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CN AB CN.ab accounting and businesS 09/2012
accounting and business china 09/2012
Top of the class
Tony Bloomfield on his rise through HSBC
good reading Why listed companies should disclose more
Better for business The need for finance diversity
ACCA council report from East Africa Philanthropy tree planting in Mongolia Opinion the CFO’s growing remit
stock exchange rules ratchet up pressure Rio+20 rising to the challenge Irish PM restoring Ireland’s good name Technical IFRS for SMEs
A car dealership couldn’t be more different from Hong Kong’s largest bank – could it? For Tony Bloomfield, HSBC’s chief accounting officier for Asia Pacific, working for a wide range of companies has given him an in-depth understanding of processes. See page 18
REPUTATION MANAGEMENT Accountants in Hong Kong could find greater demand for their advice on reporting systems and procedures following legislation that puts the onus on company directors to report stock-price fluctuations. From January, senior executives could face fines of up to HK$8m and steep legal costs if they don’t report news affecting stock price, in a move that effectively strong-arms directors into compliance. There are other implications for directors who default on disclosure, including a five-year ban on serving on the board of a Hong Kong company. But there’s also another potential knock to reputation to consider: few directors would wish to have their name and company under investigation (and in the public eye) by the Market Misconduct Tribunal – the body responsible for looking into cases referred by the Securities and Futures Commission (SFC), which will oversee the new disclosure regime. It’s not the first time that regulators have clamped down on misconduct and market manipulation. The SFC has increasingly taken a hard line against companies and individuals who have used insider dealing or inappropriate means to achieve their aims, with some wellknown names being publicly lambasted in the press. In this continued state of unease over the global economic crisis, investor protection is being heightened and corporate awareness increased on how timely and accurate news could have an impact on how a company’s stock is valued. Read our feature on page 16 for more on how Hong Kong is becoming one of the most well-regulated markets in the world. Also in this issue, we feature an inspiring story of how Beijing firm Mazars got involved with a charity that plants trees in Inner Mongolia in order to turn desert into farmland. The Million Trees Project, a programme founded by green group Shanghai Roots & Shoots, led a team of Mazars’ staff to embark on a fascinating and enlightening trip earlier this year. You can find out how they got involved in the project and what it meant to them on page 42. Colette Steckel, email@example.com
RIO GREENPRINT The Rio 20+ Earth Summit has endorsed the need for corporates to integrate sustainability into their reporting cycles. Page 20
MORE Q THAN A Does the publication of non-binding Q&A guidance for those using IFRS for SMEs undermine the stability of the standard? Page 48
RESEARCH AND INSIGHTS APP Our free iPad app explores crucial trends and issues for business. Download it via www.accaglobal.com/ri_app or search for ‘ACCA Insights’ in the iTunes App Store. See page 82 for more information.
BIG AMBITIONS? For your next move, go to www. accacareers.com/ china-hong-kong
AB CHINA EDITION CONTENTS SEPTEMBER 2012 VOLUME 15 ISSUE 8 Asia editor Colette Steckel firstname.lastname@example.org +44 (0)20 7059 5896 Editor-in-chief Chris Quick email@example.com +44 (0)20 7059 5966 International editor Lesley Bolton firstname.lastname@example.org +44 (0)20 7059 5965 Chief sub-editor Eva Peaty Sub-editors Dean Gurden, Peter Kernan, Vivienne Riddoch Design manager Jackie Dollar Designers Robert Mills Production manager Anthony Kay Advertising Jennifer Luk jennifer.luk@LexisNexis.com +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
16 Time to update Hong Kong’s new disclosure regime places increased importance on trading updates 20 After Rio Businesses hold the key to bringing Rio+20’s sustainability reporting pledges to fruition
24 Sir Richard Branson As Virgin Money takes over Northern Rock, Branson describes his approach to business 28 Fiscal fragility In his regular quarterly report, ACCA’s Manos Schizas finds weakening confidence
ACCA Shenzhen +86 (0)755 3395 5711/ 3395 5710 Audit period July 2009 to June 2010 138,255
12 Attention to detail Understanding processes has proved invaluable for Tony Bloomfield, HSBC’s chief accounting officer for Asia Pacific
30 Q&A: Enda Kenny Ireland’s prime minister describes how the new administration is repairing the economy
There are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab
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: IFRS for SMEs The release of non-mandatory guidance is not without its critics
10 News round-up A digest of all the latest news and developments
51 Strategy made simple Our new series seeks to make strategy a practical tool for accountants
34 Cesar Bacani CFOs are stepping up to the anti-bribery challenge
36 Errol Oh It’s showtime for small businesses
37 The view from Philip Fong of Harry Elias Partnership, plus news in brief
40 Dean Westcott As his term draws to a close, the ACCA president applauds members’ commitment
38 Capital competition Disclosure is a vital weapon in the fight for financing
41 PRACTICE 41 The view from Jim Woods FCCA of PwC China and Hong Kong, plus news in brief 42 Seeds of hope Mazars mucks in on a tree-planting programme in Inner Mongolia
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 www.accaglobal.com/members/cpd
ACCA NEWS 54 Diversity in the spotlight A panel discussion in Shanghai and an employers’ roundtable in Beijing examine the challenges faced by the finance function 60 Uniting disclosure Corporate governance must go further, finds research by ACCA and the Shanghai Stock Exchange 62 News ACCA and WWF hold Green Economy Roundtable in Hong Kong; ACCA Beijing and the Hebei Institute of Certified Public Accountants sign memorandum of understanding 64 Open for business The ACCA Council meeting in Kenya heard positive messages about the profession’s development in Africa 66 News Worldwide online event will highlight sustainability
News in pictures
Performers dressed as Mary Poppins descended into the centre of the Olympic Stadium as part of the £27m London 2012 Opening Ceremony, created by Slumdog Millionaire director Danny Boyle
Rail passengers wait for power to be restored at a station in Kolkata after a huge outage cut electricity to 20 of India’s 28 states
Leung Chun-ying was sworn as Hong Kong’s third chief executive. The police officer’s son replaces Donald Tsang
China’s first female astronaut Liu Yang salutes after exiting the reentry capsule of the Shenzhou-9 spacecraft. The mission was the second step in a threepart plan towards the set-up of the country’s own space station
Jubilant Yi Siling of China holds her medal and bouquet aloft after winning the first gold of the London 2012 Olympic Games, with victory in the women’s 10-metre air rifle event
The Hong Kong Police Band play the bagpipes at a ceremony marking the 15th anniversary of Hong Kong’s handover from Britain to China
Beijing’s heaviest downpours in six decades left at least 77 dead and brought chaos to transport systems and power supplies. Major roads were flooded and more than 500 flights cancelled. Some 65,000 people were also evacuated
News in graphics
Chinese employers planning to hire in Q3, according to Hudson
People in China who now use the internet in some form
for ounted ia Rice acc East As in P D 1.0% ooff GGDP in South Asaiast Asia 2.7% of GDP in South E %
Asia nc spen onsume rs no d w of th less tha n 5% eir fo od b udge on ri ts ce
THE PRICE OF RICE
cted to rise Global rice consumption is expe (mmt) in tons ric met ion mill from 441 0, before 2010 to about 450 mmt in 202 2050 in t mm 360 just to g declinin
Rice consumption in Asia is declining rapidly due to economic growth, rising disposable income and lifestyle changes. Nevertheless, rice remains Asia’s most important crop, as it continues to be the single largest source of calories for the majority of consumers who are poor, according to the Asian Development Bank.
WOMEN STILL TO GET ON BOARD
Companies in Asia have ‘strikingly’ few women in senior jobs, missing out on a vital pool of talent to fuel the region’s growth, consultancy firm McKinsey reveals in its survey Women Matter: An Asian Perspective. Despite the high percentages of female graduates, only a small number are making it to the top level.
EXECUTIVE COMMITTEES (%)
PROPORTION ON BOARDS 2%
15 12 11 9 9 5 5 3 2 1
LOSSES ALONG THE CORPORATE PIPELINE % WOMEN
Month in figures AP_B_graphics_08.indd 8
Singapore Australia Hong Kong China Taiwan Malaysia Indonesia India South Korea Japan
60 55 50 45 40 35 30 25 20 15 10 5 0
Companies in China, Hong Kong and Taiwan now on the Fortune Global 500 list for 2012
The poverty rate in Malaysia in 2009, up from 3.6% in 2007
In 2007, rice accounted for 29.3% of calories intake in Asia
KEY: China Singapore Malaysia Hong Kong
for ounted ast Asia Rice acc DP in E G f o 6.8% of GDP in South AsEiaast Asia 8.4% of GDP in South
Around 90% of the world’s rice is produc ed and co nsume d in Ass ociatio n of Southe ast As ia Nation s (ASE n A N) countr ies
9 INTERNAL AUDIT UNDER SCRUTINY
With risk, control and compliance becoming increasingly important in today’s global marketplace, Ernst & Young’s survey of 695 chief audit executives and C-suite executives in The Future of Internal Audit is Now reveals that 80% of organisations acknowledge that their internal audit function has room for improvement.
RLAND 1 SWITZE 2 SWEDEN 3 SINGAPORE ND 4 FINLA 5 UK
6 NETHERLANDS ARK 7 DENM G 8 HONG KON 9 IRELAND 10 US
LEADING THE WAY
For the second year running, Switzerland, Sweden and Singapore are leading the way in overall innovation performance, according to the Global Innovation Index 2012 (GII). Published by INSEAD and the World Intellectual Property Organization, the index ranks 141 countries and economies based on their innovation capabilities and results.
% 5 6
Centralised: in one location
Decentralised: by business unit Hybrid structure
The survey suggests that internal audit will continue to focus on a mix of business and IT reviews, with an increased emphasis on strategic and operational risks. Internal audit risk assessments, regulatory requirements and enterprise risk assessments remain the top three drivers of the audit plan.
FINDING THE RIGHT FIT
There is no one-size-fits-all structure for internal audit, the survey also found. While almost half of respondents described functions that were centralised, the remainder worked under other models. Ultimately, says the report, structure must reflect organisational needs.
A MATTER OF PRINCIPLE
Almost two-thirds (65%) of mining companies surveyed by Mazars are working towards compliance with the UN’s 31 Guiding Principles on Business and Human Rights, adopted last year. Further, 94% of respondents agreed that mining firms should be responsible for compliance within both their own organisations and among contractors.
KPMG GAINS MOF APPROVAL
REPORTING TIMELINE UNVEILED
BIG FOUR CHALLENGED
CFOS MUST BE ‘BEACONS’
KPMG is the first Big Four firm to gain approval from China’s Ministry of Finance (MoF) to create a local partnership on the mainland. The new firm will move beyond the existing joint ventures that accountancy firms have established in China, planting deeper roots in its growing economy. Chinadaily.com, quoting from a MoF statement, said that the Chinese Institute of Certified Public Accountants has qualified 15 of KPMG’s 25 partners as being local. Ernst & Young is expected to be the next firm to gain approval.
Chinese accountancy firms are outpacing growth of the Big Four, according to data from the Chinese Institute of Certified Public Accountants (CICPA), reported by Chinadaily.com. The report found that revenues of the top 10 domestic firms grew 38% in 2011, compared with just 6% growth for the international Big Four firms. This is consistent with a recent CICPA statement calling for domestic accountancy firms to ‘grow bigger and stronger’ via mergers, take on larger clients and explore overseas business.
BANKS GAIN GROUND
Foreign banks in China more than doubled their profits in 2011, a PwC report reveals. Profit growth to 16.73 billion yuan in 2011 from 7.78 billion in 2010 shows that the 181 foreign banks operating in the mainland, including HSBC, whose total assets grew 24% to 2.15 trillion yuan over the period ‘may be finally hitting their stride’, according to the firm’s seventh Foreign Banks in China report. The growth was attributed to strong demand for corporate credit from multinationals expanding within China and an increasing number of state and private-owned enterprise customers. Renminbi internationalisation with strong demand in derivative trading also helped drive results.
The outline framework for integrated reporting has been published by the International Integrated Reporting Council (IIRC). A prototype framework will be released before the end of 2012, with a draft framework circulated for comment by the middle of next year. The framework is intended to elicit material information on strategies, governance, performance and prospects in a clear, concise and comparable format, using a globally accepted method. IIRC CEO Paul Druckman said: ‘We are committed to a transparent process as we develop the first draft.’
Malaysia’s Tan Sri Dato’ Azman bin Hj Mokhtar FCCA, managing director of Khazanah Nasional, says that CFOs must step up to be effective gatekeepers in business. Delivering the keynote address at the ACCA annual CFO Summit in Kuala Lumpur, he said: ‘The word transformation is currently big in Malaysia, and in the finance function, accountants are the ones driving the transformation forward. Apart from establishing trust, we need accountants to show leadership and be a beacon of trust, certainty, stability and an anchor for the organisation.’
EXCHANGES SUFFER INACTIVITY
Ernst & Young data shows a lacklustre performance by Chinese stock exchanges to date this year. It found that in the first half of 2012, the Hong Kong Stock Exchange raised US$4bn over 31 deals; the Shenzhen bourse raised US$7.7bn across 88 deals; Shanghai Stock Exchange raised US$3.8bn over 16 deals; and in Taiwan, capital of US$242m was raised over eight deals. EY assurance partner Ivan Tong said that the pipeline of companies wanting to go public remains high, with issuers and investors ‘just waiting for the global market to stabilise and concerns over global growth to dissipate before they decide to become active again’.
ECONOMY ON TRACK, SAYS IMF
China’s economy is on track for a soft landing despite increasing global headwinds, according to the International Monetary Fund. In a report that urges further reform and currency appreciation to rebalance growth and reduce risks, the IMF predicted that the growth rate of the world’s second-largest economy may moderate to around 8% in 2012 after six consecutive quarters of slowdown. Its report found that China ‘has ample room to respond forcefully’ to a worsening economic outlook, due to fiscal policy, but noted that investmentdependent growth ‘cannot continue at the rapid pace forever’.
PAY HOPES BOOSTED
Confidence among Hong Kong business leaders moved from pessimistic to optimistic in quarter two, the first upswing in 18 months, according to the latest Grant Thornton International Business Report. It described the rise to net +8% in Q2 2012 as ‘a welcome relief from the rising pessimism’, suggesting that this would translate to more pay for workers. The survey went on to reveal that up to 90% of Hong Kong businesses plan to offer a pay rise in the next 12 months, which tops the list for businesses in Asia and is fourth in the world.
Analysis VIRGIN TERRITORY
In an except from his book, Screw Business as Usual, Sir Richard Branson, creator of the Virgin Group empire and new owner of Northern Rock, talks about his mission to help make people better off through ‘impact investing’.
CFOS STRUGGLE TO RECRUIT
Talent retention is an issue for many industries, but especially for the financial sector. A survey of CFOs by recruitment consultancy Robert Walters, conducted during its recent breakfast forum in Hong Kong, found that 90% say it is challenging to find professionals able to align themselves with the company’s goals and strategies. Employers also selected ‘recruiting and retaining the best finance talent’ as one of their top three challenges in running their businesses, cited by 62.5%.
has yet to bottom out, Bloomberg reported. According to the report, Song told a Beijing forum: ‘The consensus is that China’s economic growth rate will be close to 8% in coming months, but I am more pessimistic because there are problems on the export side.’
AIA ENJOYS RECORD RESULTS Hong Kong-based pan-Asian life insurance group AIA has posted a
FDI IN ASIA PACIFIC CLIMBS
Foreign direct investment (FDI) into Asia Pacific economies increased 16% to US$733bn 2011, helping to lift global FDI inflows above their prefinancial crisis level, according to the Asia-Pacific Economic Cooperation (APEC) World Investment Report 2012. The report found that APEC economies’ rate of investment recovery is relatively fast compared with other regions, increasing their share of global FDI inflows to 48% in 2011 from an average of 37% during the 2005–07 run-up to the financial crisis. ‘While investment opportunities in the APEC region are not immune to global economic realities as we have seen, they are proving to be resilient and provide an outlet for capital that has the potential to spur growth for businesses and markets worldwide,’ said APEC secretariat executive director, Ambassador Muhamad Noor.
RETIREMENT PLANS SUFFER
More Hong Kong employees feel that they cannot afford to retire until age 65 or later, according to the latest Fidelity Retirement Readiness Index. The survey found that 40% of respondents expected to work longer than they’d hoped. However, KP Luk, Fidelity Worldwide Investment’s head of institutional business for Hong Kong, said that this was not practical. ‘Hong Kong workers face an increasingly pressing need to manage their pension scheme more effectively,’ he said. ‘This means having a clear understanding of retirement goals.
‘GREAT YEAR’ FOR TRUSTS
China’s trusts may overtake insurance as the second largest sector for financial services, claims KPMG’s second annual Mainland China Trust Survey. It found that the sector’s robust growth is being driven by abundant liquidity and a corresponding shortage of investment options in China. Simon Gleave, regional head of financial services for KPMG Asia Pacific, said that a profit growth rate of 47% in 2011 highlighted ‘a great year for the trust sector’, while Jason Bedford, senior manager and report author, added that ‘trust companies are setting a benchmark in terms of transparency’.
SONG URGES CAUTION
Chinese central bank adviser Song Guoqing forecast a cooling of growth to 7.4% in quarter three, warning that the world’s second-largest economy
gain closer access to top players in Asia’s growing class of ultra-rich. As part of the deal, BOC has sold its Swiss unit to Julius Baer and will refer clients with private banking needs outside mainland China to the Zurichbased bank. Boris FJ Collardi, CEO of Julius Baer, described the Chinese mainland as ‘one of the world’s most important and fastest-growing wealth markets’.
record business profit for the six months ended May 2012. Net income of the company climbed to US$1.44bn in the six months to 31 May, or 12 cents a share, from US$1.31bn, or 11 cents a share, a year earlier, it said in a statement to the Hong Kong Stock Exchange. Growth was propelled by a 28% jump in the value of new business compared with the same period a year earlier, and an operating profit up 12%.
BANKS TAP SUPER RICH
Swiss private bank Julius Baer has entered a strategic partnership with the Bank of China (BOC) in a bid to
China’s economic performance ‘continues to disappoint expectations for a rebound’, according to Deloitte’s latest Asia Pacific Economic Outlook. Elsewhere in the region, the report found that India’s gross domestic product (GDP) growth has slowed down considerably, with 5.3% growth in the quarter ended March 2012 – the lowest in seven years. The economic performance of Singapore, on the other hand, exceeded expectations in May 2012. The report revised upwards GDP growth projections for Thailand, whose economy is recovering much faster than expected.
BACK TO BASICS
With banking and finance becoming increasingly complex, understanding processes at every stage of the business has helped put HSBC’s Tony Bloomfield where he is today
s chief accounting officer for Asia Pacific at HSBC, Tony Bloomfield is adamant about the importance of being able to break down complex financial transactions into their most basic components. It is only then that it becomes possible to understand if a particular transaction or strategic move makes business sense. ‘If you can boil it down to debits and credits, what does the balance sheet look like, what does the income statement look like, it is a lot simpler,’ he says. Bloomfield started his career in the early 1990s in London, working in small finance shops in progressively larger companies, starting with a local car dealer and finishing up in a Japanese shipping company before moving into HSBC 15 years ago. At the same time he went to college four nights a week to complete the ACCA Qualification. Bloomfield’s background and experience illustrates an almost ideal career progression. By getting a grounding in the basics, progressively taking on more experience, displaying curiosity and being willing to take on challenges, he continued to climb up the ranks. This approach has taken him, at 40, to a senior regional role at a global bank. ‘You can’t beat that kind of background and experience and
knowledge – going through the training, right from small and medium-sized companies, to the classic emptying of invoices that have been sitting in somebody’s cupboard for two years,’ he says. ‘It is quite helpful that I did all that groundwork. I think it has made a difference.’ A conversation with Bloomfield is refreshing. In a city and industry where top execs are quick to drop the names of whatever university they attended and compare notes on who they know, he prefers to focus on the basics. ‘You can be the most strategic CFO going but if you screw up your annual reporting and accounts, and your external communication with shareholders, then you’re going to be struggling,’ Bloomfield says.
