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The write profession Accountant turned novelist Penny Avis
SG.ab accounting and businesS 03/2012
accounting and business singapore 03/2012
the private banking industry vies for Asiaâ€™s affluent
Why the annual report matters
Bank of Singaporeâ€™s Renato de Guzman
Opinion Professional success Careers Leadership tips Technical Financial statements
Sarbox A decade in law Skills Approving Tech spend Interview Banyan Tree CEO
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Editor’s choice In this issue, we speak with Bank of Singapore CEO Renato de Guzman about why the award-winning private bank has Asia-Pacific clients queuing up for its wealth management services. Page 12
SINGAPORE’S BANKING AMBITION The balance of economic and financial power is shifting to the East. With Europe mired in a sovereign debt crisis and the US still struggling to find its economic footing, Asia is poised to take advantage of the regulatory changes sweeping the financial sector in the West. Clearly, the region is the fastest growing in the world in terms of wealth. The Asia-Pacific wealth management sector (excluding Japan and Australia) grew from assets under management (AUM) of US$650bn in 2007 to over US$1.3 trillion in 2011. Singapore on its own constitutes 30% of this, with AUM of over US$550bn. In our main feature on page 16, we look at how Singapore has become the second-largest offshore private banking centre in the world, after Switzerland. By 2015, Singapore is expected to gain significant ground on Switzerland; this will be fuelled by Asia-Pacific high-net-worth individuals and by an increasing number of global clients moving their offshore funds to Singapore, according to a WealthInsight Intelligence Centre report. With Hong Kong competing for a slice of the pie, Singapore has positioned itself as the region’s leading financial centre and is the prime candidate to take advantage of the large capital flows that are expected to come into China, India and Indonesia over the forecast period, says the report. While international banks continue to hold pole position in private banking, the cover feature looks at key local players – DBS and Bank of Singapore – which have made significant inroads. Local banks have benefited from the impact of the US mortgage-asset-backed crisis as well as the current eurozone debacle, as ‘private wealth’ searches for safety and turns to banks that are better capitalised and less likely to be exposed to international financial risks. According to Bloomberg Markets magazine, all three Singaporean banks (OCBC, DBS and UOB) ranked among the world’s top 10 strongest banks; this surely bodes well for Singapore’s growing ambition to net Asia’s affluent. Sumathi Bala, firstname.lastname@example.org
SARBOX TURNS 10 The controversial Sarbanes-Oxley Act turns 10 in July this year. We look at how it has impacted financial statements worldwide. Page 20
HEAD-TO-HEAD CFOs are playing an increasingly influential role in IT investments. How does this impact the relationship between CFOs and CIOs? Page 24
VIRTUAL BRIEFING CENTRE Attend live and on-demand audio and video webinars in the virtual theatre, chat with fellow delegates in the networking centre, and access the digital library. www2.accaglobal.com/ab_vbc
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AB SINGAPORE EDITION CONTENTS MARCH 2012 VOLUME 15 ISSUE 3 Asia editor Colette Steckel email@example.com +44 (0)20 7059 5896 Editor-in-chief Chris Quick firstname.lastname@example.org +44 (0)20 7059 5966 International editor Lesley Bolton email@example.com +44 (0)20 7059 5965 Singapore editor Sumathi Bala firstname.lastname@example.org Chief sub-editor Eva Peaty Sub-editors Dean Gurden, Peter Kernan, Vivienne Riddoch Design manager Jackie Dollar Designers Robert Mills, Jane C Reid Production manager Anthony Kay Advertising James Fraser email@example.com +44 (0)20 7902 1210 Head of publishing Adam Williams Printing Times Printers Pictures Corbis ACCA President Dean Westcott FCCA Deputy president Barry Cooper FCCA Vice president Martin Turner FCCA Chief executive Helen Brand OBE ACCA Connect firstname.lastname@example.org +44 (0)141 582 2000
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The Council of ACCA and the publishers do not guarantee the accuracy of statements by contributors or advertisers, or accept responsibility for any statement that they may express in this publication. Copyright ACCA 2012 Accounting and Business. No part of this publication may be reproduced, stored or distributed without the express written permission of ACCA.
Accounting and Business is published by Certified Accountant (Publications) Ltd, a subsidiary of the Association of Chartered Certified Accountants. 29 Lincoln’s Inn Fields London, WC2A 3EE, UK +44 (0) 20 7059 5000
12 Asset ambitions With his handpicked team, Renato de Guzman, CEO of Bank of Singapore, is transforming the country’s private banking industry 16 Local heroes Home-grown private banks are having an impact on Singapore’s burgeoning sector
Accounting and Business is published 10 times per year. All views expressed within the title are those of the contributors.
Audit period July 2009 to June 2010 138,255
20 SOX celebrates? The Sarbanes-Oxley Act has reached its 10th birthday, but the occasion is marked by mixed feelings 24 Lines of communication CFOs should collaborate with their IT counterparts, says a new report 28 Global concern What ACCA members think about economic conditions 30 Changing times Vietnam has embarked on a major overhaul of its VAT regime
There are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab
Regulars BRIEFING 06 News in pictures A different view of recent headlines 08 News in graphics We show a story as well as tell it using innovative graphs 10 News round-up A digest of all the latest news and developments
TECHNICAL 46 Update The latest from the standard-setters 48 CPD: current or non-current liability? Understanding the impact of apparently simple rules is vital 51 Financial statements: the pitfalls A recent FSRC review reveals common errors
VIEWPOINT 33 Errol Oh Amid talk of economic reforms, businesses must not lose sight of the bigger picture
35 CORPORATE 35 The view from David Tam of China Railway Group, plus news in brief
34 Jane Fuller A proposed IASB revenue standard will not suit everyone
36 Sharing the burden There are many challenges on the outsourcing journey, an ACCA survey finds 38 Tree of prosperity Former journalist Ho Kwon Ping now heads one of Asia’s top hospitality brands
54 Beyond the balance sheet ACCA’s CFO Summit examined the evolving role of accountants
41 The view from Irving Low of KPMG Singapore, plus news in brief
57 Novel idea Former high-flying corporate finance partner Penny Avis is now embarking on a writing career
42 Emissions omissions Questions remain over a common accounting basis for carbon markets
60 Mind the banana skins! How to maintain staff morale
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 61 Kaka Singh If you are thinking of a career change, ACCA can help, says ACCA Singapore’s president 62 CPD: coaching and mentoring How you support your colleagues can count towards your continuing professional development requirements 63 Dean Westcott The annual report has reached a crossroads, says the ACCA president 64 News ACCA CFO Summit attracts more than 100 delegates; Young Professionals Network held; nominations open for the election to Council to be held at the 2012 AGM
News in pictures
Four-hundredand eighty-five underprivileged children set a new world record for the largest gathering of people dressed as Mahatma Gandhi, in Kolkata, India
A model shows off a Qi Gang creation during Hong Kong Fashion Week A/W 2012
Bodyguards and riot police pull Australian PM Julia Gillard away from a mob of angry indigenous rights protesters. They had swarmed an awards ceremony in Canberra she was officiating
A striking advertising campaign for ART Hong Kong 2012, which runs from 17-20 May, has already kicked off on the city’s tram system. In just four years ART HK (shown in 2011) has become the leading art fair in Asia
Thailand’s first female PM, Yingluck Shinawatra, inspects the guard of honour during a ceremonial welcome at the Indian president’s residence in New Delhi. Shinawatra was in India on a two-day official visit
German chancellor Angela Merkel visited Nanluoguxiang in Beijing, famous for its hutong (alleyways) and siheyuan (courtyards), as part of her state visit to China
Thousands gathered to catch a glimpse of Nobel peace prizewinner and pro-democracy leader Aung San Suu Kyi on the campaign trail in Dawei, Myanmar. By-elections will be held on 1 April
News in graphics
CURSE OF THE SKYSCRAPERS
There is an ‘unhealthy correlation’ between skyscraper construction and financial crashes, according to Barclays Capital. Investors should pay special attention to China, which is building 53% of all skyscrapers planned in the world over the next six years.
The number of Asian executives making plans to invest in European businesses in 2012 despite the eurozone crisis.
US$7.7BN US$11.6BN US$19.7BN US$34BN US$41BN
The number of people handled at Hong Kong immigrant checkpoints in 2010.
China Hong Kong Singapore India Indonesia Malaysia Thailand
Value of China’s 2011 GDP.
8.1% 13.8% 6.1% 37.9% 48.2% 27.6% 33.1%
Growth of global FDI since 2010
GLOBALISATION PICKS UP SPEED
Foreign direct investment (FDI) to developing Asia (excluding West Asia) rose 11% in 2011, despite a slowdown in the latter part of the year, according to the UN. East Asia, South-East Asia and South Asia received inflows of around US$209bn, US$92bn and US$43bn respectively. With a 16% increase in FDI, South-East Asia continued to outperform East Asia, while South Asia saw its inflows rise by onethird after a slide in 2010. The good performance of South-East Asia was driven by particularly sharp increases of FDI inflow in Indonesia, Malaysia and Thailand.
Month in figures
EMPIRE STATE BUILDING
The proportion of global CEOs expecting to raise headcount in 2012, according to PwC’s annual global CEO survey.
DECLINE IN TRUST
The public’s faith in government has dropped sharply around the world in the past year, according to the Edelman Trust Barometer. In Japan public trust reduced, but China topped the trust barometer while Singapore came third with 73%.
MN 3 2 2 $29, 1
0MN 0 8 , $28
GLOBAL FIRMS BACK IN GROWTH MODE
Despite continued widespread fee pressure and intense competition, global accounting firms are reporting growth across the industry and are planning to recruit in 2012. According to the latest global survey of global accounting firms by International Accounting Bulletin, PwC takes back the top spot as the largest global network from Deloitte, which had pipped PwC to the post for the first time in 2010.
Combined revenue of leading global accountancy firms in 2011.
0MN 8 8 , $22
ERNST & YOUNG
Combined revenue of global accountancy firms in 2010.
10MN 7 , 2 $2
Global workforce of PwC, the firm with biggest fee income.
2MN 7 6 , $5
Proportion of firms posting revenue growth in 2011.
99MN 8 , 3 $ 6
21MN $2,6 10
95MN $2,8 9
www.InternationalAccountingBulletin.com The survey shows that 22 out of the 23 global accounting networks surveyed grew their revenue in 2011, a complete turnaround from 2010. Growth was reported by 86% of the participating networks and associations, while accounting associations grew by 8% – a strong performance compared with last year’s 2% drop. In the survey’s first regional ranking, firms in India (24%), Brazil (16%), Turkey (14%) and China (10%) enjoyed the
strongest average growth in the past year as the networks invest heavily in these key emerging economies. Firms in the Netherlands (-6%), Germany (-4%) and the US (-2%) found it difficult to generate growth in the market. The top 10 networks grew their audit revenues by an average of 5% and their advisory services by 14%. Tax services also performed strongly, with an increase in demand for internal tax and transfer pricing.
ASIA ‘RESILIENT’ AMID TURMOIL
Asian economies remain ‘generally resilient’ in the face of global financial turmoil and a growing debt crisis in the eurozone, according to the International Monetary Fund. It was concerned with possible spillover effects from the eurozone but Asian economies have room to take defensive fiscal measures if necessary, IMF director for Asia and the Pacific region, Anoop Singh said in an updated outlook for Asia. ‘In the event of a further slowdown in the global economy, our sense is that most economies in Asia have room for a strong policy response.’
