of a certain amount due for land taxes and common expenses paid by him on behalf of the purchaser. The District Court did not accept the vendor’s claims except the one for the recovery of the amount paid for land taxes and common expenses.

In view of the outcome, the vendor appealed and the Supreme Court upheld the decision stating among others that the issue depends on whether the parties intended to make the time of the essence of the agreement despite an explicit clause contained therein. In order to identify the parties’ intention, one must look into the terms of the agreement, the nature of the transaction, their intention and generally the circumstances of each case. The time is essential despite the fact that there is an expressed provision in the agreement and when due to the circumstances or the nature of the transaction, it is understood that the intention of the parties was to make the time essential to perform their obligations precisely.

In the said case, the tolerance shown by the vendor was such that gave him no right to terminate the sale contract without giving the purchaser prior reasonable notice. The reason for the notice was not to alter the terms of the agreement but to terminate the tolerance of the vendor and warn the purchaser in order to fulfill his obligations as provided in the terms of the agreement. Consequently, the  termination was declared invalid and the vendor’s claims were dismissed, except the recovery of the taxes and common expenses due.


Sport stars, image rights, fiduciary duties



As the spotlight recently turned to the Spanish Courts and Javier Mascherano as he appeared in court in an attempt to avoid going to prison over a 1.5m EURO tax fraud. (He joins a long list of personalities, including Neymar & Messi who have been in court in the last 2 years to answer tax claims)

Luckily enough the individual in question has the capabilities to pay his fine, and the Spanish prosecutor allows for a fine to be paid instead of imprisonment for sentences imposed that are less than two years in length. But others in the future may not be so lucky. What intrigued me in this case was the lack of liability which has been imposed on his advisors. As is often the case with premium stars, the media spotlight has been on the result rather than an analysis of the events that have led to the result.

Parallel to the main theme of the article which centres on the history of tax cases, I would like to provide some thoughts and comments as to the role their chosen professionals have played, through either negligence or poor advice.

In this particular case, a statement made by the defendant after the hearing has stuck with me

“I’, a sporting professional, I don’t have a great understanding of taxes and law. To deal with what are for me technical and complicated matters, I have to rely on other people.[1]”

Regardless of the fact that all individuals ultimately are responsible for their tax obligations his statement hit the nail on the head. In a world where millions, if not billions of Euros pass from sports starts to the industries perceived experts, surely a duty of extra care is required when advising such clients who are often considered Ultra High Net Worth, and are in the continued public spotlight. I feel at times our industry tax an ad hoc approach to advising sports stars, through the jungle of what are, State, EU and Regulatory rules as to how they are to conduct their financial affairs



Tax issues in sport and in particular tax evasion date back to 1940’s where baseball teams in particular the Cleveland Indians in famous owner Bill Veeck, moved ownership to a “tax-shelter” in order to gain an advantage over all teams in the league. His famous quote “I had always been trust by a basic inconsistency in the way we carried our players on the books[1]” epitomises using tax avoidance practices to gain an edge in sport. The road from the 1940’s to the 1970’s is a consistent one to general tax avoidance it was ripe in all industries.

[1] Pay Dirt: The Business of Professional Team Sports By James P. Quirk, Rodney D. Fort 1997 Princeton University Press

Growth of player income

The movement was much slower for individual agreements for players. Today a large majority of professional football players rely solely on wages. The big star players have become businesses unto themselves, with their image rights adding to and sometimes surpassing wage revenue. The 90s saw the first million-dollar sponsorship agreements for players in football as corporations sought out additional promotional avenues. The difference with player sponsorship is unlike a club, players are defined by a single personality and the actions of an individual so the good comes with the bad. Some of the early big sponsorship deals were cancelled or suspended as players such as Cantona, who kicked a spectator, and Zidane, who head butted Materazzi in a World Cup final were both suspended by sponsors. More recently there are the examples of Umbro dropping John Terry and players like Mario Balotelli, who is often in the news for off-field drama, not being able to match the commercial revenue of fellow players.

