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Editor’s choice The growth in Chinese outward investment is keeping PwC’s Gabriel Wong FCCA increasingly busy. Find out more about how the investment landscape is evolving as China spreads its wings in our interview with Wong on page 12

KEEP THE ENGINE ROOM RUNNING Small and medium-sized enterprises (SMEs) are often considered the engine room of an economy. In Hong Kong this rings true; approximately 300,000 SMEs employ 1.2 million, about half of the private sector’s working population. They also showcase Hong Kong’s entrepreneurial innovation and talent. But the ongoing global economic crisis has hit SMEs hard. As orders fall and access to finance diminishes, SMEs face the harsh reality of shutting up shop while the government worries about the fallout: job losses. In his Budget speech in February, financial secretary John Tsang said that the government ‘must do our utmost to get SMEs through difficult times in order to minimise unemployment’. In our feature on page 16, we look at why Hong Kong’s SMEs are suffering and how the government is offering support. There are a plethora of government grants and schemes available but the problem is a lack of awareness; SMEs need to understand what is out there and how they can access it. From small business to big business: also in this issue, Dr Ling Wen, CEO of China Shenhua Energy Company, the world’s largest coal producer, gives his account of how he introduced a risk management system that transformed the burgeoning energy company whose business covers coal production and sales, railway, port and shipping of coal-related materials, and power generation and sales. External regulation was a key reason for the introduction of a risk management system, but the company also suffered from a lack of control over its myriad subsidiaries as well as inefficient resource sharing. As China Shenhua seeks to expand overseas, the need for an innovative approach to how the company responds effectively to risk alongside globalisation is paramount; you can read Ling’s views on page 19. It’s always helpful to get feedback from readers, so if you have any thoughts or views on this issue, or any previous issues, then do get in touch. I look forward to hearing from you. Colette Steckel,

TIME TO ROTATE? With calls to introduce mandatory auditor rotation, evidence suggests that it may cause more problems than it solves. Page 40

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TAX ON THE MAP Two ACCA events in Hong Kong and Shanghai highlighted the central role of taxation – both internally and internationally – in the future. Page 54

EXPERT INSIGHTS Join ACCA and KPMG for a free, one-hour webinar as we explore how the finance transformation agenda is evolving through shared services and outsourcing.

BIG AMBITIONS? For your next career move check out www.

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AB CHINA EDITION CONTENTS MAY 2012 VOLUME 15 ISSUE 5 Asia editor Colette Steckel +44 (0)20 7059 5896 Editor-in-chief Chris Quick +44 (0)20 7059 5966 International editor Lesley Bolton +44 (0)20 7059 5965 Chief sub-editor Eva Peaty Sub-editors Dean Gurden, Vivienne Riddoch Design manager Jackie Dollar Designers Robert Mills, Jane C Reid Production manager Anthony Kay Advertising Jennifer Luk +852 2965 1432 Head of publishing Adam Williams Printing Times Printers Pictures Corbis Editorial board Rosanna Choi, Jimmy Chung, Andy Lam, Arthur Lee, Derek Poon, Anthony Tyen, Fergus Wong, Davy Yun ACCA President Dean Westcott FCCA Deputy president Barry Cooper FCCA Vice president Martin Turner FCCA Chief executive Helen Brand OBE


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Accounting and Business is published 10 times per year. All views expressed within the title are those of the contributors.

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Copyright ACCA 2012 Accounting and Business. No part of this publication may be reproduced, stored or distributed without the express written permission of ACCA.

Accounting and Business is published by Certified Accountant (Publications) Ltd, a subsidiary of the Association of Chartered Certified Accountants. 29 Lincoln’s Inn Fields London, WC2A 3EE, UK +44 (0) 20 7059 5000

12 Leading the way PwC’s Gabriel Wong FCCA is helping Chinese companies move to another level 16 Support for SMEs Times are tough for SMEs but help is at hand 19 At the coalface How energy company China Shenhua has been transformed 24 Olympic winner As official professional services provider for London 2012, Deloitte is already ahead of the Games 28 Smashing the glass ceiling Gender stereotypying remains a problem for the accountancy profession 30 Vietnamese vision In an exclusive interview we talk to Vietnam’s minister of finance, Professor Dr Vuongh Dinh Hue

ACCA Shenzhen +86 (0)755 3395 5711/ 3395 5710 Audit period July 2009 to June 2010 138,255

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There are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at



06 News in pictures A different view of recent headlines

46 Update The latest from the standard-setters

08 News in graphics We show a story as well as tell it using innovative graphs

48 CPD: Uncluttering annual reports Busy annual reports may obscure vital information

10 News round-up A digest of all the latest news and developments

51 Renminbi goes global How the Chinese currency’s internationalisation will affect accountants in the corporate sector


Your sector

33 Errol Oh Don’t resist the arrival of integrated reporting


34 Cesar Bacani Purchasing power parity tells us much about salaries

35 The view from M Nazri of Vector Scorecard Asia-Pacific Group, plus news in brief 36 Making boards better Directors must perform more effectively than ever

39 PRACTICE 39 The view from Paul Lee of RSM Chio Lim, plus news in brief 40 A rotating debate Auditor rotation is causing a stir in the US... 43 Chilly reception ...and the proposals have met with scepticism in Asia

ACCA NEWS 54 Moving forward Event looks at the future of tax in Hong Kong


Accounting and Business is a rich source of CPD. If you read it to keep yourself up to date, it will contribute to your non-verifiable CPD. If you read an article, learn something new and apply that learning in some way, it will contribute to your verifiable CPD. Each month, we also publish an article or two with related questions to answer. If they are relevant to your development needs, they can also contribute to your verifiable CPD. One hour of learning equates to one unit of CPD. For more, go to

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56 Taxing times International Tax Summit takes place in Shanghai 60 CPD The ACCA website now has a new, improved, CPD section 61 Dean Westcott ACCA’s global forums have a vital role to play, says the ACCA president 62 Global forums Introducing ACCA’s Accountancy Futures Academy 64 News Chief executive Helen Brand visits China 65 Council Election time is coming; meeting highlights

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News in pictures


Flower fans flock to see cherry blossoms in a Tokyo park. The annual spring trek to parks around Japan to take in the ‘sakura’ attracts millions


Tokyo Stock Exchange and Daiwa Securities received the go ahead to help set up a new stock exchange in Myanmar


The Communist Party in China suspended former highflying politician Bo Xilai from its top ranks and named his wife as a suspect in the murder of British businessman Neil Heywood

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Former convenor of the NonOfficial Members of the Executive Council of Hong Kong, Leung Chun-ying, thanked his supporters and called for unity and inclusion after being elected as Hong Kong’s next chief executive on 25 March


Myanmar opposition leader Aung San Suu Kyi will take her seat in parliament for the first time on 23 April, following her milestone election to political office


Coca-Cola’s plans to invest US$4bn in China will come into effect this year. The soft drinks giant wants to take advantage of the country’s increasing middle-class population and urbanisation


German luxury carmaker BMW sold more cars in China than in the US in the first quarter of 2012. The company sold 80,014 cars in China, 37% more than a year ago. It also posted record quarterly sales overall

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News in graphics








US$210BN Losses due to Japan’s earthquake and tsunami in March 2011, according to Swiss Re.




According to a report by HSBC, the emerging economies led by China and India will power global growth over the next four decades. By 2050 China will overtake the US for top position, with Japan pushed back into fourth place. The World in 2050 update also predicts that the Philippines will surge to 16th place.



Economic league table dominated by the US, Japan and some European countries



West’s growth limited by high levels of income per head and weak demographics


Despite the positive influence of mixed-gender boards, the latest Grant Thornton International Business Report shows that just 21% of senior management roles globally are held by women – little changed from the 2004 figure of 19%. Russia’s exemplary 46% may in part be a legacy of the Soviet Union’s equality ideology.






















Month in figures

Value of Chinese grocery sector at the end of 2011, beating the US.


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The banana skins index, a measure of anxiety levels in the financial sector, is at its highest since it began 13 years ago. Survey respondents say that the greatest threat facing the sector is the fragility of the world economy. The Banking Banana Skins 2012 survey is produced by the Centre for the Study of Financial Innovation and PwC. Figures for 2010 are in brackets.


RANK 7 (–)


















Professional staffing

Finance IT


Ability to respond to change from within



Ability to respond to change from outside




RANK 8 (7) RANK 9 (12)

Organisational complexity



RANK 5 (1)



RANK 3 (5)




RANK 10 (8)



The role of in-house finance teams is under the microscope again as CFOs look to expand their level of influence and encourage innovation and growth. Although the CFO’s role has developed in recent years, most believe that their focus over the next two years must revolve around day-to-day operations and greater engagement with external stakeholders. Respondents to KPMG’s survey From Keeping Score to Adding Value indicate that a number of challenges stand in the way of creating a more forward-looking and integrated finance department.


High risk Moderate risk Little or no risk Don’t know

Relationship with other company groups


Asian cities are challenging the top spots in the rankings for most competitive global city, in a survey by the Economist Intelligence Unit for Citigroup, Hot Spots: Benchmarking Global City Competitiveness. Singapore was the highest ranked Asian city out of a field of 120 global markets. US and European cities however remain the world’s most competitive, despite concerns over ageing, infrastructure and large budget deficits.

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9 8

1 10

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7 =4




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News round-up


China has almost tripled the amount that foreigners can invest in stocks, bonds and bank deposits under its Qualified Foreign Institutional Investor programme to US$80bn (from US$30bn) as the government shifts its growth model from exports to domestic consumption. The ceiling was last lifted in 2007, from US$10bn. Offshore investors will also be allowed to bring an extra 50 billion yuan of local currency into the country, up from 20 billion yuan, according to a statement on the China Securities Regulatory Commission website.


Macau’s casinos are on track to post gaming revenue growth above 20% in 2012, promoted by Q1 data showing a 27% rise, according to Union Gaming Research. To achieve the year’s projected gain, monthly gaming gross revenue would need to average at least 27.5 billion pataca for the rest of the year. ‘This is 11% higher than the average year-to-date gaming gross revenue, which we think is achievable based on historical trends...and backstopped by new supply (Cotai Central) that should grow the market,’ the researchers said.


Hong Kong residents might be good at making money, but they don’t know how to laugh. So says hypnotherapist Dick Yu, who blames the constant pressure to earn more in the financial hub of Asia. People get worried easily because housing is expensive, the cost of living is rising and they are concerned about keeping their job, asserts Yu, who is aiming to change that through the 11 laughter clubs he has founded in the city since 2007.


Key mainland ship insurer China P&I Club will stop indemnity coverage for tankers carrying Iranian oil from July to abide by tightened Western sanctions against Iran. China P&I Club, whose members include Sinotrans and COSCO Group, is the first Chinese maritime insurer to make the decision, and the move is a sign of the struggle ahead for shippers wanting to continue their business dealings there. ’Many ship owners want to join our club and want our club to cover this risk, but considering all these regulations from the US and the EU, I know the China P&I Club will not do that,’ an official from a Hong Kong-based official for the insurer was quoted as saying.


Investment bankers and hedge fund staff in Hong Kong struggle to view payments in shares as a good substitute for cash, according to Astbury Marsden. In a recent survey by the financial services recruitment firm, only 24% of respondents rated a share scheme as very highly valued, far behind private medical cover (50%), pension contributions (44%), flexible working hours (37%) and life assurance (32%). ‘The lack of appetite from Hong Kong bankers for regular share incentive schemes does not bode well for banks which increasingly prefer to replace cash bonuses with shares,’ said Mark O’Reilly, managing director for Asia Pacific at Astbury Marsden.

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China’s premier wants an end to the monopoly of state-owned banks to accomplish the goal of getting more private capital into the financial sector. ‘Chinese banks make profits far too easily,’ Reuters reported Wen Jiabao as saying at a local business roundtable. Recently, Beijing approved financial reforms to encourage private investment in banks in Wenzhou, known as a cradle of private enterprise and informal lending in Zhejiang province.


Greater engagement with Asia will play a key strategic role in China’s opening-up policy, vice premier Li Keqiang told the annual Boao Forum for Asia. He said that as the largest market for Asian imports and an important source of investment, China will expand cooperation in a range of sectors, such as emerging industries, infrastructure, finance and technology. ‘Openness has been vital to Asia’s fast growth in the past and it will continue to be crucial for the area’s further development,’ he said.


A switch to value added tax (VAT) from business tax China-wide would lead to a net reduction in taxes of more than 100 billion yuan, reported The Beijing News, citing Xiao Jie, head of the State Administration of Taxation. The report said that the core advantage of a VAT system is the ability to defer taxes and avoid double taxation. A three-year trial of the tax reform reduced taxes by an aggregate of 500 billion yuan during 2011.


Financial services staff value private medical cover above company shares

In a bid to improve air quality in the Chinese capital, the Beijing municipal government will cover 100,000 sq metres of roof with greenery by the end of this year. ‘Plants and water have been proven to be one of the most effective measures to degrade and dilute [the pollutant] PM2.5,’ said Tan Tianying, president of Beijing Green Roof Association. ‘If the city

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As official professional services adviser to the London 2012 Olympic and Paralympic Games, Deloitte has been competing in its own marathon, keeping tabs on 65 projects involving over 550,000 hours of work so far.

can make better use of building façades and rooftops for greening the environment, or add to the vertical landscape, carbon dioxide can also be greatly reduced.’


An extremely rare Chinese porcelain bowl fetched HK$208m – around three times more than presale estimates – at Sotheby’s auction in Hong Kong in April. The modest-looking imperial ceramic bowl, made around 900 years ago, was expected to fetch up to HK$80m. The price set a new world record for a piece of ceramic from the Northern Song Dynasty (9601127). ‘The Ruyao Washer is among the most sophisticated achievements in Chinese ceramics,’ said Sotheby’s Asia deputy chairman Nicolas Chow. ‘Its appearance on the market created enormous excitement.’


of Hong Kong’s biggest property developer, Sun Hung Kai Properties, were among those arrested by the city’s Independent Committee Against Corruption as part of a bribery investigation on 29 March. Rafael Hui, Hong Kong’s former chief secretary, and five other people were also taken in for questioning. They were released on the same day of their arrest. In early April, the Kwok brothers made


Despite risks of decreasing growth and economic hard landing, the Chinese banking sector continued to report remarkable profits and maintained high growth in 2011, according to Deloitte’s report on the top-10 trends and prospects of the Chinese banking industry in 2012. At the same time, Chinese banks should be aware of the potential risks and implications brought by other international and domestic uncertainties, such as the European debt crisis, and pressure from local financing platforms and realestate loans on their asset quality. Key challenges for banks this year include dealing with the adoption of International Financial Reporting Standard 9, Financial Instruments, published by the International Accounting Standards Board, the Deloitte report found.


China’s inflation rate edged up to 3.6% in March, from 3.2% in February, as bad weather pushed up food prices and authorities raised the price of fuel. But analysts expect the consumer price index (CPI) to continue its downward trend. Inflation – one of Beijing’s biggest economic concerns due to the potential for rising prices to trigger social unrest – hit a high of 6.5% last July, but has gradually slowed since.


Australian airline Qantas will set up a budget airline in China under a new agreement reached with China Eastern Airlines, capitalising on the enormous potential of the Chinese market, in which there is only one other budget carrier. Jetstar Hong Kong will begin flights in 2013, flying short-haul routes in China and to Japan, South Korea and South-East Asia, offering fares at 50% less than existing full-service carriers, Jetstar chief executive Bruce Buchanan said.

KWOK BROTHERS ARRESTED Billionaire brothers Thomas and Raymond Kwok, the co-chairmen

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meeting. Michael Stewart, director of implementation activities, outlined new proposals agreed by the committee, in response to the trustees’ call for a more active role in helping implement IFRS. The proposed new tools, agreed by the IASB, include allowing it to propose that application guidance (which has mandatory effect) be added as standard and that it can provide non-mandatory illustrative examples.

a public appearance to state they are innocent of the suspected corruption being investigated. The Kwoks are worth US$18.3bn according to Forbes, the second-largest family fortune in Hong Kong after Asia’s richest person and rival developer, Li Ka-shing. The brothers’ arrest triggered a 15% slump in Sun Hung Kai’s share price.


The International Accounting Standards Board (IASB) is to extend the activities of the International Financial Reporting Standards (IFRS) interpretations committee and issue fewer rejection notices, following its most recent

The IASB stressed that it now expects the interpretations committee to take on more agenda items and, as a result, issue fewer rejection notices.


The US is ready to relax some sanctions on Myanmar, and France will urge the European Union (EU) to ease bans, opening the door for foreign investment after Nobel Peace Prize laureate Aung San Suu Kyi’s recent election victory. Her National League for Democracy won 43 out of 45 seats contested in the by-elections, dealing a blow to the ruling military-backed party which won a 2010 election.

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Gabriel Wong FCCA, head of corporate finance for China at PwC, is a key figure behind many of China’s private placements and increasingly, outbound investments


hite Rabbit candies are famous in China. First produced in 1943, they have evolved into an iconic domestic brand. In 2004, sales of the sweets hit 600 million yuan. So in 2009, when a 45% stake in Guan Sheng Yuan, the owner of White Rabbit candies, was sold to CITIC Capital Holdings for about 510 million yuan, the deal made considerable headlines – headlines more often associated with initial public offerings (IPOs) than with private placements. The lead financial adviser for the transaction was Gabriel Wong, who heads up the corporate finance practice in China for PwC. The White Rabbit deal was exactly the type of deal Wong focuses on, a large private placement fundraising for a Chinese company. PwC does not get involved in IPOs as an underwriter or sponsor, but the corporate finance arm of the firm has been active in private placement fundraising. Wong’s team has completed more than 20 private placement transactions in the last three years, covering retail and consumer products, industrial products, healthcare and energy. In the past few years, the growth of Chinese outbound investment has added a twist to the practice. ‘Private placement is a mature product, and Chinese outbound investment is a big trendy one,’ says Wong, who has been based in Shanghai for more than a decade. ‘To represent a Chinese company going out to buy is more or less the same as a private placement in terms of the transaction process, but you are now on the other side of the coin.’

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Wong has been working in investment banking and mergers and acquisitions (M&A) for more than 20 years and has been involved in his current practice for more than a decade. He says transaction trends in China have evolved from minority growth capital private equity transactions in the early 2000s, to majority buyout deals by foreign strategic investors in the mid-2000s, to the current wave of Chinese outbound investment. Originally from Hong Kong, Wong speaks quickly and with certainty about the growth of his particular segment of the industry in China.