MINISTERS TAKE WAGE CUT
Singapore’s lawmakers have voted to cut political leaders’ salaries, as the ruling People’s Action Party (PAP) acts to temper public discontent over ministerial wages that even after the cuts rank among the world’s highest. Parliament – in which the PAP holds 81 of the 87 elected seats – accepted a new pay structure for political offices, with ministers’ annual wages about 30% lower than in 2010. That includes a 28% cut for prime minister Lee Hsien Loong to S$2.2m and a 31% cut for a new minister to S$1.1m.
The reductions, which also affect the president and all lawmakers, were proposed by a salary-review committee established last May, after a general election that the PAP won by a historically narrow margin.
LENDING AGREEMENT DISCUSSED Malaysia and Singapore are considering a reciprocal agreement that will allow lenders like Singapore’s DBS Group to expand into Malaysia. ‘There is talk that a quid pro quo arrangement is being looked into by the two governments – and this will enable DBS to enter Malaysia,’ a source was quoted as saying in The Edge. In return, Malaysian banks may be allowed to upgrade their ‘limited licence’ to operate in Singapore. Maybank is the only Malaysian bank to hold a QFB (qualifying full bank) licence to operate in Singapore.
FISCAL INCOME RIDING HIGH
China’s fiscal income hit a record 10.37 trillion yuan in 2011, 25% higher than in the previous year, said the Ministry of Finance. Experts suggested that the fast-growing revenue would allow more room for tax cuts this year and finance a fiscal stimulus to help the world’s second-
INDIA AND CHINA LEAD WAY
Notwithstanding ups and downs, India and China will drive the boom in Asian economies in the coming years, Singapore prime minister Lee Hsien-Loong has said. Speaking at the World Economic Forum (WEF) annual meeting, he also noted that escalation of the European debt crisis would cause serious problems. ‘But there is a lot of momentum in the Chinese and Indian economies and that should help us to keep moving forward,’ Lee said. Going by estimates, emerging economies account for almost half of the world’s gross domestic product. In its latest report, the International Monetary Fund has projected India and China to clock growth rates of 7% and 8.2%, respectively, this year.
largest economy avoid a hard landing. According to a statement, nationwide fiscal revenue jumped 24.8% in 2011 year on year, with tax revenue contributing 8.97 trillion yuan. The strong growth was attributed to China’s economic gains, surging prices and corporate profits.
JAPAN SUFFERS TRADE DEFICIT
Japan has announced its first annual trade deficit in over 30 years, a setback for a country known for its exports including cars and electronics. The deficit came in at 2.49 trillion yen for 2011, the Finance Ministry said. Japan’s imports rose 12% and its exports fell 2.7%, compared with the previous year. The decline in exports was attributed to the impact from the earthquake and tsunami on 11 March 2011. The latest shortfall underscores the pressure that Japanese exporters have come under since the disaster.
TAX EXEMPTIONS ON OFFER
Myanmar’s government is planning to offer eight-year tax exemptions to foreign investors as Western companies ‘rushed’ to build ties with the one-time closed-door country. Industry minister U Soe Thane said there had been huge interest from business leaders he had encountered at the World Economic Forum in Davos as the South-East Asian country’s reform process gathers pace. The minister said that Myanmar expected its economy to grow by 6% in 2012 and that it should be an attractive location to foreign investors.
OCBC CEO STEPS DOWN
Lee Hsien-Loong, pictured in 2011
David Conner, chief executive of OCBC, is stepping down after 10 years. Samuel Tsien, senior executive vice president and head of its global corporate bank, will succeed Conner. Under Conner’s leadership, OCBC overtook United Overseas Bank as Singapore’s second-biggest lender by assets after DBS. Conner, who joined in 2002 from Citibank, helped OCBC take control of insurer Great Eastern, buy Bank NISP in Indonesia and swoop on ING’s Asian private bank for a deal worth S$1.4bn in 2010.
Analysis UNHAPPY CELEBRATION
As Sarbanes-Oxley heads towards its 10th birthday, it continues to divide financial experts. Despite being onerous, it does not appear to have been more effective than Europe’s rules or put an end to accounting irregularities.
SOUTH KOREA SLOWS DOWN
South Korea’s economy grew at a slower pace in the fourth quarter of 2011, as the global economy weakened and the eurozone debt crisis hit exports. Gross domestic product expanded by 0.4% in the three months to December, compared with the third quarter, when it gained 0.8%, the central bank said. Compared with the same period the previous year, the economy grew 3.4%. The Bank of Korea said the slowdown in exports was compounding problems.
building, trade, tourism development and central banking, according to a statement accompanying the Singapore-Myanmar Technical Cooperation Program agreement, which was signed during the state visit of Myanmar’s president, U Thein Sein. His trip to Singapore is his first since he became president last year and began overseeing a series of economic and political reforms.
Chinese Premier Wen Jiabao said government debt was ‘overall safe and controllable’ and key projects would continue to receive funding to avoid ‘systemic risks’, state media reported. An explosion in lending has fuelled concerns that local governments, which borrowed heavily to build roads, bridges and luxury apartment buildings, will default as the world’s second largest economy slows. China’s audit office in January warned that it had uncovered 530.9 billion yuan in misused funds involving local government debts. ‘We are taking the issue of managing local government debt very seriously. Through clean-ups and regulation, the trend of expanding investment vehicles has been effectively contained,’ Wen added. Policymakers have started to ease lending restrictions but have indicated they will move slowly to avoid reigniting inflation.
Property watchers have said the bull run experienced by Singapore’s housing market may have reached its peak. Latest data showed home prices continue to soften and transaction volumes have dropped. 24,633 public flats changed hands last year, a 24% drop in volume over 2010 and the lowest resale volume for a decade. Government measures to dampen demand and raise the supply of new homes have taken much heat out of the public housing resale market.
THE MONEY’S ON SHANGHAI
MYANMAR PACT SIGNED
Singapore will offer training courses to help Myanmar modernise its economy and further open to foreign investment, under a pact signed between the two nations. The courses will cover investment promotion, infrastructure
Supported by strong employment creation, Singapore’s unemployment rate fell to a 14-year low last year. The Ministry of Manpower said the unemployment rate in December was unchanged from a quarter ago at 2%. The key findings of the ministry’s Employment Situation 2011 report showed that employment growth remained strong in 2011.
CHINA DEBT ‘CONTROLLABLE’
BULL STOPS RUNNING
China will make Shanghai the global centre of yuan trading, clearing and pricing by 2015, according to a specific state plan laying out the city’s future as an international financial centre. The detailed plan, published jointly by the country’s economic planning agency and the Shanghai government, shows the scale of China’s ambition in creating its own version of New York, London or Hong Kong.The National Development and Reform Commission envisions a trading hub with annual non-forex financial market volume of 1,000 trillion yuan by 2015 from less than 400 trillion last year.
JOBLESS RATE AT 14-YEAR LOW
ISLAMIC INDEX LAUNCHED
Thomson Reuters and Australia’s Crescent Wealth are jointly launching an Islamic Australia Index – a researchbased index that will offer local and international investors a tool to help invest in accordance with Islamic investment principles in the local market. The initiative comes ahead of an expected government proposal to change tax guidelines to help open up the local market for Islamic investment products. Called the Thomson Reuters Crescent Wealth Islamic Australia Index, the measure will cover 143 stocks with a combined market capitalisation of A$160bn.
MACROECONOMIC UNIT SET UP
An independent surveillance unit has set up an office in Singapore to monitor the macroeconomic and financial situation of Association of Southeast Asian Nations (ASEAN) member states and China, Japan and Korea (ASEAN+3 countries), and identify emerging vulnerabilities. The ASEAN+3 Macroeconomic Research Office (AMRO) is part of the Chiang Mai Initiative Multilateralisation (CMIM) agreement, a US$120bn currency swap arrangement among the finance ministries and central banks of the ASEAN+3 countries, which allows countries to tap on it as a liquidity pool.
Bank of Singapore CEO Renato de Guzman describes how, with a handpicked team, he has transformed the fledgling bank into the first stop for private banking in Singapore
ASSET AMBITIONS A
t a time when many CEOs are taking a dim view of the near-term global economic outlook and worrying how the unfolding of the European debt crisis may affect their company’s bottom line, Renato de Guzman, CEO of Bank of Singapore, appears relatively serene. ‘I think things are healing globally, with the US reporting better economic numbers, Europe not falling off a cliff and China on a soft landing. It will be a slow process but Asian growth will continue so I’m still positive,’ the 61-year-old private banker says. De Guzman admits his outlook may be ‘rather more optimistic than many’, though he acknowledges that ‘a lot, of course, will have to do with the markets’. ‘A private bank still has a lot of its income driven from the market, so you still need a relatively reasonable market’s behaviour,’ he says. ‘But that affects everyone in the industry. That’s why it’s important to have other stable sources of income like income from credit.’ ‘Last year we grew the net asset base of the private bank by US$6bn or 20%. So even if our return on assets drops because of a fall in the financial market, since our return is
now on a bigger asset base, we’re less vulnerable,’ he adds. OCBC, South-East Asia’s third-largest lender, bought ING Asia Private Bank for S$1.5bn in October 2009, and de Guzman, known widely as ‘Bing’, was entrusted with the combined private bank operations. At the time, ING’s Asia private bank had assets under management of US$15.8bn and employed around 150 relationship managers,while OCBC had US$6.7bn in private banking assets and 50 relationship managers. Today, the new entity, branded Bank of Singapore, has more than
US$31bn of assets under management (AUM), while its earning assets base has grown from US$26.8bn in 2009 to more than US$39bn in 2011. It has also recruited more than 50 new relationship managers. ‘In terms of the percentage growth rate of assets under management, we’re above the industry’s growth rate in Asia, and not only have we been able to grow fast, but we have maintained our profitability, which is quite hard to achieve,’ de Guzman says. According to The Boston Consulting Group’s 2011 Global Wealth Manager Benchmarking Report, Bank of
Singapore added 17.7% to its AUM in 2010, compared with a 9.8% average increase in Asia Pacific.
Outstanding private bank De Guzman is particularly proud that, after only two years, Bank of Singapore has firmly established its brand and was named outstanding private bank in Asia Pacific in the Private Banker International Global Wealth Awards. The veteran private banker is quick to point out that Bank of Singapore’s Tier 1 capital adequacy ratio (CAR) and total CAR, as of 30 September 2011, stood at 26.47%, well above
the minimum 6% and 10% required, respectively, by the Monetary Authority of Singapore. De Guzman cut his teeth in private banking in the Philippines, first working in the 1970s and 1980s for BNP Paribas in Manila before joining ING there in 1990. After 10 years as country head, de Guzman was promoted to head ING’s Asia Pacific private banking arm in Singapore, and quickly set to transforming the then loosely organised private banking units of ING in the region into a profitable and coherent organisation.
Leading growth Under his leadership, the Dutch bank quickly grew its earning AUM by a 40.6% compounded annual growth between 2002 and 2007, also enjoying a 47.6% compounded annual growth rate in revenues in the same period. These growth rates were among the highest in the industry at the time. De Guzman’s abilities to integrate business units served him well again when Bank of Singapore was created. ‘Integration of the two units was an initial challenge, though it went rather smoothly as there was little overlap between the two businesses,’ he says,
explaining that OCBC’s significant presence in South-East Asia – in particular in Singapore, Malaysia and Indonesia – complemented ING Asia Private Bank’s larger presence in other markets and customers segment – namely Greater China, the Philippines and non-resident Indians. ING brought to the table a wide product range which could be boosted in the new business thanks to OCBC’s established mortgage financing capability in several markets and its commercial banking capabilities. Post-acquisition, de Guzman made an aggressive push to help raise the profile of the new brand, Bank of Singapore, but admits he was unwittingly helped by potential clients Googling ‘Singapore’ and ‘Bank.’ A strong branding was not only important to attract new clients, but also to retain and attract new employees, he argues. While Bank of Singapore retained most of the ING staff, about 5% of OCBC’s private bankers left after the merger. ‘Any merger and acquisition is never expected to be totally smooth,’ de Guzman says, ‘but we have actually a fairly high employee retention rate for the industry.’