Experience is everything Bloomfield’s approach has always been of the hands-on, learn-by-experience type. He left school at 18 and worked in a variety of jobs while studying for his ACCA Qualification. ‘I’d had four different jobs in six or seven years and that was through necessity,’ he says. ‘You can get into company A, spend two or three years and you have done everything. So you go and do something else. You go to company B and spend a couple of years there and do everything you can. It got to the point where going to a large company where you see lots
‘YOU CAN’T BEAT THAT KIND OF EXPERIENCE – GOING THROUGH THE TRAINING, RIGHT FROM SMALL AND MEDIUM-SIZED COMPANIES’
The tips Get your hands dirty; try as much as you can and learn. That is the basic advice that Tony Bloomfield, chief accounting officer for Asia Pacific at HSBC, has for younger accountants now entering the business. ‘If you take an interest in what is going on around you, the industry and business, get to know people, be nosy, ask questions and get yourself known for the right reasons, you will absolutely get the chance to progress,’ he says. This is particularly the case in a large organisation such as HSBC, where managers regularly look for the right talent to fill the right position. ‘Don’t forget the basics,’ Bloomfield adds. ‘You can’t go and become some sort of strategic business partner at 25 without knowing the basics of your profession.’
of different things in one place was definitely the move forward.’ The move forward required a couple of steps back. Bloomfield bypassed other offers to join HSBC in January 1997 at a level of responsibility that was below what he’d grown used to, he says. This experience gave him a wide range of knowledge and understanding, and his time at HSBC has allowed him to specialise in accounting and reporting. After working in the UK for some years while at the same time studying Spanish with the Open University, he was offered a chance to work in Mexico. A few short trips led to a more permanent posting in September 2005. After a couple of years he moved back to the UK and continued learning and taking on new challenges. The move to Hong Kong happened in January 2011.
Smart mover ‘Working abroad is exciting but challenging,’ he says. ‘It is great experience to see how things are done elsewhere.’ But moving also requires some balancing of work and family. At times, compromises have to be made. ‘It is easy enough to move to a safe and efficient place like Hong Kong but other, less developed cities can be more challenging for someone with a wife and two young children,’ he says. Bloomfield now has one of the most challenging and responsible finance roles in HSBC’s most profitable region, according to HSBC. His team of over 200 finance staff in Hong Kong is responsible for the production of the financial statements, regulatory reporting in Hong Kong and the UK, and representing HSBC to external stakeholders including investors, shareholders and regulators. Taking on the role made sense. Bloomfield says that this is a particularly good time to be in Asia,
The CV Tony Bloomfield started his career in finance at one-man finance teams in the UK, where he got his hands on every aspect of the trade. His first job, in 1991, was with a car dealer; at the same time he started studying for the ACCA Qualification. Then the UK economy crashed, forcing him to change jobs several times. He was in the public sector for a while and worked for a small specialist insurance company. ‘I was a one-man finance team,’ he recalls. ‘I had not even qualified yet. I was doing payroll, sales ledger, purchase ledger, statutory accounts, all the solvency returns, all the regulatory stuff. It was fantastic. I sat in a corner and was told to get on with it.’ In 1993 Bloomfield then moved on to a small finance team in a large Japanese shipping company, where he stayed for three years. The next move was to HSBC, in 1997. This involved a step back but, he says, it was a worthwhile move to join a large, international company that gave him plenty of opportunities for growth. He has held six different roles in the UK, Mexico and, since 2011, in Hong Kong as chief accounting officer for Asia Pacific.
given the ongoing growth of the region and the focus the bank is putting on it, especially China. Much of the world’s trade now goes through China, whether in manufacturing or raw materials. Getting the most of those trade connections is important for the bank. In China, HSBC is focused on trade and international business, aware that trying to compete with
domestic giants for local business would be prohibitively expensive and possibly fruitless. Meanwhile, Hong Kong remains the conduit between mainland China and much of the world, a strong trading and financial centre with lots of companies doing business across the border and plenty of room for the development of the renminbi. ‘It remains a priority and I don’t think we are seeing any sign that it is fading in importance at all,’ he says. Hong Kong is also a city where the banking industry tends to operate on the basis of sound and traditional principles. Banks in Hong Kong have remained strong, even as the industry has gone through some challenging times and soul-searching in Europe and North America. Hong Kong banks tend to focus on relationships and have strong balance sheets, which
The basics HSBC
‘IN HONG KONG YOU ARE NOT GROWING YOUR BALANCE SHEET AS FAST AS POSSIBLE. YOU ARE BUILDING LONG-TERM CUSTOMER RELATIONSHIPS’ has given them the strength to make it through the most recent crisis with relative ease. ‘Things work much better where you have views on long-term sustainable relationships,’ Bloomfield says. ‘You are not growing your balance sheet as fast as possible. You are building long-term relationships with customers and doing that on the back of a very strong liquid balance sheet – very basic banking principles. ‘In times of market uncertainty, people need to know that they can rely on what their company, any company, tells them in terms of the risks, in terms of financial health. It is why
there aren’t the same stresses on the banks here as there are on other parts of the world,’ he says. A focus on basic principles can help the bank as a whole and every part of it. Accountancy professionals who can break down complex transactions into their component parts are an important piece of that focus. This ability to simplify and make sense of a particular piece of business can allow an accountant to go to an executive on the business side and explain it in clear terms. Understanding business strategy and regulatory nuance is important, but only if it exists on top of a solid grounding.
The Hong Kong and Shanghai Banking Corporation (HSBC) has had its headquarters building in Hong Kong in the same location since 1865. The current building, an iconic landmark on Hong Kong’s famous waterfront, was designed by Sir Norman Foster and completed in 1985. Much of the building was prefabricated abroad and assembled in Hong Kong. The headquarters lie at the heart of a global operation. It is the largest bank incorporated in Hong Kong and HSBC’s flagship in Asia Pacific. The bank’s annual report includes Hong Kong as its own unit, separate from the rest of Asia Pacific. At the end of 2011 it had a staff of almost 29,000 and pre-tax profits of US$5.8bn. In the rest of the region, HSBC operates in 22 countries and territories with 91,051 staff at the end of 2011 and pre-tax profits of US$7.47bn. Perhaps the only bank that can lay claim to being truly global, HSBC operates through about 8,000 locations in 87 countries, with some 300,000 employees in Europe, Asia Pacific, the Americas, the Middle East and Africa.
‘The more racy stuff that is out there is absolutely more interesting sometimes but you have to know those basic principles,’ Bloomfield says. ‘Debits and credits, financial control, external disclosure, who are my key stakeholders. There is real value for a company if you get all those bits right.’ Alfred Romann, journalist
END OF AN ERA I
n 2008 Fu Ji Foods and Catering, a Shanghai-based food processor listed on the Hong Kong stock exchange, appeared to be riding high. For the first half of that year it reported a 271 million yuan net profit. When the firm entered provisional liquidation in September 2009 shareholders were stunned, having not been made aware that the company’s financial situation was deteriorating. By the time Fu Ji entered insolvency proceedings, it had not published any financial statements or trading updates for nine months. At the time, Fu Ji was not breaking any laws. Up until now there have been no legal penalties for directors of Hong Kong-listed companies who simply fail to update the market because they do not want to. But this is about to change. From January, Hong Kong-listed companies and their senior executives must report news that could affect their firms’ stock prices in a timely manner or face fines of up to HK$8m, as well as steep legal bills. Accountants welcome the development as it could encourage Hong Kong companies and their directors to seek
external advice on how to revamp their internal controls. ‘This legislation makes a very strong statement to listed companies, which are now even more aware that they have to implement accurate and timely internal and external reporting systems and procedures,’ says Edmond Chan, a capital markets partner at PwC in Hong Kong. ‘Given the additional penalties that can be levied on directors and companies which do not comply, companies now have much more incentive to have proper accounting software and timely and accurate data analysis and reporting.’ Auditors, risk consultants and corporate finance advisers working in the territory have also long complained privately that their work would be much easier if local companies took a more thorough approach to recording and disseminating information. Hong Kong-based accountants say that most Hong Kong-listed companies with a market capitalisation of more than US$1bn have world-class internal controls. But it is a different story for smaller and medium-sized enterprises.
HONG KONG’S NEW CIVIL LAW PENALTIES FOR NON-DISCLOSURE OF IMPORTANT INFORMATION RATCHET UP THE PRESSURE ON DIRECTORS
‘Most small and medium-sized Hong Kong companies think about price-sensitive information on an exception basis, in that if something truly exceptional is happening, such as a merger, they then consider how to communicate this,’ says Paul Phenix, head of technical and regulatory services at Baker Tilly Hong Kong and a member of the Hong Kong stock exchange’s listing committee. ‘But I’d be surprised if many smaller or even medium-sized companies had an active compliance and internal reporting system yet.’ ‘Hong Kong has had a bigger problem than other major markets with information disclosure,’ says Ashok Shah, chief investment officer of London & Capital, a British asset manager that looks after US$3.2bn of client funds, some of which are invested in Hong Kong. He adds that, in his opinion, Hong Kong company directors have not paid enough attention to disclosure because, in the past, penalties for failing to update the market were too weak. Before Hong Kong’s legislative council voted in late April to make non-disclosure of price-sensitive information a statutory offence, the territory’s listing rules specified that listed companies should report price-sensitive information in a timely manner.
Time is running out for Hong Kong-listed companies which fail to issue trading updates, due to an upcoming ban on non-disclosure The rules, however, are guidelines that do not have statutory backing. They are overseen by stock exchange officials, whose powers include imposing trading halts on companies’ shares and issuing public criticisms against badly behaved directors. For example, last June the exchange publicly criticised mobile phone handset-maker Foxconn International for not reporting a sharp drop in its first-half 2008 net profit quickly enough. The exchange said Foxconn’s directors were first notified of a significant deterioration in the company’s first-half 2008 results on 14 July of that year, but the company didn’t issue a profit warning statement until 15 August. Such public censures, says a senior Hong Kong accountant who asked to remain anonymous, ‘Are regarded by many listed companies as about as serious as a speeding ticket.’ Hong Kong’s new civil law penalties for non-disclosure of important information ratchet up the pressure on directors to comply. As well as potentially incurring a HK$8m fine, directors who fail to update the market face a five-year ban on serving on the board of a Hong Kong company. They may also incur a so-called ‘cold shoulder’ order that forbids them from dealing in Hong Kong stocks for five years.
The new disclosure regime will be overseen by securities regulator the Securities and Futures Commission (SFC). The SFC will, from January, refer cases of directors it believes have withheld vital news from the market to an existing body named the Market Misconduct Tribunal (MMT). The SFC declined to comment for this article. The tribunal’s decisions can be overturned by the High Court or Court of Final Appeal. What should deter company directors from risking MMT investigations, however, is that the process can take many months and hearings are held in public.
Long and costly As David Webb, a high-profile shareholder activist based in Hong Kong and former board member of Hong Kong Exchanges & Clearing puts it: ‘There is an inconvenience factor associated with going up in front of the MMT that directors may seek to avoid.’ And as Mark Johnson, head of Asia for law firm Herbert Smith and a regulatory law specialist, elaborates: ‘MMT hearings can take longer than court hearings because they are inquisitorial. It is not an adversarial situation. I have worked on one MMT case that lasted over 100 days.’ Johnson adds that the cost of employing counsel for an MMT hearing is roughly HK$150,000 to HK$200,000
Against the clock: companies face huge fines if they fail to report news that could affect stock prices quickly enough per day. If the tribunal found against a director, Johnson adds, then the listed company probably could not be expected to foot the bill either. Facing these new and very personal threats of fines, bans from running companies and being prohibited from dealing in shares, Hong Kong directors are likely to seek outside advice on revamping their company’s information capture and processing procedures. Hugh Gozzard, a principal in Deloitte’s enterprise risk services group in Hong Kong, says company directors now have a legal obligation to ‘ensure that appropriate systems and procedures are put in place and reviewed periodically’. This could mean a lot of work for listed companies. The SFC has released draft guidelines that stipulate 15 new procedures business should follow to make sure they comply with the new legislation. These include establishing internal controls to ensure that all potentially market-sensitive information is brought to the attention of the board, and maintaining audit trails of discussions of inside information. Phenix says Baker Tilly is now helping clients to understand the practical steps that should be followed
to implement these new processes. ‘This would include making staff aware what is a price-sensitive situation or event, and choosing personnel in every department who are responsible for such information being communicated in a pyramid up to the board,’ Phenix says. ‘What companies cannot have happening are situations where the board finds out, weeks after the event for example, that a faraway coal mine has flooded and is now not fully operational.’ Hong Kong’s new disclosure regime does have its critics. Some commentators have said the new HK$8m fine does not go far enough. ‘There may be cases where a company director would profit by more than the HK$8m by not disclosing inside information,’ says Webb. One example of this could be where a company director profitably traded in his firm’s stock ahead of the company making a price-sensitive announcement. Although insider dealing is a civil and criminal offence in Hong Kong, it can be incredibly hard to prove and regulators rarely bring cases. The MMT is responsible for hearing civil insider-dealing cases. It has only made five insider dealing rulings against directors since it was established in 2003, according to its website. The MMT, however, is not the only body that exists to deal with bad behaviour by company directors. If the SFC believes it has found evidence of non-disclosure that is tantamount to fraud, the regulator can refer such cases to the police. Citic Pacific, a mainland conglomerate whose shares trade
*REGULATORS SHARPEN THEIR TEETH
Hong Kong has a long-held reputation as a free and open financial market. This is mainly thanks to British civil servant Sir John Cowperthwaite, who served as the former Crown colony’s financial secretary in the 1960s. To spur economic growth after the second world war, Cowperthwaite championed minimal government involvement in business and financial markets, attracting a great deal of foreign capital to the city. The British government also fostered a hands-off relationship between the territory’s government and business tycoons. While insider dealing was made a criminal offence in Britain in 1993, Hong Kong did not introduce similar legislation until 2003. But since the global financial crisis, Hong Kong’s regulators have started to bare their teeth. In April 2009, Hong Kong’s Court of Appeal blocked a US$2.1bn privatisation of telecoms operator PCCW by company chairman Richard Li, after stockmarket watchdog the Securities and Futures Commission (SFC) alleged a shareholder vote approving the deal was rigged. In March this year the Independent Commission Against Corruption arrested billionaire brothers Raymond and Thomas Kwok, who run property developer Sun Hung Kai Financial, on suspicion of bribing public officials. At the time of writing no charges had been filed against them. Investor protection is also being heightened. In December 2009, the SFC banned retail investors from buying into the controversial Hong Kong initial public offering (IPO) of Rusal, the Russian aluminium trader. Separately, the SFC is also seeking to tighten up disclosure in IPO prospectuses. In addition, in May this year, the market watchdog proposed rules to impose criminal liability on IPO sponsors who allow inaccurate or misleading claims to be published in IPO prospectuses. Coupled with the new rules on price-sensitive information, Hong Kong is fast becoming one of the most well regulated developed markets in the world, showing just how far the city’s financial sector has come from its laissez-faire roots.
on the Hong Kong exchange, lost HK$15.5bn on a currency derivative in September 2008 but did not report this to shareholders for more than six weeks. The reason for the delay is not known and the company declined to comment for this article. The SFC referred the incident to Hong Kong police. In March, the Hong Kong Department of Justice alleged that Citic Pacific had defrauded three banks by failing to notify them of its derivatives loss while it was in the process of applying for loans from
them and is seeking disclosure of documents from the company. Citic Pacific denies all allegations against it and the case is ongoing. Hong Kong’s new provisions should heighten companies’ awareness of how to define price-sensitive information and when to disclose it. This may even stop situations as serious as that at Citic Pacific from developing, which could only increase investor confidence in the Hong Kong market. Naomi Rovnick, journalist
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With the implementation of Rio+20’s goals on sustainability reporting being left largely to individual governments, the corporate world is rising to the challenge
he goal of making sustainability reporting a norm for companies worldwide was boosted by an agreement forged at the United Nations Conference on Sustainable Development (Rio+20) in June. But ultimately, national governments will remain responsible for this key policy area. The investor-led Corporate Sustainability Reporting Coalition (CSRC) led the charge for a deal at the Rio de Janeiro meeting that included solid international commitments on expanding sustainability reporting, and some green activists will doubtless have been disappointed by the result. That was encapsulated in paragraph 47 of the final political outcome document of the conference, called ‘The Future We Want’. Written in what UN officials in Rio called ‘consensus language’, the paragraph states: ‘We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information
into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building.’ It is worth quoting in full, because even though it’s a call for action, the paragraph does not commit UN member states to anything specific, much less a convention that could include binding commitments under international law to impose ‘report-orexplain’ sustainability reporting as an annual requirement for all public and large global corporations. And while this was exactly what the CSRC asked from the world government delegations meeting in Rio, supporters of the idea think that even getting ‘sustainability reporting’ written into the agreement in this way was a success, especially as its inclusion was subject to tough negotiations.
Prime paragraph ‘Who would have thought, a few years ago, that a paragraph about reporting would be one of the most debated paragraphs in such an important summit on the future of our planet and of our societies?’ said Ernst Ligteringen, chief executive of the Global Reporting Initiative (GRI), during a side event of the main political conference in Rio. According to Ligteringen, paragraph 47 was the most debated clause after the issue of Sustainable Development Goals (SDG), which will replace the current Millennium Development Goals (MDG) in 2015. ‘These issues do come together: issues about environmental impact, social impact, economic impact, the role of business, the role of governments and how this all affects our future,’ explained Ligteringen. Rachel Jackson, ACCA’s head of sustainability, comments: ‘While the announcement does not go as far as ACCA would have liked, we are encouraged that Rio+20 has endorsed the need for big business to integrate sustainability into their reporting cycles.’
*EMBRACE GREEN ECONOMY, SAYS ACCA
‘The distinct and credible reporting of ESGs – environmental, social and governance disclosures – have an important part to play in encouraging a positive approach to sustainable development by business and the adoption of long-term and socially responsible investment strategies by investors,’ said Martin Turner, ACCA’s vice president, at the Sustainable Stock Exchanges Event in Rio on 18 June. Turner’s comments were aired at a session which ACCA co-sponsored with Aviva Investors, organised ahead of the full Rio+20 conference. ‘ACCA believes there is a positive and vital role for accountants to play in ensuring that ESGs provide meaningful information to stakeholders, with the aim of encouraging a more holistic approach to risk management by reporting companies,’ he said. ACCA recently published a paper which looks at the possible changes to the ‘zero draft’. The paper also includes a series of expert views from its Global Forum for Sustainability members. The forum was established in 2011 to bring together leading thinking on sustainability and the role of accountants. View Making a Difference at Rio+20 at www.accaglobal.com/sustainability
Shortly after the final political outcome document was known in Rio, the governments of Denmark, France, South Africa and Brazil coopted the GRI and the United Nations Environment Programme (UNEP) into a group, ‘Friends of Paragraph 47’. The group, which promised to be inclusive and to invite more governments and experts to join in, will look into best policy and practice for sustainability reporting with the aim of building a roadmap of actions to be taken as a result of its text. The ‘Friends’ promised to present a plan to the international community in the next
few months following Rio+20. ‘I am delighted that Denmark and France and the others have decided to form the “Friends” to take forward governmental support for corporate sustainability reporting,’ said UK Labour Party MEP Richard Howitt, who, as a member of the European Parliament, has dealt with corporate sustainability legislation in Brussels. He was speaking during a side event organised by the CSRC in Rio, where he noted that the European Commission is expected later this year to propose legislation on non-financial reporting by companies in the European Union.