2011 and the creation of a joint venture for Haier’s kitchen business with Lixil of Japan. The firm is also lead financial adviser to the Fujian Putian government in the 6 billion yuan buyout of Fujian Sedrin Brewery by InBev Group, the largest brewery transaction in China. It was also involved in the minority placement of Red Star Macalline, the largest Chinese furniture chain mall to Warburg Pincus, a deal that helped Wong win the Best M&A Advisor Award from the China M&A Association. ‘Chinese companies really want to move to another level of development,’ says Wong. ‘They are good at

‘WHAT CHINESE COMPANIES ARE LOOKING FOR NOW IS TO BUY COMPANIES WITH TECHNOLOGY OR KNOW-HOW AND PRODUCE THERE... THE RATIONALE IS VERY DIFFERENT’ When he moves on to discuss Chinese outbound investment, he gets even more excited. ‘This is a major trend, particularly mid-sized branded goods, industrial products and healthcare deals in addition to the large-sized energy and resources transactions completed in the past,’ says Wong. In 2010, there were some 188 outbound M&A deals from China, according to Thomson Reuters and PwC. That was up from 144 in 2009 and 126 in 2008. Last year, the number of deals hit 207. PwC’s corporate finance team was the lead financial adviser in Haier’s acquisition of Sanyo Asia’s white goods home appliance business in

producing in volume but in general are not famous for their high technology.’ In the early 2000s, Chinese companies sought out products that they could manufacture faster and cheaper. The cost difference they could make through their manufacturing processes in China, compared with manufacturing overseas, represented the margin that made the deal worthwhile. ‘But now China is not cheap,’ says Wong. ‘It is still relatively cheaper, but it is not that cheap. The cost benefit is not that big an advantage any more. ‘Now the rationale for Chinese outbound companies is no longer to go out, buy, bring production back

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The basics PWC

PwC’s corporate finance practice does not sponsor or underwrite initial public offerings (IPOs), explains Gabriel Wong. The practice focuses on pre-IPO private placement fundraising and lead advisory for Chinese outbound investment. In the past few years, it has also become increasingly involved in foreign investment, particularly Chinese outbound investment. The practice has about 80 professionals in China. Some come from a variety of investment banks and industry backgrounds; others are homegrown PwC accountants. Wong says the team is one of the largest corporate finance practices in China solely focusing on private placement fundraising and outbound investments lead advisory. Across China, Hong Kong, Singapore and Taiwan the firm has 620 partners, 14,000 staff and offices in two dozen cities across the region. PwC has a network across 158 countries worldwide with 169,000 people working on assurance, tax and advisory services.

here and produce,’ he says. ‘What Chinese companies are looking for now is to buy companies with technology or know-how and produce there... Go there, produce there and service the local Chinese market. The rationale is very different.’ So they have worked hard to buy better tech. Sluggish economies in Europe, the strength of the renminbi, the go-global policy of the Chinese government and a desire to upgrade have all come together. ‘We are working on a dozen outbound deals. In the past 12 months we closed four deals,’ says Wong. Three of the four were in Europe, one was in Japan – the Haier-Sanyo deal.


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Global network A number of factors help PwC win lead financial advisor mandates in China. One is deal credentials. Another is the company’s global network, which is very useful when it comes to doing outbound investment deals. ‘We started earlier here in China. It makes a difference,’ says Wong. A few years ago, for every deal there were a handful of advisers. Now there are hundreds of advisers competing for deals. At the same time, Chinese investors abroad are ‘still big spenders but they are now more experienced and cautious’. ‘In terms of transaction process, they are the same as the foreign buyers,’ says Wong. They go through the same teaser-matching, strategic analysis, valuation modelling, term-sheet negotiation, due diligence and finaldeal negotiation, but the rhythm along the deal process may be different. What Chinese companies need that foreign buyers don’t is government

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The CV

approval – approval from the National Development and Reform Commission, the Ministry of Commerce, the State Administration of Foreign Exchange and possibly other bodies. ‘The Chinese government has been supportive of companies going abroad. They have made the approval process more transparent and faster,’ he says. The number and overall value of China’s outbound acquisitions is likely to continue growing for a few years, says Wong. The acquisition destinations and target industry will continue to shift along with the Chinese economy – that is moving from lowcost manufacturing to a more service industry-dominated economy. The changes, which often result in Chinese investors buying companies abroad and leaving the original management team in place, often make acquisitions abroad easier because there are fewer labour problems, people are not laid off and governments are more likely to

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Gabriel Wong’s career, spanning 21 years, has been focused on dealmaking across five companies, the dot-com boom, the Asian financial crisis and the growth of finance in China. He started out at Arthur Andersen after completing a degree in accounting at Hong Kong Polytechnic and his ACCA accreditation. He then joined beer-maker Anheuser-Busch Asia. ‘I helped them buy breweries,’ he says, including the first brewery the firm bought in Wuhan, China, in the mid1990s. He spent two years there. He then joined Hong Kong investment bank Peregrine Capital, which collapsed in 1998 due to the Asian financial crisis and was bought by BNP Paribas. During the start of the Chinese internet boom in 1999, he joined, one of the first local companies to list on the Nasdaq. As the dot-com bubble was about to burst in 2001, he rejoined Arthur Andersen to start a corporate finance practice in China. When Arthur Andersen was brought down by the Enron scandal and was merged into PwC, Wong stayed at the new firm in Shanghai, growing the corporate finance practice.

welcome investment for companies that will stay in country and grow a business. With businesses keen to go out, invest and grow and even the government pushing to go abroad, ‘doing business in China is getting easier’, says Wong. ‘The Chinese system is more established and more transparent

The tips Behind every successful pitch or deal is hours and hours of work, says Gabriel Wong, who is also a PwC partner. It is not just talking to a prospective client or signing on the dotted line, but spending plenty of time examining companies, going through documents preparing speeches and pitches and sitting back to think. A lot of young accountants want to get involved in dealmaking and investment banking, attracted by the glamorous look of the sector. ‘In fact, it is not [glamorous]. When you really do it there is a lot of tough work. You need to sit down quietly and think,’ says Wong. ‘You see that I speak for 30 minutes but you don’t see that I spent 10 hours preparing my speech. Young people should think before they decide how to move on.’

and the Chinese businessman is more experienced in partnering with foreign business associates.’ However, it could be some time before things change completely. ‘It may be hard for foreigners because there are still cultural differences within the business practices,’ Wong adds. Alfred Romann, journalist

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KEY TO PROSPERITY With overseas orders down and domestic costs rising, Hong Kong’s SMEs continue to struggle through tough conditions. Can this year’s Budget open the door to better times?


hen Hong Kong’s financial secretary John Tsang delivered his 2012–13 Budget speech in February, supporting small and medium-sized enterprises (SMEs) was at the top of his list of proposals. While the government expects the domestic economy to grow by only between 1% to 3% this year, and with the global economy recovering slowly from the financial tsunami of 2008–09, Hong Kong businesses are in for another tough year, and the SME sector is likely to be the hardest hit. With the approximately 300,000 SMEs in Hong Kong employing more than 1.2 million people – about half of the private sector’s working population – their performance is crucial for the city. ‘I am deeply concerned about the possible hardship SMEs may suffer in times of economic downturn,’ Tsang said in his speech. ‘We must do our utmost to help SMEs get through difficult times in order to minimise unemployment.’ Retail sales in Hong Kong were robust in 2011, with a 25% increase from the previous year, largely due to a 24% increase in the number of mainland Chinese shoppers visiting the region, according to the Nielsen Commercial Financial Monitor. However, business confidence among SMEs in 2011 fell by 12 index points to 96 index points year on year. Also, 58% of SMEs said they expect a slowdown in this year’s business environment due to the fragile and volatile global market’s conditions, Nielsen reported. ‘They are not optimistic and it is not difficult to understand why,’ says

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Tracy Ho, a tax and business advisory services partner at Ernst & Young. ‘Exports of goods have fallen since mid-2011, China has adjusted its GDP [gross domestic product] growth to below 8% and, with the eurozone crisis, what is certain now is the outlook is uncertain.’ Hong Kong is, above all, a trading city. About 40% of its goods and services are sold to international markets, well above the global average of 29% for countries exporting their output, according to HSBC’s estimates.

‘A few years ago, we handled a lot of investment into China to set up new factories, infrastructure, and so on. Recently, we do not see that happening significantly,’ he says.

Customer concern Added to this, export orders for manufactured goods have been down for the past five years, reports Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association. Worryingly, many of their overseas customers last year insisted on making


SINCE THE GLOBAL FINANCIAL CRISIS, MANY SMES HAVE STRUGGLED WITH REDUCED ORDERS AND INCREASES IN OVERSEAS CREDIT DEFAULTS So when the global economy falters, most of Hong Kong’s businesses feel it. Since the global financial crisis three years ago, many SMEs have struggled to cope with reduced orders and also increases in credit defaults among their overseas customers, says Jennifer Wong, a tax partner at KPMG China. ‘I have come across clients who are writing off their bad debts,’ she says. ‘Many of them are working hard to chase after their creditors, but many of their customers have been placed into administration and liquidation.’ Albert Chan, head of HSBC’s commercial banking in Hong Kong, says that, due to falling export markets, Hong Kong’s SMEs are now borrowing mainly for working capital purposes, such as paying for electricity, salaries and bridging between receivables and payables.

smaller and more frequent orders. Rather than placing one or two large orders for the year, customers made up to six smaller ones, resulting in greater risk for suppliers and fewer opportunities for economies of scale. In response, Edward Lam, CEO of clothing wholesaler Delicron, has been cutting capital expenditure and keeping a tight control of the company’s inventory and staff headcount while putting the profits it earns into long-term deposits. Lau says that, for Hong Kong’s SME manufacturers, this year will hinge largely on a recovery in the US economy. ‘A lot of figures, such as [for] unemployment and new housing, show the US market is recovering,’ he says. ‘In the second half of this year, there should be more orders.’ While the US recovers slowly and Europe’s economy remains uncertain,

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The Hong Kong government is: Increasing the existing SME Financing Guarantee Scheme’s maximum loan guarantee ratio from 70% to 80%; lowering the guarantee fee for borrowers. Offering special concessions and premium discounts to SMEs, insuring their exports through the Hong Kong Export Credit Insurance Corporation. Waiving business registration fees for 2012–13. Reducing profits tax for 2011–12 by 75%, capped at $12,000. Halving import and export declaration duties; abolishing capital duty levied on local companies.

* * * * *

China’s fast-growing market holds many attractions for Hong Kong exporters. However, it is often a difficult and risky place to do business, especially for an SME with little clout in the mainland’s legal system. ‘China is a huge market. But how much can an SME afford to invest in opening stores there?’ Lau asks. ‘And if you do wholesale, you have to give credit to your dealers and trust them. What happens if they don’t pay you?’ In addition to dealing with unstable markets, many SMEs have to cope with higher costs. In particular, rents for

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office spaces and retail shops in the city have been rising steeply. ‘For retail and restaurant owners, their rent has gone up dramatically over the last five years,’ Lau says. ‘For some, rents recently went up by 100% when their five-year leases ran out.’ ‘Rental is definitely rising in Hong Kong,’ says Rhonda Gretton, owner of the retail barbecue business Jervisbay Barbecue World. ‘We are about to move our offices out of Central, closer to our retail outlet in Horizon Plaza,’ she says. ‘But even then we are finding the rentals in the Aberdeen area are rising fast.’

Meanwhile, Hong Kong’s SME manufacturers with factories in China are being hit with increases in wages, the price of raw materials and an appreciating renminbi currency. ‘In the Dongguan area, a lot of the factories of the SMEs have had to close. They cannot cope with the rising prices,’ Wong says.

Government support Reactions to the range of proposals in the Hong Kong government’s 2012–13 Budget, which aims to help SMEs survive a downturn, have been mixed. Plans include a one-off corporate tax rebate, waiving business registration fees, and offering SMEs special concessions on insuring their exported goods and services. ‘All added together, it would be a sum appreciated by the SMEs,’ says Ho. ‘Better than nothing,’ is Wong’s verdict. The government’s proposals to lift the maximum loan guarantee ratio to

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80% and reduce the guarantee fees for the SME Financing Guarantee Scheme, which was launched in January 2011, came in for particular attention. Chan believes that the two measures will make the scheme much more popular among SMEs and encourage banks to lend more to them. ‘A 10 percentage point increase in the guarantee is quite a material change, so I think that will trigger a lot more participation from the banking industry,’ he says. However, some SMEs remain sceptical about a scheme where banks decide which enterprises will gain access to the government-backed finance, and object to their credit control tests. ‘Some SMEs say if they can pass this test, they could easily borrow and don’t need the government’s assistance,’ Wong says. According to Gretton, some banks are reluctant to become involved with the scheme. ‘I changed my bank because I had been with it for 35 years and we could not get a person to even begin to implement the deal,’ she says. Beyond the Financing Guarantee Scheme, there are many other grants and schemes available to Hong Kong’s SMEs, and many are aimed at helping with research and development projects and business expansion. The trouble is that there is a general lack of awareness about the schemes, and the application process can be long for a cashstrapped business. ‘SMEs need to find a way to access the government funding,’ Chan says. ‘My view is there is room for wider promotion, because a lot of SMEs are not fully aware there are funds available for them and how to make the applications.’ However, Chan adds that placing a list of schemes available to SMEs on the Hong Kong Productivity Council’s website has been a step in the right direction. Bruce Andrews, journalist

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Mindful that the International Financial Reporting Standards (IFRS) were placing a heavy burden on the SME sector, the International Accounting Standards Board (IASB) released a separate standard for these entities’ financial reports in 2009 that is less complex than the standards applied to larger companies. The result is a standard of just 230 pages, or about 10% of the full IFRS. In Hong Kong, private local companies can use this standard if they have no public accountability – they have not and are not planning to issue equity or debt instruments for trade on a public market, or hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses – and issue financial statements for external users. Overseas companies in Hong Kong can apply the SME standard if they fulfil at least two of the following three criteria: generate revenue below HK$50m; hold total assets below HK$50m; and have a maximum of 50 employees. Since the SME standard was released three years ago, the IASB has been issuing changes to its question-and-answer series to help clarify some implementation issues, and is planning to start a comprehensive postimplementation review of the standard during the second half of 2012. Furthermore, amendments to the full IFRS on revenue, leases and financial instruments may soon also have a knock-on effect on the SME standard, says Yin Toa Lee, financial services leader for Asia Pacific Financial Accounting Advisory Services at Ernst & Young. If Yin could change one thing about how the SME standard is applied in Hong Kong, it would be to have more education and training on it made available to lenders and creditors. ‘Ultimately, they are the ones who will be basing their decisions on these financial statements,’ he explains.

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China Shenhua’s CEO Dr Ling Wen explains how he introduced a comprehensive risk management system that transformed the coal-based energy company


he global economic environment has changed significantly since the global financial crisis. Comprehensive risk management has become an imperative and is a pressing issue faced by all executives and scholars. Under this environment, an internal control system based on comprehensive risk management has been pioneered by the world’s largest coal producer, China Shenhua. The company, which has operations across a complete coal sector value chain, is representative of large state-owned enterprises (SOEs) that are of significant importance to the Chinese economy. Sales revenue and total profit stood at 208.197 billion yuan and 65.093 billion yuan in 2011 respectively, more than five times of that in 2004 (39.2 billion yuan and

Comprehensive system Since its initial public offering on the Hong Kong Stock Exchange in 2004, Shenhua has been progressively

THE SYSTEM WAS BUILT FROM SCRATCH AND WAS AN ORGANISATION-WIDE EFFORT THAT DREW LESSONS FROM INTERNATIONAL EXPERIENCE 11.8 billion yuan respectively). Shenhua has 56 subsidiaries operating worldwide. Amid rapid economic growth and swift corporate expansion, our team confronted an unprecedented risk management challenge: how to strike a balance between rapid economic growth and risk control. I believe a study of Shenhua’s risk management and internal control system will provide useful insights for other large enterprises both in China and abroad.

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developing a tailored, comprehensive risk-oriented internal control system. This push comes as a response to external regulation and also specific internal control challenges that Chinese firms generally face. The system was literally built from scratch and was an organisation-wide effort that drew valuable lessons from international experience. Shenhua’s internal controls and risk management are not affiliated with any single department or subsidiary, but

are essential to the company’s overall operations. Senior management has spared no effort in integrating internal control and risk management into the corporate culture and operations with the aim of achieving a self-learning, self-organised, self-adaptable, and self-optimising system in which risk awareness is embedded in daily operations and management. As a result, Shenhua is enjoying healthy growth. In order to implement internal controls, Shenhua evaluates each of the major risks each year, sets in process the risk control points, and defines the corresponding control measures and standards to ensure that control activities are arranged to each risk point. Key risk indicators were designed for monitoring the status of risks simultaneously, thereby accomplished effective risk management. In the following sections, Shenhua’s four major risk management experiences in 2010 are highlighted and discussed.

Branch management risks The number of Shenhua’s subsidiaries (and branches) continues to rise through asset growth, mergers and acquisitions and restructuring, creating an increasingly complex organisational structure and management system. Ambiguous management systems and an imbalance of management controls over subsidiaries (and branches) by the head office prevented effective topdown communication. Resource sharing and coordination between departments also proved problematic.

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Cranes unload imported coal from a ship at Lianyungang Port

Since 2008, Shenhua has been successively integrating its subsidiaries on a business sector basis. Strategically and economically, the integration of Shendong Coal Group was one of the most important milestone events in Shenhua’s history as it involveed four subsidiaries and branches in the Shendong Mining Area, Shenhua’s principal coal production unit. In the initial stage of integration, the management of the four subsidiaries and branches were decentralised. Due to a lack of supporting facilities and specialised management team, the company’s basic coal-related services provided by Shendong could not meet market requirements. To solve this problem, Shenhua enhanced internal and external communication channels, increased sharing of resources among subsidiaries, and strengthened audit/ oversight functions. After the strategic integration and restructuring of Shendong Coal Group, the subsidiary’s 17 underground coal mines and five surface supporting production units were included in the intrinsic safety management

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system with uniform supervision and assessment. The head office is able to take tighter control over its subsidiaries and branches, as well as 17 mega mines thanks to the enhanced communication efficiency. The consolidation also significantly reduces cost, achieves economies of scale, improves resource utilisation, and reinforces risk supervision and control. One year after restructuring, Shendong Coal Group continued to lead the world with the lowest mortality rate, and the unit production cost per tonne was 3.71 yuan lower than planned. Indicators related to security, output, efficiency and cost meet leading international standards and top domestic counterparts. Its output of coal accounts for 6% of China’s total, compared with 4.8% previously.