The CV 2010
Appointed CEO of Bank of Singapore.
Appointed CEO of ING Asia Private Banking; moves to Singapore.
Becomes country manager for ING in Manila.
Joins BNP Manila as deputy head.
has also attracted candidates from established Swiss private banks such as Arthur Fong from Credit Suisse and Pauline Chung from Julius Baer. In addition it took the entire four-strong team from Swiss boutique bank Pictet which serves European clients. Managing this rapid growth has been the key challenge for de Guzman over the last year, not only from a human resource side, at a time when the
market for good private bankers has been extremely tight, but also in terms of compliance in a more demanding and complex regulatory environment. Recently, the bank decided to segregate its risk and compliance functions to increase efficiency and be better prepared to respond to requirements.
The right people Lee Han Chwee was appointed to the newly created role of managing director and global head of compliance, joining from Fortis Bank Singapore where he had served as regional head of compliance private banking in Asia, while Leander Jasen retains his role as managing director and global chief risk officer, heading the credit and market risk and operational risk management functions. ‘The new management framework is designed to get the right people and processes in place so that we can better respond to the increasingly sophisticated needs of clients, as well as to equip us to manage our expanding business across the
Rapid recruitment Bank of Singapore’s overall turnover for 2010 was 15%, compared with the industry rate of 20% to 25%. The turnover of relationship managers was even lower at 6%, de Guzman says. To keep pace with its rapid growth, the bank started to recruit aggressively, adding more than 150 staff, including 50 relationship managers in 2011. Total staff strength at the end of 2011 was 851. De Guzman also believes that the new bank’s strong branding helped recruit several veteran private bankers, including Terence Seow from DBS and Jeffrey Tan of Merrill Lynch, who now heads the Singapore market. The bank
region,’ de Guzman explains. ‘This year we’re going to be spending S$20m of capital expenditures for more automation.’ The CEO believes that upgrading and raising the bar is a key to success, ‘because as you grow, you really have to change the way you do things. You need to review your processes; what used to be good for a certain volume is no longer good enough when you start growing. So, you need to constantly raise the quality of the people and also improve your processes and automation. And that’s really what we’ve been doing. This effort is expected to result in an excellent client experience expected of a top private bank.’ De Guzman has big ambitions, saying that his medium-term target is to make Bank of Singapore ‘a great bank’. ‘That means taking advantage of the position that we have right now as Singapore’s premier private bank,’ he says, adding that he believes the bank has ‘the scale, the right combination of people, clients, product capability and platform, and unique value proposition’ to make it an Asian global private bank.
China and UK While the initial strategy of the merged entity was to focus on the bank’s home markets in South-East Asia, where the brand is best known and where OCBC already had a significant retail network, it has also made some inroads in China and recently gained a licence in London to use the Bank of Singapore brand to offer private banking services in the UK. De Guzman primarily wants to target non-resident Indian clients in London, complementing the offices serving non-resident Indians in Hong Kong, Singapore and Dubai – the bank’s third largest client group after its South-East Asia and greater China ones. But he also says that, for now, Bank of Singapore remains focused on its
The tips *
Renato de Guzman believes developing talent is key to the success of a good leader. ‘A good leader is someone who can demonstrate coaching abilities, but also someone who is able to lead from the front and who doesn’t mind rolling up his sleeves. Plan well and execute well.’
‘AS YOU GROW, YOU REALLY HAVE TO CHANGE THE WAY YOU DO THINGS. YOU NEED TO CONSTANTLY RAISE THE QUALITY OF PEOPLE AND IMPROVE PROCESSES’
‘The CFO should be able to coach his team on how to continuously improve their performance in order to be a successful business partner in driving the business forward.’
existing markets, pointing out that there are many opportunities to grow the business without getting distracted or spread too thinly, especially at a time when international money is flowing into Asia in search of capital market growth and economic stability. While the bank’s US$32bn AUM are dwarfed by those of UBS and Citibank, which each have over US$150bn, de Guzman notes that ‘in this business you don’t need to have a huge amount of AUM to be successful. It’s not how big you are but how good you are because if you are good you will become big.’ Bank of Singapore is primarily targeting the new Asian entrepreneurs with about US$5m to US$30m of investible assets.‘There are a lot of opportunities in the region and not just China,’ de Guzman notes. ‘If you look at Singapore, Indonesia, Malaysia – our main markets where OCBC has a substantial commercial and retail banking presence – there is a lot we can do to maximise the potential of the whole market when it is growing fast.’ Sonia Kolesnikov-Jessop, journalist
The basics BANK OF SINGAPORE Bank of Singapore is a wholly owned private banking subsidiary of OCBC which was set up in 2010 after the Singaporean bank acquired ING Asia Private Bank and merged it with OCBC. It employs more than 250 staff and had US$32bn of assets under management at the end of 2011. While the bank does not divulge its financial details, OCBC Group posted an operating profit of S$699m in the third quarter of 2011, up 7% year on year. Bank of Singapore’s Tier 1 capital adequacy ratio (CAR) and total CAR, as of 30 September 2011, were above the minimum 6% and 10% required by the Monetary Authority of Singapore, respectively.
New entrants are muscling in on Singapore’s booming private banking scene, taking advantage of Asian clients’ desire for cultural understanding to compete with the international giants
RISE OF THE
uilding on its tough banking secrecy laws and reliable legal system, Singapore has quickly developed and consolidated its position as one of the top wealth management centres in the world, benefiting in recent years from a number of outside factors: the rise of millionaires in Asia, the changes in taxes and banking laws in Europe, the impact of the 2008 financial crisis in the US and the ongoing debt meltdown in Europe. According to Private Banker International’s recent Top 20 AsiaPacific Benchmark, the region’s 20 top private banks have boosted their assets under management (AUM) by 89% to more than US$1 trillion since 2007, reflecting the growing importance of the region’s financial services industry. But the survey also found that competition in the region is getting tougher. While international banks continue to hold pole position in terms of AUM from high net worth (HNW) clients – UBS had US$182bn in AUM at the end of 2010, Citigroup had US$179bn and HSBC US$150bn – local banks DBS and Bank of Singapore have started to make inroads. DBS was 10th with US$35bn under management, OCBC’s Bank of Singapore was 11th with US$32bn and Hang Seng Bank was 14th with US$20bn, according to the survey, putting them all ahead of other wellknown international banks ABN AMRO,
RBS Coutts and Société Générale Private Banking. According to the Global Wealth Report 2011, released by the Credit Suisse Research Institute, Asia Pacific has emerged as the key contributor of global wealth growth, accounting for 36% of all global wealth creation since 2000, and 54% since January 2010. Separately, management consulting firm Boston Consulting Group has forecast that Asia Pacific’s share of global wealth (excluding Japan’s) could rise from 18% in 2010 to 23% in 2015. ‘We’ve gone from being the factory of the world to being the millionaire factory of the world,’ says Tan Su Shan, group head of wealth management at DBS. ‘Most of the growth in private banking here is domestic and fuelled by the wealth growth in the region. Asian clients increasingly prefer to book their assets in regional wealth management centres which are in the same time zone and are culturally
Millionaire mall: the Gucci flagship store in the Paragon on Orchard Road (above), and other brands (right) cater to high net worth individuals based in Singapore more attuned to their needs,’ adds Peter Kok, regional market manager for Singapore and Malaysia at UBS Wealth Management. Over recent years, Singapore has developed into a well-established financial centre, offering investors access to an international network and an environment highly conducive for business within a tight regulatory framework. Winston Ngan, financial services partner at Ernst & Young Singapore, believes the city-state has been able to capitalise on its well-established infrastructure as a financial and banking hub with strict banking secrecy laws and a relatively proinvestment tax regime, to emerge as a leading private banking destination for international investors.
L PLAYERS ‘The flow of wealth into Asia and Singapore has accelerated since 2008 due to the financial crises in the US and Europe. Many investors see that Asia is going to be an important growth engine. We also saw more private banks from the US and Europe setting up offices and booking centres in Singapore over the last few years,’ Ngan says. Piyush Gupta, CEO of DBS, points out that ‘notwithstanding the present market volatilities, Asia is still experiencing rapid wealth creation and we remain optimistic about the longterm prospects of the region’.
Safe-haven status Local banks have actually benefited from the impact of the US mortgageasset backed crisis as well as the current European debt crisis, as ‘private wealth’ searches for safety and turns to banks that are better capitalised and less likely to be exposed to international financial risks. According to Bloomberg Markets magazine, all three Singaporean banks (OCBC, DBS and UOB) were among the world’s top 10 strongest banks, based on a set of metrics that include Tier I capital to risk-weighted assets and non-performing assets to total assets. ‘These banks had very low nonperforming loans and strong deposit to funding ratios. That means they do not need to rely on international capital markets for funding. Their efficiency in terms of cost to income ratio was also
very low. These are very good metrics to use and Singaporean banks came out on top,’ says Renato de Guzman, CEO of Bank of Singapore. ‘Safety is very important to investors in a risky environment and the safe-haven status of a bank is very important,’ de Guzman adds, pointing out that Bank of Singapore attracted net new money of US$6bn in 2011, a substantial increase on previous years. ‘The increase reflects our growing market share in several markets where we operate and outflow of funds from institutions affected by the sovereign debt crisis,’ he says. Similarly, Gupta also points out that DBS has seen several European family houses reach out unsolicited over the
last few months ‘because they want to move some of their money into safer Asian banks as a result of what they have been through in the last few years, first with American banks and then European banks’. ‘I call this the pillow money which they just want to put to sleep. Singapore benefits from this because we’re the only AAA country in Asia and we have all of the hallmarks of a great financial centre: it’s tightly managed, well-controlled,’ Gupta explains. Beside the flight to safety, international money is also coming to Singapore because of Asia’s rising economic might. ‘Diversifying to Singapore has become an accepted way of managing wealth globally.
*COMPLEMENTARY OR RIVAL CENTRES?
Singapore is not the only wealth management centre to have increased its clout in recent years. Thanks to its low tax environment and location, Hong Kong has also become a key private banking location in the region. ‘It has benefited significantly from the growth in North Asia, particularly China,’ notes Winston Ngan, financial services partner at Ernst & Young Singapore, adding that a large amount of wealth generated from China first found its way to Hong Kong and subsequently came to Singapore as part of the diversification of wealth. For Renato de Guzman, CEO of Bank of Singapore, there is no competition, as each centre has its strengths. ‘Hong Kong is much bigger in the capital market while Singapore is more of a wealth management centre,’ he notes. Tee Fong Seng, vice chairman of Private Banking Asia Pacific at Credit Suisse says that while Singapore and Hong Kong are both important private banking centres in Asia, Singapore remains Credit Suisse’s largest private banking hub outside its Swiss home base. ‘I believe it is also the same for many other banks,’ he adds.
It’s not so much because of the low tax regime, but because of the stability that Singapore offers, and the investment opportunities in Asia in general,’ de Guzman says. De Guzman believes Asian banks have a better understanding of Asian private clients’ needs, and as such can better cater for them.