Sink or swim? Activists used a range of means to get their messages across at Rio+20, including (from far left) creating giant fish made from plastic bottles, campaigning on agriculture and marching against ‘life commodification’ Although he recognised the limits of paragraph 47, Howitt underlined its importance in involving governments and businesses and committing the UN to a process to take sustainability reporting further based on currently existing agreements. ‘We need effective public policy on this,’ said GRI’s Ligteringen. ‘We need to see how we are going to convince policymakers to make corporate sustainability reporting a common practice.’ The idea does have some powerful backers. In February the UK’s environment secretary Caroline Spelman supported the CSRC’s call as one of the priorities of the British government at Rio+20. At Rio she noted the need for good dialogue on what governments can do to follow up on paragraph 47. ‘We can talk to other governments and ask them how they want to approach it and then try to create a norm,’ she stated. ‘You have to very carefully consider what kind of norm you want; it’s all too easy to jump to a standard that is too low or too
high. Governments make the mistake all the time, thinking they got it right, and not actually testing waters with the law and regulations,’ she explained.
Corporate action Launched during the Private Sector Forum of the UN General Assembly in September 2011, the CSRC’s specific purpose was to obtain an agreement in Rio for a clear process to be put in place under the UN General Assembly that would commit governments to ask companies registered in their countries to include sustainability reporting in their annual reports or to explain why they would not. Led by the institutional fund management group Aviva Investors, part of Aviva plc, the CSRC united about 70 organisations representing investors with assets under management of approximately US$2 trillion, but also financial institutions such as index FTSE, professional accountancy bodies such as ACCA, non-governmental organisations (NGOs) including the GRI, the Stakeholder Forum and the Worldwide Fund for Nature (WWF) and UN bodies such as the UN Environment Programme (UNEP) Finance Initiative and the UN Conference on Trade and Development (UNCTAD). ‘We all know the benefits (of corporate sustainability reporting): empowering investors and consumers with the information they need to make the right choices, putting sustainability at the heart of business decisions and looking after the bottom line, with financial, social and environmental increasingly intertwined, rather like DNA,’ said Spelman during the CSRC side event in Rio. According to a document circulated at the Rio+20 conference, Aviva Investors made the bold move of asking for corporate sustainability reporting at global level. Robust corporate sustainability reporting would, said the report, help the capital markets go beyond shortterm decisions based on thin information. ‘To include sustainability in our investment decisions, we need
information about the sustainability of companies in which we invest. Today, while investors know about a company’s profits and cashflows, they know little about a company’s sustainability,’ read the document. ‘Paragraph 47 recognises that corporate sustainability reporting is a policy to be advanced, that it needs to come to scale and that we need pace behind it,’ Ligteringen told Accounting and Business. He believes that a standard in sustainability reporting is fairly near, since a global move towards this kind of voluntary reporting started at the UN sustainable development conference in Johannesburg in 2002. GRI’s fourth generation of reporting guidelines is expected to be released in May 2013. According to Ligteringen, they are being made more robust so they come as close as possible to a standard in sustainability reporting. However, from Ligteringen’s standpoint, sustainability reporting is not enough to inform investors on the main value drivers of a company. ‘Sustainability reporting talks about the licence to operate, about the effects a company has on the environment and on the society; it helps a company to integrate this; but it is not an instrument that helps a company make an assessment on the main value drivers that informs investors,’ explained Ligteringen. For that to happen, ‘sustainability information needs to interface with other information flows that companies have, to come to an integrated thinking to be able to tell how the company is going to generate value in a different, sustainable economy’. That is where ‘integrated reporting’ comes in which, according to Ligteringen, takes holistic company
Future focus: (Above) Brazilian President Dilma Rousseff delivers a speech during Rio+20’s closing ceremony reporting a step further. Sustainability reporting is just a chapter of an integrated corporate report. But according to the International Integrated Reporting Council’s (IIRC) CEO Paul Druckman, who spoke to Accounting and Business in Rio, integrated reporting uses existing systems, such as greenhouse gas emissions reporting schemes and the GRI guidelines, to describe the strategy of a company. ‘We are sitting over the top of that to understand what the business is trying to do over the short, medium and long term,’ said Druckman. ‘And all of that is absolutely useless if all you get is just a good story.’ While at present there is no global standard for integrated reporting, the IIRC is working on a globally accepted integrated reporting standard bringing together financial, environmental, social and governance information in a clear, concise, consistent and comparable format to be released in late 2013. Druckman considers accountants to be central in the move towards integrated reporting. But to deliver, accountants must, he says, go beyond reporting on financial and manufactured capital, which has been their traditional role, and report on the other elements: natural, social, human and intellectual capital. ‘Accountants are in the prime position,’ he explained. ‘They need to have the breadth of mind to understand it.’ Carmen Paun, journalist based in Rio de Janeiro
*THE PUSH FOR HOLISTIC REPORTING
Twenty years after the first Earth Summit in Rio de Janeiro asked businesses to recognise environmental management among the highest corporate priorities, and 10 years after the second Earth Summit in Johannesburg committed governments to enhance corporate environmental and social responsibility and accountability, it is clear that voluntary commitments to sustainability reporting have not delivered the goods. When Bloomberg introduced environmental, social and corporate governance (ESG) issues in 2009 within its financial data, 75% of the companies surveyed did not publish any of that information. London-based Aviva Investors concluded that this was simply not good enough and convened the Corporate Sustainability Reporting Coalition aimed at pressurising governments meeting at the third Earth Summit in Rio to agree to a ‘report or explain standard’ on sustainability data for companies registered in their territories. ‘Our coalition is collectively asking participants at Rio+20 to commit to develop a United Nations (UN) Agreement on sustainability reporting so that we, as investors, can help guide the world towards a sustainable future,’ said a document circulated by Aviva Investors in Rio. The agreement would include two elements: the first was a commitment by UN member states to develop regulations, codes or listing rules encouraging the integration of sustainability issues in the annual reports of all listed and large private companies. The second was an opt-out alternative for companies that do not want to prepare such a report, provided that they explain their decision to opt out. ‘Companies will never voluntarily internalise external costs,’ explained Paul Abberley, interim CEO of Aviva Investors, who convened the coalition. Therefore we have to structure markets in a way that forces the internalisation of externalities. You can’t do that until you can measure them and understand what they are. Only then, you can have sufficient reporting; you can understand the scale of the problem and come up with market mechanisms
to price them right. And that is one of the benefits of reporting.’ The coalition was hoping that a process would be put in place in Rio to create a convention on corporate sustainability reporting. While that did not happen, the final outcome document of the Rio+20, ‘The Future We Want,’ encouraged large companies to include sustainability reporting in their reports and called for governments and industries to develop models for integrating sustainability reporting into the corporate reporting practice. ‘Two years ago, I wasn’t confident that we would achieve anything in Rio,’ says Abberley, but the goal was so important, ‘it was all worth all the effort.’ Even though the coalition did not get exactly what it wanted, there was a sense that the need for corporate sustainability reporting has gained momentum at the global level. ‘The thing that concerns me now is how on earth do we keep the momentum going and avoid frittering the momentum that’s been built?’ he told an audience of coalition members and supporters in Rio. ‘From Monday, it all gets a bit messier.’ It is now exploring getting involved in the UN process of defining the sustainable development goals (SDGs), which should be ready by 2015. The SDGs are expected to take over from the current Millennium Development Goals (MDGs) and be the defining UN framework until 2030. ‘It would be entirely appropriate, I suggested to the coalition, to target 2015 as the next stage,’ said Derek Osborn in Rio, board member of the Stakeholder Forum, a branch of the coalition working to advance sustainable development. With the new proposed regulation on non-financial disclosure expected to be published by the European Commission this autumn, there seems to be a momentum to advance corporate sustainability reporting in the European Union (EU), said Abberley: ‘It might well be that in coming months, we try to make some real progress in Europe, and that may well provide an example and a template of how this can work for bodies more generally.’
CHANGE FOR THE BETTER
This is an edited excerpt from Sir Richard Branson’s book, Screw Business as Usual, published in November 2011. One-hundred per cent of the royalties are going to the Virgin Unite not-forprofit foundation. www.virginunite.com/ screwbusinessasusual
Doing good is also good for your business, says Sir Richard Branson. The new owner of Northern Rock recalls how Virgin Money banked on the philosophy
’ve always looked on my businesses not just as moneymaking machines, but as adventures that can, I hope, make people better off. The older I get the more I’m inspired to make business investments that can also change the world. There is a real opportunity for businesses and foundations to look at how we can use our investment portfolios as vehicles for change in their own right. There are tremendous opportunities in this area. At the moment, the buzz word – the new phrase – in the world for this type of investment is ‘impact investing’. During one of our leadership gatherings on Necker Island, Alex Friedman, who had recently left his job as CFO at the Gates Foundation, gave an inspiring presentation about the work he was doing to shift philanthropic dollars into investments that would deliver social and environmental impact. Alex wrote in a recent article in the Financial Times, ‘These days, it has become something of a trend to demonise capitalists and praise philanthropists. But if we are to make true progress in tackling our most pressing social
problems and live up to our moral obligation to help those in extreme poverty, these two seemingly polarised groups need to come together in fundamentally new ways.’ At a broad level, he wrote, four steps are needed. First, foundations could carefully lend against a small portion of their assets not given away each year. Second, financial institutions have a unique opportunity to work with foundations to
syndicate grant-making opportunities. Third, banks could develop a wider range of social sector finance products. Finally, governments could provide tax incentives for high-quality social impact investments both nationally and internationally. Inspired by Alex, we’ve been working with Virgin Unite, some large family foundations, financial institutions and the governments in the UK and the US to look at how we can help encourage financing to flow into investments that will be good for the world. We have the chance to encourage a whole new philosophy around this type of investment, one that gets people excited about meeting a need and delivering a solution – and making money at the same time. Everyone wins. One of the reasons I wanted to get into the banking industry is because I saw the money markets and finance as a way to build bridges between the social sector, big government and business. It’s the natural way in which Capitalism 24902 (see box below) should evolve for a fairer distribution of wealth. I’ve known Jayne-Anne Gadhia since she helped Virgin enter the financial services sector back in the mid-1990s. The business prospered and grew and in 1997 we launched the Virgin One account with RBS. RBS bought us out in 2001 and Jayne-Anne and her team stayed with the bank. I was sorry to lose them, and I said to Jayne-Anne, ‘If at any time you find you don’t like corporate life, give me a call.’ Six years later, she did just that. The timing couldn’t have been better for us. Virgin Money had by then developed three successful product lines: insurance, a credit card and a savings and investment division. But there was no real connection between them, either in the way they were organised or
in the way they were marketed. So Jayne-Anne’s first and most important job was to come up with a holistic marketing message for those products. She said, ‘I initially started with a marketing thought – what is the thing that binds all these products together? And as we started to think about that, we realised we were looking for our “glue” in the wrong place. The products were the products; what bound them together was the people. Looking at Virgin Money as a community, rather than a profit-making vehicle, made the job of creating a distinctive brand that much easier. It freed us up to
you say to people developing a new product, “You need to tell us how this makes everyone better off”, it actually sets them thinking along lines that are good for the stability and sustainability of the business. We can’t charge one group of customers more than another or less than another. We can’t find a way to tack on a hidden charge. We can’t give duff or ill-considered advice. Why? Because none of those things make everyone better off.’ At a time of huge turmoil and a deepening lack of faith in banking and bankers, Jayne-Anne and I discussed the way banking should go.
‘NO ONE LEAPS OUT OF BED JUST TO READ AN EMAIL OR ANSWER THE PHONE. THEY GET OUT OF BED TO MAKE A DIFFERENCE’ think about what we wanted the bank to feel like. Because no one – no one, not even bankers! – leaps out of bed in the morning just to open an envelope or read an email or answer the phone. They get out of bed to make a difference. We wanted to make a difference we could be proud of and over a few weeks of discussions we hit upon a one-liner that summed up our aspirations. What we actually want to do is make everyone better off. We want to find ways of doing business that benefit both parties. We want to establish win/win business relationships. ‘Making this happen throughout the company had an extraordinary effect. In saying to the whole business, “We’re here to make everybody better off”, people were able to make their own decisions within a clear context that’s normally quite hard to pin down. If
Virgin Money’s clear brand goals have been like spectacles, bringing the whole operation into focus. Now they’ve begun to notice ways of using their existing business to drive quite unexpected change. Take, for example, the curve ball I threw at them in 2006. The London Marathon was looking for a new sponsor and one of my closest personal friends, Andy Swaine, mentioned this to me. I thought this was a great idea, as did Alex Tai from Virgin’s Special Projects Team – if only we could tie it in some useful way to a Virgin brand. Sponsoring a world class race and the world’s biggest annual fundraising event is not something you take on lightly, and certainly not something I would just drop into someone’s lap! Also, every Virgin company is very different. Some have long-standing philanthropic commitments elsewhere;
Virgin founder Sir Richard Branson has encapsulated his new approach to business in the name Capitalism 24902, which is the number in miles of the earth’s circumference. He says: ‘The name had to capture the new level of responsibility that each of us had for others in the global village and how this needed to be a movement that went beyond a handful of businesses or one country.’
Virgin Money Giving – the donation platform for some 4,000 UK charities – is the official sponsorship engine for the London Marathon and gets up to 25,000 hits a day others are start-ups that are devoting every spare hour to their survival; some lack the resources to take on a task of this scale. All I could do was ask, ‘Jayne-Anne, the London Marathon sponsorship is available. Would you be interested in taking it on?’ Her silence spoke volumes. I have to admit my first reaction had also been ‘What has the London Marathon to do with a financial services business?’ Yes, the marathon is the single biggest annual money-raising event on the planet. It raises over £50m per year. But that in itself was a problem. Virgin Money is typical of the Group in that it punches well above its weight. It has three million customers, but only 450 staff (even fewer when I phoned JayneAnne that day in 2007). The London Marathon was a major investment. Unless the fit between Virgin Money and the London Marathon was watertight, Jayne-Anne could be staring at the loss of a lot of money. There was another problem which made the idea even more tricky. Small though it was, Virgin Money was still employing too many people. So how could Jayne-Anne consider asking people to go and at the same time take on a major philanthropic cause? Money is always tight, especially in relatively small companies. How could we actually make that very significant investment
work for us and help our brand? Pondering it, Jayne-Anne suddenly had a light-bulb moment. Virgin Money wasn’t a health business or a clothing company. They did handle money, though, and they knew how to handle deposits and withdrawals. How did the runners who took part in the marathon handle money? How were all those thousands of individual sponsorship efforts processed? Jayne-Anne discovered that many of those transactions take place through an online charitable donation site called JustGiving. If you’re going to climb a mountain, or run a marathon, or bathe in beans, you can ask your mates to sponsor you through JustGiving. Your sponsor can make their financial donation through JustGiving’s online engine. It’s a nice idea, but there’s a problem. JustGiving is a commercial enterprise. For Jayne-Anne it was a heaven-sent opportunity. She realised that Virgin Money could operate a much better online donation engine. We had the hardware, the know-how, and we had the people – people who, only the day before, we had been thinking of making redundant. It was a brilliant solution – if she could get it to work. I love it when our Virgin machine moves smoothly into action to solve problems and make things work. In
record time, we set up Virgin Money Giving with a wonderful woman, Jo Barnett, at the helm. So, rather than put a lot of friends out of a job, we set them this great task of developing a not-for-profit online charitable donation system, and we made that engine, Virgin Money Giving, the sponsorship engine of the London Marathon. This provided a service for the runners and their charities, and made the Virgin Money brand really visible in a meaningful way. It justified and explained our involvement in the marathon. It gave us the natural, watertight fit we needed between the event and the brand. Virgin Money Giving has already grown to be the online donation platform for over 4,000 UK charities across many thousands of organised events and personal challenges. The 2010 London Marathon collected more sponsorship money than it had in any previous year. It even got me running. In the first year Virgin Money Giving collected £25m in donations. The Virgin Money Giving website gets up to 25,000 hits a day. And thousands of pounds have gone to charity. All of our people are enormously proud that we’ve done it. It’s been a real demonstration of what we mean by making money while doing good. At a time when banks were perceived as just being in it for as much money as they could screw out of the customer, Virgin Money was showing that profit wasn’t our only motive. They gave back and they had fun. Truly a win-win that once again illustrates how doing good things can also do good things for a business and the morale of its most important asset, its people.
Across its companies, Virgin’s global branded revenues were around £13bn (US$21bn) in 2011. Virgin Unite, its non-profit foundation, implements programmes and campaigns around issues such as health, economic empowerment, conservation and climate change.
ACCAâ€™s Accounting for the future is a worldwide event exploring the role finance professionals will play in building a stronger and sustainable global economy. ACCA champions the connected accountant and over five days we will harness the latest technology to bring together finance professionals from around the world to share and learn from their peers. Our experts will share with you the latest insights on how businesses and the corporate sector need to adapt to meet the future needs of stakeholders, regulators, the economy and the environment.
Taking the pulse of the global economy With business confidence now collapsing in Asia Pacific too, ACCA’s Manos Schizas reports on the gloomy mood of financial professionals Over 2,700 finance professionals took our Global Economic Conditions Survey for the second quarter of 2012. The news was definitely not good. As we had warned at the time, some of the apparent recovery in early 2012 was down to very transient sentiment that has since dissipated. But as much of the gain in confidence was down to improved fundamentals, optimism has not completely vanished. Then again, the global fundamentals have also deteriorated: liquidity and demand have tightened around the world, investment has taken a hit and, despite excess capacity, inflation has not fallen. More businesses failed in the second quarter of 2012 than in the first, although employment was reasonably resilient. Overall, the global economy is about as fragile as it’s ever been since the ‘green shoots’ of early 2009, with the developed OECD economies probably shrinking. The Americas, the Middle East and Africa continue to lead global recovery, as they have for the last nine months. The US is in fact looking decidedly healthy, with investment still growing and both demand and liquidity remaining relatively strong. However,
*THE VIEW FROM ASIA PACIFIC
Once the undisputed leader of the global recovery, the Asia Pacific region now lags behind the worldwide average. Only 14% of respondents in the region (down from 23%) said that they were more confident now than they were three months ago, while 65% believed that the recovery was no longer on track, up from 57%. Singapore, Hong Kong and Malaysia appear to be lagging behind the rest of the region, and Australia and New Zealand are also underperforming. Inflation is still on the rise, although there is some evidence that business revenues are stabilising, while firms are adopting a wait-and-see approach with regards to investment and hiring. Only 2% of respondents in Hong Kong reported confidence gains in the last three months, the least confident market in our sample, compared with 22% in mainland China.
there is a worrying slowdown in China, where both confidence and investment are falling despite an expansion in business opportunities. China’s slowdown, while not yet the ‘hard landing’ many fear, is very bad news not only for ACCA members in the country but also for China’s truly global supply chain, mainly suppliers in Africa and South Asia. Nor are regions that run a persistent trade deficit with China going to benefit. The EU, for example, has about
THE GLOBAL ECONOMY IS AS FRAGILE AS IT’S BEEN SINCE THE ‘GREEN SHOOTS’ OF EARLY 2009 €120bn of exports to China at stake, and since a lot of that is made up of high-tech industrial inputs, Europe’s exports to China are more incomeelastic than China’s exports to Europe. Encouragingly, though, accountants around the world continue to see opportunities for their businesses – more of them, in fact, even in troubled regions such as Europe. Fiscal policy remains a conundrum. Attitudes have continued to move against austerity as global growth continues to disappoint, yet, in the opinion of local accountants, some of the governments the world is counting on for stimulus may already be living beyond their means. US-based accountants are particularly hawkish, warning of a dangerous level of overspending; then again, so are their colleagues in China. In short, the global economy is still weak and could yet endure many more false starts. The most important lesson from the reversal may well be that relief should not be mistaken for recovery: finance professionals should trust the evidence of their own eyes above the hype. More at www.accaglobal.com/access
29 THE ACCA/IMA GLOBAL ECONOMIC CONDITIONS SURVEY – HOW TO TAKE PART The views of ACCA members receive widespread media coverage. The Q1 2012 survey was quoted in the press around the world more than 200 times.