Coal market risks Coal market risk is an inherent risk for coal companies. On the policy front, the development of high-energy consumption industries is confined amid tighter macroeconomic policy modulation and energy-saving and emission-reduction policies. The

development of renewable energy and clean energy sources may reduce coal consumption. On the supply and demand front, the company is dependent on its key accounts due to a concentration of sales that gives buyers some bargaining power. Meanwhile, many power companies have begun to adopt vertical integration strategies and gradually integrated upstream coal production sectors to minimise costs in external purchase of coal. Both policy and demand factors contribute to an increased number of coal producers, resulting in fierce competition for market share and quality resources. Combined with fluctuations in market prices, Shenhua’s operation performance has been directly affected. In response, Shenhua accelerated the transformation of its sales methods by formulating a ‘mega-sales’ strategy and established the Shenhua Coal Trading Group based on the Coal Distribution Center in 2011, to manage coal sales and market risks centrally. Specific initiatives in this area included further consolidation of the multi-sector

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integrated business model by securing both domestic and international supply and distribution channels, centralisation of corporate resources and decision-making, and increased attention to the recruitment and retention of highly qualified personnel. Following integration, Shenhua Coal Trading Group has transitioned from production-based sales to production and operation-based sales. Economic belts of distribution; mining areas, areas along railway networks and coastal regions have gradually formed. Its distribution network has also extended to inland regions along the Yangzi River and thus expanded to the entire country. The creation of a large distribution network gives Shenhua an enormous advantage in gathering market information, allowing the company to seize business opportunities and attract new domestic and foreign customers. It also generates more timely feedback on the latest policies and market information to be transmitted to senior levels. As a result, the head office, more capable in recognising and managing market risks, can make effective and efficient strategic decisions. For product sales, Shenhua Coal Trading Group focuses on product segments and differentiated operations: low-quality coal is strategically subjected to local consumption while high value-added products are sold using innovative sales such as pricing mechanism reforms, secondary distribution, electronic trading of lump coal and auction sales. After launching the new pricing mechanism, company sales increased year on year by 32.9% in the first half of 2011. Market risk has been successfully eliminated from the top 10 risks in its comprehensive risk management assessment of 2011.

Safety management risks The coal, railway, port, shipping and coal liquefaction chemical sectors that Shenhua engages in all pose significant safety risks. As a state-owned enterprise

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China Shenhua Energy Company was incorporated in Beijing, China on 8 November 2004. H-shares and A-shares were listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange in June 2005 and October 2007 respectively. China Shenhua is a world-leading coal-based integrated energy company, with principal businesses covering coal production and sales, railway, port and shipping of coal-related materials, as well as power generation and sales. With the largest coal reserves, is the largest coal supplier in China. The company’s large-scale, effective, and safe production mode has become a model in China’s coal industry. Being both the largest coal producer domestically and internationally, it is very representative of large centrally administrated enterprises in China that are of significant importance in the Chinese national economy. Its market capitalisation stood at US$84bn on 16 March 2012, with 4.52 times more net assets that when the company was established (US$18.58bn). It is the largest among all listed coal companies, or the fourth among all listed integrated mining companies worldwide. China Shenhua has 56 subsidiaries in more than 10 provinces and cities in China, and other countries and regions such as Australia and Indonesia. In 2011, the company saw another rise in its businesses. The sales volume of commercial coals reached 387.3 million tonnes, representing a year-on-year growth of 23.7%. The total power output dispatch reached 167.61 billion kWh, representing a year-on-year increase of 27.3%. The revenues of 2011 amounted to 208.197 billion yuan and profit attributable to equity shareholders of the company for the year was 45.677 billion yuan. Basic earnings per share were 2.296 yuan.

and the largest global coal dealer, Shenhua is entrusted with the crucial role of stabilising the coal market. Major accidents may disrupt Shenhua’s integrated operations, and adversely affect its competitive advantages. Shenhua strives to ‘put an end to serious accidents, reduce general accidents, eliminate fatal accidents, and target zero mortality per million tons of raw coal production’. A production safety management mechanism has been set up for such a purpose, and it is under continuous refinement and upgrading. The five components of this system are risk management, personnel management, safety management, assessment management and information management. Through mechanised operations and other technological reforms, Shenhua aims to drive sustainable and healthy development. Shenhua is actively promoting technology as a safeguard for production. It has actively upgraded its mechanised levels in coal mining to

reduce injuries. On 31 December 2009, the world’s first seven-metre long wall work face with high-seam thickness was put into place and Shendong’s Bulianta mine is expected to bring enormous economic and social benefits to the company. In recent years, Shenhua has maintained a good safety record, and ranked as a leading player in the coal industry in terms of scale, efficiency and production safety. In 2010, its fatality rate per million tonne of raw coal was 0.0123, lower than the industry average in China and a leading level in the world. Fourteen coal mines were accredited as China 2009 Premium Safe and Highly Efficient Mines by the China Coal Industry Association, representing approximately 70% of Shenhua’s coal mines in production.

Overseas investment risks Shenhua strives to fully utilise its capital funds through diversified

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A China Shenhua dock at Tianjin Port

investments to spread out risks and to improve its management and consolidate existing markets. I have repeatedly stressed the expansion necessity and acquisition strategy through domestic integration and overseas assets selection. Given the larger scale and scope of overseas investments, investment risks are increasingly prominent. In order to mitigate these risks, China Shenhua has accelerated training of staff engaged in overseas assignments, strengthened public and government relation channels in foreign countries, and applied analytic frameworks to support overseas investment decisions. In November 2011, Shenhua established Shenhua Overseas Development & Investment Co, split from Shenhua International, to focus on developing overseas markets and seeking international investment opportunities. As an independent investment company, it can rely on China Shenhua’s mega distribution network, obtain market information

and use the previous investment platform and experience of Shenhua International in expanding overseas businesses. It can also form highly qualified investment teams to gather information, make model-based calculations, formulate strategies and execute projects. Professional investment analysis and risk controls bring higher investment quality and yield, and help China Shenhua to pursue its ‘going-out’ strategy.

Conclusion and outlook Prior to its risk management reforms, Shenhua experienced unbalanced and ineffective management controls over its subsidiaries, inefficient resource sharing and coordination, inflexible pricing mechanisms, dispersed sales function, weak distribution and supply chain networks, and lax overall budget control and supervision on safety of projects. With a comprehensive risk-based internal control system in place, the company greatly enhanced its market risk response capability and facilitated prompt communications,


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efficient resource sharing and business process optimisation. Looking forward, Shenhua will continue to enhance its comprehensive risk management by integrating internal controls and risk management into production and operations. Globalisation is a path that enterprises must take to become world-class while international competition will inevitably bring globalisation risks as well. As such, effective response to risks alongside globalisation is also one of the company’s major strategic missions. With the objective of developing into ‘the most competitive, dynamic and world-leading integrated energy enterprise’, Shenhua will continue its management innovation for the incorporation of risk management approaches into the company’s globalisation process. Dr Ling Wen, who holds a PhD in engineering, is director and vice president of Shenhua Group Corporation. Dr Ling is also the executive director, president and CEO of China Shenhua Energy Company, which is listed in Hong Kong and Shanghai. He also serves as the general director of Shenhua Charity Fund.

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05/03/2012 4:04 PM 16/04/2012 12:08


*2012 IN FIGURES 10.8M

Number of tickets to Olympics/Paralympics


Number of Olympic sports taking place


Number of venues for Olympic events

10,500 4,200 1M 2.5 300,000

Number of Olympic athletes competing Number of Paralympic athletes competing Number of sports kit items sourced by Locog Area in sq km of Olympic Park Number of nails needed to construct Velodrome

Wheels of fortune: Olympic qualifying event at Stratford Velodrome

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With around 130 of its staff seconded and over 550,000 hours on the clock so far, Deloitte is at the heart of preparations for London 2012. We catch up on the current state of play


taging the greatest show on earth is fraught with all kinds of difficulty. There is rich potential for budget overruns, urban gridlock, athletes turning up at the wrong time in the wrong place and with the wrong equipment, security meltdowns and plenty more. But there is also the opportunity for London, the UK and all involved to shine, and this is very much the hope of Deloitte, in its wide-ranging role as adviserin-chief to the 2012 Olympic and Paralympic Games. The London venue became a reality in 2005 when, amid great fanfare, the city beat Paris for the right to host the 2012 Games. Deloitte’s own Olympics journey began in earnest two years later, when it was appointed official professional services provider, giving partners and staff a once-in-a-generation chance to be involved in an event that is both hugely exciting yet daunting in its scale and organisational complexity. Deloitte provides tax, management consulting and financial support services to the London Organising Committee for the Olympic and Paralympic Games (Locog), and is planning and coordinating no fewer than 65 separate Games projects.

The eight-year secondment The Deloitte partner with the biggest Olympics profile is Neil Wood, the man charged with ensuring the Games runs within budget. He became Locog’s CFO in 2005 and by the time the Games end he will have been seconded for a staggering eight years. Indeed, around 130 of Deloitte’s UK staff have been seconded to work on

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Locog. An estimated 550 staff and 45 partners at the firm will be able to put the Games on their CVs in one way or another. Deloitte’s broader Games delivery work includes keeping the Games and the city moving and building capability right across the major organisations involved with the Games. Efficient organisation is an event that doesn’t feature in any Olympics calendar but shining at it will be the equivalent of gold for Deloitte. Event organisation skills are in increasing demand globally, and the expertise demonstrated in 2012 can be exported to other organising committees and major event hosts. At the time of writing, Deloitte had put in

recruitment and retention of star performers. Much as athletes put their all into getting to the Olympics, a large number of Deloitte staff have been vying to work on the 2012 project. Heather Hancock, Deloitte’s global lead partner for London 2012, says: ‘Sport is about commitment, passion and an endless focus on getting the big and the small things right. I am delighted to be working to help ensure this same commitment, passion and detail filters right through the delivery efforts of the British Olympic Association.’ The BOA selects, leads and manages Britain’s athletes for the Games and, along with the sports minister and the mayor of London, is

‘EVERY BUSINESS IS SEEKING THAT SAME ABILITY TO TACKLE COMPLEX CHALLENGES IN PRESSING TIMESCALES WITH TIGHT BUDGETS’ a staggering 550,000 hours of work for the 2012 Games across a number of the ‘Olympic Family’ including Locog, the British Olympic Association, Greater London Authority and Olympic Park Legacy Company. As a ‘tier-two’ sponsor, Deloitte is thought to be paying in the region of between £20m and £30m for the privilege of doing the work for Locog which accounts for the vast majority of the hours delivered. It is, the firm says, an investment which generates a return through the way in which the sponsorship is activated – particularly in building client relationships and by impacting

one of Locog’s three key stakeholders. There are three parts to Hancock’s remit: service delivery, sponsorship activation, and integration with the firm’s global activities. ‘All the secondments we make to Locog, the advisory work we provide and our wider contributions to the Olympic and Paralympic family come under my oversight,’ she explains. ‘I’m also managing partner for innovation and brand, so I have executive responsibility for our sponsorship of London 2012 and how we activate that across the UK.’ Hancock also coordinates the worldwide Olympic sponsorship

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UK sports minister Hugh Robertson claims the Olympics is likely to come in under budget after revealing the event will probably not need to tap its entire £9.3bn public funding package. Latest quarterly accounts show £527m of unspent contingency budget remaining, with the most recent assessment of likely risks showing that more than £100m is likely to remain unspent and will be returned to the Treasury. This is in contrast to recent revelations claiming the cost of staging the event had spiralled to more than £12bn. The government’s public sector budget for the Games has already risen substantially from the £2.37bn quoted in 2005 when London won the right to stage the 2012 Games. Sky News had reported that an extra £2.4bn had been added to public sector spending as a consequence of further spending in areas such as additional anti-doping control officers, paying London Underground workers not to strike, governmental operational costs and legal bills over the controversial Olympic Stadium tenancy decision. Sky said that additional costs would further swell this figure, with the police being allocated £1.1bn in counter-terrorism funding and a £4.4bn budget for the security and intelligence services. The extra cost of 12,000 police officers on duty during the Games and the £6.5bn being spent on transport upgrades could bring the ultimate cost of the 2012 Olympics to more than £24bn. However, Robertson says he is increasingly confident that the project will come in under budget and that the government would ‘not quite empty the piggy bank’, adding: ‘It is fair to say we are increasingly confident we can land this on time and within budget. It is enormously encouraging that we are 96% complete and still have £500m in the budget.’

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Field of dreams: the Olympic Stadium

relationships that the other Deloitte firms are delivering. Deloitte’s support for the BOA’s preparations has focused on helping to create the framework for managing the hugely complex task of mobilising and managing hundreds of athletes through preparation, qualification and competition programmes. One such project is final Team GB camp at Loughborough University. Over a seven-week period across June and July, every single Team GB athlete will pass through Loughborough. One of the significant milestones of the Loughborough camp will be the allocation of kit to each athlete. This is the moment when competing at London 2012 becomes very real and where athletes connect receiving their kit with the fact that they are one of 550 chosen to represent their country this summer. The camp requires the coordination of the athletes and thousands of items

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of equipment tailored for each one. Some athletes will attend as individuals, others as part of a team, some for a few hours, others for days; all will have the opportunity to train at the camp. Deloitte has helped plan and cost the operation, manage the associated risks and ensure that all parts of the organisation are working together to deliver a memorable experience.

The Olympic experience For Deloitte staff, taking part in organising the 2012 event has been an unforgettable experience. Staff on secondment at the BOA will return to the firm after the Games and have opportunities to translate the experience of delivering results in a high-pressure, complex environment to other clients. They will be more experienced consultants, will have worked client-side for a considerable time and developed their skills in delivering highly complex programmes. One former Deloitte employee who won’t be returning to the firm after the Games is Kate O’Sullivan. She joined the BOA as Olympic programme director permanently in 2011, following

Heather Hancock: passion and detail about the work. While there has been much consideration of the legacy the Olympics will leave in London, Deloitte’s expertise will have a lasting BOA legacy of its own in the shape of programme controls, greater focus on the value of detailed plans,

‘THERE IS SUCH A BUZZ. TO BE PART OF THE HOME TEAM AT THE GREATEST SHOW ON EARTH IS AN AMAZING EXPERIENCE AND OPPORTUNITY’ her work on leading programme management for the Vancouver 2010 Winter Olympics. She remained at the BOA to lead programme management for London 2012. O’Sullivan says: ‘I started at Deloitte through the graduate scheme and working there laid the foundations for everything that has followed and presented me with incredible opportunities. Before I was seconded to the BOA, I experienced a whole host of roles in different clients and in-depth training that has been the bedrock of what I do every day.’ Deloitte’s work has clearly impressed other Olympic organisations, with numerous enquiries received about how Deloitte and the BOA has gone

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budgets and improved communication across the organisation. Hancock says: ‘The BOA has been hungry to learn and tailor techniques for its own requirements. It will be ahead of its rivals in Rio in 2016. Other organisations want to learn from the BOA and observe its work.’

Robust portfolio From the firm’s point of view, its work with the BOA and the Games has been fantastic for showcasing its skills to potential clients. After all, whether you’re the CEO or a new recruit, sport is an attention-grabber. Hancock adds: ‘It’s such an interesting and exciting platform to explain what we can achieve. And every

business is seeking that same ability to tackle complex challenges in pressing timescales with tight budgets.’ With the opening ceremony edging ever closer, the pressure and excitement continues to build. O’Sullivan says: ‘We’re really into the countdown to London 2012 now and there’s such a buzz of excitement. This is an event that will touch a huge percentage of the British population and resonate around the world. To be part of the home team at the greatest show on earth is an amazing experience and opportunity. ‘A home Games only happens once in a generation, possibly a lifetime, so it’s hard to predict what it will throw up for the host country. There are 26 sports over two weeks – but outside that everything is fluid. ‘The vast range of domestic and international stakeholders makes it even more challenging and complex. That means that our plans need to be agile enough to respond to change on an ongoing basis right up to the end of the closing ceremony.’ It is difficult to imagine a bigger, more challenging or more prestigious stage to be on – and that doesn’t just apply to the athletes. Alex Miller, journalist

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A MORE EFFECTIVE MIX Despite more women now entering the accountancy profession than men, gender stereotyping is still holding them – and the whole profession – back


ccording to the Gender Diversity Survey 2011, the first of its type on the extent of gender inequalities in the financial sectors of Asia Pacific, four in 10 (39%) financial professionals from Hong Kong and China believe that they have been discriminated in the workplace or are aware of others being discriminated. Conducted in November 2011 by global online recruitment firm eFinancialCareers in partnership with The Women’s Foundation, the survey polled 374 financial professionals from Hong Kong and China. Fifty-four per cent of the respondents were male and the rest were female. Over half (53%) of the finance professionals surveyed said that there is a gender income gap in the financial services industry. Male-female income disparity appears more prevalent in higher-powered positions – 51% said there is a significant gap in pay in top managerial positions. Forty-two per cent believe being a man makes it easier to get promoted. And 34% sensed a gender bias in the recruitment process. ‘Do I think equality in financial services is a problem? Yes, I do,’ says Kay McArdle, board chair of The Women’s Foundation, a charity dedicated to improving the lives of Hong Kong’s females. ‘The results further support that women are not represented, despite being successful from a financial perspective.’ China ranked 61 in the sixth annual World Economic Forum Global Gender Gap Report 2011. Iceland, Norway, Finland and Sweden have maintained their top global rankings in the last five years, she says.

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In Hong Kong, the Sex Discrimination Ordinance was introduced in December 1996. But, according to Community Business, a not-for-profit group which champions the role of women in the Asian corporate world, women make up just 2% of the CEOs and 9% of board members of companies listed on the Hang Seng Index. ‘Gender stereotyping which works against women is still prevalent, both in the upper sector of the job market and at home. Such biases, though perhaps more subconscious than explicit, hold back capable women from advancing as far as their abilities allow, says Lam Woon-Kwong, chairperson of the Equal Opportunities Commission (EOC). The EOC received 24 job-related sex discrimination complaints up to November 2011, up from 16 in 2010. By stereotyping and confining female staff from contributing their best, companies waste talents and missed business opportunities, Lam says. McArdle agrees, saying that women within financial services have proven themselves to be a ‘real asset’. ‘A firm which has some women in its highest leadership ranks will have higher earnings per share, a higher return on equity, and stock prices than competitors with few or no senior women. And that’s been held up by research,’ McArdle says.

Male bravado George McFerran, head of Asia Pacific of eFinancialCareers, spearheaded the survey after receiving more enquiries from his clients on how to retain talent. The survey shed light on the root causes of gender bias: 57% of respondents believe that men are more likely to put themselves forward for promotions.

‘They believe that men are more aggressive when it comes to pushing for opportunities and pay rises. That perhaps explained why the gap exists,’ McFerran says. Without a study, the extent of gender equality in the accountancy sector is unknown and the EOC do not break down complaints by industries. But according to professor Judy Tsui, chair professor of accounting at the Hong Kong Polytechnic University (PolyU), men still dominate the partnership ranks of accountancy firms. ‘Though there is an increasing trend that more women make it to the partnership ranks, the top ranks are still predominantly male,’ Tsui says. ‘ ‘In a Chinese society like Hong Kong, the prescribed gender role for women is still very much for them to take up childcare and domestic responsibilities, making it hard for women to make advances in career as they have to juggle family responsibilities and career aspirations,’ Tsui says. EOC founding chairperson Fanny Cheung Mui-ching agrees, adding that a lack of work-life balance in the accountancy industry is also a factor. ‘People in accounting work long hours until late evening. It makes it difficult for women because most of them have to care for their family,’ says Cheung, director of the Gender Research Centre of the Chinese University of Hong Kong. ‘If they choose to spend more time to take care of their family, they must give up career advancement as it requires a lot more involvement from them.’ Rosanna Choi, immediate past chairman of ACCA Hong Kong and partner of accountancy firm CWCC, says ‘gender inequality still exists’ in the local accountancy sector. She notes

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caption style

however that gender bias in Hong Kong’s accountancy sector is less than in mainland China. ‘On the mainland, the situation is better in multinational corporations. In traditional firms, more senior positions tend to be held by men,’ Choi says. But according to legislative councillor for accountancy Paul Chan, ‘gender inequality is not so serious’ in the sector. ‘It is true that more men hold senior positions than women. It was because the total male population was much more than women in the past,’ says Chan, who is also past president of ACCA Hong Kong. ‘But in the past 10 years, there have been more women coming to the trade. The female population to male in the profession is almost 50:50.’ He says that women have taken up many senior positions in recent years, including director of accounting

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services, deputy director of audit, and the chief executive of the HKICPA. ‘Many senior partners in the Big Four are women,’ he adds. Choi observes that gender inequality is changing, because female accounting graduates have outnumbered males in recent years. At PolyU, out of the 176 students admitted to the 2011–12 BBA accountancy programme at the School of Accounting and Finance, 94 are female, according to Tsui.