The Fountain of Wealth, Suntec City
Top spot Bank of Singapore was formed in 2010 and was named outstanding private bank in Asia Pacific in the Private Banker International Global Wealth Awards 2011. While it remains focused on South-East Asia, where it believes there are plenty of opportunities for growth, it is also keeping a close eye on the Chinese market as well as the non-resident Indian clients located internationally, including London. According to CLSA Asia-Pacific Markets’ report, Fat Cats in Fast Lanes: Surge in HNW Individuals, China will account for 60% of the rise in HNW individuals’ wealth over the next five years, while Indonesia will have the fastest growth at 25%, versus 22% for China. Amar Gill, head of special projects research at CLSA, says ‘the forces for wealth creation are extremely favourable for Asia over the coming years. The economies are growing faster than any other region in the world, savings ratios are high and appreciation is a big driver of wealth. As Asia gets richer, the surge in wealthy Asian’s spending power will become a multi-decade theme.’ Underscoring this belief, DBS recently announced plans to invest a further S$250m over five years to further develop its private banking in Asia. It recently created a new platform, DBS Treasures Private Client, for clients with investible assets of S$1.5 to S$5m, while DBS Private Bank will continue to cater for clients with over S$5m in assets. In the future, the Singaporean bank plans to focus on strengthening its private banking headcount in China, one of its fastest-
growing markets. It will also roll out more renminbi-denominated products, such as private equity funds and hedge funds. ‘Every private bank should have its own speciality. In our case, we try to be the best in class for Asian products,’ says Tan. According to de Guzman, one of Bank of Singapore’s key differentiators is its ability to offer mortgage loans to its private clients, thanks to its parent OCBC’s retail network in the region, allowing them to take advantage of the strong rising property market in the region. ‘Most private banks do not have the commercial banking capability that OCBC has in the region. That is a big leverage point, particularly in an environment where a lot of banks have stopped lending and have been deleveraging, ie reducing their balance sheets,’ he says. But international banks appear unfazed. ‘International banks still have an edge with their international
network and global expertise in products and services,’ says Tee Fong Seng, vice chairman of Private Banking Asia Pacific at Credit Suisse. Kok of UBS Wealth Management notes that the wealth management business requires ‘significant investments’. ‘Some new entrants into the business have built up a highcost base and may face a squeeze on profitability. While costs have increased, revenues may not have shown similar growth and some new private banks may not have factored this in when they announced their plans earlier,’ he says. ‘To succeed in this competitive market requires a business model capable of accommodating the local regulatory environment, a broad geographical footprint, a robust approach to managing risk, access to a deep talent pool, a broad product offering and a strong brand,’ Kok adds. Sonia Kolesnikov-Jessop, journalist
*PB CODE: RAISING PROFESSIONALISM
Last September, the Private Banking Code of Conduct (PB Code) was launched in Singapore to enhance the competency of private banking professionals and foster high market-conduct standards. Private banking professionals are now expected to pass a common competency assessment called the Client Advisor Competency Standards before they can provide any financial advice. This assessment will be administered by the Institute of Banking & Finance. In addition, the PB Code sets out market conduct principles relating to the business conduct of financial institutions and their staff engaged in private banking activities. These principles cover areas such as ethics and professionalism, client relationship management and risk management. ‘This code important for Singapore as it will help raise the skills of bankers here,’ says Renato de Guzman, CEO of Bank of Singapore.
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UNHAPPY 10TH BIRTHDAY
It’s hard to credit now, but 10 years ago the Sarbanes-Oxley Act introduced a financial reporting regime that met with near-universal approval in the US
f America’s businesses had to vote on their least favourite lawmakers of recent years two names would spring immediately to mind: Paul Sarbanes and Michael Oxley. A decade ago this July these politicians gave their name to the Sarbanes-Oxley Act. The 2002 law was intended to restore public faith in the trustworthiness of US firms’ financial reporting, which had been shaken by high-profile accounting scandals at Enron, Tyco International and WorldCom. But many executives have lambasted Sarbox, as it has become known, as an overreaction that has saddled US businesses with unnecessary costs. Several leading Republican presidential candidates have vowed to roll back some of the provisions of the act, at least for smaller businesses. Meanwhile, the Securities and Exchange Commission (SEC), which polices the US securities market, has seemed reluctant to use the law to punish chief executives whose accounts don’t come up to scratch. More damaging still, the accounting failures that contributed to the 2008 financial meltdown are seen by many as a sign that Sarbox has failed even to fulfil its main aims. So 10 years on, Americans are still hotly debating one key question: did the introduction of the controversial act protect investors without harming
businesses? Many argue that reforms to accounting rules in Europe, which was also shaken by the Enron collapse, provided investors with the same level of security but inflicted less damage on companies than Sarbox did. Given how controversial Sarbox has become, it is easy to forget how popular it was in 2002. Lawmakers approved the measure with virtual unanimity. Only three members of the US Congress voted against the bill, with 423 in favour, while just one of the 99 senators refused to support it. President George W Bush, who prided himself on being a defender of entrepreneurs, declared: ‘The era of low standards and false profits is over; no boardroom in America is above or beyond the law.’
The buck stops at the top The law was framed to achieve its objectives in several ways. For example, top executives had to attest personally to the reliability of financial reports. As well as being legally liable for failures, chief executives could have years of pay clawed back if profits turned out to have been illusory. Since accounting firm Arthur Andersen had turned a blind eye to accounting irregularities at Enron, lawmakers moved to break up the cosy relationship between management and auditors. A new public body was set up to keep an eye on auditors – the Public Company Accounting Oversight Board
– and firms would have to rotate the accounting firms they used. Most controversially of all, both companies and their accountants were forced to test internal controls to ensure their rigour – the notorious section 404. Around the same time Europe was experimenting with a lighter version of similar policies. Enron had caused concern among regulators worldwide but it was only after the €13bn bankruptcy of Italian food and dairy firm Parmalat in 2003 that European regulators acted decisively. The Statutory Audit Directive of March 2004 was Europe’s answer to Sarbanes-Oxley; it upgraded audit committees and made it harder for executives to sway accountants. Company chiefs were also subjected to a (less onerous) legal standard in terms of certifying the accuracy of the corporate accounts, and Europe’s new rules on testing internal controls were likewise less burdensome. Peter Montagnon, senior investment adviser to the UK’s Financial Reporting Council, says: ‘There was a sense that Sarbox was too rigid and expensive and that the cost-benefit equation did not work. Europe opted for a more flexible code-based approach.’ With a decade of hindsight, this cost-benefit calculation is easier to make. Defenders of Sarbox point to several benefits from its tighter rules. For example, Carl Rosen, executive
SUN MICROSYSTEMS FOUNDER SCOTT MCNEALY ONCE DESCRIBED SARBOX AS ‘BUCKETS OF SAND IN THE GEARS OF THE MARKET ECONOMY’
Enron’s massaging of its financial figures to deceive investors triggered a wave of public outrage that fed anti-capitalism sentiment, such as this protest against the World Economic Forum
director of the International Corporate Governance Network, says: ‘There is little doubt that accounts are more reliable than before. Firms have beefed up their financial expertise, especially on audit committees, so problems are more likely to come to the attention of shareholders earlier.’ The rules have even had a spin-off benefit for companies, according to Paul Hodgson, senior researcher at the Corporate Library, which studies governance issues. Upgrading internal controls has given executives a better understanding of what is going on in their business, which should improve decision-making. Even more importantly, an MIT study suggested that complying with the rules appeared to have lowered the cost of capital for businesses by as much as 150 basis points, mainly by giving bond investors greater confidence. Of course, the rules have been far from watertight. Although the 2008 financial meltdown in the US was not primarily caused by weak accounting,
Despite such failures, US watchdog the SEC has a poor record of clawing back undeserved pay from executives. Over the past decade it has filed cases against just 31 senior managers at 20 companies, recouping only trivial sums.
such abuses did contribute to the collapse. A few cases of egregious bookkeeping stand out, says Mark Calabria, a fellow at the Cato Institute in Washington. Insurance company AIG, which had to be rescued by the US government after making huge derivative losses, turned out to have extremely weak internal controls, Calabria says. The woes of mega-banks like Citigroup were also exacerbated by accounting flaws. Sarbox was intended to put an end to the kind of off-balance sheet accounting that allowed Enron to hide losses or debts, but in 2004 financial regulators exempted banks from that rule. This allowed Citigroup to set up special investment vehicles into which it loaded mortgage assets. ‘If the banks hadn’t been allowed to do this they would probably have had an extra US$60bn to US$100bn in capital during the financial crisis,’ Calabria says. The demise of stockbroker MF Global has provided a more recent example of failed internal controls.
The burden of compliance Then there is the cost to businesses. Scott McNealy, founder of IT giant Sun Microsystems, once described Sarbox as ‘buckets of sand in the gears of the market economy’. A host of studies have made clear the substantial costs of compliance. A 2009 SEC study estimated the average company’s cost of compliance at US$2.3m a year. More recent studies have produced a lower figure. In 2011 risk and business consultancy Protiviti calculated that after four years of compliance few companies were spending more than $1m a year on Sarbox compliance. But even this is far from small change. Assume a price-earnings ratio of 20 times, says Bob Litan, a fellow at the
Dennis Kozlowski collected US$81m in unauthorised bonuses from Tyco
A massive accounting fraud by Bernie Ebbers brought WorldCom down
Kaufman Foundation for enterprise in Washington, and Sarbox lops US$20m off a company’s market capitalisation. Critics say such costs help explain why fewer start-ups are raising money on the stock exchange. During much of the 1990s around 80% of businesses listing in the US had market values of less than US$50m. Now such small businesses account for 20% or less of public offerings in most years. For this reason many US politicians – including most Republican presidential hopefuls – want to modify or repeal Sarbox. Outright repeal still seems extremely unlikely but a watering down of the act’s provisions is possible.
SURVEYS OF BUSINESS EXECUTIVES SUGGEST A GRUDGING ACCCEPTANCE THAT TODAY’S CORPORATE ACCOUNTS ARE MORE RELIABLE At present any public company with a market value above US$75m has to comply. Republican senators Jim DeMint and John Barrosso want to allow companies smaller than $1bn to opt out provided they clearly disclose this to investors. ‘It would be good to give firms more flexibility,’ says Alex Pollock, a fellow at the American Enterprise Institute. Many opponents of Sarbox believe
Jeff Skilling kept Enron’s failing financial health secret from shareholders
that European regulations – with which Britain complies – provide a similar level of investor protection at lower cost. Montagnon also believes that the US could relax Sarbox if it enhanced the rights of shareholders, which are much weaker than in Europe. As Sarbanes-Oxley heads towards its 10th birthday it continues to divide politicians and financial experts. The act does not appear to have been notably more effective than the less onerous rules that apply in Europe. There is also reasonable evidence that it has discouraged young businesses from seeking money through a stock market listing. Even the act’s most ardent defenders do not claim it has put an end to accounting trickery or abuse. The 2008 financial crisis uncovered gaps that Sarbox failed to fully close, along with patchy compliance. Yet the act has not been a total failure. Surveys of business executives suggest a grudging acceptance that today’s corporate accounts are more reliable, although most believe this could have been achieved at lower cost. Perhaps the greatest compliment for the act, says Rosen, is that it has made life harder for corporate crooks. ‘There will always be people who can manipulate the system,’ he points out, ‘but it is much tougher now.’
The US telecoms giant admitted a US$11bn accounting fraud in July 2002. Bernie Ebbers, former CEO, was convicted of fraud and conspiracy and given a 25-year prison sentence. The company filed the largest ever bankruptcy.