So why not have your say in our next quarterly survey? Simply look for the link in AB Direct or watch out for the email invitation.
The survey is undertaken by ACCA in association with IMA (the Institute of Management Accountants), with respondents coming from both bodies.
TAKING THE GLOBAL TEMPERATURE
Breaking down the ACCA Confidence Index geographically reveals some striking variations, with members in Africa still showing most confidence.
In China, business confidence is plunging and capital spending is heading still lower.
75 50 25 0
AFRICA –1 MIDDLE EAST –3 AMERICAS –7 MAINLAND CHINA –19 IRELAND –22 EAST EUROPE –25 WEST EUROPE –25 UK –26 PAKISTAN –30 SINGAPORE –31 MALAYSIA –38 HONG KONG –63
0 -10 -20 -30 -40 -50 -60 -70 -80
THE DANGER DOWNPOINT The ACCA Confidence Index correlates strongly with economic growth globally. A reading of below -13 suggests the economies of the developed world are contracting and the global economy is slowing to a halt.
Q4 Q1 2010 2011
-25 -50 -75 Confidence
KEY: =Q1 2012
30 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80 Q1 2010
Q1 Q2 2011 2011
THE ACCA CONFIDENCE INDEX
Business confidence has gone futher into decline. The graphics show the percentage of respondents saying they have gained business confidence, minus those who have lost it.
BRINGING IRELAND BACK FROM THE BRINK
Irish prime minister Enda Kenny talks to Accounting and Business about reputation, regulation and Ireland’s return to the financial markets – as well as the need for ethics in business
Ireland went from being the successful poster boy of Europe to being one of its most troubled economies. How have you gone about repairing Ireland’s reputation? A Last year, when my government came into office, I made it one of our top priorities to restore the good name of Ireland as a place of business and of investment. In this regard, the progress already made by Ireland in repairing our damaged economy is well recognised internationally. Visits to and from US president Barack Obama and Chinese vice president Xi Jinping have highlighted world leaders’ renewed faith in Ireland. This is reflected in significant progress in returning our economy to growth and in reforming our banking system. Step by step, we are bringing our public finances under control through our fiscal consolidation programme. At the same time, my government has brought a strong and determined focus to the agenda for growth and jobs. As a result, Ireland’s recent performance has separated us from many other European economies. We’re expecting a second year of economic growth, driven by exports. Our balance of payments is now positive. Employment grew during the last quarter in 2011, the first quarterly growth since 2007. Since my election, I have been conveying a clear message in all my international engagements: that now is the time to invest in – and benefit from – Ireland’s recovery. The commitment from the European heads of state and government
Read my lips: in 2011, Kenny led his party to a decisive victory in the Irish general election, having promised that a Fine Gael government would not raise income tax at June’s EU Summit to break the negative link between the sovereign and the banks is having a positive impact on the market’s perception of Ireland. While the recent bond auction is an important step, the true indicator of Ireland’s success will be our full emergence from the bailout programme and the return to the international markets at sustainable rates. It is clear from that auction that investors are reacting favourably to the commitment by the heads of state and government to break the
negative link, to examine the Irish programme and that similar cases will be treated equally. The Irish economy is growing again, our public finances are under control and the government is using its strong political mandate to build upon this to deliver long-term, sustainable growth. Q Much of the collapse of the Irish economy can be traced to poor banking decisions and poor regulation. How has your government addressed these related issues?
Seen here during his visit to China with the country’s premier Wen Jiaobao, Kenny promoted Ireland as a supplier of worldclass products and services and a viable location for Chinese investment
‘AN ETHICAL APPROACH TO DOING BUSINESS… IS NOT LIMITED TO FINANCIAL SERVICES, BUT SHOULD BE THE NORM ACROSS THE CORPORATE WORLD’ A The regulatory failures of the financial crisis have been the subject of extensive and objective analysis. A number of reports and investigations point out the problems to be addressed. Poor supervision, an overly deferential attitude by regulators, poor assessment of risks and a lack of follow-through on enforcement – all played a part in the financial crisis. New proposed legislation draws on the lessons from that experience. A new Central Bank Bill involves a careful overhaul of the statutory basis for the Central Bank’s regulatory powers. The bill brings clarity to the Central Bank’s ability to set requirements. It provides for good information flows and objective analysis to support regulatory supervision. Where things go off course, there is provision for prudential intervention and corrective action. Where the law is broken, there are effective and dissuasive, yet proportionate, sanctions. There are also provisions dealing with restitution and costs after the fact. There is a public consultation process currently open on further proposals for inclusion in the bill. Of course, legislation alone will not be enough to address the failures of the past. In recent years, the level of regulatory activity has intensified with
increases in staff numbers and skill levels at the Central Bank. On-site inspections and review meetings have also increased. Q What lessons do you think finance professionals need to learn from the current economic difficulties in Ireland and beyond? A Everyone involved in financial services needs to consider how best to enhance its risk management function – there is a real need to monitor and plan for the worst-case scenario. The crisis made clear that, without contingency planning, organisations – both government and private sector – are not in a position to act quickly and effectively to address problems. An important change – which is being looked at, for example, in the context of remuneration – is to ensure that the time-horizon for decisions is sufficiently long. The crisis has shown us that short-term results can be deceiving in terms of an organisation’s actual financial position. A final point to consider is how company accounts can provide the best information to investors and regulators. The Central Bank here has published guidelines for the covered banks to follow in the development and application of their impairment provisioning frameworks.
Q Is there a need for greater attention to professional ethics, especially in the financial services arena? A It is important that all professionals act in an ethically appropriate manner. It is clear that a focus on profit to the exclusion of all else has not led to positive results for either individual companies or for the economy as a whole. The fitness and probity regime being rolled out by the Central Bank for the financial sector will seek to address some of these issues. A broader focus is required, which should of course include an ethical approach to doing business. This is not just limited to financial services, but should be the norm across the corporate world. Q Poor financial planning and excessively optimistic outlooks by major financial institutions played a part in the country’s current difficulties. How can that be prevented from happening again? A We can certainly point to a combination of factors that were responsible. First, it is now very apparent to all that the long period of financial prosperity enjoyed by Ireland lulled bank management into a false sense of security. This was not just a failing seen in Ireland of course – managers of large financial institutions all over the world generally forgot how to price risk effectively. Second, banks placed overreliance on their complex financial models and drew excessive comfort from what these were saying
while common sense took a back seat. Third, we now know that there were mistakes made in the accounting and regulatory areas which prompted and enabled banks to hold in reserve less in the way of provisions and capital. Significant changes in the way banks are run and regulated have been implemented both in Ireland and across Europe and more are on the way to ensure that these failings are not repeated. For instance, more conservative provisioning guidelines
Q Some European countries are now starting to reduce their corporation tax rate to bring it closer to the Irish rate. Do you see this trend as a threat to foreign direct investment (FDI) in Ireland in the future? A We have found that the one thing the business community prizes above all is certainty. Ireland’s long-term commitment to the 12.5% rate, which has broad political consensus in Ireland as well as general public support, means that this rate is now
‘IRELAND’S LONG-TERM COMMITMENT TO THE 12.5% RATE… MEANS IT IS NOW SEEN AS PART OF “BRAND IRELAND” ACROSS THE BUSINESS WORLD’ have been implemented by our Central Bank while, at a European level, banks will no longer be able to ‘game’ their capital requirements through manipulating the value of their riskweighted assets as a new simpler leverage metric is in prospect. Q Has your government taken any significant initiatives to make the Irish economy more competitive? A It’s been one of our top priorities since taking office. There have been some recent improvements in competitiveness worth pointing out. For example, our unit labour costs have reduced, the productivity of the Irish labour force is over one-third higher than the EU average, our consumer prices fell in 2009–10 and have only grown at a comparatively low rate in 2011–12, and we have seen our energy costs coming more in line with EU average costs. As part of the Action Plan for Jobs 2012, the government is looking at the costs it can influence, either directly in charges imposed on businesses, or indirectly in dealing with bureaucracy and other administrative burdens. This includes legislating to reform our wage-setting mechanisms; freezing or reducing charges levied by government on business; and promoting supports to business for energy-efficiency and cost-reduction measures.
regarded as part of ‘brand Ireland’ throughout the business world. The competitive rate is underpinned by transparent and easy-to-use corporation tax rules. However, the 12.5% rate is only one part of a wider policy mix in the taxation area, such as a rapidly expanding tax treaty network, R&D supports, an intellectual property tax regime, a preferential personal tax regime for foreign executives temporarily seconded to Ireland as part of an FDI venture, a holding company regime, and an efficient tax administration system. Q Despite Ireland’s economic difficulties, the pipeline of new FDI projects seems to be strong. How do you account for this success? A Last year saw a strong performance in the levels of FDI won by Ireland, with over 13,000 new jobs created across the 148 investments secured. Government policy is to build on the strength of our existing markets and diversify into new ones. Minister-led trade missions are an integral part of this process and work to expand Ireland’s exports to existing and new markets abroad. In all, 19 minister-led trade missions are planned this year to destinations such as China, the US, India, the UK, Russia and France. On a global scale, Ireland scores extremely well in many of the key
areas of importance to investors. For example, the IMD World Competitiveness Yearbook 2011 ranks Ireland first in the world for corporate taxes, first for business legislation for foreign investors and first for the availability of skilled labour. Q Earlier this year, the vice president of China, Xi Jinping, visited Ireland. Are you confident this evolving relationship will yield economic benefits for Ireland? A My visit to China in March, coming so soon after the successful visit to Ireland of Xi Jinping, was a great opportunity to take our relationship with China to a new level. My key aim was to develop stronger relations with China at the highest political level and to promote Ireland both as a source of world-class products and services and as a location for Chinese investment. I highlighted Ireland’s potential as a gateway to the European market of over 500 million people and our many strengths, such as our young, well-educated workforce and our strong capacity for entrepreneurship and innovation. I also stressed the potential for investment and economic cooperation in key sectors such as education, financial services, culture, tourism, life sciences, cleantech and agri food. A number of significant memorandums of understanding were signed during both visits and I witnessed the signing of more than €35m worth of contracts and commitments while in China. The culmination of my visit was the conclusion of a strategic partnership agreement, which sets out a framework to ensure mutually beneficial cooperation between Ireland and China in a number of important trade and investment areas. Q You recently launched a scheme called Succeed in Ireland aimed at attracting smaller and emerging firms to Ireland. How will it work? A Succeed in Ireland is a programme which provides direct incentives to members of the Irish diaspora and others across the world to create jobs in Ireland. The aim is to
British prime minister David Cameron (left) greets Kenny as the leaders held talks on trade and investment links
target international companies and businesspeople, who would otherwise not be reached by the state enterprise agencies, to consider locating economic activity in Ireland, thereby creating new employment opportunities. The initiative will incentivise people around the world to be our eyes and ears on the global stage and help deliver new jobs and investment. This is an innovative scheme that offers a new channel to reach thousands of small-to-medium enterprises and spread the word about Ireland’s strong reputation as a location for business. You can read more about it at www. connectireland.com. Q Has the government any specific plans for the shared services sector, which is seen by many as a major success story for Ireland? A In July 2011, I launched the strategy for the international financial services industry in Ireland 2011–16. The strategy recognises that the future growth of the International Financial Services Centre (IFSC) will depend to a significant extent on non-balance-sheet sources, and envisages that Ireland will prioritise its growth as a global provider of vital shared services for international firms. Across areas including technical, legal, accounting, advisory,
The longest-serving member of the Irish parliament, the Dáil, since being elected in 1975 at the age of 24, Enda Kenny has led his party, Fine Gael, since 2002. An Irish Gaelic speaker from the west of the country, he became prime minister, or taoiseach, in 2011. He renegotiated the country’s EU bailout in 2011, describing it as ‘a bad deal for Ireland and a bad deal for Europe’, reducing the interest rate by 2% and extending the repayment period.
administration and asset management, firms can build on existing expertise in the servicing of both external clients and parent groups to promote Ireland as a centre of excellence in this arena. Ireland consistently ranks among the world’s leading locations for shared services for a number of reasons: the availability of highly skilled, multilingual employees across a range of disciplines, such as accounting, technology and healthcare; the competitive operating environment that exists in Ireland; the mature infrastructure that Ireland offers in technology, roads, air access and utilities; low corporate tax, which naturally
* * * *
supports the development of strategic centralised activities in Ireland; and the track record of major multinationals in Ireland that have, over the past 20 years, built a cluster of multifunctional, multijurisdictional and multilingual activities, providing comfort that a new shared services activity has a high probability of success.
Q Next year, Ireland takes on the presidency of the European Union. What will be your priorities for this period? A Growth, jobs and enterprise is what Ireland and Europe need to focus on. This will be the seventh occasion that Ireland has held the presidency, which will coincide with the 40th anniversary of Ireland’s accession to the European Union in 1973. The Irish government wishes to focus its presidency on advancing issues that will benefit all citizens of the EU. In this, our main objective will be to ensure that the presidency contributes to addressing the key challenge facing the EU today, by promoting sustainable and inclusive growth and jobs. Issues relating to economic governance, fiscal consolidation and financial regulation are also likely to figure prominently on the Irish EU agenda.
An ever-growing remit [
The CFO emerges as the point person in anti-bribery compliance as the US gets tougher on enforcing the Foreign Corrupt Practices Act and authorises bigger rewards for whistleblowers, reports Cesar Bacani
At the third CFO Innovation Asia Forum in Singapore in June, the 300 or so senior finance executives who attended were particularly riveted by a presentation on how the CFO can ensure the company does not violate the US Foreign Corrupt Practices Act (FCPA), the UK Bribery Act and China’s emerging anti-bribery policies. It was not unexpected. At a roundtable discussion I moderated in Hong Kong a few weeks earlier, the regional finance director of an electronics company said she had been asked by the US parent to stop giving out moon cakes to celebrate Chinese New Year. Internal auditors believed the practice could violate the FCPA. Another CFO reported that her company had consolidated the various anti-graft provisions and designed a process taking all of them into account. Even China’s Criminal Law is in the mix. Beijing amended the law in May 2011 to prohibit giving ‘property to any foreign public official or official of an international public organisation’ in order to gain ‘illegitimate commercial benefit’. It remains to be seen whether the Chinese measure will have teeth. The jury is out as well on the UK Bribery Act. But enforcement of the FCPA has intensified of late, and many of the cases involved businesses in Asia. In 2004, the US Justice Department and Securities and Exchange Commission (SEC) launched just five enforcement actions between them. There were 40 actions in 2009, 74 in 2010 and 48 cases last year. Eight of the
10 largest FCPA-related settlements happened in 2010; the penalties ranged from US$56m to US$800m. According to Growing Beyond: A Place for Integrity, a new study by Ernst & Young, 31 of the enforcement actions launched in 2011 in accordance with the FCPA were to do with activities in Asia, eastern Europe and Latin America. ‘Many of these
prosecutions were related to payments to employees or officials at state-run enterprises,’ noted the report. More than 90% of all reported FCPA cases involved third-party agents – including the ‘consultants’ often hired by foreign companies to help them navigate the byzantine ways of Asian businesses and governments. The whistleblowing provision in the US Dodd-Frank Act, which came into effect in 2011, is adding new impetus to FCPA enforcement. The law authorises the SEC to grant monetary rewards to individuals who provide high-quality original information that results in more than US$1m in sanctions. I spoke to Chris Fordham, managing partner at Ernst & Young and Asia Pacific leader of Fraud Investigation & Dispute Services, about the report. ‘It is often the culture here [in Asia] to make gifts,’ he said. ‘If within people’s minds there is the idea that making the gift is going to help to influence, then clearly there is an issue.’ Where does all this leave finance? ‘CFOs need to redouble their efforts to set the tone: they need to be trained, to increase their awareness and to clearly demonstrate support for initiatives to manage fraud, bribery and corruption risks,’ says Ernst & Young. ‘This is particularly relevant since, according to those interviewed, the CFO is most likely to have responsibility for [antibribery and corruption] compliance.’ From bean counter to business partner to graftbuster, the CFO’s remit just keeps getting bigger. Cesar Bacani is editor-in-chief of CFO Innovation Asia
Greatness from small beginnings [
Accountants, who have a major role to play in helping Malaysia’s SMEs drive the country’s economic transformation, should get involved in the fine-tuning of the SME Masterplan 2012-20, says Errol Oh
For years, we have been reading and hearing that more than 90% of businesses in Malaysia are small and medium-sized enterprises (SMEs). That is somewhat of an understatement. In fact, according to the SME Masterplan 2012–20, released in July by the National SME Development Council, 99.2% of total business establishments in the country are SMEs. Such an overwhelming majority of SMEs is not unique to Malaysia. A 2010–11 European Commission annual report, Are EU SMEs Recovering From the Crisis? says: ‘SMEs remain the backbone of the EU economy. Given that 99.8% of all enterprises are SMEs – a ratio that has been fairly stable over the past years – the typical EU enterprise is an SME, or more specifically a microenterprise with less than 10 employees.’ The UK’s Federation of Small Businesses says SMEs account for 99% of all enterprise in the country. And a May 2012 small business report by the US’s National Economic Council, Moving America’s Small Businesses & Entrepreneurs Forward, points out that between 1993 and 2010, more than half of firms in the private sector had one to four employees, and 98% had fewer than 100 employees. Whether in a developed country or an emerging economy, SMEs are a decisive force. Clearly, Malaysia’s ambition to transform into a high-income
nation by 2020 cannot ignore businesses that collectively contribute 32% of gross domestic product, 59% of employment and 19% of exports. That is firmly articulated in the plan: ‘Going forward, SMEs will assume a greater role in the economy, not only as an enabler, but as a key driver of growth as well as to achieve inclusive and balanced growth. SMEs are critical to the economic transformation as they form the endogenous source of growth and bedrock of private sector activity.’ So where do accountants fit into the plan? The document itself makes no direct
reference to the role of accountancy. Then again, it is a given that the profession can offer vital support for the efforts to accelerate the growth of SMEs while benefiting from the fruits of such a push. Practitioners have a symbiotic relationship with SMEs. This is evident particularly in the bread-and-butter audit market in Malaysia. As at June last year, 1,353 audit firms were registered with the Malaysian Institute of Accountants. However, based on the Audit Oversight Board’s register of auditors, only 82 firms have public interest entities as audit clients. This essentially means 94% of the local audit firms rely on SMEs for a chunk of revenue. There is certainly room for SMEs to improve with the help of accountants. The plan identifies access to finance as a key challenge faced by SMEs, particularly micro-enterprises. The constraints cited are ‘poor creditworthiness, weak recording of financial accounts or lack of business viability’. These can be fixed with accounting expertise and discipline. It is a good thing that the plan can be tweaked in response to environmental and structural changes. Accountants should make themselves heard during the fine-tuning process because SMEs need all the help they can get in helping to drive Malaysia’s transformation. Errol Oh is executive editor of The Star
PAYBACK FOR SHAREHOLDERS
Hong Kong’s High Court made a landmark decision in July when it ordered the sports fabric maker Hontex International Holdings to pay back shareholders more than HK$1bn. It marked the first time that the equity markets regulator, the Securities and Futures Commission (SFC), had used section 213 of the Securities and Futures Ordinance to seek compensation for investors who had lost out due to market misconduct. The SFC said that Hontex’s prospectus overstated revenue and profit before tax for the three years leading up to its listing in December 2009. High Court judge Jonathan Harris granted the order for Hortex to make a repurchase offer to 7,700 investors at HK$2.06 per share, the level the share price reached at the time trading was suspended in March 2010.