Paternity issues McFerran says that gender stereotyping affects men too. ‘Hong Kong doesn’t offer paternity leave. Australia offers up to 18 weeks paternity leave. And the UK offers up to 20 weeks,’ he says. Women are also not given enough time to spend with their newborns, causing some to quit their jobs. The average maternity leave in developed countries is 13 weeks on full pay. But women in Hong Kong have just 10

weeks’ maternity leave and are paid fourth-fifths of their monthly salary. Family friendly practices in workplaces are also lacking. Only 2% of the surveyed respondents said that there is onsite childcare in their firms, and only 4% reported having childcare subsidy. Only 30% respondents said their companies offer flexible scheduling or let their staff work from home. To solve the problem, Cheung says the government must provide sustained education in schools and the community to change the culture. The EOC, which provides tailored training workshops to financial institutes, urges the government to invest much more in childcare support, as well as legislating for rights such as paternity leave. Cheung, McArdle and others also urge businesses to promote gender diversity by providing fairer promotion opportunities and enhanced childcare policies for both male and female employees. These include allowing job sharing, home working, near workplace childcare facilities, and childcare leave. ‘They should not have stereotypes on women, and focus on their abilities. Companies must realise gender diversity is an asset,’ Cheung says. McFerran says that the finance industry should also promote policies to help both men and women spend more time with their families. ‘As the financial services industry grows, it will increase competition for talent,’ McFerran says. ‘Making sure that its expectation gap has been bridged will be a significant way for companies to help hold on to their valuable talents and ultimately grow their businesses.’ Sherry Lee, journalist

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In an exclusive interview with Accounting and Business, Vietnam’s minister of finance, Professor Dr Vuong Dinh Hue, talks about accountancy’s role in the country’s growth Professor Dr Vuong Dinh Hue was appointed minister of finance in 2011 following a five-year tenure as auditor general of the State Audit of Vietnam. A respected and highly regarded figure within the accountancy profession, Professor Hue has been at the forefront of education in Vietnam, serving concurrently as dean of the accounting faculty and vice rector at the Hanoi University of Finance and Accounting over a number of years. Q What challenges do you face as Vietnam modernises its business infrastructure and develops its accountancy profession? A The weak infrastructure is a ‘bottleneck’ in Vietnam’s current development. Vietnam considers the synchronous and modern infrastructure development one of the strategic breakthroughs in socioeconomic development of the country by 2020. The biggest challenge for the Ministry of Finance and myself as the minister is how to mobilise and allocate resources in the economy – including the state budget, government bonds, official development assistance and capital from all economic components – in the best way to meet the huge demand today. Moreover, it is also challenging to use these resources most effectively, ensuring the balance between borrowing and paying capacity, financial security and public debt safety. To the accountancy and auditing sector in Vietnam today, the biggest challenge is to develop and complete the regulations of accounting (laws and norms) according to international practices and make them consistent with the specific conditions of Vietnam, especially the application of the

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principle of ‘market price’. In addition, the sector’s management organisation and operation supervision need to be reformed so as to be compliant with the law, effective and helpful, to promote the service development to ensure the transparency of economic and financial information, as well as to support sound economic decisions. In particular, it is critical to improve the quality of the sector’s human resources. They must be talented – shown in knowledge, experience, profession – and ethical enough to work in the state’s management bodies, career organisations and in every company. Q What do you seek to achieve as minister of finance? Why? A Vietnam’s finance sector, as well as myself, are always directed to a transparent, strong and sustainable finance industry for the sake of the prosperity of people and the strong nation of Vietnam. To the accountancy and auditing sector, I would like to promote the highest value of accounting tools to improve the financial transparency and accountability of all agencies and units, organisations and individuals, contributing to make the country’s finance industry healthy. Q What did your experiences at the State Audit of Vietnam teach you? A My 10-year experience at the State Audit of Vietnam, including five years in the position of auditor general, have helped me get a sufficient overview on the financial status, macro and micro economic management, including both strengths and weaknesses. This is very useful for me in my new position. More importantly, I understand the values and benefits of audit and I am

continuing to increase those values and benefits, together with my colleagues, the State Audit, audit firms and the auditing professional associations. Q How important is the relationship that ACCA has in Vietnam with the Ministry of Finance and the State Audit of Vietnam in the development of the accountancy profession? A ACCA is the first international professional body to place its office in Vietnam and has made a remarkable contribution in the development of our accountancy sector in recent years. With the aim to internationalise Vietnam’s accounting personnel, the Ministry of Finance signed a memorandum of understanding with ACCA in 2003 to organise examinations for ACCA certification and Vietnam’s accountant certification. This partnership programme truly brings the opportunity for local auditors to become international auditors. The programme has attracted over 5,000 students and about 500 people have received ACCA certificates. I appreciate the effective cooperation between ACCA, the Ministry of Finance and the State Audit in developing and completing the legal framework, professional standards and especially collaborating with Vietnam’s universities and professional organisations to train and update knowledge and broaden experiences for accountancy staff in Vietnam. Q How has the accountancy profession changed in Vietnam? And how do you envisage it developing over the next few years? A Vietnam’s accountancy industry has made remarkable progress. A new

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Over the past five years,Vietnam’s Ministry of Finance (MoF) has survived the global financial crisis without a crash and worked to tackle high inflation. But although Vietnam’s inflation has slowed for five consecutive months (to 17.17% in January 2012), it’s still high and the MoF has recognised that more needs to be done. The Independent Auditing Law, which came into effect on 1 January 2012, overcomes the limitations of previous decrees and will improve and develop services. Notably, it gives the MoF responsibility for managing independent auditing. The MoF has sought to control the state budget and work towards growth, entering into an agreement in February with the State Bank of Vietnam to tighten cooperation and spur information exchange. The two sides would jointly develop and supervise the financial market and manage taxation and customs affairs, in particular tax collection,

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import and export of precious metals, and money trafficking and laundering, as well as working together on the international stage. The MoF is set to develop the country’s banking and investment industry in accordance with a directive signed by prime minister Nguyen Tan Dung. The directive outlined steps to be implemented between now and 2020 to improve legal frameworks, boost the quality and number of listed companies, attract new investors, allow foreign investors greater access to the local market, and safeguard investors. The MoF will be responsible for restructuring stock market operations, securities firms and rules governing listed companies so that they meet international standards. In addition, it will shortly complete the revision of regulations aimed at boosting the domestic bond market, and allow the establishment of new investment institutions, including voluntary pension funds.

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PROFESSOR HUE Professor Dr Vuong Dinh Hue, pictured with ACCA chief executive Helen Brand, was made an honorary member of ACCA for contributions to the development of the accountancy profession in Vietnam, particularly for his role in supporting education. The award was given to Professor Hue by ACCA president Dean Westcott in October market-oriented legal framework on accounting – from the highest level of accounting law and the law on independent audit to the benchmark system, accounting mechanism and professional ethics standards – has been formed; the enterprise system providing accountancy services as well as human resources has been developed; the activities of accountancy professional organisations have been carried out and strengthened; and partnerships with international organisations such as the International Federation of Accountants, Confederation of Asian and Pacific Accountants, the ASEAN Federation of Accountants and ACCA have been reinforced. In the future, given the country’s progress and extensive integration into the global economy, Vietnam’s accountancy sector will have big potential to develop strongly. Accounting and auditing are not only the tools of economic and financial management; it continues to be a service sector and also a career recognised and highly appreciated. The Ministry of Finance is currently developing strategies for accounting development vision to 2020. Its targets are to complete and fully establish the legal framework and professional standard system, to expand the service market and to develop human resources, as well as to improve management and supervision capacity in this industry. The number of accountancy companies, accounts and auditors are expected to double by 2015 and triple by 2020 in order to meet the increasing demand of the

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economy. The development in terms of quantity, quality and professional capacity will, step by step, confirm Vietnam’s accountancy profession locally and internationally. Q You were awarded honorary membership to ACCA for your extraordinary contribution to the development of the accountancy profession in Vietnam. How did it feel to be acknowledged in this way? A I have and will continue to coordinate and work closely with ACCA, the accountancy professional organisations and the state authorities to promote the vigorous growth of the industry in Vietnam. The main priorities in the coming period include completing the guidance documents for implementing the Independent Audit Law; updating, amending and supplementing Vietnam’s accounting standards to be closer to international practices; studying the Accounting Law and submitting to the National Assembly amendments and supplements; and especially enhancing training and development activities for experts, both in terms of quantity and quality, with importance attached to professional ethics. Q You are a professor who has spent many years teaching. How much did you enjoy your career in education? A I have spent nearly 23 years teaching accounting at graduate, postgraduate and doctorate level, and I feel appropriate for this job. Teaching always gives me an exciting pressure; you are always required to broaden knowledge, enrich experiences

Born on 15 March 1957 in Nghe An province, Professor Hue has a degree from the Academy of Finance in Hanoi and a PhD from the University of Economics in Bratislava, Slovakia.


Minister of Finance.


Deputy auditor general, State Audit Office of Vietnam, going on to become auditor general.


Lecturer, Hanoi University of Finance and Accounting (HUFA), going on to become deputy dean, acting dean, dean and vice rector. and improve skills in the accounting and teaching professions. Teachers’ happiness is to see their students succeeding and growing, and to feel fresh in their life and works. Q What advice would you give today’s graduates in Vietnam who are thinking about embarking on a career in accountancy or finance? A Accountancy in particular and finance in general will be always an attractive and challenging career. You should always take advantage of every opportunity to improve your knowledge, experiences and skills and, more importantly, to learn to be careful and have good ethics. The development of Vietnam’s accountancy industry and its expansion into the regional and global market absolutely depend on the capacity of human resources, especially the level of professional, foreign language (English) and information technology skills. Professor Hue was interviewed by AB’s Asia editor, Colette Steckel

12/04/2012 13:26



More than the bottom line [

It doesn’t matter who is pushing for integrated reporting, says Errol Oh, change must be welcomed as stakeholders increasingly want to know how companies’ activities impact the environment and society

It is no surprise that there is not yet a universal acceptance of integrated reporting (IR), which combines financial and non-financial information in corporate reporting. Such a big and forward-looking idea gains believers a few at a time, and complete buy-in – if it ever comes – will take years. Meanwhile, it is important to address the concerns of the naysayers, in order to hasten the pace of conversion. One of the questions surrounding IR stems from the perception that it is a concept championed only by accountants. The gripe is that the existing financial reporting standards already give companies a lot of reporting to do, and that accountants have no business loading directors and managers with more reporting responsibilities. However, this view does not take into account that the key proponent of IR is the International Integrated Reporting Council (IIRC), whose mission is to ‘create a globally accepted IR framework which brings together financial, environmental, social and governance information in a clear, concise, consistent and comparable format’. It is made up of an international crosssection of leaders from the corporate, investment, accounting, securities, regulatory, academic and standardsetting sectors. The IIRC’s composition tells us that the push for IR cannot be driven by any one party; the initiative has to involve all stakeholders.

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At the same time, there is no denying that the accountancy profession has a central role in the promotion of IR. Although the work of accountants traditionally focuses on financial information, there is no reason to believe this will be their sole contribution to an integrated report. After all, as with other professionals, accountants are expected to be credible and competent, and they already have plenty of experience and expertise with corporate reporting. This is not to say the leap into IR will be effortless. Accountants

need to deepen their understanding of environmental, social and governance (ESG) aspects of business and firms will probably find it worthwhile to set up in-house ESG units. Accountants should see this as a great opportunity to expand their capabilities and to strengthen their position as the people who enable others to have trust and confidence in corporate reports. So, yes, there is commercial justification for the accountancy profession to support the transition to IR. However, the growing demand for IR is not manufactured by accountants. Sustainability and corporate social responsibility are on the way to becoming cornerstone concepts of the corporate world. Stakeholders are increasingly keen to know how a business makes its mark not just in terms of finances, but also through its impact on society and the planet. Eventually, all companies will also be judged by their performance in ESG matters. This is why it makes sense for IR to find a place in the corporate sector. Directors and managers will do well to lead change instead of having to be dragged kicking into adopting IR. In the end, it does not matter who spearheads the campaign to popularise IR. We should instead focus on striving towards the best outcome possible. Errol Oh is executive editor of The Star

16/04/2012 15:11



Are you paid enough? [

Job satisfaction may not just be about the money, but finance professionals must make sure they are compensated at or above market rates to promote strong recruitment and retention, says Cesar Bacani

The hottest reads on the website I edit are usually stories about salaries. I’m not surprised. At the end of the day, dollars and cents are still the key determinants of recruitment and retention. There are certainly many interesting nuggets in the recently issued 2012 Hays Salary Guide. For example, finance professionals with expertise in cost management, regulatory issues, product control and corporate governance and with realistic salary expectations ‘can be confident that 2012 will provide them with a good opportunity to secure a challenging career move and increase in package’, the report’s authors write. However, the wages reported are in local currencies, which make it difficult to compare inter-Asian market rates – something that is increasingly important as Asia’s finance professionals become expats in China, Hong Kong, Singapore and even Japan. The numbers make more sense when the currencies are converted into purchasing power parity (PPP) dollars. PPP is a methodology used by the World Bank to factor the cost of living in GDP numbers. In the case of salaries, the equivalent PPP dollars for salaries in lowcost China will be higher than the equivalent PPP dollars for salaries in high-cost Japan. Indeed, when CFO Innovation converted the Hays-reported currencies into PPP terms, CFO salaries in China turn out to be higher, at PPP$212,000 to PPP$528,000 a year, compared with CFO salaries in Japan

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(PPP$116,000 to PPP$241,000). This is because cost of living is lower in China than in Japan. In PPP terms, CFO salaries in Hong Kong are higher than in either China or Japan, at PPP$221,000 to PPP$516,000 a year. That’s because in nominal US dollars, the value of CFO salaries in Hong Kong is is higher than in China, offsetting the lower

cost of living in China. On the other hand, the cost of living in Hong Kong is cheaper than in Japan, offsetting the higher value in nominal US dollars of CFO salaries in Japan. The highest CFO salaries, however, are in Singapore, at PPP$273,000 to PPP$570,000 a year. That’s up to 23% higher than in Hong Kong. Singapore salaries go a longer way because housing and education are cheaper in Singapore compared with Hong Kong. One other question that the Hays guide answers is how salaries in practice compare with salaries in business. The survey suggests that it is more financially rewarding to head internal control in companies rather than work as a senior manager in an accountancy firm. In Hong Kong, a senior audit manager can expect to earn the equivalent of US$97,000 to US$142,000 in annual salary and bonuses. In contrast, as head of internal audit in a company, he or she can expect a compensation package (excluding bonuses) of up to US$193,000. That’s 36% more than the top salary for a senior audit manager in an accountancy firm. So there you go. In pure salary terms, it is more lucrative for accountants to be in business rather than in practice. And the most financially rewarding place to work is Singapore, followed by Hong Kong. But don’t forget to factor in nonfinancial elements when making career choices. Job satisfaction, a clear career path and a nurturing environment are also important. Cesar Bacani is editor-in-chief of CFO Innovation Asia

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Non-executive directors (NEDs) in Indonesia earn more than their peers in Singapore, Malaysia and Thailand, according to a recent Hay Group report. Boards in Singapore also meet the least often and hold the least number of committee meetings compared with the other three countries. The report, which analysed data from 200 large companies in the four countries between 2008 and 2010, found that in 2010, median salaries for NEDs in Indonesia topped the rankings at US$178,600, while those in Singapore took home US$75,300. NEDs in Thailand were paid US$46,600, and those in Malaysia received US$46,300. Much of the pay came in the form of bonuses in Indonesia (52%) and Thailand (33%), while remuneration for NEDs in Singapore was mostly composed of director’s fees (92%) and sharebased compensation (8%).

The view from: Singapore: M Nazri, CEO, Vector Scorecard Asia-Pacific Group Q Which of your services is most in demand? A For the private sector such as banks and investment companies, our flagship product allows them to produce a rapid analysis of many underlying clients in a relatively short period of time. Among our public-sector clients, government ministries have a preference for our programme that provides them with the tools and expertise with which they can promote SME (small and medium-sized enterprise) development. And our VWO (voluntary welfare organisation) and NGO (non-governmental organisation) clients prefer an economic scorecard product. Q Do you see the use of your scorecards becoming more widespread? A We certainly do. We see more public agencies and NGOs wanting to ensure that their personnel’s technical, functional and behavioural aspects are aligned to those of the organisation. We also see foreign businesses wanting to set up regional headquarters in Singapore. Q How can the scorecards work for different organisations? A Each of our scorecards can be customised to meet the respective needs of our clients at very competitive pricing. The interface and analyses can be modified so that they are relevant to the client.


Software and information services provider ChinaSoft International and information and communication technology (ICT) company Huawei have formed a new joint venture (JV) company specialising in software outsourcing. The JV, 60% owned by ChinaSoft and 40% by Huawei, is based in Xi’an’s High-Tech Industries Development Zone. It is expected to generate 3.6 billion yuan by its third year of operation. ChinaSoft, which is listed in Hong Kong, has 15,000 staff located in 25 cities around the world, while Huawei provides ICT solutions in more than 140 countries.

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35 Corporate The view from M Nazri of Vector Scorecard Asia-Pacific Group; how to build better boards 39 Practice The view from Paul Lee of RSM Chio Lim; how proposals to introduce mandatory auditor rotation have been met in the US and Asia

Q What plans do you have for this year? A We have successfully formed a series of boards of advisers – chaired by prominent and highly capable people in their respective fields.


Locations: South-East Asia, China, Hong Kong, India, the Middle East, UK and US Clientele: Private institutions, NGOs and government agencies Favourite book: Artificial Intelligence by George F Luger and William A Stubblefield

16/04/2012 14:38



Call for better boards A challenging business environment, increased stakeholder expectations and enhanced regulatory scrutiny means the pressure on directors to perform has never been tougher To help optimise board performance, the Audit Committee Institute (ACI) Malaysia developed The Directors’ Prism: Building Better Boards. This guide helps organisations to challenge the status quo and elevate board oversight and corporate governance. ACI Malaysia, sponsored by KPMG, was set up to educate audit committee members and thereby promote effective audit committee processes.