Christopher Alkan, journalist based in New York
The high-profile corporate scandals that set Sarbox in motion:
Enron A string of court cases led to the conviction of the energy company’s former CEO Jeff Skilling, who is currently serving a 24-year jail sentence for fraud and insider dealing; he still asserts his innocence. Ken Lay, former Enron CEO and chairman, was convicted of fraud and conspiracy but, following his death from a heart attack in 2006, had his guilty verdict wiped out as he hadn’t been able to challenge the conviction. Former Enron CFO Andrew Fastow was released after serving a six-year jail sentence for his part in the scandal. The scandal, which was revealed in 2001, also resulted in the demise of Enron’s auditor, Arthur Andersen, one of the Big Five accountancy firms.
Tyco International Two former executives of Tyco International, former CEO Dennis Kozlowski and his second in command, Mark Swartz, were both sentenced in 2005 to between eight and 25 years in prison for stealing hundreds of millions of dollars from the manufacturing company. The scandal came to light in 2002.
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HEAD TO HEAD?
A recent Gartner survey suggests that CFOs have more clout than CIOs in making IT spending decisions, but collaboration is the key to success, say commentators
riven by business productivity and efficiency gains, information technology (IT) has secured a foothold in organisations, both large and small, and so have the executives that run these departments. Over the past decade, IT heads or chief information
officers (CIOs) have become more influential and taken a central role in decision-making, with some even having been elevated to the C-level suite. However, the CIOâ€™s clout in making IT-related investment decisions appears to have been increasingly clipped by
CFOs, according to the findings of a recent report by technology research and analyst firm Gartner. The report suggests that close to half of IT organisations report directly to CFOs, with 33% reporting directly to the CEO. The report, CFO Update: The Top 10 Technology Priorities, notes that
26% of IT investments in the past year have been authorised by CFOs alone, up from 18% in the previous year. And in 51% of cases, the decision is being made either by the CFO alone, or by the CFO in a collaboration with the CIO, up from 45% in the previous year. The study also shows that the CIO makes the investment call alone only 5% of the time, down from 11% in 2010. Ng Wai Heng, executive director of PwC Advisory Services, says CFOs will continue to make IT decisions in areas that are directly under their sphere of influence, notably, in the finance function of the company. ‘In such cases, finance also equates to the business and as a user, the
Ng notes that IT investments are often made by a forum comprising IT, business and finance executives, typically in an IT steering committee. The CFO may have the final sign-off authority but the decisions are made by consensus, backed by a robust business case, he adds. Susanna Lim, partner at Ernst & Young Advisory Services, concurs but adds that the reporting structure between the CIO and CFO is not as important as how the two work together. ‘To me, the more important factor is the team dynamics and whether the two C-level executives are connected and can work together. In the final analysis, it’s about managing the IT agenda at the C-level for the company.
‘THE IMPORTANT FACTOR IS THE TEAM DYNAMICS AND WHETHER THE TWO C-LEVEL EXECUTIVES ARE CONNECTED AND CAN WORK TOGETHER’ CFO will have a strong influence over the type of solutions [obtained] and how these are to be implemented,’ he explains. Ng says some examples of these solutions include enterprise resource planning (ERP), management reporting and financial analytics, as well as specific IT software solutions designed to meet accounting standards such as International Financial Reporting Standard (IFRS) 139. However, Ng points out that it’s ‘not good practice’ for CFOs to be unilaterally making IT investments. Ng also says the survey results must be put into context as organisations may dictate that the IT investment decision, or any investment decision, lies with the CFO as the authority overseeing an organisation’s finances. ‘The key question here is whether the investment decisions were made with guidance and input from both the business and IT [departments]. If a CFO acted unilaterally in making IT investment decisions, then this trend is not in keeping with good practice.’ From PwC’s advisory experience,
Lim says the goal of IT is to create value, be able to manage risk and rationalise cost. These factors are what makes an organisation successful, and not so much the kind of reporting structure it has, she adds. She points out that the way an organisation is set up also influences the reporting structure; in this case, whether a CIO reports to a CFO or not. ‘Where investments involve applications which are business-driven, such as that of ERP, a CFO will drive the project together with the business process owners,’ she explains. ‘On the network and infrastructure side, CIOs tend to drive these areas as they are more technical in nature,’ adding that in her experience, CFOs tend to leave it to the experts and will only get involved when it comes to final approvals.
Working together Finance professionals acknowledge that while there may be a rising trend in CIOs reporting to CFOs, the situation doesn’t have to lead to conflict, as the two roles may
complement one another. Noorliza Abu Bakar, CFO of IBM Malaysia, believes that in practice, there are no hard and fast rules as to whether a CIO should report to a CFO, or to other C-level executives within a company. ‘Whether a CIO/ IT organisation head should report to the CFO depends on a company’s organisation structure, business objective and strategy,’ she says. Noorliza says that when IBM is doing its annual planning, the CFO and CIO will meet and look at business objectives, issues, challenges and opportunities together. ‘We will discuss what is the best approach or solution to adopt, in helping to improve operational and business performance,’ she explains. ‘We have open communications and involve the CEO/MD and the management/ leadership team as well.’
Crucial expertise Noorliza says CFOs may understand that technology can help advance the company or propel the company to the next level – whether in terms of cost savings, improved productivity or efficiency – but they may not have a deep understanding of IT and the actual value it offers. Therefore, CIOs still have their vital role and scope, and will remain crucial for the next few years, she says. Ravi Navaratnam, executive vicepresident of corporate finance at engineering and project management company Mind Consult, says one should not read too much into the Garter survey. He believes how the two roles are organised is down to how each company prefers to draw their reporting lines and splits the running of the company. He notes that CFOs are likely to authorise normal operational and capital investments, such as core IT platforms, by way of renewal or replacement or hardware and software, which are required to keep a company running. ‘As for the case of new technology or IT infrastructure, these are likely to be
identified by the CIO in collaboration with the CEO/CFO in order to meet the future needs of the company, and keep them ahead of the game.’ Siva Prakash, finance manager at Eversendai (see box), says that the two roles may appear to be at odds because typically, business and IT priorities have always been considered by management to be vastly different from one another. ‘It is rare for executives outside of the CFO office to focus on the strategic management of IT,’ he says. So, creating a strategic and long-term connection between the corporation’s business needs and IT returns can be firmly established by the active involvement of the CFO in the IT governance process, he adds.
Business-IT alignment CFOs can still play an active role in an organisation by helping it achieve greater business-IT alignment and bring the IT function to the mainstream by personally assisting with the definition of the IT vision, Siva says. PwC’s Ng believes that, ultimately, for an organisation to function in today’s competitive world, the CFO should work in collaboration with the CIO for the sake of organisational alignment. ‘We expect there will constantly be friction, not just between the CFO and the CIO, but also with [other] business leaders as balancing business needs and priorities against ever-present financial constraints will always be difficult,’ he explains. To manage this, Ng suggests that a collaborative working relationship be built through frequent, honest, and open communication. ‘An important mechanism to achieve alignment, collaboration and communication is through a forum such as an IT steering committee – it brings together management, IT, finance and business functions to deliberate IT issues and investment decisions.’ Edwin Yapp, journalist
*CASE STUDY: EVERSENDAI
According to Siva Prakash, finance manager at Eversendai, the company needed to review the requirement of an enterprise resource planning (ERP) system to replace the current one. The CFO took the lead to review the company’s requirements and developed a requirements plan that best matched the overall organisation’s strategic business objectives. Once developed, Eversendai called several tier-1 ERP system vendors to present their proposals. The final recommendation on the selected ERP solution was made by the CFO to executive management for approval. It was eventually awarded to the vendor which was able to match the requirements of Eversendai, a leading Malaysian construction and engineering company. The involvement of the CFO did not stop at this stage. He was involved in the project in its entirety including the development, prototyping, training, implementation, user acceptance, data cut-over, reporting and postimplementation maintenance and support. While the CFO was part of the executive management, Eversendai did not ignore the IT heads and had a very close working relationship with them. By making the right investments in IT, with measurable outcomes, Eversendai was able to stand out in a crowded and competitive marketplace, balancing this with strong near-term financial management and governance that created an unbeatable business-IT alignment over time.
‘WE EXPECT THERE WILL CONSTANTLY BE FRICTION, NOT JUST BETWEEN THE CFO AND THE CIO, BUT ALSO WITH [OTHER] BUSINESS LEADERS’
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Taking the pulse of the global economy In his regular quarterly report, ACCA’s Manos Schizas looks at what ACCA members around the world are saying about the global economy – and it doesn’t make for happy reading For a year and a half, ACCA’s Global Economic Conditions Survey (GECS), now carried out in association with the Institute of Management Accountants, has recorded the slowdown in the global economic recovery. However, over the last half of 2011, the global economy has taken a marked turn for the worse, led by a substantial fall in international trade. While the negative trend in global business confidence eased in late 2011 compared to the third quarter, and there are encouraging signs from resilient new orders, the damage done to global demand over the last year has been substantial. As a result, small and very open economies have been hit hard, recording levels of business confidence usually seen in the troubled economies of western Europe. The cumulative effect of three consecutive quarters of weakening demand is beginning to take its toll on business. A detailed analysis of the GECS findings suggests that falling revenues are the strongest contributor to falling business confidence, followed by the deteriorating global economic outlook and continuing weakness in new orders. Once these, as well as the
*THE VIEW FROM ASIA PACIFIC
The findings of the survey suggest that the trend in business confidence has actually improved slightly in Asia Pacific. Eleven per cent of respondents said they were more confident in the prospects of their organisations than they had been three months earlier, against 53% who reported a loss of confidence. In mainland China and Australia, 15% and 13% of respective respondents were more confident, while 49% and 50% were less confident. The greatest losses of confidence were in Singapore (67%) and Hong Kong (65%). Just 9% and 6% respectively were more confident. In Malaysia, 50% were less confident and 8% were more confident. As with previous quarters, inflationary pressures have remained high on repondents’ list of concerns, especially in Malaysia and Hong Kong, two of the worst-affected countries in Asia Pacific.
rising incidence of late payment and business failures are taken into account, the effect of tightening credit is only negligible. Still, with banks facing an uphill climb towards capital adequacy, tightening finance must soon add to the challenge of a flagging recovery. The result is a deteriorating outlook for business cashflow around the world which may be driving a rise in business failures. Consequently inflationary pressures, which built up steadily over the past two years, are now easing.
THE CUMULATIVE EFFECT OF THREE CONSECUTIVE QUARTERS OF WEAKENING DEMAND IS BEGINNING TO TAKE ITS TOLL ON BUSINESS. FALLING REVENUES ARE THE STRONGEST CONTRIBUTOR TO FALLING BUSINESS CONFIDENCE In line with this deteriorating outlook, our findings point to weakening trends in employment and investment globally. This is particularly worrying as these two indicators have remained weak throughout the last three years and are crucial to any kind of sustainable recovery. Finally, our findings suggest that governments have to perform a tough balancing act in coming years if they are to support a flagging economic recovery. Sustainable fiscal stimulus is a luxury that not all governments can afford, especially among developed nations, while austerity is proving hard to reconcile with sustained growth, unless perhaps as a response to exogenous shocks. As a result, government approval levels are at a record low, just when they are most likely to influence business confidence. Manos Schizas is ACCA’s senior policy adviser
READ THE FULL REPORT AT: www.accaglobal.com/en/press/gecs-2011q4.html THE ACCA GLOBAL ECONOMIC CONDITIONS SURVEY – HOW TO TAKE PART world more than 300 times. So why not have your say when the next quarterly survey opens on 17 February? Everyone can participate – simply look for the
TAKING THE GLOBAL TEMPERATURE
GLOBAL -30 AFRICA -13 MIDDLE EAST -17 PAKISTAN -25 MAINLAND CHINA -34 UK -40 IRELAND -40 MALAYSIA -42 EASTERN EUROPE -47 SINGAPORE -58 HONG KONG -59
30 Breaking down the ACCA Confidence Index 20 geographically reveals some striking variations, with members in Africa showing most confidence. 10 0 -10 -20 -30 -40 -50 -60 -70 -80 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2009 2009 2010 2010 2010 2010 2011 2011
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.
link in AB Direct. If you have a story to tell, you can also join our panel of commentators by emailing emmanouil. email@example.com
100 BALANCING 75 50 25 0 -25 -50 -75 -100
SAUDI ARABIA 68.8 -9.3 MAINLAND 52.8 CHINA 29.1 HONG KONG 52.4 -31.3 UAE 14.8 -39 USA 11.3 58.5 AUSTRALIA -25 -40.4 UK -38.3 -17.5 IRELAND -90.6 -27.1
The views of ACCA members are highly valued and receive widespread media coverage. The Q4 2011 survey was quoted in the press around the
The towers show how members think public spending will change in the medium term (increases shown in black), while the cakes show whether members see this level of public spending as excessive (above the line) or insufficient.