The view from: Singapore: Philip Fong, managing partner, Harry Elias Partnership Q What are your top priorities at the moment? A Attract and retain good and dedicated people who share the firm’s core values of I-CARE: integrity, cohesion, accountability, respect and excellence. Q Are you seeing an increase in need from your corporate clients in view of economic uncertainty? A I think the uncertainty is a dampener on corporate activity. This is evidenced by the shrinking number of initial public offerings and merger and acquisitions activity in general this year. From the corporate work angle, there will be an overall fall in demand for legal services. Having said that, there is an increased demand for legal advice on the regulatory compliance front, given the increasingly stringent regulations for corporate governance as well as increased enforcement activity by the government. Q What is the biggest challenge you are facing? A Something all other local law firms are facing – increased competition from overseas lawyers, particularly from Europe. The legal market there is abysmal and their lawyers are coming out in force to this region to eat our lunches. Our government is actively encouraging this unilateral penetration.
PARKSON MOVES INTO SRI LANKA Singapore company Parkson Retail Asia has made a foray into the emerging market of Sri Lanka by agreeing to buy a controlling stake in Sri Lankan fashion retailer ODEL in July. Parkson will purchase a 41.8% stake in ODEL for 1.4 billion rupees, an announcement to the Colombo Stock Exchange revealed. The transaction will be followed by a mandatory offer to minority shareholders and a one-for-one rights issue to raise 2.9 billion rupees in capital for expansion. Since starting with one store in 1990, ODEL has grown to 15 stores, and in 2010 became the first fashion retail business to list on the Colombo Stock Exchange.
37 Corporate The view from Philip Fong, Harry Elias Partnership; winning the competition for capital 41 Practice The view from Jim Woods FCCA, PwC China and Hong Kong; Mazars tackles Mongolia’s desertification
Q Any lessons learned from recent experience? A I have been with the firm for 17 years and I’ve learned that you can only depend on your young and fresh lawyers to a certain extent. Many lack people skills and drive but have high expectations for job satisfaction; the really good ones are in a minority. Sometimes you have to be your own hero.
Firm founded: 1988 Firm locations: Singapore and Brunei Darussalam Staff numbers: 60 lawyers, including 12 equity partners Latest book read: The Summons by John Grisham
Capital competition There is real competition for capital, but companies can improve their chances of securing the right funding with some simple voluntary disclosures, says PwC’s Alison Thomas In the economic downturn and with the continued strain on the availability of financing, there is real competition for capital in the market. Investment professionals say that companies can improve their chances of securing the right funding at the right price with some simple voluntary disclosures.
Key issues Investors tell us that without good disclosure, ‘the cost of funding goes sky high’; companies that do not make their cash and debt disclosures clear and accessible risk a struggle to raise capital or borrow funds. Investors have highlighted three key areas from where management can make small changes to disclosures that would have a significant impact on their ability to compete for ever more scarce capital in today’s market: cash, net debt reconciliations and debt. So why are these disclosures important to investors, and what might good practice disclosure look like for your entity?
Cash Cashflow information is critical for investors, not simply as a critical input to the valuation of entities but because it allows them to understand
management’s ability to service the entity’s working capital requirements and debt position, and any risks associated with it. Here are some areas where current reporting can be enhanced: Cashflow statement – historical cashflow data is the basis for investors’ assessment of the adequacy of future cashflows to meet working capital and funding requirements. Yet investors tell us that ‘understanding cashflow reporting is like doing a jigsaw with half the pieces missing and without the box’. Investors are not technical accountants. They would like more meaningful descriptions of the adjustments made to derive operating cashflow so that these can be related to items on the balance sheet. They also say they would find it more helpful for the reconciliation of profit or loss to operating cashflow to start at the operating profit line (or pre-tax profit line) rather than at net income. This would simplify the disclosure and remove the need for spurious reconciling items, which may need to be both eliminated and then added back to arrive at a total for operating cashflow.
Capital expenditure – how much of an entity’s capital expenditure is required to keep things ticking over? How much is being used to grow the business further? Understanding the split between maintenance and growth capital expenditure is important to an investor. This is partly because it gives an indication of the growth opportunities available to management; but of equal importance in tough economic times, it gives insight into those expenditures over which management has discretion and those that would be harder to postpone. Most entities disclose one number for capital expenditure in the investing section of the cashflow statement (albeit split between tangible and intangible elements). Investors would like disclosure of capital expenditure to be separated into ‘maintenance’ and ‘growth’ spend, as investors see working capital as a key funding need. Segmental information – segmental cashflow information is highly valued. One analyst told us: ‘It is rare to see good cashflow reporting at segment level. When I see it, I sing hallelujah.’ Many investors believe that multisegment entities should use the reportable segment as the unit of analysis for providing cashflow information. Our research shows that, in addition to existing lines, the cashand debt-related lines that investors look for on a segmental basis include debt, operating cashflow, working capital and operating capital employed. Repatriation – investors need to see clear disclosure of any restrictions on the repatriation of cash that might impede the ability to meet future financing needs.
Net debt reconciliation An analyst recently told us: ‘Without a good net debt reconciliation, we are flying blind.’ It is an easy way of
assessing whether an entity that seems to have had a significant increase in cash has, for example, achieved this only by taking on a corresponding increase in debt. Without a net debt reconciliation, investors struggle to understand the impact of foreign exchange movements arising on debt, the value of debt acquired or disposed through business combinations, the impact of fair value and fair value hedge adjustments. Net debt reconciliations are not required by financial reporting standards, but investors tell us that entities that provide them set themselves apart. While there is no standard definition of net debt, it generally includes the entity’s borrowings, including finance leases, less cash and cash equivalents. Some entities also include deficits on defined benefit pension plans and an adjustment for operating lease obligations. The inclusion of other debt-like liabilities provides additional insight into entities’ significant expected future cash outflows. This variation means that it is important for management to explain clearly what it means by net debt and to keep that definition consistent over time. Having an accounting policy for net debt would be very useful.
Debt In addition to the net debt reconciliation, investors would like to see enhanced disclosures around: Maturity information – investors tell us that they need a comprehensive maturity table for all material components of debt, showing both the contractual maturity of each type of debt and when management expects it to be repaid (if different). Rather than reporting using broad buckets (for example, two to five years), investors are looking for detail of the debt repayments that fall due every
year (for a minimum of five years), as well as underlying par values and currencies of debt. Investors find it difficult to reconcile the numbers presented in the maturity schedules to the carrying values in the balance sheet. It would be a significant improvement if management could help them to tie the two sets of data together, showing principal and interest payments separately, and reconciling to the balance sheet (that is, showing adjustments for measurement at fair value, discounting, fair value hedges, swaps etc). Covenant restrictions and terms – financial reporting standards require disclosure of any defaults or breaches of loan agreement terms that are not resolved by the period end. Additional detail of the terms and measurement of the principal covenants in place, not only when breached, provides investors with an understanding of the restrictions in place and the entity’s compliance. Investors focus not only on whether covenants have been breached, but what those covenants and restrictions are, and the risk that they may be breached in the future. Disclosures on the key covenants for an entity’s finances are of much greater value to the investor’s decision-making process than a statement that there haven’t been any breaches in the past. Details of average debt balances – Another easy win is to disclose average debt balances throughout the year, rather than just the year-end snapshot, to enable users to understand the debt position over the year. Alison Thomas is a corporate reporting specialist at PwC. For more information on the financial reporting areas of most interest to investors and how to improve those disclosures, visit pwc.com/corporatereporting
You are our lifeblood
In his final column, ACCA president Dean Westcott reflects on his year in office and applauds the commitment of members
As this is my last column as president, l wanted to take this opportunity to say what an absolute privilege it has been to serve in ACCA’s highest elected office. It has given me an outstanding opportunity to see at first hand what a truly global organisation ACCA is. It is also clear, from the meetings and events in which I have taken part around the world, that ACCA has a great deal of influence in the global accountancy and financial community. What has also been striking is the number of ACCA members who are working in the most senior positions in organisations in all sectors. I have been fortunate to have met with chief executives of leading organisations, as well as government ministers, all of whom are ACCA members and – at the pinnacle of their careers – still recognise the value of membership. The year has clearly demonstrated to me that ACCA is nothing without its membership. I recently spoke in Malaysia about my journey to ACCA’s presidency, and a point that I made then, and that I want to reiterate now, is that members are the lifeblood of our organisation. The work you do, in providing excellent services and advice to the public, to corporate business, to small and medium-sized enterprises and to organisations in the public sector, helps to build our reputation. But it is also critical to have a membership that is engaged and involved in ACCA’s work. My own involvement began with local networks and I want to urge you to think about how you might devote some time to helping our great organisation go from strength to strength. I have been asked what the highlight of my presidential year has been. While that’s a tough question to answer, I would have to put the recent Council meeting in Kenya at the top of the list. This enabled me and my Council colleagues to see the outstanding work that is being undertaken by ACCA and its members in East Africa, and also allowed us to engage with a wide range of stakeholders in this very important region for ACCA. I want to thank everyone who made this event such a great success, along with the countless colleagues and members of ACCA’s staff team who have made the past 12 months so memorable for me. Dean Westcott is CFO of West Essex Clinical Commissioning Group, UK
LOCAL FIRMS NARROW GAP
Local accountancy firms in China have grown fast in recent years and are gradually narrowing the revenue gap with the Big Four international firms, according to a Xinhua report in late July. In 2011, the average revenue from mainland activities of the Big Four – Deloitte, KPMG, PwC and Ernst & Young – was 1.68 times that of the best-performing local Chinese firm, whereas in 2002 the gap was 4.06 times, according to Chen Yugui, secretary of the Chinese Institute of Certified Public Accountants. The Big Four have maintained their dominant position on the mainland, earning a total of 10 billion yuan in 2011, approximately 35% of the combined earnings of the top 100 firms in China. Shanghai
The view from: Hong Kong: Jim Woods FCCA, leader, Risk & Controls Solutions, PwC China and Hong Kong Q What projects are you currently involved in? A In preparation for a new financial year, I have been busy with several strategic planning workshops across mainland China and Hong Kong to engage with our people on the future direction of our practice. Q What do you enjoy about your work? A The chance to develop our people in areas they are passionate about, to unleash their potential. I enjoy working as part of a team to combat challenges and ultimately find a solution, building relationships and relishing in the diversity and different points of view that enable us to create the kind of value our clients are looking for. Q What lessons have you learnt in recent years? A A visit to Peru in 2008 was inspiring and lifechanging. While on a three-month leadership development programme, I was able to gain a better understanding of myself, learn what I stood for, appreciate the importance of being authentic, accept different points of view and realise that we can’t please everyone all of the time.
WOLTERS KLUWER EXPANDS
Global information services company Wolters Kluwer Tax & Accounting has acquired Acclipse, a provider of online accounting software to more than 1,000 accountancy firms in Asia Pacific, Australia and New Zealand. The deal was completed in mid-July. The New Zealand-headquartered Acclipse will become part of Wolters Kluwer’s Asia Pacific business, which is known as CCH. With the acquisition, Wolters Kluwer plans to expand its existing software products, including cloudbased solutions, for accountancy firms and corporate finance professionals in the region. The acquisition follows its purchase of Business Fitness New Zealand, a provider of practical content and workpapers to accountancy firms, last year.
41 Practice The view from Jim Woods FCCA, PwC China and Hong Kong; Mazars tackles Mongolia’s desertification 37 Corporate The view from Philip Fong, Harry Elias Partnership; winning the competition for capital
Q What training is offered to your staff? A I’m a big believer in the 70, 20 and 10 rule. The 70% relates to real-life work experience – doing the job to enable us to learn from our mistakes. The 20% is about the coaching environment; we are fortunate at PwC to have fantastic coaches to ensure that Generation Y [staff] are developing in the right way. The 10% is in the classroom, where we offer structured programmes to ensure our people are armed with the right knowledge and theory.
Firm locations: Beijing, Hong Kong, Shanghai, Singapore, Taipei, Chongqing, Chungli, Dalian, Guangzhou, Hangzhou, Hsinchu, Kaohsiung, Macau, Nanjing, Ningbo, Qingdao, Shenzhen, Suzhou, Taichung, Tainan, Tianjin, Xiamen and Xi’an Structure of the firm: Partnership Favourite books: Health and fitness, including self-improvement, body, mind and soul genres
Streams in the desert As part of Mazars’ carbon-compensation programme, a team from its China offices recently ventured to the over-farmed lands of Inner Mongolia on a tree-planting mission On any day of the week, Thomas Granjard, the Beijing-based financial adviser of international audit firm Mazars, can be found working alongside his team of accountants to solve clients’ accounting and tax problems. He joined the company in 2008 and is an expert in Chinese accounting standards and tax regulations. But recently the French accountant has had a different assignment: solving the desertification problem of China. In April, Granjard led a team of Mazars staff to Inner Mongolia to turn desert into farmland. They were participating in the Million Tree Project (MTP), a programme founded by green group Shanghai Roots & Shoots in 2007. By planting trees in the desertified land of Kulun Qi every April, the MTP aims to improve both ecological and human living conditions. It wants to plant 1 million seedlings by 2014 to fight global warming and restore over 666 hectares of land (around 1,000 football fields) to slow down the devastating desertification in the area. Climate change and land exploitation including over-grazing and over-farming have degraded the land of Kulun Qi from farmland to fragile soil, which is primarily sand or desert. Now the desertified area is expanding quickly. Sandstorms, caused by wind erosion, have also destroyed homes and forced many people to flee. ‘We’ve all seen how badly Beijing is affected with sandstorms every year. The desert is a problem that has consumed about one-third of China’s landscape and each spring it spreads further and further. The MTP aims to reforest the area, revitalise the land and block the sandstorms,’ says Thierry Labarre, senior founding partner of Mazars in Beijing.
Major commitment Mazars, founded in France, has committed €20,000 (156,778 yuan) to fund the planting of 5,000 trees, which will help replenish 13,333 square metres of desert lands. The backing is part of a global carbon-compensation campaign advocated by Mazars in 2010. The vision came about after the company’s 2010 annual general meeting, which encouraged attendees to minimise carbon emissions to combat global warming. Since then, Mazars offices around the world have undertaken various carbon-cutting programmes. Labarre and Granjard became involved with the MTP in May last year after Mazars encouraged them to support a green project in China. Soon Granjard began researching China’s most critical environmental issues
online. The pair then shortlisted two environmental projects – one was the MTP, the other involved planting trees to help restore the natural habitat of pandas. The management picked the MTP. ‘It’s not just about trees and improving the quality of the air, but actually creating a much more fertile land for farmers to live off,’ says Mazars board member Ken Morrison, who also founded Mazars in Hong Kong.
Footprint calculation Deciding to become involved with the MTP led to a new way of life for the Mazars team. To discover the carbon footprint of the firm’s four China offices (Beijing, Shanghai, Guangzhou and Hong Kong), Granjard turned himself into a ‘carbon auditor’.
*MAKING A DIFFERENCE
Mazars’ audit associate Maxine Shen was always passionate about saving the environment, but has never had the chance. So when she heard about the Million Tree Project (MTP), she did not think twice about signing up. But when she stepped into the planting site, she was taken aback. ‘It was a shock to learn the desert we were walking on was green farmland just a few short years before. The desert had taken over completely,’ says Shen, one of three Hong Kong staff on the MTP trip. The team saw first hand the effects of global warming – witnessing the life of deprived farmers, and felt the sweltering heat in the area. Another member of the Hong Kong team on the trip, Richard Cheng, a senior in the forensic department, said: ‘Local children told us that there were lakes and rivers, but now they are empty as the weather is getting hotter,’ Cheng says. To help out, the three worked hard to plant trees. ‘I was a digger. It was pretty hard work. I used a simple shovel to dig the hole, and we had to work fast,’ Cheng adds. The planting trip has changed the trio. Cheng told his friends about what he saw in Inner Mongolia to help them see the impact of global warming, and has encouraged them to join the MTP. Shen learned that people could make a difference. ‘We planted 400 trees in one day to stop the advance of the desert. I learned that people could actually achieve a lot within a short time if they actually put their minds to it,’ she says.
‘IT’S NOT JUST ABOUT TREES AND IMPROVING THE QUALITY OF THE AIR, BUT CREATING A MUCH MORE FERTILE LAND FOR FARMERS TO LIVE OFF’
The Mazars team on site during their tree-planting mission in Mongolia. The 1.2 metre-high poplar seedlings were planted on the desert’s borders to keep it from spreading
He added up electricity, gas and taxi bills, and worked out the number of trips staff took to and from work and on assignment, and their typical transport modes. Then, using a carbon audit methodology, he estimated the level of CO2 the activities of the company produced and worked out how many trees they needed to plant to offset the emissions. Around the same time, Labarre was creating a campaign to increase staff awareness of environmental issues. He then sent out an online quiz to all China staff to select those who would go on the tree-planting trip. Eight people were chosen based on who had provided the most creative and practical ways to reduce paper, water and electricity consumption at the firm. In April, Granjard and his team of flew to Kulun Qi for their three-day green mission. He was shocked to see the soil erosion when they arrived at the site. ‘I saw areas which had collapsed into small canyons overnight. People said the canyons were not there a few years ago. It made me wonder what was going to happen in this place in the future,’ he says.