Defining the prism The Directors’ Prism is a diagrammatic expression of the board of directors and how it relates to other players in the corporate ecosystem. The board sits at the pinnacle of the prism, symbolising its oversight of the entire organisation. It is supported by the various board committees to which it cascades its responsibilities – audit,

oversight, they are not exhaustive; instead, they are a starting point for further assessment and incremental improvements by boards. 1 What makes up an ideal board? Board quality depends on a diverse mix of factors such as the competence of the chairman, collective board expertise, and the perceived independence of nonexecutive directors. ‘The essential characteristics of a strong chairman are often personal attributes,’ namely, clarity of vision, strong leadership qualities, and the personal courage to manage tough issues. Collectively, the board should demonstrate broad knowledge, sound judgement, unblemished integrity, and the courage and ability to challenge and probe into difficult issues.

‘IT IS COMMON THAT THE CHAIRMAN IS THE CEO. PUT SIMPLY, SUCH A DIRECTOR EMBODIES THE EXACT REVERSE OF AN INDEPENDENT DIRECTOR’ nomination, risk, and remuneration – at the centre of the prism. Meanwhile, management and auditors form the base of the prism, denoting the board’s reliance on their services to execute its oversight responsibilities. The collective stakeholders surround the prism, seeking assurance from the board that the company is being well-governed and will discharge its obligations.

Seven questions To advance corporate governance, the Directors’ Prism advises companies to ask seven key questions. While these seven questions were compiled to help boards achieve successful

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Individual directors should possess the expertise relevant to the company’s line of business. ‘It is important that the board is not reliant solely on management to provide it with such expertise,’ warns the guide. Meanwhile, audit committee members must be financially literate and at least one member of the audit committee must fulfil the financial literacy requisite under Bursa Malaysia’s listing requirements. The senior independent nonexecutive director plays an important role in the board as the director to whom concerns may be conveyed, especially in a landscape where board independence may be compromised.

‘In Malaysia, it is common that the chairman of the board is the managing director or the CEO. Put simply, such a director embodies the exact reverse of an independent director.’ 2 How can the board be sustained? Assess director remuneration: compensation should be sufficient to compensate directors, while removing conflicts or biases due to excessive remuneration. Provide the board with sufficient resources to discharge its duties, including access to company secretarial services. Directors should be provided with ongoing professional development training to enable them to discharge their fiduciary duties. Also recommended are formal induction programmes for new directors to familiarise them with their duties, current issues and the organisation. Finally, boards should be cognisant of related party transactions involving directors, which can compromise board independence and corporate governance. 3 How can the board’s effectiveness be enhanced? The guide recommends holding private or ‘in camera’ board meetings with only directors present prior to management joining in, as well as holding audit committee meetings ‘in camera’ with the external auditors. It is also important to identify issues early and keep communications channels open with management and auditors in the run-up to the year-end board meeting. ‘Questions of substance should not be raised for the first time at the year-end board meeting.’ Boards should meet as frequently as company matters require, while allowing sufficient time in between

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Source: Audit Committee Institute Malaysia/KPMG in Malaysia

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meetings for work to be done. The board committees should submit reports of sufficient depth to the chairman to enable the board to fulfil its oversight duties. Finally, boards should conduct self-evaluation to assess its performance and effectiveness, perhaps to the extent of requesting feedback from senior management. 4 Is the board cognisant of company strategy? Are directors alert and sceptical regarding earnings management? ‘Directors need to know enough about the company to recognise when inappropriate earnings management practices are present.’ The guide warns boards that ‘specific areas of attention warrant special attention. They can be particularly vulnerable to interpretations that may obscure financial volatility and adversely affect the quality of reported earnings.’ These areas are revenue recognition, changing estimates, abuse of the materiality concept and capitalisation and deferral of expenses. Boards should also take note that in Malaysia, the Companies Act 1965 states that the board, and not management, is responsible for the preparation of the company’s financial statements. The act makes no distinction between executive or non-executive directors – all are equally accountable, notes the guide. Thus, it is critical that the board keeps abreast of financial reporting developments to discharge its duties satisfactorily.

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‘RISK MANAGEMENT SHOULD ALWAYS BE ON THE BOARD AGENDA, DEMONSTRATING THE BOARD’S CLEAR OWNERSHIP OF RISK MANAGEMENT OVERSIGHT’ 5 Is the board addressing the risks facing their organisation, especially financial risks? ‘Risk management should always be on the board agenda, demonstrating the board’s clear ownership of risk management oversight.’ Directors on the boards of ownermanaged companies, the most common type of business in Malaysia, face a challenging set of risks, such as the lack of a formal management structure and established corporate governance programmes and dominant leadership which strains existing controls and may set the wrong tone at the top, notes the guide. The board should also be alert to fraud risk facilitated by technological advances, and ensure that an effective whistleblowing mechanism is in place to protect employees who make disclosures in the public interest. 6 Is full use being made of external and internal auditors? Since the external and internal auditors are key drivers in facilitating the board committee’s oversight duties, an efficient board makes full use of the two. How can an effective relationship be established with the external auditor? The audit committee is advised to develop policies to appoint and remove the external auditor, to safeguard auditor independence, to understand the audit cycle and to assess its performance.

Since the listing requirements make it compulsory for listed companies to have internal auditors, the audit committee should determine that the internal and external audit functions complement and coordinate their audit efforts to optimise assurance and the control environment. 7 Can the board see the bigger picture? Boards are advised to focus on current and emerging issues that may affect their organisations, such as regulatory developments and economic shifts. For example, the Malaysia Competition Act 2010 which took effect on 1 January 2012 features two major prohibitions – anti-competitive agreements and abuse of dominant positions – that could affect business as usual. Boards should also watch out for round tripping – the act of artificially inflating volume and revenues, which in reality adds no profit – which is gaining keener scrutiny from regulators. Boards should also be mindful of trends favouring corporate sustainability, government diversity policies to place more women on boards, and disgorgement, which is ‘the repayment of profits arising from irregularities in trading shares or other securities.’ To read the report, go to http:// Report summary by Nazatul Izma Abdullah, journalist

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Deloitte resigned as auditor of two Chinese companies listed in Hong Kong within days of each other. On 22 March, the firm said it had quit as auditor for the Chinese milk formula products-maker Daqing Dairy Holdings, hours after its shares were suspended. A week earlier, Deloitte had resigned from auditing Boshiwa International Holdings, a clothing retailer which holds the licence to manufacture Harry Potter and Bob the Builderbranded children’s clothes, reportedly citing that it was not satisfied with the responses to questions about some of the company’s transactions. This included a recorded pre-payment of 392 million yuan to a supplier. After its shares were suspended, Boshiwa said it would appoint a new auditor and was considering establishing a special investigative committee.


The view from: Singapore: Paul Lee, managing partner, RSM Chio Lim Q What are your expectations for the coming year? A From experience, we have come to expect uncertainties, shorter economic cycles and opportunities in downturns. Markets have generally been positive in the first quarter and we will monitor the situation closely. We continue to see our clients growing and expanding their businesses in this region. We have been advising them on several fronts, from structuring crossborder investments, to mergers and acquisitions and transaction support. As for Singapore, we see significant interests in the governance, risk and consulting business among listed company boards. Q What is the biggest challenge you face? A Given Singapore’s tight employment market, I would say it is about attracting and retaining individuals who share our firm’s values and the passion to go the extra mile in serving clients.

39 Practice The view from Paul Lee of RSM Chio Lim; how proposals to introduce mandatory auditor rotation have been met in the US and Asia 35 Corporate The view from M Nazri of Vector Scorecard Asia-Pacific Group; how to build better boards

Q What’s your top priority right now? A Many of our new clients are from referrals due to our focus on quality service. My top priority is to ensure we keep to this promise.


Consulting, technology and outsourcing services provider Capgemini has won a tender issued by the Maharashtra Sales Tax Department (MSTD) to implement a business intelligence and data warehouse solution. The MSTD contributes almost 55,000 crore to the coffers of the Maharashtra state government, which oversees India’s second most populous state and whose capital is Mumbai. Capgemini’s solution will enable the MSTD to analyse economic parameters to set targets for revenue collection. It is also designed to help the department expand its taxpayer base and prevent tax evasion losses.

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Q What lessons have you learnt from recent experience? A There are no short-cuts in successfully growing a professional services firm. You need time to bring on board and develop leaders, build the firm’s culture, ensure processes are in place and attract the right target clients. As leaders, we also need to ensure we have a succession plan in place to groom the next generation of leaders.


Firm structure: RSM Chio Lim is the audit and tax arm of Chio Lim Stone Forest (CLSF), the largest accountancy firm outside the Big Four in Singapore Staff numbers: CLSF has approximately 630 staff in Singapore and 300 in five locations in China Favourite activity: Running at dawn for 45 minutes to an hour, taking time to reflect and prepare for the day ahead

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Little support for sell-by dates In the wake of reporting catastrophes, the PCAOB is proposing mandatory auditor rotation in the US. But is this a solution in search of a problem, asks Ramona Dzinkowski Since the early 1970s, auditor rotation has been the subject of some debate in America and elsewhere. With the recent financial market crises, the topic has again reached the public policy domain with the US Public Company Accounting Oversight Board’s (PCAOB) Concept Release on Auditor Independence and Audit Firm Rotation on 16 August 2011. At that time the PCAOB reported that, for the largest 100 companies (based on market capitalisation), auditor tenure averaged 28 years, and 21 years for the 500 largest companies. According to PCAOB chairman James Doty, the main reason to consider auditor term limits is that ‘they may reduce the pressure auditors face to develop and protect long-term client relationships to the detriment of investors and our capital markets’. More specifically, the release states: ‘By ending a firm’s ability to turn each new engagement into a long-term income stream, mandatory firm rotation could fundamentally change the firm’s relationship with its audit client and might, as a result, significantly enhance the auditor’s ability to serve as an independent gatekeeper’ (PCAOB Release No. 2011-006, page 9).

Audit deficiencies In the concept release, the PCAOB, while indicating that improvements in the rigour of inspections and the remediation process have improved audits, expressed concerns about both the frequency and the type of audit deficiencies it continues to find. For example, in its inspections of the largest accounting firms from 2004 to 2007, it noted: ‘Inspectors continue to find deficiencies in important audit areas, both established and emerging. These

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areas include critical and high-risk parts of audits, such as revenue, fair value, management’s estimates, and the determination of materiality and audit scope. These deficiencies occurred in audits of issuers of all sizes, including in some of the larger audits they reviewed. In some cases, the deficiencies appeared to have been caused, at least in part, by the failure to apply an appropriate level of professional scepticism when conducting audit procedures and evaluating audit results. In addition, even in areas where inspectors have observed general improvement, deficiencies continue to arise.’ In particular, the PCAOB noted that the audits in which inspectors faulted the firms’ application of professional scepticism and objectivity included ‘some of the larger audits inspected’ (pages 5–6). With this in mind, the release focused on the role of mandatory auditor rotation in improving independence and objectivity in audits, and asked for feedback on the following key issues, among many others: Will rotation significantly enhance auditors’ objectivity, professional scepticism and ability and willingness to resist management pressure? What effect would a rotation requirement have on audit costs? Would a periodic ‘fresh look’ at a company’s financial statements enhance auditor independence and protect investors? If the board decided to move forward with the proposal, what would be an appropriate term? To what extent would a rotation requirement limit a company’s choice of an auditor? With the comment period closing in December, we see the balance of the argument in the ‘nay’ camp, with the

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majority of corporate respondents decidedly against mandatory rotation. More specifically, they suggest that in today’s complex environment a deep level of knowledge around a company and its industry, its operations and financial history is mandatory in conducting an effective audit, which calls into question the wisdom of shortening engagements. Under these circumstances, rotation will result in less effective audits, not the other way around. For example, says Douglas Muir, CFO of Krispy Kreme Doughnut Corporation, ‘Forced rotations may remove valuable institutional knowledge from the audit process precisely when the audit committee believes that such expertise is necessary for the protection of investors and other users of financial statements.’

Cost concern Also, at a time when the US economy is still struggling to regain its economic footing, costs are the biggest concern, with rotation potentially significantly increasing audit fees and related expenses. As Scott Kuechie, executive vice president and CFO of Goodrich Corporation, explains: ‘The cost of the audit would most likely increase significantly as more audit hours would be required to learn the accounting and processes at the new client. Likewise, the cost of client support would also increase to support the auditors.’ Therefore, he concludes, ‘We do not believe that the benefit of mandatory auditor rotation would exceed the cost.’ And what do the auditors have to say about mandatory rotation if in fact there is an opportunity to increase audit fees? This time, the auditors seem to be decidedly in agreement with corporate America. More specifically, Deloitte and Touche (the only Big Four firm to have responded in writing to the proposal)

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makes clear that they really don’t think auditor rotation will cut it when it comes to ‘increasing auditor independence, objectivity and professional scepticism’. CEO Joe Echevarria, commenting on behalf of Deloitte, concludes the following based on ‘an objective assessment of the literature on mandatory rotation’: Research studies show that restatements and frauds are less likely to occur with longer auditor tenure. The majority of studies on mandatory rotation reach an unfavourable conclusion on the balance between costs and benefits. If mandatory rotation were required at the 500 largest US companies, a 10-year phase-in process would entail 50 auditor changes every year compared to the recent average rate of five per year. The economies and capital markets of countries that have adopted mandatory rotation are not directly comparable to those of the US. Some countries that have adopted the policy have discontinued or curtailed it. Research that is available tends to be unfavourable on the effects of mandatory rotation.

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Sarbox sufficient? Finally, as to the need for the PCAOB to explore extra rules around auditor independence, others suggest that Sarbanes-Oxley has actually covered it off quite nicely. Says Robert C Greving, chairman of the audit and enterprise risk committee of CNO Financial Group, a US$32bn holding company: ‘The rules put in place by the Sarbanes-Oxley Act charge the audit committee with the selection and oversight of the audit firm... We believe the audit committee is in the best position to evaluate whether the auditors are independent and objective and whether it is in the best interests of the shareholders to initiate the

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process of selecting a new firm.’ At the end of the day, would shorter engagements have prevented some of the reporting and assurance catastrophes of the last two decades? Arnold Hanish, CFO of Eli Lilly, calls

objectivity and professional scepticism on the part of the auditor’. Hanish suggests that in place of mandatory rotation, the PCAOB considers further limiting the scope of non-audit services the audit firm can provide to its audit clients. In particular, he calls for the PCAOB to be more prescriptive on all other non-audit services that can be provided, potentially limiting all advisory services. ‘We believe,’ he says, ‘that action in this area may address the PCAOB’s concern that the auditors are attempting to maintain good client relationships at the expense of performing a quality audit to engage in more lines of business and provide additional services to the company.’ Other observers, like Richard Hawley, CFO of Nicor, also suggest that audit

‘THE COST OF THE AUDIT WOULD MOST LIKELY INCREASE SIGNIFICANTLY AS MORE AUDIT HOURS WOULD BE REQUIRED TO LEARN THE PROCESSES’ into question any relationship between audit failure and audit tenure outlined in the PCAOB release: ‘We are not aware of any relevant data or evidence linking lengthy audit firm tenure to audit failures. In the release, the PCAOB attempts to draw a line between the numbers of audit failures identified as part of their inspection process and the tenure of the audit firm. In evaluating this relationship, it is important to note that the sample of audits that the PCAOB inspects is not a representative sample as a risk-based approach is utilised so that the board can focus their review on the most errorprone situations.’ He concludes that the evaluation of this topic as a concept release is ‘premature without the existence of any factual data to establish a clear link between mandatory audit firm rotation and increased independence,

rotation answers nothing. Having been on both sides of the situation (as an audit partner, a Fortune 500 and 1000 CFO and chair of a public company audit committee), he is ‘very concerned that consideration of mandatory rotation of audit firms is a wonderful theoretical solution looking for a non-existent problem’. Furthermore he questions the need for yet more government intervention in corporate business. ‘My issue with the proposal are many,’ he says. ‘First, it presumes the company boards and management...are not capable of selecting firms that will live up to professional standards, and are in need of government assistance in making a change when necessary. I don’t believe there is any significant evidence to suggest that is the case.’ Ramona Dzinkowski is a Canadian economist and award-winning journalist

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43 No evidence of success It is not just companies in the US which have come out in opposition to the PCAOB’s proposals for mandatory auditor rotation – finance professionals in Asia are also sceptical Accountancy firms in Asia Pacific are distinctly unenthusiastic about the Public Company Accounting Oversight Board’s (PCAOB) Concept Release on Auditor Independence and Audit Firm Rotation. In its letter to the PCAOB, CPA Australia opposed mandatory audit firm rotation due to a lack of clear evidence of the audit quality improvement that would result. The Japanese Institute of Certified Public Accountants said that mandatory audit firm rotation would make it difficult for audit firm personnel to gain specialised knowledge and experience in specific industries or areas and may also result in low-balling of audit fees, while increasing audit costs. The Hong Kong Institute of Certified Public Accountants (HKICPA) is also against the system, as noted in its submission to the European Commission’s (EC) green paper on audit policy back in December 2010 and subsequent views on the PCAOB’s concept release. ‘There is nothing to suggest that mandatory rotation actually increases auditor quality,’ says Chris Joy, executive director of the HKICPA. ‘Our view is that the quality of audits is absolutely paramount and anything that might detract from audit quality is not a sensible move. ‘Simply put, we do not favour mandatory rotation. There are very few jurisdictions where it is required and I am aware that in places where it has been implemented it has been quietly dropped some years later. Basically, it doesn’t work,’ he says. The evidence against mandatory rotation isn’t hard to find. The most widely quoted study is one from 2003 by the SDA Bocconi School of Management in Italy. It found that the practice increased concentration in the audit market and had a negative

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China’s plans for mandatory rotation for large publicly listed companies may put pressure on Hong Kong

impact on audit service costs while increasing startup costs and decreasing audit fees.