30 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80
Sample: 2,186 ACCA members around the world
Q3 Q4 2010 2010
THE ACCA CONFIDENCE INDEX
Business confidence remains in negative territory. The graphics show the percentage of respondents saying they have gained business confidence, minus those who have lost it.
RELIEF IN SIGHT? Vietnam has reached a crucial stage in reducing government bureaucracy, according to the OECD, but it remains to be seen whether simplification of its VAT system will follow
s Vietnam goes through a rapid period of social and economic change, so do the nation’s laws. Tax governance and policy reform are crucial for the development of the tax sector as well as the economy, and they are a rising priority for both local and foreign businesses in the country. But, as lawmakers have set and amended tax law in the country, it has become more complex, particularly for corporates. Vietnam is the second fastest growing economy in Asia, and over the past two decades Vietnam’s tax framework has had to work fast to keep pace with development, while also maintaining budget revenue for the state. Currently, Vietnam relies
heavily on indirect tax as a key source of revenue. Vietnam’s value-added tax (VAT) system is one of the most complicated, if not the most, in the region. Unlike New Zealand’s goods and services tax (GST), which is considered one of the simplest in the world, Vietnam’s has two methods of declaration: a tax credit method applied to corporates; and a direct method applied to individuals and households. ‘VAT is applied either to actual or presumed turnover. This has a cascading effect as VAT is not able to be claimed as an input,’ according to Tom McClelland, partner and tax leader at Deloitte Vietnam. McClelland has been heavily involved in tax policy
since he arrived in the country in 1998 and contributes to the development of Vietnam’s tax regime.
Traditional trading Around 76.5% of Vietnam’s 90 million people live in rural Vietnam; and 62.5% of the country’s entire gross domestic product comes from rural areas. Until now, the biggest Vietnamese and foreign companies have been in the biggest six cities: Ho Chi Minh, Hanoi, Nha Trang, Da Nang, Hai Phong and Can Tho. Types of industry and business vary but there are countless family run stores and small businesses both in cities and rural areas. In the big six cities there are around 90,000
Uniform change: Vietnam’s General Department of Taxation wants 90% of enterprises to use e-tax services
because they have to – it isn’t possible to pay for fresh food from a street stall or market with a debit card. Hoang Vu is a tax consultant with Ernst & Young in Hanoi. He says one of the reasons for the complicated system is the vast use of cash, together with the underdeveloped banking system. ‘Cash is still the most popular means of payment, which means it is easy for suppliers to under-declare VAT-taxable revenue by not issuing invoices to consumers,’ he explains. ‘This causes a lot of difficulties for the government in trying to collect taxes, with complicated mechanisms aimed at controlling and monitoring the output and input invoices.’ The direct method of VAT is complicated and has caused issues for banks and businesses alike, but there was a reason it was introduced. ‘The direct method was no doubt introduced to accommodate the large number of individual, and particularly household businesses, in Vietnam,’ says McClelland. ‘The Vietnam VAT system has been adapted to the local business environment and structure, for example the various VAT rates and the unique
‘A HARMONISATION OF THE VAT RATES TO ONE RATE SHOULD ALSO BE AN OBJECTIVE AND THE GOVERNMENT IS WORKING TOWARDS THIS’ traditional grocery stores, according to Nielsen Vietnam’s 2010 census. Despite rapid changes in the retail landscape with the introduction of modern trade and supermarkets, traditional trade is still predominant. And while the use of debit and credits cards has increased significantly over the past five years (8% of bank account holders had a debit card in 2006 v 43% in 2010 according to Nielsen), Vietnamese people still use cash for purchases. That’s often
direct VAT method.’ VAT was introduced in 1999 and initially levied at four different rates: 0%, 5%, 10% and 20%, with many discretionary exemptions. It has undergone minor surgery since then, with the government reducing the number of tax rates to three (0%, 5% and 10%) and decreasing the number of discretionary exemptions. But accountants still find the system overly complicated and call for further simplification.
Loc Huu Phan, chief accountant for shipbuilding company Strategic Marine Vietnam, thinks Vietnam’s VAT system must be simplified further: ‘Vietnamese law changes so often, we are very confused about how to apply VAT law. The government tried to overhaul it, but even now the VAT regime is still complicated.’ It’s commonly agreed that complicated tax systems impact the economy negatively. But are there any benefits? ‘There are no advantages in complexity, however there are advantages in more detailed tax legislation where it gives taxpayers more certainty,’ say McClelland. ‘A harmonisation of the VAT rates to one rate (other than 0%) should also be an objective and the government is working towards this. Moving to a threshold system where only taxpayers having turnover over a certain threshold are required to register for VAT as in several other countries, eg Singapore, may be preferable. The New Zealand GST system is probably the purest in the world with one rate and minimal exceptions.’
Less reliance on cash Hoang also agrees more needs to be done. He says a more effective solution would be to encourage the use of electronic payment in transactions and from there, more effectively control transactions in the economy, reducing the complexity in the VAT system. ‘The introduction of the 20 million dong limit for cash settlement with one supplier in one day is the first step,
*VAT AT A GLANCE
VAT applies to goods and services consumed in Vietnam. The standard VAT rate is 10% and a lower rate of 5% is applicable to provision of essential goods and services. For exported goods and services, the rate is 0%.
Activities exempt from VAT include: The transfer of land use right. Certain credit services, loans, finance leasing, investment fund, capital assignment and securities trading. Medical examination and treatment services. Public passenger transportation by bus. Teaching and training. Life insurance, student insurance, livestock insurance, and types of non-commercial insurance activities. Certain agricultural production. Imports for humanitarian and non-refundable aid. Transfer of technology and computer software. Post, telecommunication and internet services under government programmes. Machinery and equipment and special means of transport which are not yet produced in Vietnam and which are imported by a foreign-invested enterprise (FIE) or business cooperation contract (BCC) parties as fixed assets of the enterprises (see below). Construction materials not yet domestically produced and imported to form fixed assets of a FIE or to carry out a BCC. Goods and services of business with income below a certain threshold. Materials of a FIE or BCC imported to produce products to supply to an enterprise which directly produces products for export.
* * * * * * * * * * *
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Untraceable: while the use of debit cards has risen, cash is a must to buy from markets but this needs much further progress,’ he adds. Australia’s Monash University recently took up the challenge of trying to simplify the system. James Giesecke and Tran Hoang Nhi of the Centre of Policy Studies managed to create a model which kept tax revenues for the
lack of efficiency in the public service sectors, including in taxation. But since the end of the war in 1975, Vietnam has overhauled its centrally planned economy to a mixed one. More recently, it has instituted radical simplification of the entire public sector along with tax reform. In 2007, the government
‘ONE OF THE KEYS TO SUCCESS IS HAVING A STRONG COORDINATING AND AUTHORITARIAN UNIT AT THE CENTRE OF GOVERNMENT’ government at the same level, but with reduced tax collection costs. It was based on a core VAT simplification that removed all discretionary exemptions and all VAT rates on non-exports equalised at a single revenue-neutral rate – 8.3%.
Leading the way Meanwhile, the General Department of Taxation (GDT) is in the process of reforming the tax system, and is slated to finish in 2020. Ultimately, it aims to improve administrative procedures to the point where Vietnam is a leading South-East Asian country in terms of its tax system. The GDT hopes to have at least 90% of all enterprises using e-tax services; 65% carrying out tax registration and declaration via the internet; and perhaps the most difficult task – 80% of taxpayers satisfied with services provided by tax offices. Vietnam is often criticised for its
launched Project 30, which planned to cut administrative bureaucracy by 30%. As of December 2011 that goal had not been reached, but it has reached what the Organisation for Economic Co-operation and Development (OECD) calls a ‘crucial stage’ in attempting to implement its radical cuts. The OECD believes that one of the keys to Vietnam’s success is having a strong coordinating unit at the centre of government, with backing from senior politicians. Nguyen Xuan Phuc, the minister who led the reforms, is now deputy prime minister. Whether Vietnam will succeed in reducing red tape or further simplify its VAT is yet to be seen. Whether it’s ready to undergo further changes at this pace is another issue altogether. Asha Phillips, journalist
Keep the bigger picture in mind [
Business might feel a natural resistance to economic policies such as introducing a minimum wage or raising the retirement age. But we should not lose sight of the potential benefits, says Errol Oh
Whether as individuals, businesses or special interest groups, we often miss the big picture when reacting to proposed changes in economic policies. It is only human nature to first focus on the immediate and obvious impact on us, but it is also human folly to overlook their intended long-range effects on the overall economy. This is especially true when the policy changes are likely to inflict short-term pain on certain parties. For example, the idea of setting minimum wages in Malaysia naturally did not go down well with employers when it was first floated by the unions in 2000. The main arguments against such a move were that it would create inflationary pressure and erode the country’s competitiveness. Similarly, when workers began lobbying for the retirement age to be raised in the private sector, the business community quickly countered that this would increase labour costs. Of course, the concerns expressed tend to be one-sided. After all, the businesses are protecting their interests. However, it would be wrong to ignore the potential of the minimum wage as a way to reduce poverty, improve productivity and spur economic growth. And is it wise for an ageing society with a weakening talent pool to compel people to retire when they still have a lot more to contribute? In any case, the objections are now moot. One of the
Malaysian Government’s six Strategic Reform Initiatives (part of the Economic Transformation Programme or ETP) centres on human capital development. The Performance Management & Delivery Unit (Pemandu), the government body that drives the ETP, says on its website: ‘Extending the retirement age, adopting a minimum wage as well as the introduction of unemployment insurance are some of the steps that the government will take to guide Malaysia in the direction of maintaining a highincome economy that is sustainable and inclusive.’