One day, 400 seedlings After receiving basic tree-planting training, the team joined around 30 volunteers and planted 400 poplar seedlings on their first day. Poplar trees are fast growing, strong and effective at sequestering carbon. But planting in the desert is not easy. ‘Replanting is a very traumatic experience for trees,’ Granjard says, adding that spring planting works best. ‘If you plant the tree seedlings in summer, it only gives them a couple of months before winter comes. The more time you give the seedlings to find roots in the soil, the higher the chance that they will survive the winter.’ The planting crew followed instructions carefully, such as keeping the plants moist at all times as the sandy soil dries out quickly. ‘First there was a digger which dug the hole, which had to be about 1 metre square and 1 metre deep. The next person placed the tree into the hole. Next, another person added some
The Mazars team also taught local children how to better care for their environment
moist soil, filling the hole by about 50%. Someone added water. Then more soil was added to fill the hole and finally more water,’ he says. They planted the 1.2 metre-high seedlings on the desert’s borders that were being degraded to keep the desert from spreading and to protect the neighbouring towns and cities like a wind barrier. They also left a gap of 5 metres between rows of trees to create farmland. ‘The 5-metre distance can be used by farmers to grow certain crops if they are given enough water. The trees will also bring the soil back together. This is the most amazing thing about nature,’ he says, adding that the crops will be shielded by trees on two sides from harsh winter winds.
Pruning and teaching On the second day, the crew went to see trees planted four years ago and cut new branches from trunk base to help them grow higher. On their final day, the Mazars team gave classes to children to raise their awareness of conservation and sustainability and
taught them ways to protect their own environment. The team will be able to watch how their trees grow via Google Earth and a forestry manager and local farmers will help monitor the soil and maintain the trees for 10 years. The project has helped Granjard and others at Mazars develop a passion for environmental protection. ‘Accountants have something to bring to sustainable development. We’re good with numbers, we know how to account for things like CO2 emissions. We really hope that we can contribute to protecting the environment,’ Granjard says. Meanwhile, Morrison is happy that the project has built greater depth of relationship among staff and community. He says that people have a responsibility to save the environment. ‘In the longer term, we cannot afford not to be involved in environmental issues as people, because we have a duty and a responsibility to create a better environment for the future.’ Sherry Lee, journalist
ABCN Sep 2012 (China) ol_helen.pdf
A monthly round-up of the latest from the standard-setters SINGAPORE REVIEW OF SIBOR The Monetary Authority of Singapore (MAS) has directed banks to look into their processes regarding the setting of the benchmark interbank borrowing rates. It has also asked for an independent review. The probe will focus on two prominent rates in Singapore, the Singapore Interbank Offered Rate (SIBOR) and the Swap Offer Rate (SOR). More details are available at www.mas.gov.sg REPORT ISSUED ON CFOS ACCA and the Singapore CFO Institute have issued a report, The Value of the Modern CFO – Board Directors’ Perspective. The report is based on a roundtable discussion by board directors on the attributes, competencies, specific actions and deliverables expected from the modern-day CFO. The report can be downloaded from www.acra.gov.sg CHANGES TO QFB PROGRAMME The MAS has announced changes to its Qualifying Full Bank (QFB) programme to encourage foreign banks to deepen their roots in Singapore. The MAS will require existing QFBs that are important to the domestic market to locally incorporate their retail operations. In determining whether a QFB will be required to locally incorporate its
retail operations, the MAS will review factors such as the QFB’s market share of domestic deposits. The MAS will consult QFBs on the criteria for requiring local incorporation. For QFBs that operate as local subsidiaries, a very small number may become significantly rooted in Singapore over time. The MAS will consider granting such QFBs an additional 25 places of business, of which up to 10 may be branches. This will be part of an overall package negotiated with these QFBs’ home countries which are free trade agreement (FTA) partners with Singapore. These QFBs will be able to operate up to 50 places of business in Singapore. More details are available at www.mas.gov.sg MAS AND BANK OF THAILAND The MAS and the Bank of Thailand (BOT) have signed a memorandum of understanding (MoU) to establish a reciprocal crossborder collateral arrangement. The arrangement will help maintain financial stability in both countries. Under this arrangement, eligible financial institutions operating in Singapore may obtain Singapore dollar liquidity from the MAS by pledging Thai baht or Thai government and central bank securities with the MAS. Similarly, eligible financial institutions operating in Thailand may obtain baht liquidity
from the BOT by pledging Singapore dollars or Singapore government and central bank securities. More details are available at www.mas.gov.sg CONSULTATION PAPERS ISSUED The MAS has released a consultation paper on the review of the Risk-Based Capital (RBC) framework for insurance business. The RBC framework was first introduced in Singapore in 2004. It outlines a risk-focused approach to assessing capital adequacy and seeks to reflect the relevant risks that insurance companies face. The MAS is reviewing the framework, given evolving market practices in the insurance industry and in international accounting and regulatory standards. The review aims to improve the comprehensiveness of the risk coverage and risk sensitivity of the framework, and is not expected to result in a significant overhaul. The consultation paper seeks feedback on the additional risks to be included, the methodology to better calibrate the risks covered, as well as the implementation schedule. It is available from www. mas.gov.sg and comments should reach the MAS by 25 August. Interested parties should email comments to email@example.com The MAS has also released another two consultation papers, on technology risk management (TRM). The first is a set of enhanced
guidelines on TRM and the adoption of sound security practices. The second is a notice on TRM which sets out the legal requirements for financial institutions. The MAS proposes to issue the notice to define and enforce a set of mandatory IT requirements for the financial industry. It stipulates requirements for a high level of robustness and integrity of critical IT infrastructure and systems. It also specifies the requirement for financial institutions to implement IT controls to protect customer information from unauthorised access or disclosure. The consultation ended on 16 July. More details can be found at www.mas.gov.sg Joseph Alfred, policy and technical adviser, ACCA Singapore
HONG KONG CDTA WITH MEXICO Hong Kong signed a comprehensive double taxation agreement (CDTA) with Mexico in June 2012. This is the 25th CDTA concluded by Hong Kong and its trading partners. The agreement will come into force after the completion of ratification procedures on both sides. DIPN NO.49 The Legislative Council passed the Inland Revenue (Amendment) (No. 3) Ordinance 2011 in December 2011 to
implement a budget proposal to extend profits tax deduction to capital expenditure incurred on the purchase of three types of commonly used intellectual property rights (IPRs): copyright, registered designs and registered trademarks. The budget proposal aims to promote a wider application of IPRs by local enterprises and facilitate the development of creative industries in Hong Kong. As such, in July 2012, the Inland Revenue Department released DIPN No. 49 to set out in detail its views and practices on the profits tax deduction relating to the purchase of these three types of IPRs. Details of DIPN No. 49 can be found at www.ird.gov.hk Sonia Khao, head of technical services, ACCA Hong Kong
MAINLAND CHINA FINANCIAL DISCLOSURE To implement the relevant requirements of the Guiding Opinions on Further Reforming the Issue System of New Shares (No. 10 ), further improve the quality of financial information disclosure by companies undertaking an initial public offering (IPO), increase transparency, and promote the fulfilment of respective duties of all market participants in the issue of new shares, the China Securities Regulatory Commission has issued
the following opinions on improving the quality of financial information disclosure by companies undertaking an IPO. I All market participants shall diligently perform their respective duties to effectively improve the quality of financial information disclosure. II Measures shall be taken to effectively solve the significant problems existing in the financial information disclosure by companies undertaking an IPO. III The accountability mechanisms shall be further improved and implemented. Sophia Zhao, technical manager, ACCA Beijing
MALAYSIA PRIVATE RETIREMENT SCHEME On 18 July, prime minister Najib Razak launched the final component of the private retirement scheme (PRS) framework, with the establishment of the Private Pension Administrator (PPA) and the approval by the Securities Commission (SC). The PPA will play an important role in the enabling infrastructure for the PRS. Account holders will have easy access to information and ease of transfers. For more on the PRS, go to www.ppa.my TALENT WANITA JOB PORTAL The Department of Women Development of Ministry
of Women, Family and Community Development and Talent Corporation have launched the Talent Wanita portal, which aims to connect women with job opportunities that offer flexible working arrangements. The portal can be found at www.talentwanita.my MFRS TRANSITIONAL PERIOD On 3 July, The Malaysian Accounting Standards Board (MASB) decided to allow agriculture and real estate companies (transitioning entities) to defer the adoption of the Malaysian Financial Reporting Standards (MFRS) for another year. Transitioning entities are those entities within the scope of MFRS 141, Agriculture and/ or IC Interpretation 15, Agreements for the Construction of Real Estate, including a parent, significant investor and venturer. MFRS will therefore be mandated for all companies for annual periods beginning on or after 1 January 2014. For more, go to www. masb.org.my PUBLIC RULING NO. 4/2012 On 1 June, the Inland Revenue Board (IRB) issued Public Ruling (PR) No. 4/2012, Deduction for Loss of Cash and Treatment and Treatment of Recoveries. This replaces PR No. 5/2005 issued on 14 November 2005. For more, go to www.
hasil.gov.my/pdf/pdfam/ KU_No_4_2012.pdf PUBLIC RULING NO. 5/2012 On 25 June 2012, the IRB issued PR No. 5/2012, Clubs, Associations or Similar Institutions. This explains the taxation of clubs, associations or similar institutions which are established and controlled by its members. For more, go to www. hasil.gov.my/pdf/pdfam/ KU_5_2012.pdf E-FILING SYSTEM The IRB’s Organisational e-Filing (OeF) system has now been fully implemented. As a result, forms e-C, e-R and e-CP204 must be submitted using the company’s digital certificate except for those submitted by tax agents. A company can apply for an OeF pin number via Form CP55B via https://e.hasil. gov.my DORMANT COMPANIES Suruhanjaya Syarikat Malaysia (SSM) has introduced a moratorium period running until 31 December, to encourage directors and shareholders to strike off the names of dormant companies from the companies registry. A reduction of compounds or penalties will be an added incentive. For further details, go to www.ssm.com.my Vilashini Ganespathy, head – technical and professional development, ACCA Malaysia
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More questions than answers The publication of non-binding Q&A guidance for users of the International Financial Reporting Standard for SMEs has raised eyebrows in some quarters, says Graham Holt
The SME Implementation Group (SMEIG) is a forum that considers implementation questions raised by users of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). It has published implementation guidance as a series of questions and answers. This article will detail the final published questions and answers to date.
Parent entities In some countries, parent entities prepare separate financial statements as well as consolidated financial statements. The first SMEIG Q&A was whether a parent entity, which is required to present consolidated financial statements in accordance with full International Financial Reporting Standards (IFRS), can present its separate financial statements in accordance with the IFRS for SMEs. The IFRS for SMEs is intended for non-publicly accountable entities that publish general-purpose financial statements for external users. If a parent entity does not itself have public accountability, it can present its separate financial statements in accordance with the IFRS for SMEs even if it presents its consolidated financial statements in accordance with full IFRS. The parent may use the IFRS for SMEs in its separate financial statements on the basis of its own public accountability without considering other group entities.
A parent entity has public accountability where its own debt or equity instruments are traded in a public market (or it is in the process of issuing such instruments for trading in a public market) or it holds assets in a fiduciary capacity for a ‘broad group of outsiders’ as part of its main business. If a publicly accountable entity applies the IFRS for SMEs in its financial statements, it cannot describe those financial statements as complying with the IFRS for SMEs. However, a subsidiary that is part of a group that uses full IFRS is not prevented from using the IFRS for SMEs in its own financial statements as long as it does not have public accountability.
Public accountability The IFRS for SMEs identifies banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks as examples of the type of entity that ‘typically’ holds assets in a fiduciary capacity for ‘a broad group of outsiders’ as part of its main business. The second SMEIG Q&A was whether all those types of entities could automatically be assumed to have public accountability. There is no simple answer here, as judgment will be required to assess whether entities have public accountability. Part of the definition of public accountability relates to the ability of external parties that make economic decisions to demand reports
tailored for their particular information needs. Typically, depositors in banks, holders of shares in mutual funds, etc, are not in a position to demand such reports, so the entity is presumed to have public accountability even if it holds the assets for only a short time. ‘Broad group’ implies that the involvement of only a few individuals would mean that the entity would not be considered publicly accountable. However, there is no simple rule on what constitutes a broad group and so judgment will again be necessary.
Trading in a public market The third SMEIG Q&A continued with the theme of public accountability by considering how broadly ‘traded in a public market’ should be interpreted. Did it refer only to regulated markets or did it also cover other markets such as growth share markets and overthe-counter markets? ‘Public market’ is defined in the IFRS for SMEs as ‘a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets’. The definition includes all markets that bring together those capitalseeking investors that are not involved in managing the entity. The market must be accessible by a ‘broad group’ of investors. If the exchange is simply between parties involved in managing the entity, the market is not public. Advertising by a shareholder does not, by itself, create a public market; neither does the availability of a
TO GET THE QUESTIONS GO TO www.accaglobal.com/cpd/ financialreporting
Helen Brand Chief executive ACCA
A PARENT ENTITY MAY USE THE IFRS FOR SMEs IN ITS SEPARATE FINANCIAL STATEMENTS ON THE BASIS OF ITS OWN PUBLIC ACCOUNTABILITY published price mean that an entity’s debt or equity instruments are traded in a public market. There is no definition of ‘public’ in the IFRS for SMEs but it is usually considered to mean affecting a community as a whole; as set out above, it could be open to a broad group of outsiders, even if trading is infrequent.
Exemptions There are a number of exemptions in the IFRS for SMEs on the basis of ‘undue cost or effort’ or because the requirement is ‘impracticable’. The ‘impracticable’ exemption applies where an entity cannot apply it after making every reasonable effort to do so. However, ‘undue cost or effort’ is not defined and SMEIG was asked to explain the term. It involves a consideration of how users’ economic decisions could be affected by the non-availability of information and so requires judgment. ‘Undue cost or effort’ is specifically applied for some requirements but not all. Where ‘undue cost or effort’ is used in conjunction with ‘impracticable’, the application of the standard should be as if ‘undue cost or effort’ had been used on its own. The definition of ‘impracticable’ in
the IFRS for SMEs is the same as under full IFRS and refers to effort and not cost. The inclusion of ‘undue cost or effort’ for certain requirements in the IFRS for SMEs is intended to point out that cost is a consideration. The International Accounting Standards Board (IASB) feels that a requirement would result in ‘undue cost or effort’ where the cost or the employee effort would be excessive in comparison with the benefits gained by users of the SME’s financial statements from having that information.
Which IFRS? Often a jurisdiction will require that a certain recognition and measurement policy is followed that is dealt with in full IFRS and not specifically covered by the IFRS for SMEs.The question then arises as to whether the SME in that jurisdiction can state compliance with the IFRS for SMEs. In the absence of specific requirements in the IFRS for SMEs, management must use its judgment in adopting a reliable and relevant accounting policy. The IFRS for SMEs sets out the following hierarchy to help decide the appropriate accounting policy to use: A) the requirements and guidance in the IFRS for SMEs dealing with
Dean Westcott President ACCA
Register and watch Helen and Dean answer your questions ACCA Engage 10 September 2012
SOME BELIEVE NON-BINDING GUIDANCE IS INCONSISTENT WITH THE OBJECTIVE OF A SINGLE, STABLE, STANDALONE STANDARD FOR SMEs similar and related issues; and B) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses and the pervasive principles in the standard. The IFRS for SMEs also states that management may also consider the requirements and guidance in full IFRS that deal with similar issues providing that they do not conflict. This requirement does not allow a free choice to apply full IFRS requirements when there is a specific requirement existing in the IFRS for SMEs. If the IFRS for SMEs contains different guidance to full IFRS, the entity will not be able to state compliance with the IFRS for SMEs unless the effect is immaterial.
IAS 39 vs IFRS 9 A related question has arisen with IAS 39, Financial Instruments: Recognition and Measurement. The IFRS for SMEs gives an entity the option of applying the recognition and measurement provisions of IAS 39 to all of its financial instruments instead of following the SME standard. The question arises as to whether an entity can choose to apply the provisions of IFRS 9, Financial Instruments. The IFRS for SMEs refers specifically to IAS 39
and thus SMEs are not permitted to apply IFRS 9. The reason for this is that the use of IFRS 9 by SMEs would require a change to the IFRS for SMEs. The IASB intends to undertake a thorough review of the IFRS for SMEs and at that time it will also consider new and amended IFRSs that have been issued since the IFRS for SMEs was published, including the requirements of IFRS 9. The review is expected to be completed in 2014, so changes to the IFRS for SMEs would most probably be effective at a similar time to the effective date of IFRS 9. If an SME follows the recognition and measurement principles of IAS 39, there is a requirement that exchange differences arising on translation of a monetary item that forms part of a reporting entityâ€™s net investment in a subsidiary should be recognised initially in other comprehensive income and be reported as a component of equity. The standard prohibits those cumulative exchange differences from being recognised in profit or loss on disposal of that net investment. Similarly, exchange differences arising on translation of a foreign subsidiary should be recognised in other comprehensive income but the standard does not mention recycling to
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profit or loss on disposal. The question arose as to whether the cumulative exchange differences arising on translation are prohibited from being recognised in profit or loss on disposal of the subsidiary. The IASB has decided to prohibit all cumulative exchange differences recognised in other comprehensive income from being reclassified to profit or loss on disposal of the subsidiary. This requirement is a difference from full IFRS, and was drafted in order to eliminate the burden for SMEs of tracking the exchange differences after initial recognition.
Inconsistency The provision of non-mandatory implementation guidance by the IASB on the IFRS for SMEs has not been without critics. Some believe it is inconsistent with the objective of having a single, stable, standalone standard for SMEs. The IASB has recognised that providing less guidance than for full IFRS makes for greater diversity in practice on issues that were not addressed. By trying to remedy this, with non-binding questions and answers, it could be seen as calling into question the basic design of the standard and diluting the power of a single standard. 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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Strategy without the guff In the first of a series of five articles, Dr Tony Grundy sets out to make strategy a practical tool for accountants rather than a bluffer’s paradise
The aim of this series of articles is to lay bare the essence of strategy and show how it can be used by accountants in a very practical way. Along the way it will be demystified as much as possible. Strategy is often clouded in unnecessary jargon. Strategy – such a simple term – has become entangled with confusion. As a result, people who deploy strategy terms end up saying things in real life that don’t have much real meaning at all. You may recognise this is what is happening when someone says something about strategy, and you simply don’t get it. If you don’t get it, it doesn’t mean that you are stupid. It may well be that
connotations that are simply too general and vague. The number and ambiguity of these terms can make strategy hard to follow, so let’s make a start by defining just what is meant by ‘strategy’.
The road from here to there Many of the possible definitions of strategy are abstract, such as ‘matching the environment’, or are concepts, such as ‘having an inimitable competitive advantage’. This kind of abstraction can quickly put people to sleep, so the first of my three complementary definitions is: strategy is how you get from where you are now to where you want to be – and with real
THE SPICE GIRLS’ DEFINITION OF STRATEGY COMES INTO ITS OWN WHEN MANAGERS HAVE GOT ENTRENCHED IN THEIR EXISTING POSITION the speaker is either using ‘strategy’ as an excuse to be vague or using terms that they don’t really understand. They may simply be trying to be clever or use the reference to strategy to get you to think in a particular way. The complex and abstract language so often used in strategy is another problem. There are possibly 100 terms or more that get talked about in discussions about strategy; some, like ‘competitive advantage’, are useful and generally clear, but others such as ‘mission’ and ‘vision’ can carry
and sustainable competitive advantage. This definition has five ingredients: knowing where you are now knowing where you want to be knowing how you will get there basing the ‘how’ on competitive advantage making this competitive advantage genuine and durable. For this, you need to have a very clear idea as to where you are right now – in other words, your strategic position. This means asking some key questions, such as:
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is going on in the environment * What around your industry/market – the economy, the technology, and so on? How competitive is your market and what are its dynamics? How do your customers see your business and the value that it adds relative to your key competitors? The other aspect here is that ‘where you want to be’ takes you into the future. Strategy encourages people to think future a great deal more than they usually do. Much of what goes on in everyday management is focused on the immediate: this meeting, today’s tasks, this week. But as is often observed, the future is so important because we are going to spend the rest of our lives in it. Strategy serves a very real purpose by getting us to think about the future environment, future options, future competitive advantage and so on. Strategic thinking therefore means being able to travel imaginatively through time into the future. In this definition the strategy itself is not just the strategic goals and is very much to be found in the ‘how’ itself. At this point you might be thinking that what is being described here is implementation, which you have always thought of as operational and tactical. But it would be very odd if it were possible to say how a strategy would be implemented without explaing something about its tangible, operational action. Strategy must be specific and tangible; otherwise, how
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will you achieve it and how will you know if it has actually happened?