More findings Similar results emerged in a 2010 paper by academics from Hong Kong’s Lingnan University, the Chinese University of Hong Kong and the Central University of Finance and Economics in Beijing. They used data from China, which has a two-year cooling-off period, and found that audit partners with a lengthy partnerclient relationship were more likely to rotate back to their former client. Furthermore, the rotation back of audit partners was associated with weakened audit quality in the second year of the cooling-off period. As if this wasn’t enough to seriously undermine the sagacity of the

proposal, the majority of firms don’t want it. To date, 96% of submissions received from the profession oppose mandatory rotation. In Hong Kong, the majority of firms agree with the HKICPA, lending their support to broader regulatory concerns about mandatory rotation. At KPMG International, for example, Hong Kong-based global chairman Michael Andrew says that the proposal would drive audit costs up in the long term and decrease audit quality. ‘Companies might be prepared to sacrifice quality for cost. Equally, if a firm can only do the audit for a set period and can’t get any other services it may as well reprice the audit because its ability to achieve proper margins and utilisation may be compromised. I suspect it would drive down costs in the short term but increase them in the

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longer term. It will also increase costs for the company transitioning the auditor because it will also have to change its internal auditor, valuer, actuarial consultant, maybe even its tax adviser,’ he says. In terms of the impact on choice of auditor, Andrew highlighted the very real possibility of a greater concentration of audit firms in the marketplace. ‘The larger firms have more financial clout. Auditors may become circumspect about whether they take on some of these audits. If they’re doing significant work elsewhere economics may dictate that it’s better not to take on another audit, which is a relatively low-margin, high-risk exercise. ‘The overall impact of this being imposed could be significant. We’ll lose some audits and gain others but there’s a huge cost to doing this. Tendering for an audit is an expensive process. It ties up time in terms of the management, the company and the auditors. It’s hard to see the merits or the advantages or

Swimming against the tide

Control. According to Albert Au, chairman of BDO, that is a more effective way of reducing familiarity threats than mandatory rotation. ‘Mandatory rotation increases the costs of an audit and also could inadvertently affect the quality of the audit itself, particularly for a large multinational client with complex businesses. Just to take on a client of that size and complexity would mean

‘IN PLACES WHERE IT HAS BEEN IMPLEMENTED IT HAS BEEN QUIETLY DROPPED SOME YEARS LATER. MANDATORY ROTATION DOESN’T WORK’ even the problem that this proposal is trying to redress,’ he says. In some respects, the profession needs to take a step back and determine the objective of mandatory rotation in order to tackle the bigger question of how to improve audit quality in the post-global financial crisis world. It is two-fold: first to deal with the risk of over familiarity, that audit firms working for a client over a number of years will lose their independence; and second, that by rotating the audit firms, this may provide more opportunities for the mid-tier firms. To address the first objective, the issue of auditor firm independence, there is already a requirement for listed companies in Hong Kong to rotate the audit partners under the code of ethics in the Hong Kong Standards on Quality

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that an audit firm would have to put in substantial investment in terms of educating its people and gearing up resources. If you were then to impose mandatory rotation in a six-year cycle, which is what the EC has put forward, this is too short for any efficiencies or knowledge to kick in,’ he says. To provide mid-tier firms with more opportunities, Au notes that BDO’s experience in jurisdictions where mandatory rotation is imposed was that it had seen a greater concentration of business in the hands of the Big Four firms. ‘For a large audit client to get rotated out of BDO the chances are the business will then go to a Big Four firm. But for a Big Four audit client being rotated out the chance is smaller that the business will then go to a mid-tier firm. Our experience is that we suffer a net loss of large clients,’ he says.

One firm, however, has come out in support of the proposals. In a letter to EC president José Manuel Barroso and EC commissioner Michel Barnier, RSM International expressed support for reforming the audit profession, stating that the proposals will ensure more competition in the industry if the extent of external auditor concentration at the top of listed company markets is reduced. The network said more action is needed to reduce the market share of dominant audit networks and maintain regular, fair and transparent tendering as well as joint audits to include non-Big Four participants. Should the proposal move ahead in Hong Kong, the territory would likely look to mainland China for guidance, as mandatory auditor rotation for financial institutions and some state-owned enterprises has already been implemented. Furthermore, China’s Ministry of Finance is understood to be propagating rules that may require mandatory rotation for the very largest publicly listed companies. This may add to pressure on Hong Kong to align with capital markets over the border despite the fact that few in the territory are clamouring for it. ‘In Europe, most of the economic studies carried out on the proposals demonstrate that it’s detrimental to the economy not advantageous,’ Andrew says. ‘The only people who seem to like it are politicians and academics. No one in business, not many regulators and not many auditors think it’s a good idea. ‘The major audit firms have suggested a number of positive steps that are much more meaningful in terms of addressing the issues: for example, working more closely with prudential supervisors and being prepared to audit the assurance investor information, risk models and critical KPIs that an investor needs. This mandatory auditor rotation proposal misses the point of how to improve audit quality. I call it a lost opportunity.’ Kate Watson, journalist

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Technical update

A monthly round-up of the latest from the standard-setters INTERNATIONAL FINANCIAL REPORTING The International Accounting Standards Board (IASB) has issued amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, addressing the treatment of loans from governments at below-market rates of interest. The amendments are mandatory for periods beginning on or after 1 January 2013 and provide first-time adopters with relief from full retrospective application of IFRS in respect of such loans. Earlier application is permitted. AUDITING The International Auditing and Assurance Standards Board (IAASB) has issued a revised version of ISA 610, Using the Work of Internal Auditors. This addresses the responsibilities of external auditors when using the work of internal auditors. Revisions have also been made to ISA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment, to explain how the internal audit function and its findings can assist in making risk assessments. The revised standards are effective for audits of periods ending on or after 15 December 2013. In revising ISA 610, the IAASB has also agreed requirements and guidance on the responsibilities of external auditors where

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they intend to use internal auditors to assist them during the audit. The IAASB has been liaising closely with the International Ethics Standards Board for Accountants (IESBA) and will only incorporate the further changes into ISA 610 when the IESBA has completed its deliberations on proposals to change the definition of engagement team. The change in definition will address a perceived inconsistency in respect of the ability of external auditors to use a client’s internal auditors. FINANCIAL STATEMENTS Many entities rely on their accountants to assist them in preparing their financial statements. The IAASB has issued a revised version of International Standard on Related Services (ISRS) 4410, Compilation Engagements, which addresses the practitioner’s role and responsibilities, including the considerations prior to accepting an engagement and the importance of quality control. The wording of the compilation report is also expanded to clarify the role of the practitioner and explain the key features of a compilation engagement. The revised standard is effective for compilation reports dated on or after 1 July 2013. Yvonne Lang, director, Smith & Williamson

SINGAPORE FULL CONVERGENCE REVIEW In March, the Accounting Standards Council (ASC) completed its review of the plans for full convergence of the Singapore Financial Reporting Standards (SFRS) with the International Financial Reporting Standards (IFRS) for Singaporeincorporated companies listed on the Singapore Exchange (Singaporelisted companies), and has concluded that full convergence will not be implemented in 2012, after the ASC identified key outstanding issues. The timeline for full convergence will be adjusted in tandem with international developments, and will depend on the progress of several key projects undertaken by the International Accounting Standards Board (IASB) that are still in progress and not expected to take effect before 1 January 2015. The ASC had also noted that major capital markets such as the US are still in the process of working out their IFRS convergence plans. The ASC will continue to work closely with the IASB and other regional standardsetters to ensure that the IFRS continues to reflect the economic substance of underlying transactions in Singapore and the Asian region. It will also continue to consult local stakeholders on the convergence implementation plans. More details at

EXPEDITED REVIEW PROCESS The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) jointly signed a memorandum of understanding (MOU) in March, on the Expedited Review Framework for Secondary Listings. The objective of the framework is to speed up the processing of secondary listing applications and relevant disclosure documents. This framework is available to entities that are incorporated and whose shares are listed primarily on the main market of an exchange in jurisdictions that are signatories to the MOU. Where corporations satisfy the requirements, signatories will review applications within 35 business days, compared to the normal review time of up to 16 weeks. Malaysia, Singapore and Thailand are the first three jurisdictions to sign the MOU. Other securities regulators and stock exchanges of Association of Southeast Asian Nations (ASEAN) jurisdictions may join by signing the MOU as and when they are able to satisfy the requirements. More information at www. MAS SIGNS MOU WITH ESMA In March, the Monetary Authority of Singapore (MAS) and the European Securities and Markets Authority (ESMA) signed a memorandum of understanding (MOU) on the supervision of credit rating

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agencies (CRAs). The MOU paves the way for the enhanced sharing of supervisory information between the two authorities for more effective supervision of crossborder CRAs operating in Singapore and within the European Union (EU). In addition, ESMA also announced that it considers Singapore’s regulatory framework for CRAs to be in line with EU’s CRA regulations, thereby facilitating EU-registered CRAs to endorse credit ratings issued in Singapore. More details at www.esma. TAX COOPERATION ENHANCED Also in March, Singapore and Turkey signed a protocol to incorporate the internationally agreed standard for the exchange of information for tax purposes, on request, in their standing Agreement for the Avoidance of Double Taxation (DTA). The protocol will come into force after its ratification by both countries. The full text is available at Joseph Alfred, policy and technical adviser, ACCA Singapore

MALAYSIA MINIMUM WAGE DETAILS On 21 March 2012, the government announced that the details of the highly anticipated minimum wage were due to be announced on 1 May – Labour Day. The

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announcement will affect an estimated 3.2 million workers in the private sector. CORPORATE GOVERNANCE CODE The Securities Commission (SC) has released the Malaysian Code on Corporate Governance 2012 (MCCG 2012) as the first major deliverable of the Corporate Governance Blueprint 2011 launched last July. The code is aimed at enhancing board effectiveness of listed companies through strengthening composition, reinforcing independence of directors and fostering commitment, and will be effective from 31 December 2012, although listed companies are encouraged to make an early transition. More at AMENDMENTS TO STANDARDS The Malaysian Accounting Standards Board (MASB) has issued minor amendments to its financial instrument standards: Amendments to Malaysian Financial Reporting Standards (MFRS) Mandatory effective date of MFRS 9 and transition disclosures (amendments to MFRS 9 (IFRS 9 issued by International Accounting Standards Board (IASB) in November 2009), MFRS 9 (IFRS 9 issued by IASB in October 2010) and MFRS 7). Disclosures – Offsetting Financial Assets and Financial Liabilities




(amendments to MFRS 7). Offsetting Financial Assets and Financial Liabilities (amendments to MFRS 132).

Amendments to Financial Reporting Standards (FRS) Mandatory effective date of FRS 9 and transition disclosures (amendments to FRS 9 (IFRS 9 issued by IASB in November 2009), FRS 9 (IFRS 9 issued by IASB in October 2010) and FRS 7). Disclosures – Offsetting Financial Assets and Financial Liabilities (amendments to FRS 7). Offsetting Financial Assets and Financial Liabilities (Amendments to FRS 132). The amendments are effective for annual periods beginning on or after 1 January 2014 and are required to be applied retrospectively. More information is available at


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HONG KONG ADVANCE PRICING The Inland Revenue Department (IRD) has released DIPN No.48 on Advance Pricing Arrangement (APA), explaining the process under which an APA may be granted. The programme will roll out from 2 April 2012. ISLAMIC BOND CONSULTATION Amendments are proposed in the Inland Revenue Ordinance and Stamp Duty Ordinance to provide a level playing field for common types of sukuk and their conventional counterparts in terms of profits tax, property tax and stamp duty liabilities. The legislative proposals also aim at attracting sukuk issuers to use Hong Kong as an Islamic finance platform. Comments are invited by 28 May 2012.

CRITERIA ON INCOMPLETE ITRF The Inland Revenue Board (IRB) has issued the criteria on incomplete income tax return forms (ITRF). The IRB says that an incomplete ITRF will be returned to the taxpayer effective from 1 January 2012 and, for any late resubmission, penalty under subsection 112(3) of the Income Tax Act 1967 will be imposed. The ITRF form is available at

TRUST LAW REFORM A public consultation on the review of the Trust Ordinance was conducted in 2009. Based on the consultation conclusion, the Financial Services and the Treasury Bureau has prepared the detailed legislative proposals on trust law reform for further consultation, which cover clarification of trustees’ duties and powers, better protection of beneficiaries’ interests and modernisation of trust law. The consultation period will close on 21 May 2012.

Vilashini Ganespathy, head – technical and professional development, ACCA Malaysia

Sonia Khao, head of technical services, ACCA Hong Kong

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Bin the clutter Clutter in annual reports obscures relevant information and makes it harder for users to identify the key points about a business’s performance, says Graham Holt The effects of clutter have typically come in for little consideration by the preparers of annual reports, but the phenomenon is increasingly under discussion, with initiatives recently launched to combat it. The Financial Reporting Council (FRC) in the UK is one organisation that has called for a reduction in clutter in annual reports. And the International Accounting Standards Board (IASB) commissioned the Institute of Chartered Accountants in Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA) to make cuts to the disclosures required by a group of International Financial Reporting Standards (IFRSs), and to produce a report. Clutter in annual reports can be a problem for users. It obscures relevant information and makes it more difficult for users to find the key points about the performance of the business and its prospects for long-term success. The main observations of a discussion paper, called Cutting Clutter, that was published by the FRC were: There is substantial scope for segregating standing data in a separate section of the annual report (an appendix) or putting it on the company’s website. Immaterial disclosures are unhelpful and should not be provided.

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barriers to reducing clutter are * The mainly behavioural. should be continued debate * There about what materiality means from a disclosure perspective. It is important for the efficient operation of the capital markets that annual reports do not contain unnecessary information. It is equally important that useful information is presented in a coherent way so that users can find what they are looking for and gain an understanding of the company’s business and the opportunities, risks and constraints that it faces. However, a company must treat all its shareholders equally in its provision of information. It is for each shareholder to decide whether to make use of that information. It is not for a company to pre-empt a shareholder’s rights by withholding information.

Too many rules? A significant cause of clutter in annual reports is the vast array of requirements imposed by laws, regulations and financial reporting standards. Regulators and standard setters have a key role to play in cutting clutter both by cutting the requirements they themselves already impose and by not imposing unnecessary new disclosures. A listed company may have to comply with listing rules, company

law, IFRS, the corporate governance codes and (if it has an overseas listing) any local requirements, such as those of the Securities and Exchange Commission (SEC) in the US. A major source of clutter is that different parties require differing disclosures for the same matter. For example, an international bank in the UK may have to disclose credit risk under IFRS 7, Financial Instruments: Disclosures, the Companies Acts, the Financial Services Authority’s disclosure and transparency rules, the SEC rules and Industry Guide 3 as well as the requirements of Basel II’s pillar 3. One problem is that different regulators have different audiences in mind for the requirements they impose. Their attempts to reach more actual or potential users can lead to a loss of focus and structure in reports. There may be a need for a proportionate approach to the disclosure requirements for small and mid-cap quoted companies that take account of the needs of their investors, as distinct from those of larger companies. This may be achieved by different means. For example, a principles-based approach to disclosures in IFRS, specific derogations from requirements in individual IFRSs or the creation of an adapted local version of IFRS for SMEs. Time and cost pressures can lead to

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defensive reporting by smaller entities and to a preference for easy options, such as repeating material from a previous year, cutting and pasting from the annual reports of other companies and including disclosures that are of marginal importance only.

Behavioural barriers There are behavioural barriers to reducing clutter. The threat of criticism or litigation is one. The risk of future litigation may outweigh any benefits from eliminating catch-all disclosures. As a result, preparers of annual reports are likely to err on the side of caution and include more detailed disclosures than strictly necessary to avoid challenge from auditors and regulators. Removing disclosures is seen as creating a risk of adverse comment and regulatory challenge. Disclosure is the safest option and therefore often the default position. Preparers and auditors may be reluctant to change this unless the risk of regulatory challenge is reduced. There is also a tendency for companies to repeat disclosures simply because they were in the annual report last year. However, while explanatory information may not change from year to year its inclusion remains necessary to an understanding of aspects of the report. There is merit in a reader of an annual report being able to find all of

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this information in one place. If the reader of a hard copy report has to go to a website to gain a full understanding of a particular point, it heightens the risk of making the report less accessible. And even if the standing information is kept in the same document but relegated to an appendix, that may not be the best place to facilitate a quick understanding of a point. A new reader may be disadvantaged by having to hunt in the small print for what remains key to a full understanding of the report. Preparers wish to present balanced and sufficiently informative disclosures and may be unwilling to separate out relevant information in an arbitrary manner. The suggestion of relegating all information to a website assumes that all users of annual reports have access to the internet, which may not be the case. A single report may best serve the investor, by putting all the information in one reference document rather than scattering it across a number of delivery points. Yet shareholders are increasingly unhappy with the substantial lengthening of reports in recent years. This has not resulted in more or better information but more confusion as to the reason for the disclosure. A review of companies’ published accounts will show that large sections such as the



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statement of directors’ responsibilities and the audit committee report are almost identical. Materiality should be seen as the driving force of disclosure, as its very definition is based on whether an omission or misstatement could influence the decisions made by users of the financial statements. The assessment of what is material can be highly judgmental and can vary from user to user. One problem may be that disclosures are being made because a disclosure checklist suggests they may need to be made, without assessing whether disclosure is necessary in a company’s particular circumstances. However, the whole point of such checklists is to include all possible disclosures that could be material. Most users of these tools will be aware that the disclosure requirements apply only to material items, but often this is not stated explicitly for users. One of the biggest challenges is the changing audience for the annual report. Its original purpose was to report to shareholders, but preparers now have to consider many other stakeholders including employees, unions, environmentalists, suppliers, customers, etc. The disclosures required to meet the needs of this wider audience have contributed to the increased volume of disclosure. The growth of previous initiatives on going

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concern, sustainability, risk, the business model and others identified by regulators as key has also expanded the size of the annual report.