“It’s not the salary that’s a problem, it’s just the image rights that needed a little perking.” — David Beckham, 2002, on his ongoing contract negotiations with club Manchester United.

As player sponsorship amounts continued to increase the value of image rights also increased, and the agents for the top players started to negotiate the club having to pay the player for the right to use their image. The agents argued, successfully, that the club and league are no different to other sponsors who pay for a players image rights when they use the player in promotional material, in selling kits, in advertising, etc. Previously playing contracts would contain clauses where players would waive all image rights, but now the agents wanted to separate these concerns for foreign players so that they could take advantage of tax concessions.

There were similar deals on the continent already in place, but in the UK the first group of foreign players to structure their image rights separately from playing deals were Dennis Bergkamp, David Platt and Patrick Viera. The players would negotiate a wage, which would be paid in England with full taxes, but they would separately negotiate a flat fee that the club would pay for image rights, and that would be paid into a separate company that the player would setup and assign his image rights to. For foreign players, the image rights company could be based offshore in a jurisdiction with little to no income tax. Club wages provided enough money for the player to live off, so the image rights company could be used as a fund for the future – to be accessed when the player has left the country and is living elsewhere, or to be used when they are away on holidays. If the money was bought back into the UK they would have to pay additional income tax on the sum as well as the corporate tax.

The image rights payments are open to negotiation because they are an estimate for the upcoming year rather than a payment for trailing services. A player agent would sit down with the club and based on club commercial revenue and the amount that player features in promotional material would negotiate a percentage of that revenue that is due back to the player. The agent would take known revenue for last year, increase it based on some growth factor and then calculate a percentage due to his player for image rights based on how famous they are. The lump sum paid would be a guarantee payment on future image rights deals. Kit deals between clubs and sponsors are done in a similar way, the kit sponsor would estimate the number of shirts they expect to sell, then make a payment to the club as a guarantee based on that figure.

Fast forward to the new millennium and the age of transparency. Sports stars are under the scrutiny to declare their income we have seen a continually amount of cases raised from tax departments with fines running up in the millions. A lawyers role becomes all that more important.

The role of a lawyer and their fiduciary duty to sports players


In what kind of relationships will there be a fiduciary duty present?
Under the laws of the EU a fiduciary relationship will exist in the following situations:

  • A relationship between a trustee and a beneficiary of that trust
  • A relationship between a director and a company
  • A relationship between partners involved in a partnership
  • A relationship between a solicitor and his client
  • A relationship between a principal and his agent

The responsibility of a lawyer

A lawyer takes on a relationship as an individual who is appointed to act on behalf of a professional footballer in negotiating commercial contracts for that player. The commercial contracts can include the players playing contract with their respective clubs and their various sponsorship and promotional contracts with other bodies.

A lawyer unlike an agent who operates in football has an exception in relation to English football and does not need to be an official FIFA licensed agent through the a Football Association.

Typically a footballer will pay an agent either by an agreed fixed fee or by a percentage, usually between 10 and 20% of any money earned by that player. These fees are often significantly reduced when operating with a lawyer.

Do lawyers owe a fiduciary duty to their clients?

Looking at the above relationships which involve a fiduciary duty it would be reasonable to assume that a football agent would have a fiduciary duty to a footballer which he represents as the footballer would have to place all his trust and confidence in an agent when a contract is being negotiated. The agent will have the expertise and experience to negotiate the best terms and it is his job to arrange the best deal for his client.

Accordingly it has been held under the common law for England and Wales and EU law for the rest of Europe that a football agent and thus a lawyer representing footballers have the following fiduciary duties to the client which he represents:

  • The duty not to put himself in a position where his duties to his principal could conflict with his own interests
  • The duty not to gain undisclosed economic benefit from his position as the principal’s agent
  • This second duty is aimed specifically at dishonest practices often associated with football agents such as secret deals, bribes and bungs.

With the above in mind we hope to have shed light on an increasingly lucrative market as well as provoked thoughts that can assist athletes and not just football to examine their options when choosing their representatives.

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