What you really, really want My second definition pays homage to British girlband the Spice Girls: strategy is what you really, really want. This definition gets us to imagine a future world with strategic possibilities and where we can realise an exciting dream, but through realistic actions and activities. This definition comes into its own when managers have got entrenched in their existing position and the mindset that goes with that. It encourages people to stand back and reflect (sometimes referred to as ‘helicopter thinking’) on what they wanted in the first place, rather than get too bogged down in the problems and issues of their current strategic position. This definition lifts expectations about what can be credibly achieved. A strategy of the Spice Girls form still needs to be rooted in ideas that are grounded in real competitive advantage and are fully aligned – all the things external or internal to the business that are prerequisites of success (the so-called ‘alignment factors’) must be in place. An example of a strategy based on alignment is that of James Dyson’s entry into the carpet cleaning market in the mid-1990s. His alignment factors were: the product had technology which made the vacuum bag obsolescent
more suck * itit had was designed to be a status item * rather than be hidden in a cupboard – it was iconic it was patented for some years competitors tried to come up with a better bag its premium price positioned it as having a high value-add. Subsequently many of these alignment factors were eroded and profits fell by 50% by the 2000s (although they have now recovered), highlighting the need to preserve the sources of real competitive advantage.
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The cunning plan My final definition of strategy is the ‘cunning plan’ popularised in British TV comedy Blackadder. The cunning plan: works backwards from the result is fundamentally simple achieves its goals by a combination of obvious, and not so obvious, ideas isn’t particularly easy to imitate. The idea of the cunning plan is relevant as many managers seem content with more or less any kind of strategic plan at all, whether it is a cunning one or not. But it is important to stress that average plans, or even plans that are slightly above average, simply will not do. Over the years I have shown hundreds of accountants Back and Forth, the short film based on the Blackadder TV series. In it, Blackadder and Baldrick invent a time machine so that they can go back into the past and
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steal things that can subsequently be sold as expensive items. Unfortunately Baldrick falls on the time controls and they zoom back in time before they know where the present (their ‘current position’) is. They go backwards and forwards through history but can’t find their way back, getting more and more frustrated in the process. Eventually Baldrick comes up with a cunning plan: that they try to drown Blackadder to bring on a near-death experience so that he will recall every moment of his life including the original settings on the time machine. Blackadder, though, has an even better idea and tries drowning Baldrick instead (the ‘stunning plan’); Baldrick does indeed remember the settings and they return. What is memorable about this plan is that it is not obvious. It is very clever, working back from the future desired state (memory recall) rather than planning towards it to try to get somewhere. That is truly cunning.
Strategic thinking Strategic thinking can be defined as: the thinking processes that consider any complex situation from a variety of angles, seeking out options and evaluating them and their implications from differing perspectives in a novel way. Let’s first unpack the key ingredients in this definition: ‘thinking’ – this a structured and creative process which takes into account causality, the degrees of
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freedom and the constraints, and weighs up the pros and cons of alternative decisions ‘complexity’ ‘looking at things from different angles’ – this can be from external and internal perspectives, over short, medium and longer-term time horizons, with different sets of assumptions, etc ‘options’ – distils possible choices into discrete and specific options ‘evaluating’ – assesses the options on the basis of multiple criteria ‘implications’ – looks at things like the investment required, the implementation needed, and how to influence stakeholders ‘novelty’ – the end goal is to come up with some cunning (if not stunning) ideas. If strategic thinking is contrasted with more operational thinking, the differences can be listed as shown in the panel below. What becomes clear from this is that strategic thinking is qualitatively very different to operational thinking. It is far more ambiguous and can be challenging emotionally as well as politically.
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MANY MANAGERS SEEM CONTENT WITH MORE OR LESS ANY KIND OF STRATEGIC PLAN AT ALL, WHETHER IT IS A CUNNING ONE OR NOT Strategic concepts Some of the most important strategic concepts include the following: Mission. The mission is the overarching purpose of the organisation – the kind of organisation it wants to be, what businesses it wants to be in, and its guiding philosophy. If a mission is to be of any use it is vital that it has some grounding in robust assumptions about the present and potential strategic position and is distinctive. Vision. The vision is a picture of either the environment (and our fit within it) or just of ourselves at some stage in the future. Objective. A strategic objective is one of the goals of the strategy. The objective should not be confused with the strategy itself; it is an output – and a very specific one at that. Strategic objectives can and should be broken down – for example, into compound sales growth, changes in relative
linear deductive preprogrammed clear boundaries safe
iterative and unpredictable inductive and intuitive creative ambiguous and fuzzy boundaries anxiety-provoking
market share or other measures of relative competitive position, development of key capabilities and successful strategic breakthroughs. Strategic option. A strategic option is a way in which a strategy can be formulated so that it can actually be implemented. This means that the strategy needs to be sufficiently specific, not only in terms that allow it to be evaluated, but also in terms that allow it to be executed. While I have presented these strategic concepts in the order in which they might appear in a plan, in practice they are more likely to be generated by looking briefly at objectives, evaluating options to arrive at strategies and only then setting final objectives, vision and mission so that the latter are realistic. In summary, strategy can and should be demystified, its terms defined and explained, and strategies themselves based on a number of elements, especially the cunning plan. The next instalment will take you further on a much more detailed journey in the demystification of strategy.
Dr Tony Grundy is an independent consultant and trainer and lectures at Henley Business School in the UK www.tonygrundy.com
BETTER FINANCE DIVERSITY Diversity is increasingly helping accountants strive for better business in a globalised world – but the make-up of teams still needs to be broadened, a panel of experts in Shanghai concluded on 11 July. An ACCA report, Building a Better Business Through Finance Diversity, highlighted a survey of members which revealed strong support for diversity. Eighty-two per cent agreed or strongly agreed that a mix of skills, experiences and backgrounds are useful. Yet only 48% thought that this level of diversity existed in their team at present. ‘We believe in diversity because it is a good thing, but it is also good for business,’ said Neil Stevenson, executive director – brand at ACCA. ‘The role of the CFO is changing as the scope of the finance function evolves. The finance team must deal with a range of stakeholders, both internal and external. Skills that CFOs need are much broader and extend beyond finance.’ Diversity is an evolving concept. Though traditional issues such as age, gender and ethnicity still matter, multinationals increasingly need cross-cultural skills as well as local knowledge to stay competitive. One lesson from the global financial crisis, the attendees heard, is that diversity in business leadership is crucial to avoid the two-dimensional thinking that lead to market catastrophe. ‘Our headquarters are in Europe and in a meeting there last year I was amazed that one topic was maternity leave management’, said Jason Wang, CFO of Henkel Greater China. ‘In China or Asia, this is a lesser focus. In our China finance team 80% of members are female, and mothers have help from family members and domestic helpers. In Asia diversity is, in my view, more about including people of different backgrounds and to encourage collaboration and innovation.’ Building a Better Business Through Finance Diversity identifies five steps
From left: Neil Stevenson; Chun Wee Chiew, head of policy Asia Pacific, ACCA; David Cavanna; Jason Wang; and Christina Antoniou
towards a more diversified finance function. ‘You have to actively drive diversity’, said David Cavanna, CFO of HSBC China. ‘There’s a tendency that when a vacancy appears you take the same path you did previously. You have to have strength of character, otherwise you end up with the same business structure you had before.’
Different skillsets An ongoing challenge in China is being able to attract students from the top schools. State-owned companies are becoming more and more attractive compared with the multinationals once preferred by many students. ‘We’ve had to diversify our thinking: do we only need accounting majors?’ said Christina Antoniou, partner and national functional leader in Deloitte China’s HR department. ‘Engineers also have strong mathematical skills, so could an engineer have something new and equally valuable to bring to the business? You need to ensure you bring diversified talent to creatively meet your business needs.’
Understanding how emerging markets work at a cultural level is key to utilising local talent. ‘One of the things I find in China and Hong Kong is the strong view of hierarchy,’ said Cavanna. ‘If the manager is in the room, people won’t speak up. I skip management layers, then all the ideas people on the lower levels of a company have come flooding out.’ But diversity does not end at the recruitment level; maintenance is also crucial to keep it alive. ‘We try to be proactive, it’s about getting diversity of ideas,’ said Antoniou. ‘We have an internet platform where people are encouraged to express their thoughts on how we can improve and change.’ Stevenson agreed: ‘We talk about the risks of unconscious bias,’ he said. ‘There are risks, so it’s about how you support the different people you bring, so you don’t lose the benefits that come from diverse perspectives.’ To download the report, go to www. accaglobal.com/transformation
18 October 2012 Four Seasons Hotel, Hong Kong Focus on finance leadership. ACCA chief executive Helen Brand and speakers from Accenture, Asian Corporate Governance Association, BlackRock, Daimler, Deloitte and others will explore the key challenges and opportunities facing finance leaders as they seek to drive business performance and shareholder return. Find out more, visit: www.accaglobal.com/cfo
ACCA â€“ the global body for professional accountants For further information, please contact firstname.lastname@example.org
DIVERSITY ON THE AGENDA When businesses are asked where they stand on diversity, the discussion will often focus on the race, age or sex of their employees. While these are valid topics for even the most progressive of businesses, ACCA’s global research and insights programme shows that diversity is a far deeper issue. Neil Stevenson, ACCA executive director – brand, told guests at an employer roundtable in Beijing: ‘Diversity is not just about what we can see, but about diversity of cultures, ideas and skills. Our research shows that it is a central component of business success.’ The ACCA Employer Roundtable – Diversity Advancing Economic Progress, held on 13 July, followed ACCA’s Building a Better Business Through Financial Diversity report and three other roundtables with members in Shanghai, Delhi and London. Among the 60 or so members and business leaders present were Zhao Lixin, deputy director of the unlisted public company supervision department at the China Securities Regulatory Commission; James Loh, executive director and chief risk officer at Lenovo Group and Lin Lei, HR director of Microsoft’s Asia Pacific Research and Development Group. To kick-start the afternoon event at the China World Hotel, Stevenson provided guests with a summary of ACCA’s research so far and urged them to consider that diversity in finance has never been more crucial for companies. ‘It is needed because of the finance team’s new responsibilities,’ he explained. ‘Diversity in capability and in experience is increasingly vital where the finance function is becoming about operational flexibility, cutting costs and providing a better service to an organisation. It is also clear that diversity has to start with great recruitment – the best people, with the best ideas, from a wide background.’ Stevenson acknowledged that to members in each of the three cities that have already taken part in the
discussion, diversity means something quite different. In Shanghai, for example, there is fierce competition for talent between state and private companies, which can limit the latter’s recruitment options. Meanwhile in Delhi, the very different cultures and ethnic backgrounds of the workforce mean that diversity is easy to come by in one sense but can be a challenge for employers to manage. Overall, however, participants agree that the benefits of greater diversity in the workplace include better innovation and ideas,
them. Also, insurance contract renewal rates are very key. So now we need more guidance for the disclosure of this kind of information.’ Zhao added that as well as more diverse information, China and its regulators are seeking to cope with the increasingly diverse channels via which information is disclosed – from the web to micro-blogs such as Weibo (China’s version of Twitter). ‘It is good that traditional newspapers are not the only way to get information now, but the question remains as to how
‘MANY COMPANIES HAVE CHANGED FROM BEING DOMINATED BY TANGIBLE ASSETS OR HUMAN ASSETS. IT IS A CHALLENGE’ greater understanding of, and therefore access to, new markets and access to new talent.
Many forms of diversity As ACCA’s research acknowledges, there are many forms of diversity. In his keynote speech on the topic, Zhao commented on the need for diversified information disclosure if China’s capital markets are to meet the demands of the investors of the future. ‘Our concern is how to ensure the effectiveness of China’s capital markets. That means effective resource allocation and effective pricing. Over the past 20 years, China has been improving. But the question remains: how can companies better meet the information needs of the public and institutions? ‘Many companies have changed from being dominated by tangible assets to light assets or human assets. It is a challenge for financial information to disclose this. Take hi-tech companies, for example; of the 10 most important bits of data for valuing them, three are non-financial. ‘In China, industry-wide information is becoming more and more important. For example, some institutions only look at loading rates of airlines when valuing
to regulate this new media information. That will take effort from us, the regulator and from market players. We started an online platform in June last year that allows investors to communicate directly with companies, as one step. In general, for the capital market, the diversification of information disclosure is very, very important,’ he concluded. Lenovo’s acquisition of IBM’s personal computer business in 2005 is perhaps one of the most dramatic examples of the challenges and benefits of a more diversified workforce. After the buyout, Lenovo focused on maintaining the diversity of the combined worldwide workforce. Today, the company maintains a multinational management team, as it also had back then. Seven years since the deal and Loh, who previously worked for IBM, said that the buyout had been ‘a success, but not an easy one’. Asked what had made the integration of two companies with such different corporate cultures and staff successful, Loh said: ‘From the start, Lenovo was quite a forward looking company; it had only US$3bn in revenues but wanted to be a top global PC player. The corporate cultures of the
From left: moderator Chiew Chun Wee, Zhao Lixin, James Loh, Neil Stevenson, Lin Lei
Sophia Zhao, technical manager of ACCA Beijing, welcomes guests
two were not so different. Both companies were strong on employee welfare and both were relatively open and diverse in their thinking. This came from the top. ‘From the start Lenovo tried to make employees feel as if they were zhu ren or owners of the company, and behave and act with ownership in mind. Of course there were difficulties, too. When the integration began we had a lot of conference calls scheduled and our US colleagues pointed out that because of the time difference they were up very late at night. In the end we agreed to take it in turns with the calls – some on US time, some on China time.’
A new culture Loh added that when it came to merging the corporate cultures, management opted to develop a new corporate culture rather than stamping the authority of either one on the other. ‘The cultures were quite different,’ Loh noted. ‘For example, Chinese workers are very, very respectful. Subordinates do not give direct feedback to their bosses. Slowly this has changed since the buyout; employees are more vocal and speak their mind. Lenovo’s global corporate
culture now is very simple and universal. Everyone can understand it. That has been very important.’ After the keynote speeches, a lively question-and-answer session followed. Microsoft’s Lei told guests that she believed that China enjoys good gender equality because women are brought up to be very competitive, although she also acknowledged a lack of women on the boards of Chinese companies. Loh described the difficulties of recruiting and retaining staff known as the ‘80s or 90s generation’ in China – young workers born in the 1980s or 1990s who have high expectations about their careers and work/life balance. Lenovo conducted research on the subject, after which the company
decided to change its HR message. ‘We aimed to be clearer about where our training could take our younger employees and what we would expect of them. We also told managers to adapt their management style,’ he said. In conclusion, Stevenson reminded guests that every company needs its share of ‘controllers, supporters and new thinkers’ – to ensure a truly diverse workforce for an increasingly diverse corporate world.
Building a Better Business Through Financial Diversity can be found at www.accaglobal.com/transformation Tessa Thorniley, journalist
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OPTIMISING CORPORATE GOVERNANCE Information disclosure is an essential part of corporate governance but, for the benefit of both companies and investors, improvements are needed, concluded an expert panel at the ACCA Research and Insights: Optimising Corporate Governance conference on 10 July. A new report was unveiled at the event, Disclosures Best Practices by Listed Companies on the Shanghai Stock Exchange: Case Studies. Though disclosure is a requirement for most listed companies by law, the report, conducted by ACCA and Shanghai Stock Exchange (SSE), found that investors and shareholders aren’t satisfied with compliance alone. They are looking for a more united, global approach to disclosure, especially in the non-financial area. In his foreword to the report, Zhou Qinye, former vice president of the SSE and keynote speaker at the conference, said: ‘We firmly believe that listed companies can do better in terms of accuracy, fairness and completeness of their disclosures, in particular in the management discussion and analysis
‘ACCA has detected increasing demand from business for change,’ Neil Stevenson, executive director – brand, ACCA, told delegates gathered at the Ritz-Carlton in Shanghai. ‘Disclosures help companies to enhance their brand value, to shape their corporate culture and to establish closer relationships with capital markets. More importantly, quality disclosure helps towards future financing opportunities.’ Zhou echoed the need for quality over quantity, emphasising that overregulation in disclosure requirements results in broad and excessively specific disclosures. ‘Management spends huge amount of time and resources compiling periodic reports, and is hence discouraged from voluntarily disclosing other information, which may in fact be more relevant.’ Speaking at the conference, he noted that companies need to be prudent in what they disclose if they are to attract investment: ‘If you provide a large amount of garbage, you drive away investors. If you provide useful
‘DISCLOSURES HELP COMPANIES ENHANCE BRAND VALUE, SHAPE CORPORATE CULTURE AND ESTABLISH CLOSER RELATIONSHIPS WITH CAPITAL MARKETS’ (MD&A), which represents the core of a company’s non-financial information disclosure. How to clearly and effectively present to the investors the industry developments and trends, the company’s corresponding measures, strategies and operational plans, and so on, has always been the focal point of our improvement efforts.’ An ACCA survey, Towards Greater Convergence, published in 2011, found that 70% of CFOs and investors thought that global standards for corporate governance would encourage longer-term thinking. Meanwhile, 46% believed non-financial reports with global benchmarks would improve their reputation among stakeholders and consumers.
information, investors will invest.’ Stevenson outlined an effective mechanism for information disclosure. This must include an authorisation system for information release; board secretary participation in business decision-making; an internal system for the reporting of material information; a mechanism for external feedback; training for staff involved in disclosing information; and a sound crisismanagement strategy. The annual report still forms the basis of a corporation’s information disclosure. However, Stevenson said: ‘In order to guide investment decisions, investors need quality and timely information, things which are often not provided in annual reports.’
‘Real-time information is increasingly needed.’ Rather than relying on the annual report alone, companies can also use corporate announcements, roadshows and performance explanation sessions. Dr Wang Jianzhang, board secretary of SAIC Motor Corporation, added that a healthy relationship with the press is vital. ‘Media is an important way for investors to get information,’ said Wang. ‘We control the sources of information and educate our employees and tell them they will be held accountable. The second thing we do is monitor the media; we need to know what strategy we will take if there’s a crisis.’
Cautious release While providing information that is fair and free from discrimination is key, Lv Hongbing, group chief executive partner at Grandall Law Firm, added that companies should be wary of disclosing information that could lead to the fluctuation of share prices. Research suggests that telling the story of a company is more valuable to investors than pure numbers accompanied by sterile text. A model such as IFRS could be a suitable standard for best practice. ‘By using this model a full story about a company can be developed,’ said Stevenson, ‘such as what a company does, how it generates value, what is the market share and can it grow, as well as what are the risks and how are they managed.’ While investors understand risk, they do not like surprises. Disclosure about the inherent risks and their management should be a priority. ‘Investors are interested in our future production of vehicles,’ said Wang. ‘But what we tell them is “the past figure is this, the market environment is that”. We don’t jump to our forecasts, though every month we publish figures on sales and production volume. We also disclose our sales volume each month, so investors will have a better understanding of the future based on current information.’