Big but perfectly formed It is not necessarily the length of the report that is the problem but the way in which it is organised. The inclusion of immaterial disclosures will usually make this problem worse but, in a wellorganised report, users will be able to bypass much of the information they consider unimportant especially if the report is online. It is not the length of the disclosure of accounting policies that is itself problematic, but the fact that new or amended policies can be obscured in a long note running over several pages. A further problem is that accounting policy disclosure is often boilerplate, and provides little detail of how companies apply their general policies to particular transactions. IFRS requires disclosure of ‘significant accounting policies’. In other words, it does not require disclosure of insignificant or immaterial accounting policies. Omissions in financial statements are material only if they could, individually or collectively, influence the economic decisions that users make. In many cases, they would not. Of far greater importance is the disclosure of the judgments made in selecting the

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accounting policies, especially where a choice is available. A reassessment of the whole model will take time and may entail changes to law and other requirements. For example, clutter could be removed by not requiring the disclosure of IFRS in issue but not yet effective. Currently, disclosure seems to involve listing each new standard in existence and each amendment to a standard, including separately all those included in the annual improvements project, regardless of whether there is any impact on the entity. The note is then a list without any apparent relevance. The IASB has asked for comment on its forward agenda in which it acknowledges that stakeholders have said that disclosure requirements are too voluminous and not always focused in the right areas. However, the drive by the IASB has been to increase disclosure to address comparability between companies. Therefore, in the short to medium term, a reduction in the volume of accounting disclosures does not look feasible, although the IASB will consider this area for its post-2012 agenda. Graham Holt is an examiner for ACCA, and associate dean and head of the accounting, finance and economics department at Manchester Metropolitan University Business School

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离岸人民币:如何影响税收和财务? 作者:张少云 ACCA同时为华南区和上海专家指导小组成员 Bolivia Cheung FCCA 中国大陆在全球经济的重要性使人民币国 际化成为不可逆转的趋势,香港特别行政 区是其中一個重要的离岸人民币中心。对 金融行业的從業員而言,自2011年起,允 许人民币合格境外机构投资者(RQFII)在 境内进行证券投资可谓战略性的举措。但 如果您只是在公司从事财务会计工作,离 岸人民币又会对您有何影响呢? 我们将举例说明如何通过离岸人民币实 现节税和财务管理。 案例一:使用人民币进行贸易结算 US-Textile是一家美国公司,其将生产業 務外包给在中国大陆的第三方代工生产商 (OEMs)已逾十年,这些代工生产商收取 加工费。由于2006年起美元对人民币的汇 率波动,US-Textile同意补偿中国的代工 生产商相应的汇兑损失。 中国仍有外汇管制,中国的企业在发生 真实有效的交易时能收取外汇。中国的代 工生产商要获得汇兑损失的补偿就需要提 高出口价格,那就需要修改他们所有的出 口文件,包括合同、发票、运输单据、提 单等,这样才能使中国所有的法律文件如 《海关出口货物报关单》和《出口增值税 发票》上的金额与更改后的金额一致。这 些修改会为中国的代工生产商以及 US-Textile公司增加行政负担。

CN_T_Chinese.indd 51

中国政府自2009年起允许试点企业出口 以人民币作为贸易结算货币。 在上述例子,最简便的办法就是代工生 产商和US-Textile公司使用人民币结算。 正常申请增值税出口退税需要办理出口收 汇核销,代工生产商需经当地税务局的批准 才能以人民币结算出口货物。中国人民银行 和其他五部委联发的通知──银发[2012] 第23号自2012年2月起放宽了上述程序,中 国的出口企业如果在两年内没有违反相关规 定就可以人民币进行出口贸易结算。 案例一(A):与中国的子公司之间的交易 你或许会问,在上述案例中如果不是和第 三方的代工生产商而是和集团的子公司进 行交易,情况是否会有所不同? 乍看之下,中国的子公司没有必要向国外 的母公司或关联公司取得汇兑损失补偿。但 是中国的转让定价规定中国的代工生产商应 获得合理的利润。如果因为汇率的波动导致 中国的子公司未能获得合理利润或甚至亏 损,这就会产生转让定价问题。 案例一(B):服务贸易是否也可用人民币 结算? 不仅是货物贸易,服务贸易同样也可用人 民币结算。作为后勤基地或地区总部的中

国子公司便是一例。与代工生产商类似, 中国的税务机关总是希望该中国公司能够 盈利,因此,汇兑损失应该进行补偿。 看过上述案例之后,你可能有下列疑问: 人民币贸易结算是否普遍?根据中国人 民银行的公布,在2011年6.6%的货物贸 易以人民币结算。 我作为卖方是否可从中国进口商那里收 取人民币?由于中国在允许跨境贸易人 民币结算政策时人民币正在升值,因此 中国进口商向国外支付的人民币金额远 高于出口收取人民币的金额。

* *

案例二:离岸人民币债券和股票 财务管理有些黄金法则,一个典型的例子 就是融资的货币要和所使用货币相匹配。 因此,为中国的运营融资,最理想货币便 是人民币。财务总监们都知道在中国的银 行获得的人民币贷款绝不容易。自从国务 院宣布调控房地产市场的政策之后,银行 贷款额度益發紧张。 自垮境贸易人民币结算实施以来,结算 总额已高达26,000亿元。对于那些在海外 进行人民币集资的企业来说这是个巨大资 金市场,况且其利率比国内为低。 离岸人民币债券被称为“点心债券”。 麦当劳是首家发行人民币债券的非金融

13/04/2012 11:01



企业。在2010年其在香港发行了年利率3%的 2亿元人民币债券,将于2013年9月到期。 在2007年点心债券发行之时,当年的发 行额大约为100 亿元。到2009年增至160亿 元,2010年逾410亿元,而2011年则飚升至 1,660亿元。 2011年4月,首家房地产投资信托基金 (REIT)在香港上市首发,募集了104.8亿 元人民币。 目前,最重要是如何让离岸人民币以适当 的渠道流回中国大陆。以离岸人民币作为资 本金或贷款时,除了降低的利率、融资成本 和减低外汇风险外,还有哪些好处? 我们通过以下例子说明: 假设香港股东需要集资1,000万美元作为大 陆营运之用,这笔资金将以股东贷款的形 式投入中国。

When amount was borrowed: USD1=RMB6.5 On repayment, USD1=RMB6.0 Corporate Income Tax @25%

PRC Co USD10M loan, equivalent to RMB65M Repay USD10M, equivalent to RMB60M Gain RMB5M RMB1.25M

Shareholder Borrow: USD10M Lend:USD10M Same


↓借入1,000万美元 香港股东 股东贷款1,000万美元↓ 中国公司 中国公司 1,000万美元的借款, 相当于人民币6,500 万元 偿还1,000万美元, 相当于人民币6,000万元 获利 500万元 125万元

借款时汇率: 1美元=6.5元人民币 偿还时汇率, 1美元=6.0元人民币 企业所得税税率25%

股东 贷款: 1,000万美元 借款: 1,000万美元 同上


第一种情形:以美元借贷 在这例,大陆公司会因股东贷款产生汇兑收益,根据中国现行的《企业所得税法》的规 定,中国公司需要为未实现的汇兑所得纳税,即25%所得税。 Borrow USD10M


Borrow USD10M and convert to RMB65M

Hong Kong Shareholder

Hong Kong Shareholder Shareholder’s loan USD10M Shareholder’s loan RMB65M PRC Co

CN_T_Chinese.indd 52

↓借入1,000万美元并兑换 成6,500万元人民币 香港股东 股东贷款6,500万人民币↓ 中国公司 在此例,香港股东可以在国外 借入美元并立即将之兑换成人 民币,或者直接在境外借入人 民币(如点心债券)。


13/04/2012 11:01


When amount was borrowed: USD1=RMB6.5

PRC Co RMB65M loan

On repayment, USD1=RMB6.0


Corporate Income Tax

借款时汇率: 1美元=6.5元人民币 偿还时汇率, 1美元=6.0元人民币 公司所得税

中国公司 6,500 万元人民币贷款

股东 借款: 1,000万美元; 兑换6,500万元人民币 贷款: 6,500万元人民币

6,500万元人民币 N/A N/A

償還美元1,000萬元 可能 ??

纳税与否取决于对该股东所在地的法规。 在此例,由于股东是香港的税收居民,此 交易中的汇兑所得是离岸收入,在香港不 征税。 从以上简单的例子已表明以人民币作股 东借贷可以节税。 上述节税的构思是否能实现呢?例如: 利用离岸人民币出资或借贷是否可

CN_T_Chinese.indd 53

Shareholder Borrow: USD10M; convert to RMB65M Lend: RMB65M Repay USD10M Possible ??

行。2011年10月政策终于明确。商务部发 布通知,商资函[2011]第889号,该通知明 确了跨境人民币直接投资有关的审批程 序,其中包含了注冊資本和贷款。中国人 民银行在同月就结算程序发布了第23号公 告。在政府发文明确之后,获批准的项目 大幅增加。商务部副部长王超在2011年12 月14日的一次公开演讲中透露,从2011年

10月至12月初,已有74件申请获批,涉资 总额约165.3亿元人民币,其中13件申请由 于审批的限制是由中央级的商务部审批, 其他的均由商务部的各地主管部门审批。 但政策仍有不明确之处。例如: 离岸人民币是否计入外商投资企业的外 贷额度(投注差)?如能不计入,中国 企业大量利用贷款营运且利息支出在符 合转让定价规定的情况下扣税 离岸人民币是否可用以偿还当地的人民 币贷款?如能,中国企业便利用成本较 低的离岸人民币贷款来替换成本较高的 中国内地贷款。

* *

政策的不明确导致地方执行的不一致。 我们预期在有更多类似个案出现后,政府 部门会予以解释。 任何人都不会忽视中国这个市场,人民 币直接投资是新的政策,也与人民币国际 化同步发展。会计师应关注这些变化,以 便更好地利用筹划机遇。 Bolivia Cheung is a member of the Steering Teams of both ACCA Southern China and ACCA Shanghai

13/04/2012 11:02


ACCA news

ANNUAL CONFERENCE TALKS TAX In response to the Peer Review conducted by the OECD’s Global Forum in 2011, the Hong Kong government is moving to allow the city to have more flexibility to enter into Tax Information Exchange Agreements (TIEAs), rather than being restricted to Comprehensive Double Tax Agreements (CDTAs), Hong Kong’s tax chief told a high-level tax conference. At the ACCA-organised event, on the theme of Policy and Practice: Emerging International Tax issues in the Asia Pacific Region, Inland Revenue deputy commissioner Richard Wong revealed the actions the government will carry out following the recommendations made by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, in its Peer Review phase one report. The Inland Revenue Department (IRD) asked the government to amend the existing law after the report was issued. The actions will include consultation with stakeholders to

are limited in scope and only require jurisdictions to exchange taxpayers’ information, the audience was told. Wong, who delivered the opening speech, was one of six distinguished speakers offering insightful views on emerging key tax issues affecting the region. Dr Jeffrey Owens, former director of the OECD’s Centre for Tax Policy and Administration, also gave a keynote speech on the impact of the financial and economic crisis on tax policy and practice internationally and in Hong Kong. ‘The Global Forum’s principle is that a jurisdiction should not refuse to enter into EoI (exchange of information) instruments, be it a CDTA or TIEA, with relevant partners,’ said Wong. To avoid being labelled as an ‘uncooperative jurisdiction’, a number of jurisdictions, including Singapore, Luxembourg, Switzerland and Liechtenstein, which were unable to sign TIEAS either due to policy reasons or legal constraints, have already changed their stance and committed to

‘WITHOUT A LEGAL FRAMEWORK ALLOWING IT TO ENTER INTO TIEAS, HONG KONG WILL RUN THE RISK OF BEING LABELLED UNCOOPERATIVE’ amend the Inland Revenue Ordinance (IRO) to permit Hong Kong to enter into TIEAs with other countries and a written report to the Global Forum of the steps taken and to be taken to implement the recommendations of the Peer Review. ‘Without a legal framework allowing Hong Kong to enter into TIEAs, Hong Kong will run the risk of being labelled as an uncooperative jurisdiction and subjected to sanctions imposed by other jurisdictions,’ Wong told the 400 or so ACCA members attending the conference, which took place in March at the Conrad Hong Kong. Unlike CDTAs, which provide mechanisms to eliminate double taxation in crossborder activities, TIEAs

CN_A_HKtax.indd 54

signing TIEAs, he said. Wong said that other jurisdictions, which demanded Hong Kong to have TIEAs, just want a level playing field. ‘Some of them have told us that they just want Hong Kong to have this mechanism, and are not actually asking for TIEAs,’ Wong said, adding that Hong Kong TIEAs would be more suitable for countries ‘where the trade with Hong Kong is not so significant’. Wong further said all CDTAs contain an Eol clause, which sets out the terms on which the contracting parties may pass information to each other. A CDTA covers comprehensive tax matters including taxation for non-residents, double taxation relief,

and Eol, while a TIEA is only a ‘standalone agreement providing for Eol’, he pointed out. Meanwhile, he said that his department would continue its efforts to expand its CDTA network to promote bilateral trade as well as to facilitate exchange of information. CDTAs could provide certainty on taxation on crossborder activities, as well as minimise double taxation and tax evasion, he said.

Part two: emerging issues The second part of the conference was a forum in which Dr Owens and four tax experts in businesses discussed the emerging tax issues in Asia Pacific. The panellists were Anthony Lo, senior vice president for group taxation at PCCW; Steven Sieker, a partner at Baker & McKenzie Hong Kong; Bill Thomson, executive director of tax for Asia Pacific at Time Warner; and Kaushal Tikku, head of group taxation at Hutchison Whampoa. Issues on the table included TIEAs, international cooperation and transparency, beneficial ownership, withholding tax, and taxing rights in treaties, and double non-taxation. One of the chairmen of the forum, Fergus Wong, co-chairman of ACCA Hong Kong’s Tax Subcommittee, expressed concern that once there were two instruments in place, trading partners will just choose TIEAs, making it hard for the IRD to negotiate CDTAs. Other panellists also had reservations. ‘If a TIEA will help us get to a CDTA right away, I don’t mind TIEAs. But my worry is that we may never get a CDTA, so I am still a bit nervous about TIEAs,’ Tikku said. Thomson agreed, and reminded the government to approach the TIEA issue very carefully. He noted that CDTAs increase crossborder trade and investment while TIEAs don’t, and suggested that the government consider ways of quantifying the increase in order to highlight this

13/04/2012 10:57

factor in CDTA negotiations with other jurisdictions. Sieker, also a lawyer, is uncertain regarding what Hong Kong’s interest is in obtaining foreign information as the city’s taxation system is source-based. ‘It is not clear why we would agree by law to give up confidential information to a foreign government in a situation where there is no obvious reciprocal benefit, as there is under a full tax treaty. I have concerns in terms of individual privacy and the right to confidentiality,’ Sieker said. When asked by a member of the audience whether Hong Kong was under pressure to sign a TIEA, Dr Owens, who retired from the OECD in February, said: ‘The pressure on Hong Kong is to avoid the situation where the Global Forum would say that you are an uncooperative jurisdiction. That was the danger because then you could get sanctions.’ The comments made by Dr Owens reflect the threat to blacklist Hong Kong as a tax haven in a G20 meeting in 2009. Hong Kong did not adopt the OECD’S international tax standard on the exchange of information between DTA countries in 2009. To fend off the tax haven accusation, the government took swift action to amend the IRO to adopt the OECD standard.

More CDTAs on the way Since the amended law came into force in March 2010, the IRD has concluded 17 CDTAs (12 in 2010 and five in 2011). This year, the IRD has signed one CDTA with Jersey. Countries pending formal signing included Mexico, Guernsey, UAE, India and Malaysia. The department is also negotiating with Finland, Canada, Italy, Saudi Arabia, Korea, Bangladesh and Macau. Panellists also discussed the trend of both tax authorities and taxpayers to be aggressive due to the economic crisis. Tax authorities have become ‘very aggressive’ in protecting their revenue, making it

CN_A_HKtax.indd 55

difficult for companies to confront them, some said. Others pointed out that authorities are ‘more aggressive’. Reports about individual taxpayers hiding money in overseas accounts, Sieker said, may have created a perception that wealthy people are evading tax. ‘This has led to a more aggressive environment because tax authorities may be encouraged to think there is a huge pool of tax evaders,’ Sieker said. To tackle the uncertain economic environment, Dr Owens urged all tax authorities to help businesses by reducing tax uncertainty, such as putting in place arbitration mechanisms to resolve disputes. He also suggested governments restructure their tax structures to boost economic growth, in order to deal with inflation, low confidence, deficits and debts. ‘You need to shift the structure of taxation away from direct taxes to consumption tax. ‘VAT is a good tax. The other shift is towards taxes on property and the

Top: The panel discuss emerging international tax issues in the Asia Pacific region Middle left: Dr Jeffrey Owens, former director of the OECD’s Centre for Tax Policy and Administration, delivers his keynote speech Middle right: Richard Wong, deputy commissioner of inland revenue (operation), Inland Revenue Department, delivers his opening speech Bottom: all the speakers and panellists with Bernard Wu, chairman of ACCA Hong Kong (fourth from right)

environment,’ Dr Owens said. ‘Combined that with tax compliance, plus lowering your tax rates and broadening your tax base, you will have a package that would produce growth and also would be fairer and easier to administer.’ Sherry Lee, journalist

13/04/2012 10:58


ACCA news


Over two centuries ago, Scottish philosopher Adam Smith suggested that simplicity is one of the pillars of an effective tax system. Considering that 98% of businesses in most countries are small or medium-sized and easily alienated by overly complex systems, his conclusions are all the more important today. Discussing options to streamline and simplify tax systems in China, and the tax relationships between China and its increasing number of trade and investment partners, was the focus of the ACCA International Tax Summit on 22 March, held at the Shanghai National Accounting Institute (SNAI). Speaking at the opening of the afternoon summit, ACCA chief executive Helen Brand noted that tax is a priority for the organisation, which recently issued 12 new tenets of taxation, discussing priorities for efficient and fair systems. ‘Companies everywhere are faced with a series of complex problems in relation to international taxation,’ said Brand. ‘As a result, tax is now a central issue for them to deal with. China is no exception.Tax always tops the policy and political agenda. Because of this, it also increasingly tops the business agenda, too. There can also be no denying that tax is a multinational issue.’ Among the most important of the ACCA’s tenets of tax are openness,

CN_A_Shanghaitax.indd 56

transparency, simplification, certainty and efficiency. All are elements that China is working hard to build into its tax system. Policymakers need to instil trust in the tax system and reduce duplication across borders. ‘Certainly there will be pressure on governments to make sure they are doing the right thing by collecting the right tax at the right time, whether it is from big business or from an individual tax payer or small business,’ said Brand.

Keep talking Taxation is a significant issue for both businesses and governments; the former want to minimise tax exposure while not falling foul of the law, while the latter want to maximise income while maintaining a competitive environment. The financial crisis that started in the US in 2008 highlighted some of these challenges, said Dr Jeffrey Owens, former director of the Centre for Tax Policy and Administration at the OECD. Although China is not a member, the country still works with the OECD in a number of areas including taxation. ‘What do we do? We talk. And that is important in the tax area because when you talk between governments, and when you talk between governments and business, that’s the way that you avoid issues becoming problems,’ said Owens. ‘In today’s environment

it is very easy for tax to become a major problem.’ Tax should not be a barrier to world trade, said Owens; rather, it should enable it. At the same time, a tax system can reduce unfairness and inequality in society. ‘A tax system must be perceived as being fair,’ Owens continued. ‘We must try to minimise tax disputes between countries.’ The financial crisis and the global response to it have created new challenges for China. The first is the need to build a tax system that is fair, efficient and environmentally friendly. Another is to ensure that the country’s tax system reflects its position in the world economy. A third challenge is the need for China to be increasingly involved in the debate over tax transparency.

Transparency is vital This debate over transparency affects both governments and business. Governments have to provide clear rules that business can follow. Business, on the other hand, is under increased pressure to be more transparent and more responsible. The idea that a corporation can take advantage of offshore structures and loopholes is increasingly less acceptable, both from a regulatory and a public relations point of view.