Businesses are not the only ones guilty of myopia and self-centredness when evaluating the country’s economic manoeuvres. It is almost automatic for people all over the world to protest when governments roll back subsidies and impose new taxes, even when such actions are well-justified. Although perfectly understandable, this mindset impedes economic progress. Subsidies, particularly those that are scattershot, only lead to inefficiency and an unhealthy dependence. As much as we all dislike taxes, they are meant to redistribute wealth. A broad-based consumption tax like the proposed (but deferred) goods and services tax addresses the need to narrow the deficit and to plug leakages in the tax system. It is the government’s responsibility to ensure that there is adequate and earnest dissemination of information ahead of major changes in economic policies. At the same time, people should have at least a basic grasp of why such changes are necessary. Otherwise, the country will be held back by short-termism and self-interest. A high-income economy operates on a reasonable level of trust in the system and a belief in the greater good. But there is a proviso: this has to be matched with competent and clean leadership across all parts of society. Errol Oh is executive editor ofThe Star
The awkward wad [
The IASB’s proposed principles-based standard for revenue recognition has no truck with special sector cases, but, as Jane Fuller points out, cash receipts aren’t always the most accurate measure of sales
It feels like a breath of fresh air for the new year: an accounting standard for all sectors, not just banks, and one that deals with the income statement rather than the balance sheet. Not only that, the final Revenue from Contracts with Customers exposure draft from the International Accounting Standards Board (IASB) represents an increasingly rare success for the project to converge International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP). The proposals are principles-based – the transfer of goods/ services to the customer marks a sale – and replace industry-specific guidelines. A top-down answer never suits all, however. The construction industry and other long-term contractors have kicked up a fuss over the proposed switch away from a percentageof-completion approach. And the telecoms sector, that home of product packages, dislikes the idea of unbundling handset sales from provision of the network service. Companies always prefer producerled approaches, while users prefer economic reality and transparency. The concerns of mobile phone companies throw up some key issues. The first is that recognising revenue from selling a handset at the start of a contract does not match the pattern of receiving a monthly cash payment over the following, say, 24 months. The idea that the income statement should better reflect cashflows is a seductive one but cash receipts can be a poor measure of sales that are longer term and more complicated than the ker-ching of a checkout till. In contracting, the problem for users of accounts is the opposite of the mobile phone giveaway issue. Money is received in advance, which temporarily looks good on the balance sheet,
but booking it as revenue before the company has performed would not be right. So why apply the cash principle when the divergence goes the other way, when a good has been supplied but payment is delayed? Telcos might also feel self-righteous because existing US-based standards that cap ‘contingent revenue’ counter an abuse thrown up in the technology bubble: recording too much revenue too soon. Indeed, they may regard
themselves as being conservative in booking a day-one loss because of giving away the handset, but accounting is supposed to be neutral. For users, unbundling different business activities is always helpful. The trend for companies to classify as much business as possible as a service has aggregated too many lines. The telcos have so far been overruled, but they might take heart from the compromises made by the standard setters to assist construction companies. These include allowing the bundling of ‘highly inter-related’ goods and services, the recognition of revenue on a straight-line basis if the effort is expended evenly, and the use of costs incurred as a measure of revenue. All this still sounds rather producer-led. Indeed, Thomas J Linsmeier, of the Financial Accounting Standards Board (FASB), in an alternative view says that ‘the proposed model has introduced exceptions that permit revenue to be recognised in a manner that is inconsistent with the core principle’. A key safeguard is the testing for onerous performance obligations – when does the company confess that the costs exceed the price? Again, the latest exposure draft modifies earlier proposals, but let’s hope that what remains is tighter than the old rules. The ‘onerous’ issue is a reminder that there is only so much that can be achieved by one standard. Companies whose transactions are anything other than short term run all sorts of cashflow and balance sheet risks. Even with non-financial companies, there is no substitute for looking well beyond the top line of the income statement. Jane Fuller is former financial editor of the Financial Times and co-director of the Centre for the Study of Financial Innovation think-tank
Singapore manufacturers remain downcast about business prospects for the first half of 2012, given the continued uncertainty over the global economy. According to a survey by the Economic Development Board, only 7% of manufacturers expect business conditions to improve by the end of the first half, while 18% say things will get worse. Overall, compared with the fourth quarter of 2011, a net weighted balance of 11% of manufacturers expects a less favourable business situation from now until June. Electronics and precision engineering manufacturers were the most pessimistic, with a net weighted balance of 22% forecasting less favourable business conditions. A net weighted balance of 7% of manufacturers surveyed expected output to fall in the first quarter.
CHINA OPENS UP LISTINGS
China will allow smaller Chinese companies to list in Hong Kong by reducing the regulated threshold, according to Yao Gang, vice chairman of the China Securities Regulatory Commission (CSRC). Speaking at the Asian Financial Forum in Hong Kong, Yao added the CSRC will allow qualified foreign institutional investors greater access to renminbi to invest in Chinese companies on the domestic market. He also reiterated promises that China will consider introducing Hong Konglisted exchange-traded fund products to track the domestic A-shares index and allow more renminbi-denominated bonds and shares in Hong Kong.
The view from: Hong Kong: David Tam, joint company secretary, China Railway Group Q What is currently at the top of your to-do list? A Corporate governance, for sure. We are fully aware of the increasing importance of corporate governance to investors, governing bodies and the company. Good practices can increase operational efficiency and profitability in the long run. Q China Railway Group is one of the largest construction companies in the world. How do you keep track? A The group has a sophisticated and comprehensive reporting system. Apart from a monthly overview on operational and financial data, urgent matters are communicated as need arises.
35 Corporate The view from David Tam of China Railway Group; the challenges of shared services and outsourcing; Ho Kwon Ping, the accidental businessman
Q What corporate governance initiatives are you working on at the moment? A In order to keep pace with recent developments in the economy and the industry, the company is conducting a thorough review of internal control policies and procedures. It will review and revise practices to comply with the updated requirements of the Hong Kong and Shanghai stock exchanges.
41 Practice The view from Irving Low of KPMG Singapore; how to account for carbon markets
Q How does your accounting background assist your work as a company secretary? A My accounting knowledge not only helps assure that the financial data disclosed complies with accounting standards, but more importantly, helps me to analyse and present the data that is meaningful and useful to stakeholders. Q What do you like to do away from work? A I like to play football with friends and watch my favourite team.
Company headquarters: Beijing, China Number of employees (30 June 2011): 283,006 Revenue (2010): 456.1 billion yuan Favourite book or movie: Liverpool FC is more important than any book or movie
Getting into gear In the second part of his series, ACCA’s Jamie Lyon says that more ambition and better change management are needed to fulfil the potential of shared services and outsourcing Shared finance services and outsourcing have been a significant success, driving down the cost of finance operations through labour arbitrage, stimulating processing efficiency and ticking the finance standardisation box. They have also helped to ensure consistency and to leverage IT to deliver benefits. But, according to professionals working in the field, finance transformation through shared services and outsourcing has not yet had a significant impact on broader business performance, and there is much untapped potential. These are some of the findings in ACCA’s recent report, Finance Transformation: Expert Insights on Shared Services and Outsourcing, which features commentary from 20 world-leading experts in the shared services and outsourcing space. It considers fundamental questions about how CFOs and finance leaders are evolving the finance function to drive down its cost and improve efficiencies, and, critically, how they are seeking to raise the effectiveness of finance as a partner to the business. Other advantages of shared services and outsourcing cited in the report include better governance and control as improved standardisation has delivered greater levels of transparency over finance operations. Our experts agreed that headway had also been made in getting better information
across the business to help decisionmaking and performance measurement. In many respects, the tactical aspects of finance shared services and outsourcing are now well established
THE ISSUE OF CAPABILITY IS AT THE HEART OF THIS PROBLEM. THE NEW ROLE FOR THE RETAINED TEAM DRIVES A COMPLETELY NEW SKILL REQUIREMENT
and delivered. The model has continued to evolve with the emergence of centres of excellence to house typically specialist finance responsibilities such as tax and treasury, complemented by an overarching governance-type function which brings together the constituent parts of the finance model to make it all tick along nicely – in theory. So far, so good, but the conclusion from the report is that much more can be done. Much more value could be added by evolving the finance function further and optimising its structure to unleash new levels of business benefits and make an impact on broader business performance. So why is it that transformation initiatives to date have not always delivered on their promises? First, the report suggests that it is about the ambition of finance leaders and the capability of organisations to successfully deliver on the enormous change programme that is required. Levels of transformation ambition vary. Some finance leaders see finance transformation as a means to transform the business too, rather than simply stopping at a better finance function. Other finance leaders take a slightly different perspective, seeing transformation through shared finance services or outsourcing primarily as a ‘functional finance’ fix. To this end clients differentiate between the capability of providers, seeing some as well placed to help drive business and not just finance solutions. At the heart of transformation success, however, is change management. The so-called ‘softer stuff’ continues to be the greatest impediment to achieving the goals of finance transformation through shared services and outsourcing.
TO READ ACCA’S REPORT ON HOW ORGANISATIONS ARE TRANSFORMING THE FINANCE FUNCTION, VISIT
VIEW FROM EY: *JAMES MEADER, PARTNER Graham Russell, director of business process outsourcing at WPP Group, says: ‘In all these finance transformation journeys, the hardest part is always change management. People don’t know what they don’t know. And it’s never easy to take people on this journey when they don’t know where they are going, and they are not quite convinced because the function works today and has worked for a long time. There’s a natural pushback to change.’ Many of the experts contributing to the report acknowledged concerns about the capability of organisations to manage the change process effectively. Another key problem with transformation programmes to date has not, perversely, been to do with optimising the remote delivery operations, whether through shared services or outsourcing, at all. Rather, it is that too little attention has been paid to the role and purpose of the retained finance function. This is ironic, because a key driver behind finance transformation is to free valuable finance staff at the centre or embedded in the business units from finance processing so they can concentrate on higher value insight to support commercial decision-making. Logically this means that many businesses are not tapping into and exploiting as much value as they could be. The retained finance function has been underutilised and its purpose lacks articulation. Anoop Sagoo, senior executive for business process outsourcing at Accenture, summarises the problem: ‘It’s difficult to conceive when you’re designing a shared service model that you can get a finance and accounting operation to the right level of efficiency and effectiveness without considering the retained finance function.’
In ACCA’s report, both leaders and providers cite the lack of focus on the retained team as a major obstacle to transformation success when adopting shared services and outsourcing. Often the retained team’s roles and responsibilities are not well articulated in the haste to implement, resulting in overstaffing and the formation of a shadow organisation. A key impetus for shared service and outsourcing implementations is that the transaction processing activities are removed from the business, leaving the high-value business partnering activities at its heart. However, many businesses struggle to define business partnering roles clearly and to communicate the transition properly. The result of this can be accountability confusion, skill gaps in the retained team, loss of trust by the business and unclear career paths. To address these challenges, businesses need to define clearly what is expected of the retained organisation, to conduct a skills assessment and train the team, as well as to ensure that career paths are developed and transparent.
Learning curve Once more, it is the issue of capability that is fundamentally at the heart of this problem. The new role for the retained finance team drives a completely new skill requirement. It moves responsibility away from delivering many traditional finance responsibilities and towards sometimes managing governance and service delivery, or becoming a much more valued partner to the business. Commerciality, depth of business understanding, communication and influencing skills are now key. It also calls into play new behaviours. John Ashworth, global head of business process outsourcing at Pearson, says: ‘It requires a certain sort of behaviour, which is to embrace the change and look for opportunities to push deeper and create purpose for the retained function.’ To get this right is a big call. Great change management capability is key to success. Mastering the ability to effectively make the change to the new model will be a critical skill.