61 *CASE STUDY
Another means to instil global good practice is establishing a mechanism for writing, auditing and releasing non-financial information. If handled by different departments, appropriate authorisation may not be in place. While marketing, PR and finance teams provide valuable information, it as not as highly regarded as that issued by a more senior figure, such as the chair of the board. Auditors, too, have an increasingly crucial role in verifying the dissemination of information. ‘Intermediaries have helped us with information disclosure’, said Gong Dan, chief accountant and secretary of the board of directors at Dongfang Electronics. ‘We believe they work the best when we have to deal with major issues, such as when we got listed in Hong Kong. They help with our annual reports as well.’ Wang agreed, pointing out that intermediaries can help bridge the gap between company and investors. They can help establish a system of reporting and train employees. ‘The market is only 20 years old in China, so we need all the help we can get.’ Zhou noted that listed companies have some way to go in delivering quality reporting but that there are
From left: Wu Chen, senior editor for Asia Pacific, EuroFinance; Lin Yongfeng, associate director of company management, SSE; Dr Wang Jianzhang; Gong Dan; and Lv Hongbin
Neil Stevenson, executive director – brand, ACCA Zhou Qinye, former vice president, SSE
improvements year on year through assistance from the SSE. ‘It will be some time before listed companies can achieve disclosures that are truly beneficial to investors. It is also not an easy task to evolve from the existing boilerplate type of disclosures. We hope to strengthen cooperation across different sectors of society, and work together with all parties, to promote further improvement in corporate disclosures of listed companies to fully meet the needs of investors.’ To download Towards Greater Convergence, go to www.accaglobal. com/reporting Nicola Davison, journalist
Yanzhou Coal’s disclosure of its acquisition of a Canada potash fertiliser project is a classic example of good practice. The company immediately disclosed the thoughts and strategies of management regarding future business development in the face of a significant change to the future business of the company. According to the provisions in the company’s articles of association at that time, the acquisition could have been authorised by the general manager and not the board. In addition, according to Wu Yuxiang, financial director of Yanzhou Coal, the relevant regulatory provisions did not require immediate disclosure of the acquisition. However, the company was aware that the acquisition could lead to misgivings among the public. As such, it was necessary to clarify the management’s future plan as well as the relationship between potash fertiliser and the primary business of the company, namely, the coal business. Therefore, the company chose to disclose the information immediately after the acquisition was completed. Wu revealed the logic underlying the acquisition: from an international perspective, there were only a few international enterprises that focused solely on coal business, and many enterprises had diversified their operations. There was high demand for potash fertilisers in China, while the reserves owned by Yanzhou Coal were low, so it made sense to acquire potash reserves. In entering the Canadian market, the company was able to draw on its experience previously gained in Australia; the acquisition established a stronghold for future expansion. Source: Disclosures Best Practices by Listed Companies on the Shanghai Stock Exchange: Case Studies
HONG KONG GREEN ECONOMY ROUNDTABLE 2012
ACCA and WWF Hong Kong jointly held a Green Economy Roundtable in June. Speakers included Dr Bernard Cheng, policy advocator for climate and energy advocacy projects at WWF; Mara Chiorean, country director of CSR Asia; and Hugh Gozzard, principal of Enterprise Risk Services at Deloitte Touche Tohmatsu. Dr Jeanne Ng, director of group environmental affairs at CLP Holdings, and Philippe Lacamp, head of sustainable development at John Swire & Sons (HK), explained how their organisations had implemented sustainability initiatives. The event concluded with updates on green economy research from Rachel Jackson, head of sustainability at ACCA and Dr William Yu, head of the climate programme at WWF.
JOB HUNTING COMPETITION 2012
Twelve contestants showed their business smarts in the China grand final of ACCAâ€™s Job Hunting Competition on 7 July at the Hong Kong Convention and Exhibition Centre. The grand finalists were split into three groups and given two hours to analyse a business case and formulate recommendations, after which they presented their proposal and sought the buy-in of the judging panel on the same day. Each group comprised one contestant from Beijing, Shanghai, Guangzhou and Hong Kong, offering a rare opportunity for students with different cultural backgrounds to collaborate as a team. All the finalists presented to the judging panel and in front of an audience of over 120 people with confidence and professionalism. After much deliberation by the judges, the winners of the competition were named as: Grand champion: Yung Ho-shu Harry, BBA (Hons) in professional accountancy, year 3, Chinese University of Hong Kong. First runner-up: Mok Chi-kit Herman, BBA (Hons) in professional accountancy, year 2, Chinese University of Hong Kong. Second runner-up: Huang Heather, School of Economics and Management (accounting major), year 2, Tsinghua University (BJ).
Event delegates included Dominic Yin, chairman and CEO, EESCO P2E2 Hong Kong
Best team award: Group C, which consisted of Huang Heather, Tong Xiaochen Tasha (SH), Wang Huihong Charles (GZ) and Mok Chi-kit Herman. Grand champion Harry Yung also won the most popular candidate award, voted by the audience. Other outstanding grand finalists included: Au Po-yu Annis, University of Hong Kong. Kuang Qi Rainy, Jinan University. Li Qing Tammy, Shanghai University of Finance and Economics. Qiao Yijia Alexis, University of International Business and Economics. Tong Xiaochen Tasha, Shanghai University of Finance and Economics. Wang Huihong Charles, Sun Yat-sen University. Wu Yifei Alice, Jiangxi University of Finance and Economics. Wu Zhimin Pank, Shenzhen University. Zhou Yixuan Elaine, Central University of Finance and Economics. National sponsors (in alphabetical order): Deloitte Touche Tohmatsu, Ernst & Young, Fortune International Group, KPMG, Michael Page International, PwC, The Hong Kong Jockey Club, and the Hung Hing Ying and Leung Hau Ling Charitable Foundation. Case sponsor: TACSEN Management Consultants.
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SOCIAL MEDIA TOOLS HELP HONG KONG AND MAINLAND CHINA MEMBERS
Social media tools offer ACCA members an increasingly popular way of extending social networks. ACCA Hong Kong has developed a Facebook fan page and Weibo is also available for ACCA offices in Beijing, Shanghai and Guangzhou. Check them out and get in touch with other members via the social platforms at the following websites. Hong Kong: www.facebook.com/ACCA.HongKong Beijing: e.weibo.com/u/2048672503 Shanghai: e.weibo.com/accashanghai Guangzhou: e.weibo.com/accajhcgz
Grand final winners from left: Mok Chi-kit Herman, Yung Ho-shu Harry and Huang Heather
GOT ROLES TO FILL? Visit www.accacareers.com/china-hong-kong NETWORKING LUNCHEON
Held on 10 July, this event was attended by ACCA senior members and guests from ACCA’s Approved Employers. Bernard Wu, chairman of ACCA Hong Kong (left), is pictured with Joseph Chu, executive director of the Prince Jewellery and Watch Company.
BEIJING ACCA SIGNS COOPERATION AGREEMENT WITH HEBICPA
On 7 June ACCA Beijing and the Hebei Institute of Certified Public Accountants (HEBICPA) signed a memorandum of understanding (MoU). ACCA Beijing will support the HEBICPA in training CPA university teachers in Hebei and the HEBICPA will promote the ACCA Qualification in the province. The MoU was signed by Jordan Yu, head of ACCA Beijing (front left), and Guo Zhijun, deputy president and secretary general of the HEBICPA.
TTT 2012 PROGRAMME TRAINS MORE THAN 40
The 2012 train the trainers (TTT) programme was held in Qingdao City, Shandong, from 16 to 21 July. It was attended by Ada Leung, country head of ACCA China and Zhao Xiaoling, director of the CPD/CPE department at the Chinese Institute of Certified Public Accountants. Forty-one univeristy teachers heard presentations from fellow ACCA (FCCA) members to boost their teaching skills. Topics included IFRS, financial tools, overseas listed company audits, teaching methodology and professional ethics.
CHINA AND THE GREEN ECONOMY
Around 60 delegates attended an ACCA-WWF roundtable held in Beijing in June. Participants discussed the green economy and its effect on business, accountancy, investment and non-governmental organisations. Topics included the shift in investment practices and the skills and knowledge required for accountants.
Neil Stevenson, executive director – brand at ACCA, gave a presentation at the Chinese Institute of Certified Public Accountants (CICPA) on the principles of branding and thought leadership in the accountancy profession. CICPA says brand building will make firms stronger. More than 120 attended.
SEEING AFRICA IN A NEW LIGHT At the biennial ACCA Council meeting held this year in Kenya, members discovered a continent that is open for business and ready to usher in a golden era ACCA’s 36-strong Council came to East Africa in June to discuss opportunities and challenges for the accountancy profession. The biennial meeting in Nairobi, Kenya, followed by separate visits to meetings in Ethiopia, Tanzania and Uganda, reflected Council’s desire for a clearer understanding of the rapid economic and business developments in Africa. ‘The only way to do this is to be here and to be here now,’ said ACCA president Dean Westcott at the gala dinner in Nairobi. ‘This way we can see first-hand how professional accountants working here create public value. And by public value, we mean working in the public interest, promoting responsible and ethical business, and supporting enhanced global economic performance.’ ACCA chief executive Helen Brand said: ‘As our governing body, Council is elected and consists of voluntary members who possess a global outlook that can only benefit further by meeting together in Kenya.’ The chief guest at the gala dinner was Dr James Mwangi, chief executive of Equity Bank in Nairobi. Mwangi made headlines recently when he was awarded the title of Ernst & Young World Entrepreneur of the Year 2012. As finance director and then chief
IEBC commissioner Albert Bwire, ACCA president Dean Westcott, ACCA deputy president Barry Cooper, and Uchumi Supermarkets CEO Jonathan Ciano (left to right) executive of Equity Bank, Mwangi grew the business from a small microfinance house that was ‘technically insolvent’ into Kenya’s largest bank. It is now a listed company and responsible for more than half of all bank accounts in Kenya.
Jamil Ampomah, ACCA director of sub-Saharan Africa
*AB AFRICA: SPECIAL EDITION
To mark the Council meeting in Africa, ACCA’s monthly magazine Accounting and Business published an Africa Special Edition. It is packed with interesting articles, which were highlighted by ACCA president Dean Westcott in his speech at the gala dinner. ‘It is a riveting read that’s challenged my thinking on a number of issues,’ he said. The editors include Alvin Chikamba, head of policy for sub-Saharan Africa at ACCA. It also includes a view from Japheth Katto FCCA, CEO of the Ugandan Capital Markets Authority and board member of the International Federation of Accountants. You can read the Special Edition at www.accaglobal.com/ab
Also among the gala dinner guests were Rosemary Gituma and Abdulwahid Aboo, council members of the Institute of Certified Public Accounts of Kenya (ICPAK), as well as Vickson Ncube, CEO of the Pan African Federation of Accountants. ACCA has a long history of working in partnership in Africa, said Westcott, with learning providers, ICPAK, KCA University and Strathmore University. With the opening of new offices and a growing number of members, ACCA’s presence has increased rapidly in Africa. Member numbers stand at nearly 10,000 for sub-Saharan Africa, and some 82,000 students. ‘This growth could not have been achieved without the partnerships and alliances we have forged here,’ Westcott added. Members across Africa are supported by a team of full-time staff based in 11 African countries, from Botswana to Zimbabwe, and ACCA’s many partners. Africa’s businesses are becoming increasingly important international trade partners and its markets are increasingly attractive as an international trade proposition, said Westcott. ‘This is why professional accountants have a significant role to play in capacity building in Africa.’
Referring to the report Making Capital Markets Work in Emerging and Frontier Economies (see box), Westcott drew guests’ attention to the Uganda Capital Markets Authority’s financial literacy work. The body is running a programme to train journalists in financial issues and how to report on capital markets without jeopardising or compromising their professional standards or journalistic independence, he said. ‘As ACCA members have told me, it is time for ACCA and the business world globally to see Africa in a new light. The continent’s economy is growing strongly and its prospects are bright, but it also faces significant challenges.’ As well as new member ceremonies, an employers’ roundtable was held in Ethiopia on the theme of ‘the role of finance professionals in an emerging economy’. There was also an event in Tanzania to launch the two reports on capital markets, while Uganda was the location for an event to discuss the issues relating to effective financial management and transparency. Jamil Ampomah, ACCA director of sub-Saharan Africa, said: ‘It is important Council members from all over the world come to Africa and understand the issues their Council colleagues face here on this continent.’ ‘We will be taking our learning, our understanding and the expertise gained while we have been here back to our own countries,’ said Westcott, ‘to spread the word that Africa is open for business and this is a golden era for Africa.’ Lesley Bolton, international editor
Above: James Mwangi, Equity Bank chief executive Above right: Westcott on set with NTV host Dan Mwangi Right: Helen Brand, ACCA chief executive Far right: Alvin Chikamba, ACCA head of policy for sub-Saharan Africa
*CAPITAL MARKETS REPORTS UNVEILED
Two reports – The Rise of Capital Markets in Emerging and Frontier Economies and Making Capital Markets Work in Emerging and Frontier Economies – were launched during ACCA Council’s visit to East Africa. The Rise of Capital Markets reviews the academic literature on the development of capital markets, while Making Capital Markets Work is a collection of first-hand accounts and case studies from senior managers and professionals who are spearheading market development. Speaking at the press conference in Uganda, ACCA president Dean Westcott said: ‘Capital markets play an important role in promoting robust economic activity. Emerging capital markets are clearly an increasingly important source of finance to business. Broadening participation in company ownership, especially where the needs of minority shareholders are concerned, requires clear corporate governance, a responsiveness to the many needs of investors, consideration of independent representation on the company board, and transparency of decisionmaking in the interests of all investors and wider stakeholders.’ ACCA believes that capacity building around financial systems is essential. It allows capital markets to enable the most promising businesses – both large and small – to source funds more cheaply and reliably than would otherwise be possible. But in order to do this, these businesses need access to reliable financial information, which in turn depends on the skills and competences of professional accountants. Westcott concluded: ‘Our reports show that the perceived strength of accounting and auditing standards is a leading indicator of the health of capital markets and a strong predictor of their ability to drive economic growth.’ Both reports can be viewed at www.accaglobal.com/access
Accounting for the future Interactive event looks at finance professionals’ sustainability role ACCA is holding a worldwide event next month exploring the role finance professionals will play in developing a more sustainable global economy. Members joining the online interactive event, to be held from 8 to 12 October, will be given access to the latest research in accounting and finance. They will also be able to watch, hear and question experts who will be sharing the latest insights on how businesses need to adapt to meet the future needs of stakeholders, regulators, the economy and the environment. Topics will include risk management, valuation, corporate reporting, investor engagement and the green economy. Those joining the event will be able to network online with other attendees. The event will be brought to you via live webcasts and on-demand videos. There will also be events taking place in the UK, the US, mainland China, Hong Kong, Africa, Malaysia and Ireland. Registration is straightforward and will allow access to a variety of sessions that will develop knowledge and contribute towards CPD. www.accaglobal.com/accountingforthefuture
Inside ACCA 64 Africa is open for business was the message coming from this year’s ACCA Council meeting in Kenya
08-12 OCTOBER 2012
FOR BUSINESS ENGAGEMENT STANDARDS
the future is a worldwide ACCA’s Accounting for finance professionals event exploring the role and sustainable will play in building a stronger champions the connected global economy. ACCA ve days we will harness accountant, and over fi bring together finance the latest technology to the world to share around professionals from Our experts will share and learn from their peers. businesses and the the latest insights on how to adapt to meet the future corporate sector need regulators, the economy needs of stakeholders, and the environment.
60 Uniting disclosure Corporate governance must go further, finds research by ACCA and the Shanghai Stock * Exchange * to you via live webinars The event will be brought and you can participate and on-demand sessions around the world. in events taking place information, visit To register, and for further forthefuture www.accaglobal.com/accounting Topics to be covered include: sustainability investor engagement corporate reporting risk management
* *valuation *
START ON THE SHOP
S IPAD APP
RESEARCH AND INSIGHT
iPad app ACCA’s Research and Insights findings of the gives you access to the of our members risk management survey risk and explores what integrated in practice. You management looks like app for free via can download our iPad or just search pp, www.accaglobal.com/ri_a iTunes App Store. for ‘ACCA Insights’ in the
56 Diversity spotlight A panel discussion in Shanghai and an employers’ roundtable in Beijing examine the challenges faced by the finance function 29 Lincoln’s Inn Fields
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CRITICAL ISSUES FOR
SION I EDITION 05 I 2012
THE GLOBAL BUSINESS AND
CAPE SUSTAINABILITY LANDS
05 I 2012
LIVE AND ON-DEMAN
S ACCOUNTANCY FUTURE
The latest edition of ACCA’s Accountancy RIO CALLING Futures journal looks at current and future issues affecting business and the accountancy profession. Issue 05 includes analysis from Al Gore, former US vice president; Dr Yugui Chen, deputy president and secretary general of the Chinese Institute of Certified Public Accountants; and Professor Dr Vuong Dinh Hue, Vietnam’s minister of finance. Accountancy Futures is available now from www.accaglobal.com/futuresjournal
I EDITION ACCOUNTANCY FUTURES
62 News ACCA and WWF hold Green Economy Roundtable in Hong Kong; ACCA FUTURE ACCOUNTING FOR THE Beijing and the Hebei Institute of Certified Public Accountants sign memorandum of understanding ONE WEEK, GLOBAL,
MINISTER I AFRICA I I VIETNAM’S FINANCE BRANSON I YVO DE BOER BUSINESS OF SPORT I PLUS: AL GORE I SIR RICHARDARCTIC I FINANCE TRANSFORMATION I THE THE I CHINA I INDIA I TURKEY CLIMATE CHANGE AND OF TAX I EXECUTIVE PAY OF BABEL I THE FUTURE IFRS AND THE TOWER
FREE APP PROFILES RISK
ACCA has launched an iPad app that explores crucial trends and issues for business, economies and the accountancy profession. You can find it at www.accaglobal. com/insightsapp or by searching for ‘ACCA Insights’ in the iTunes App Store. It includes video interviews and podcasts from leading experts, interactive infographics and ACCA research findings. The first edition of the app also looks at how accountants in a wide range of roles contribute to managing risk. ACCA has also introduced a new Student Planner app, available free at the iTunes App Store.
COOPER SCOOPS HONOUR
ACCA deputy president Professor Barry Cooper FCCA has been awarded life membership of the Accounting and Finance Association of Australia and New Zealand (AFAANZ), the organisation that represents all accounting and finance academics in Australia and New Zealand. The prestigious award was made for his outstanding and exceptional contribution to AFAANZ, of which he has been both treasurer and Australian president. His work included the re-engineering of the body’s finances. Cooper is head of the School of Accounting, Economics and Finance at Deakin University in Geelong, Australia.
CAST YOUR VOTE AT ACCA AGM
ACCA’s 107th annual general meeting (AGM) will take place on Thursday 20 September at 13.00 BST (12.00 GMT). The annual report and AGM papers can be accessed online at www. accaglobal.com/agm As usual, all members have the option of voting online. You will have been provided with your voting codes electronically or with the AGM papers posted to you. Visit www.accaglobal.com/vote to cast your vote.
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