13/04/2012 10:58

‘THERE WILL BE PRESSURE ON GOVERNMENTS TO MAKE SURE THEY ARE DOING THE RIGHT THING BY COLLECTING THE RIGHT TAX AT THE RIGHT TIME’ ‘By closing off these loopholes you make the tax system more fair,’ said Owens. ‘Multinationals must now comply not just with the letter of the law, but with the spirit of the law.’ Over the last few years China has been constantly restructuring its tax system away from a turnover system to avoid double taxation, while giving the service sector a boost, said Huang Suhua, director of global cooperation and compliance at the State Administration of Taxation’s International Taxation Department. ‘China has made substantial progress in the programme of international taxation,’ he said. China has also reformed its resource tax and is now working on a valueadded tax. Foreign and domestic companies have been put on an even footing, while a tax law adopted in 2008 provides incentives for development and innovation. Taxation reform is part of a broader economic shift in China, as the country works to move the basis of economic growth from exports to domestic consumption. One way to do this is to reform the tax system to eliminate multiple taxation and unlock

CN_A_Shanghaitax.indd 57

purchasing power. At the same time, relief to individual taxpayers can encourage domestic consumption while incentives for corporations can encourage high-value economic activities, said Huang. ‘In the era of economic globalisation, collaboration is that much more important,’ he added. The country is increasingly involved in the international tax arena by extending its network of tax treaties and cooperating with tax authorities around the world. China already has 98 double taxation agreements and eight tax information exchange agreements. ‘Information is one way to resolve disputes in the international tax arena,’ noted Fergus Wong, director of knowledge management for tax services at PwC Hong Kong and co-chair of the ACCA Hong Kong Tax Subcommittee. Wong chaired a summit panel that included Owens, Huang, Daniel Leung, finance director of Dupont China, and Yan Yan, a professor at the SNAI. A simplified tax system is good news for business, Leung said. ‘All in all, I think we have seen a much


ACCA chief executive Helen Brand highlights why tax is a priority for the organisation


Dr Jeffrey Owens, former director of the Centre for Tax Policy and Administration at the OECD, describes the importance of international communication

03 04

Huang Suhua of the State Administration of Taxation Panellists discuss possible changes to China’s tax system

improved legal environment on taxation and I think that will continue,’ he said. Even though foreign businesses no longer enjoy tax breaks granted to them when China first opened up, transparency and incentives to innovate can balance the scales. The summit in Shanghai coincided with Brand’s visit to China in March, during which she met with policymakers and industry executives. She also announced the signing of a memorandum of understanding with the SNAI – one of three top-level accountancy institutes in China – to strengthen cooperation on distance education and training. Alfred Romann, journalist

13/04/2012 10:59



16/04/2012 16:56



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Financial controller

RepoRting ManageR

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Over 22,000 ACCA MEMBERS anD students have registered their CVs on ACCA cAREERS Everyday on ACCA Careers on average we have.... l 150 new candidates register l 11,352 page views l 44 new jobs posted l 253 job applications Employers we are already working with include Shell, PWC, Deloitte, KPMG and BBC.


“ACCA Careers gives me the latest and most varied range of job opportunities from all the major organisations and recruitment firms, along with great tips and advice to help me push my career forward.” Ian Chadaway, Burgis & Bullock To advertise with ACCA Careers there are 2 options, using our online self-service you can post a job right now at or you can contact our dedicated account management team on +44 (0)20 7902 1210

16/04/2012 16:23



Website revamp showcases CPD Looking for skills development opportunities on the ACCA website has been made even easier, as Ros Leah, ACCA’s head of professional development, explains All professionals recognise the importance of developing their skills and keeping abreast of developments. CPD helps you not only to maintain competence but also demonstrate to employers your ability to progress and take on new responsibilities. ACCA wants members to maintain the highest professional standards because their skills, judgment and integrity can add value to organisations, economies and society at large. When ACCA made CPD mandatory in 2005 there were many misconceptions, in particular that it meant attending face-to-face courses. This has changed as members have gained CPD through e-learning, acting as workplace mentors or learning at work – undertaking tasks for the first time, consulting an expert about a workplace or client issue, etc. There is still a place for attending seminars and conferences and reading articles, but it is now widely recognised that individuals are looking for greater variety and blended learning solutions. In an age when information is immediately accessible, everyone wants access to learning at a time and place that is convenient for them. The revamped CPD section of the ACCA website at cpd offers one-stop access to articles, e-learning, podcasts, online seminars, research and qualifications from partner organisations, and contains over 160 e-learning modules. You will find details of face-to-face courses on your local ACCA office site. Learning opportunities have been put under subject headings to make it easy to view the range of information available. You will also find details of how to meet your CPD requirements. We hope the new resource will meet the demand for more accessible CPD. This is just the first step in improving

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Learning opportunities have been brought together within each CPD subject heading members’ experience of the website when looking for CPD and further improvements will appear this year. The demand for e-learning has increased as professionals have become time-poor but also because the quality of e-learning has improved. ACCA’s research has confirmed there is no decrease in quality with technology-enhanced learning and assessment compared with physical, classroom and paper-based learning and assessment. Interviewees for the research included Richard Pollard, PwC’s global development leader, who said: ‘On an average day there might be facts I need to know and skills or techniques of which I need a reminder. I want that now. I don’t want it three months ago when I was at a training centre, and I can’t remember what I was learning.

I certainly don’t want it in six months’ time when I’ve been booked to go on a classroom session.’ Online learning and assessment technologies offer sophisticated ways to interact with learning content. You can fast-forward to more demanding modules, and pinpoint and address areas of weakness much more quickly. Remember, learning will be considered verifiable if it is: relevant to your career you can demonstrate how you have applied it you can prove it took place – eg copies of course materials, notes from learning, contact details of a third party who can substantiate activity completion, a certificate of course/assessment completion. For more information, go to

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16/04/2012 16:29



Landscape painting


Divining the business landscape of the future is a tricky art, but ACCA’s global forums can help, says president Dean Westcott

Near the back of this edition you will find an article from ACCA’s new Accountancy Futures Academy, which looks at what will shape the professional landscape of the future and what we need to do to ensure we and our businesses are prepared. It is critical that an organisation like ACCA has a means of bringing together expert opinion to provide a long-range forecast of the business climate, and the academy, along with the other global forums, has a vital role to play in highlighting the key trends along with the driving forces and ideas that will shape our profession. We can make some educated guesses about the future. We know that there is a shift in economic influence from west to east and from north to south. Technological advances could result in core accounting functions being automated, meaning that accountants will need to be well placed to offer more analysis and judgment on the information which is produced. The first symposium for all global forum chairs, which took place in London recently, addressed the pressing challenges and opportunities facing us. Forum chairs said that the profession needs to restore public trust and confidence, as well as avoid being so overwhelmed by the need for regulatory compliance that it loses the ability to contribute to business performance. These challenges show the way to opportunities. In the corporate sector, for example, there is an opportunity to redefine the role of the finance professional, with accountants having the potential to take a lead role in areas such as risk management and corporate governance. By drawing on ACCA’s longstanding core values, the global forums will make major contributions to a number of debates and will not only reflect on but influence policy and remind the public, businesses and government of the enduring value that accounting professionals bring to the table. Articulating this value is not easy when the profession is under stress. It will mean challenging the forces which are pushing accountants towards over-emphasis on compliance. But I am sure that the forums will help us meet this challenge and will support us in setting out how much public value we bring to the table. Dean Westcott, ACCA president and interim CFO, West Essex Clinical Commissioning Group, UK

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17/04/2012 12:34


ACCA global forums

Tomorrow’s world ACCA’s Accountancy Futures Academy is exploring the future role of accountants. It will be radically different, say academy chairman Ng Boon Yew and futurist Rohit Talwar The world is undergoing a period of profound transformation driven by global political, economic and technological shifts. Taken together, these forces suggest that the role and expectations of the accountant of tomorrow and the industry they inhabit could be radically different from the profession today. So how can the profession prepare for an uncertain future when we all feel there is already a full agenda dealing with today’s challenges? Recognising the need to help accountants explore these long-term drivers of change, ACCA has started the Accountancy Futures Academy. Its mission is to provide a radar to highlight the trends, driving forces and ideas that could shape the future global business and accountancy landscape. The first output from the academy is a consultation with members of ACCA’s global forums. The objective is to identify the drivers of change that accountants should be thinking about to prepare them for future challenges. This article looks at some of the emerging findings from the study being coordinated by Fast Future Research. The changing economic landscape is seen as central to any exploration of the future of business. We are in the middle of a period of deep economic uncertainty. For accountants, this puts the spotlight on our risk and resilience plans – how are we factoring in the potential collapse of key parts of the economic infrastructure in individual markets or globally?

Increasing influence While mature economies focus on surviving and navigating the current turbulence, emerging economies are growing, particularly the BRIC nations. It is clear that the BRICs will have an increasingly influential say in how

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global economic systems are shaped and governed. These countries are presenting global accountancy firms with opportunities, in terms of markets to expand into, but also challenges as a potential source of future rivals. Could we see multinationals transferring their accounting business to firms from the BRIC economies? Political power can be expected to follow financial power, with both China and India having more of a say on the evolution of the key institutions of global governance. This could give both countries the platform to set the rules and agenda for the new so-called Asian century. This could have far-reaching implications for how the global accountancy profession evolves in future, especially with regards to the definition and adoption of uniform global accounting standards. Could these standards come to reflect Eastern rather than Western practices?

Population shifts Demographic shifts are reshaping the make-up of the global population. By 2050, the Asia Pacific region will have grown by more than the populations of Europe and North America combined, with Europe itself expected to shrink by around the size of Germany. Global life expectancy is projected to continue increasing and enforced retirement ages abandoned. This raises questions about how we effectively manage and provide career opportunities for multiple generations in the workforce. The business of business is also undergoing fundamental change – with new business models offering the potential to transform our notions of risk and value. Firms are increasingly opting to switch from ownership of fixed assets to renting the services provided by those assets – cloud computing is one such example. The

risks of new product development and new venture creation are also being transformed by crowd-sourcing models such as, which enable entrepreneurs and innovators to raise the necessary financial commitments from the customer before embarking on the project. Sales approaches such as aggregated buying and the auction model are increasingly being used by businesses to sell their offerings. How will accounting practices and risk assessments need to change to take account of a rapidly changing set of business models with often unpredictable revenue streams? The financial crisis has highlighted the need for businesses to construct ‘living wills’ to facilitate an orderly unravelling of their affairs in case of insolvency. Accountants can play a key role here, but how deeply will the finance function need to be embedded


Chairs of ACCA’s 10 global forums met for a Global Forums Symposium in March in London to discuss the issues that will be confronting the accountancy profession over the coming months and years. A presentation based on the research described in this article provided a basis for lively discussions on a wide range of topics including global economic uncertainty, audit, complexity, regulation, adding value, principles, sustainability, investors and reporting, the public sector and fraud. The forums aim to further thinking on current and future issues in a number of specific areas, as well look at the challenges and opportunities facing the accountancy profession generally.

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Accountants must learn to plan for and think in terms of multiple possible scenarios. An emerging competence is developing the agility and processes to cope with ever-shorter business cycles. Accountants also need to become adept at navigating and tackling operational and regulatory complexity and the rising number of non-financial indices used to measure value. The need to play a bigger role in business decision-making and the globalised nature of work mean accountants seeking international opportunities will have to expand their strategic, language and cultural skillsets. The backlash from the financial crisis, combined with greater moves towards environmental sustainability, will also result in growing regulatory requirements for accountants to act as public interest watchdogs.

in the transactions, products and pricing models of the organisation to appreciate the scale and detail of what needs to be unravelled? The growing complexity of business and the need for integration are placing greater demands on information technology. IT has revolutionised the

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workplace – digitising workflows and assets, and creating new opportunities with people generating real-world fortunes from buying and selling virtual assets in online environments such as Second Life. Advances in artificial intelligence could lead to further automation of accounting functions.

Further down the road, technological advances could mean we download core accounting data directly into our brains. The core question is whether the roadmap for accounting systems development will be flexible enough to cope with a range of possible business scenarios. Taken collectively, all these drivers suggest we are now entering a period of fundamental change for the global economy, for the general world of business and, as a result, for the accountancy profession. Ng Boon Yew FCCA is chairman of ACCA’s Accountancy Futures Academy and executive chairman of Raffles Campus. Rohit Talwar is a global futurist and founder and CEO of Fast Future Research.

16/04/2012 14:38


ACCA news


During a visit to China in March, ACCA chief executive Helen Brand had the opportunity to visit a number of key organisations that ACCA works with. These included meeting Luo Xi, ICBC vice president and Zhu Min, general manager, finance, at China Mobile. Both companies are state-owned enterprises that play a leading role in their respective industries and work closely with ACCA. ICBC arranged two cohorts of ACCA in-house training programmes in 2007 and 2011 and sponsored more than 200 financial staff in the ACCA Qualification, which has been exclusively recognised by China Mobile as the international accountancy qualification for internal training and staff promotion. Brand also visited the Chinese Institute of Certified Public Accountants (CICPA) with Ada Leung, head of ACCA China and Jordan Yu, head of ACCA Beijing, where she met Dr Chen Yugui, deputy president and secretary general of the CICPA, and his team. Chen described the mission ahead for the Chinese accountancy profession, and outlined the CICPA’s key strategic priorities to support the globalisation of Chinese business and the sustainable growth of the economy. They reviewed the organisations’ cooperation programme and set up a collaboration agenda for 2012, including joint research and participation in the First China (Beijing) International Fair of Trade in Services. In addition, Brand, Leung and Yu visited PwC Beijing where they had a lunch meeting with lead partner David Wu FCCA – the first ACCA member in mainland China. He was elected to the ACCA Council in 2004, serving for six years. As well as the visits in Beijing, Brand went to Shanghai on 22 March to sign a memorandum of understanding on behalf of ACCA with the Shanghai National Accounting Institute (SNAI). The parties will cooperate on the training of future accountancy professionals in order to contribute to the development of the profession in China. Under the the MOU, the SNAI will provide a website platform for ACCA students. Li Kouqing, vice president of the SNAI, signed on behalf of the institute.

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ACCA chief executive Helen Brand meets China Mobile employees


Brand and Li Kouqing, vice president of the Shanghai National Accounting Institute, sign a memorandum of understanding


From left: Jordan Yu, Dr Chen Yugui, Brand and Ada Leung at the CICPA


Brand and PwC Beijing lead partner David Wu FCCA

16/04/2012 14:41



Elections to Council As ACCA’s governing body, Council plays a pivotal role in ACCA affairs. It ensures that ACCA operates in the public interest and delivers the objectives stated in its Royal Charter. Council sets ACCA’s overall direction through regular approval of strategy. It acts as a link between members and the professional body, and leads the organisation in the interests of both. It is accountable both to members and the public interest. It acts for all members and future members (today’s students). It provides leadership of ACCA and stewardship of its resources. Council develops policy for ACCA as a whole and Council members are volunteer custodians acting for the well-being of the whole organisation. Whatever their geographical or sectoral bases, Council members do not represent particular areas or functions

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and are elected by the membership as a whole. ACCA members of all ages and backgrounds are encouraged to stand for election to Council. Long-term or technical experience is valuable, but so is the proven ability to participate actively in strategic decision-making. Council experience as such is not necessary. However, an understanding of good governance is essential, and personal and professional integrity must be of the highest order. Specifically, ACCA expects members to bring the following skills and attributes to Council: an ability to take a strategic and analytical approach to issues and to see the big picture; an understanding of the business and the marketplace; communication and networking skills; an ability to interact with peers and respect the views of others; decision-making abilities; an ability to act as ambassadors in

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many different environments; planning and time management; and a willingness to learn and develop. Nominations are now invited for election to Council at the 2012 AGM. Candidates must be nominated by at least 10 other members in good standing. Candidates should supply a head and shoulders photo and an election statement of up to 180 words, which should not include references to email addresses or websites. Candidates are also required to sign declarations of their willingness to comply with, and be bound by, the code of practice for Council members. Further information on the Council election process, including pro forma of nomination forms, may be obtained by writing to the Secretary at 29 Lincoln’s Inn Fields, London WC2A 3EE, by faxing +44 (0)20 7059 5561, or by emailing michael.sleigh@accaglobal. com (please put ‘Council Elections’ in the subject box).

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16/04/2012 11:34


ACCA news

Council highlights

Inside ACCA 65 Council Election time is coming 64 News Chief executive Helen Brand visits China 62 Global forums ACCA’s Accountancy Futures Academy 61 Dean Westcott ACCA’s global forums have a vital role to play, says the ACCA president 60 CPD The ACCA website now has a new, improved, CPD section 56 Taxing times International Tax Summit is held in Shanghai 54 Moving forward Event looks at the future of tax in Hong Kong

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Council’s first scheduled meeting of 2012 took place on Saturday 10 March. The guest presenter was Katrina Wingfield, chairman of the ACCA Regulatory Board, who presented its annual report for 2011. The Regulatory Board was established after the AGM in May 2008 and brings together all of ACCA’s arrangements for regulation and discipline in a single entity. It stands at arm’s length from Council and the majority of its members are lay individuals. The report of the Board for 2011 covered the third full calendar year of its operation. It focused on a successful regulatory event organised in October 2011, at which Sir Ian Kennedy was guest speaker, and the establishment by the Board of an Overview of Regulatory Procedures Working Party. Council was pleased to note that the report overall underscored the Board’s commitment to continuous improvement in regulation and was reassured that, going forward, the Board would continue to provide proactive oversight of ACCA’s disciplinary and regulatory processes. A number of other issues were considered in Council’s formal sessions: Council met in discussion groups to debate the competitive landscape in the global profession and ACCA’s response to it. Council considered the regular report of chief executive Helen Brand. This covered ACCA’s performance, as well as a review of its strategic development and developments in the wider profession. On a recommendation from the Resource Oversight Committee, Council approved the

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Nairobi: next meeting



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proposed budget for the organisation for 2012–13. Following a recommendation from a group of standing committee chairmen, Council also approved achievement measure targets put in place to track ACCA’s strategic performance in 2012–13. At the request of the Regulatory Board, Council considered its policy with regard to ACCA students who hold AAT practising certificates. Council agreed to maintain its current policy to recognise only professional-level, IFAC member bodyissued practising certificates and not to introduce any dispensation for AAT practising certificate holders. Under the terms of membership regulation 3(f), Council agreed to invite into ACCA membership four senior accountants from Indonesia – Rosita Uli Sinaga, Ahmadi Hadibroto, Irhoan Tanudiredja and Langgeng Subur. Council was pleased to approve the signing of a renewed Mutual Recognition Agreement with the Malaysian Institute of Certified Public Accountants. Council confirmed Anthony Harbinson as its preferred nominee for vice president 2012–13. (The formal elections for ACCA’s officers will take place at the annual Council meeting immediately following the AGM on 20 September 2012.)

Council’s next meeting will be in June 2012, when it will meet in Nairobi, Kenya as part of the biennial series of meetings held in ACCA’s key international markets.


The trainee development matrix (TDM) for ACCA students has been overhauled. The tool, used by trainees to plan and record their achievement of Practical Experience Requirements (PER), has been renamed My Experience. It will remain accessible via myACCA, and a reminder pop-up will prompt trainees to update their own experience status regularly. They no longer have to provide an annual PER return. TDM exemptions have been renamed Performance Objectives Exemptions, and the former HKICPA TDM exemption for trainees in Hong Kong is now the HKICPA Performance Objective Exemption. Trainees are still required to use My Experience to claim the exemption and record the number of months’ work experience gained. It remains important that employers support trainees to achieve their PER, as well as their exams and ethics module, by arranging a workplace mentor. ACCA-approved employers who have approved exemptions for their trainees must remind them they are still required to use My Experience to track their progress. Acting as a workplace mentor can be included towards Continuing Professional Development. More at

17/04/2012 12:34

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16/04/2012 12:08


get verifiable cpd units by reading technical articles












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16/04/2012 14:43

AB CN (Chinese edition) – May 2012  

The May 2012 edition of Accounting and Business magazine

AB CN (Chinese edition) – May 2012  

The May 2012 edition of Accounting and Business magazine