LAST MONTH HOW SHARED SERVICES AND OUTSOURCING INCREASINGLY DRIVE PERFORMANCE Jamie Lyon is head of employer services at ACCA you are a CFO or FD interested in * Iffinance transformation, shared services or outsourcing and want to contribute to ACCA’s programme, contact firstname.lastname@example.org, +44 (0)20 7059 5513
Tree of prosperity Former journalist Ho Kwon Ping ended up in business by accident. But now he leads one of Asia’s top hospitality brands, which now has hotels, resorts and spas in 27 countries Ho Kwon Ping, now the executive chairman and CEO of Banyan Tree Holdings, did not intend to become a businessman. But while he was working as a journalist in Hong Kong, his father, head of the Wah Chang Group, suffered several strokes. As the eldest son, Ho decided he should join the family firm, giving up plans to move to France to pursue research studies at INSEAD. Ho recalls being thrown in at the deep end of life at the diversified conglomerate, which his grandfather founded. His father had further developed the company with various contract manufacturing operations in South-East Asia, producing products such as TV sets for Samsung and Panasonic and shoes for Nike. ‘There was no time for a learning curve,’ Ho explains. ‘Though, when I first joined in 1981, my father was still able to walk and talk. He was very Chinese, saying: “OK, here you are, do whatever you want to do.” So I did,’ Ho recalls. Back in the 1980s, Asia’s young tiger economies, which offered cheap contract labour to Western companies, were developing very quickly. ‘My father’s business was broadly divided into two types: the ones he had set up at the end of the second world war, dealing in agricultural processing and food stuff manufacturing in Thailand, and then various contract manufacturing and trading companies in Singapore, Malaysian and Taiwan. This was the model for growth, but I gradually came to realise that contract manufacturing was not sustainable.
You get squeezed out because the next guy will always start producing cheaper than you,’ Ho explains.
Lessons in business
The tips *
Every industry, no matter how mature or sluggish, will have its high-growth star performers, often those who use innovation and technology as strategic advantages.
Game-changing innovations are not just pie-in-the-sky ideas; they are responses to real problems. All of us can turn our problems into game-changing innovations.
Even the most radical innovation becomes obsolete over time, so we need to inculcate a culture of continual innovation in a company.
There is the opportunity and challenge for any company located in Asia to be high-growth, and this is something which every entrepreneur must seize.
I THOUGHT I WAS THIS HOT-SHOT BUSINESS GUY AND MY FATHER WASN’T. BUT HE WAS BETTER THAN ME BECAUSE HE KNEW WHEN TO GET OUT’
Free to move the company in any direction he wished, Ho made some early mistakes. ‘I was this impudent young man wanting to do his own business,’ he recalls. Ho set up an offshore drilling rig building business in China, but the business floundered after a deal with the Chinese authorities went sour and the rig, which the Chinese was supposed to buy, had no buyer in a suddenly over-supplied rig market. ‘It almost bankrupted us,’ he says. ‘I thought I was this hot-shot business guy and my father wasn’t. But my father basically was a lot better than me because he knew when to cut losses and get out, while I just wanted to hang in there. I learnt two lessons, which have nothing to do with business school: First, you very often need to know when to cut your losses, never indulge in self-deception and never have this gambler kind of attitude. My father knew that because he had been trading in commodities his whole life and he’d lost a lot and made a lot. ‘The second lesson is that you should never calculate how much you might make. Instead you should calculate how much you might lose and whether it can bring you down or not,’ he adds. In the early 1990s, after he had to close down a contract manufacturing business in Thailand within a year because it was facing too strong competition from a cheaper manufacturer in Indonesia, Ho realised he needed to find a proprietary advantage for his company. ‘A proprietary advantage is something you own. A cost advantage
is when you happen to be cheaper than the next guy. But when the next guy is cheaper than you, he’s got that advantage. A proprietary advantage can be technology, like a patent, or if you have a brand. And that’s what led me to set up Banyan Tree. The hotel was a vehicle to building a brand,’ he says. Ho had already built four hotels in Phuket on land he had bought with his brother, an architect. The 600 or so acres of land they were slowly developing were within an abandoned tin mine on the island’s west coast. The four hotels were managed by established brands like Sheraton and Thai group Dusit, but no one was interested in taking up the contract to manage the fifth hotel plot because it had no access to the beach. Undeterred, Ho decided to set up a new company to operate a hotel on this ‘unappealing’ site.
Unique concepts To compensate for the lack of beach access, Ho dreamt up two hotel concepts that were very innovative at the time: the pool villa and the tropical garden spa. The Banyan Tree brand was born. While the innovations came out of necessity, their development underscored Ho’s business belief that innovation should play a strategic
role in any business development by helping to set the ‘terms of engagement’ with competitors. He points to his decision to ignore spa consultants who urged him to create a European-styled, airconditioned environment, and how he instead decided to embrace the tropical greenery and humidity. The lesson learnt, he says, is never try to copy or be a poorer version of what others have, but instead turn a weakness or constraint in your favour. The gamble paid off. Since the launch of its first resort in Phuket in 1994, Banyan Tree has become synonymous with luxurious pool villas and the hotel management company has steadily built a strong brand firmly associated with ‘the romance of travel’, with 30 hotels and resorts, more than 60 spas, three golf courses and 80 retail galleries. After a slow start, the group has in recent years started to quickly expand and spread its roots around the globe. Banyan Tree now has resorts in China, Mexico, the Maldives, and even operates a one-of-a kind luxurious desert resort in Ras Al Khaimah in the United Arab Emirates. And Ho continues to have big ambitions, with an impressive pipeline of new properties due to open in the next two
years in India, Vietnam, Morocco and Greece. ‘Now that we have built the brand and it can continue in the hospitality space on its own, my next big task is to extend the Banyan Tree brand in other areas, while somebody takes over from me to manage the hospitality business,’ Ho says. Ho says he is especially interested in moving into brand-related property development. ‘We’ve started but we could do a lot more in it,’ he says.
Family owned, professionally run Though his family still controls 50% of the company and several of his family members work for the company, such as his brother, his wife and his 29-year old-son (who works in China), Ho doesn’t consider Banyan Tree to be a family business. ‘Neither my brother nor my wife are key managers. Banyan Tree is run by professional managers: it’s not a family running a business, but you do have one dominant shareholder who cares more for the long-term interest of the company and its stakeholders than the immediate short-term earnings. We are a dominant-shareholder driven company,’ he says. Ho wants his family to remain a dominant shareholder in the company.
The CV 1977
Detained for two months under Singapore’s Internal Security Act while working as a journalist for the Far Eastern Economic Review, for writing pro-communist articles. Placed in solitary confinement.
Joins the family’s Wah Chang Group.
Buys around 600 acres of land within an abandoned tin mine and develops the Laguna Phuket. ‘If the whole industry changes so that the company’s future is better if it is sold, then of course we would consider that. If we were in the electronics business where scalability is everything, then we would have sold or it would have started to go down. By remaining independent, we’re able to scale up faster,’ he notes. Ho is also thinking about succession and says steps are under way. Without revealing details which will be announced in April, he says the plan is that ‘where before I was the CEO of an integrated company, I may well become now the CEO and chairman of a holding company, which have subsidiaries that are headed by their own CEOs.’ The restructuring, he says, will free him up to concentrate on new projects. Ho also acknowledges that his company will slowly have to move towards a separation of powers between the CEO and the executive chairman positions. ‘When it’s a founder-entrepreneur’s company there needs to be a period of time where a company goes through a single founder with his vision, then at some point in
time the company should make that transition. I do not see that after me the next position should be joined, and I would hope to move into that direction within my own period of time,’ he says.
Cash-rich business With banks around the world weakened by the worsening of the sovereign debt crisis in the eurozone, credit liquidity has significantly tightened in recent months, posing headaches for many companies in Asia, which are doing well but still need to refinance ongoing projects. Credit is becoming scarcer and more expensive, as it did in 2008 after the collapse of Lehman Brothers. Having been nearly caught in the post-Lehman liquidity crunch, Ho has readied his company in recent years by, for example, divesting some of its properties. Today, the Banyan Tree is cash rich. ‘Even if we were to look at a liquidity crisis several times worse, we don’t even have to think about financing for a few years,’ Ho says. As he’s weathered several other crises, from the Asian financial crisis in 1997 to the aftermath of the 2004 tsunami, Ho says he has become very
Founds Banyan Tree Hotels and Resorts and launches its first property, Banyan Tree Phuket.
Lists Banyan Tree on the Singapore Exchange.
Banyan Tree completes its first renminbi-denominated private equity fund in China, the Banyan Tree China Hospitality Fund, with a total capital commitment of 1.07 billion yen.
cognisant of global macro trends. ‘Right now, fortunately, I’ve learned enough lessons from the previous financial crises. Maybe the downside is that I’m too cautious, but if 2012–13 is worse than 2008–09, we would feel it of course in our profits, but we wouldn’t feel it significantly in terms of our survivability, because we’re in a relatively comfortable position.’ Sonia Kolesnikov-Jessop, journalist
FIRMS’ HEADCOUNT UP ON UK China’s headcount at the top accountancy firms is about to overtake the UK for second place in the world behind the US, according to a recent report by the Financial Times. At KPMG, for instance, the firm now has about 9,000 staff in mainland China and Hong Kong and 11,000 in the UK. Alan Buckle, the firm’s global deputy chairman, predicts the UK will be overtaken by the end of 2013. At Ernst & Young, after quadrupling its workforce in mainland China and Hong Kong over the last 10 years, it now employs 10,000 there compared with 11,200 in the UK. At PwC and Deloitte, the British headcount is larger but the gaps may also be eaten away during the coming years at those firms, the report speculates.
The view from: Singapore: Irving Low, head of Risk Consulting, KPMG Singapore Q How is 2012 shaping up so far? A 2012 will be a challenging year. Due to the uncertainty facing the business community ahead, many are preparing for the worst. Q What’s the one blind spot companies tend to have? A Not knowing what their blind spots are. This is a situation of ‘you don’t know what you don’t know’. Most companies will tell you that they have been in business for many years and have survived, and they have seen everything there is to see. But the world in which we live today is very different from the world of 10 or even five years ago. Complexity coupled with technology has transformed the way we transact and conduct business. Q Do you see your job getting harder? A Our job will invariably get harder. The complexity in the business environment will require that we, as service providers, stay ahead of the knowledge curve. Clients are a lot more sophisticated and naturally demand more from their service providers. We have to continuously embrace new ideas and knowledge to innovate better solutions.
KPMG AND EY IN THE CLEAR
Accounting firms KPMG and Ernst & Young have been cleared of responsibility for a US$1.7bn accountancy fraud at camera-maker Olympus by an unofficial panel of experts. However, the firms’ roles still remain under review by Japan’s financial regulator and accountancy body. The two audit firms’ roles came under scrutiny after signing off on Olympus’s accounts before the 13– year fraud was discovered in October 2011. A panel of lawyers set up by Olympus said neither of the two firms violated their legal duties. However, they said five individual auditors were responsible for 8.4 billion yen (US$109m) in damages. Olympus later said it is suing the five individuals for one billion yen.
41 Practice The view from Irving Low of KPMG Singapore; how to account for carbon markets 35 Corporate The view from David Tam of China Railway Group; the challenges of shared services and outsourcing; Ho Kwon Ping, the accidental businessman
Q What do you like best about your work? A Everything! My job allows me to make a difference for our clients, our staff and our organisation. I believe we are entrusted with a role and responsibility which allows us to influence others in a positive manner. From a personal perspective, job satisfaction is beyond the monetary benefits derived.
Firm structure: Partnership Employees: Eighty partners and 2,257 staff (as of 31 Dec) Job description: Anything and everything – within my authority, of course
Accounting for emission omissions The marathon UN climate talks in South Africa last December achieved a last-minute deal, but big questions remain over a common accounting basis for carbon markets The marathon United Nations climate talks in Durban, South Africa, resulted in agreement to start a fresh round of negotiations to secure a new treaty on global carbon emissions and will spark a host of critical accounting and auditing questions. Delegates said the new treaty would replace the Kyoto Protocol and come into effect by 2020 at the latest. However, despite the renewed political will, serious question marks remain over how emissions can be properly monitored and accounted for and how that will affect the health of carbon markets. Under the existing UN clean development mechanism (CDM), emission reduction projects in developing countries can earn certified emission reduction (CER) credits. These saleable credits can be bought by industrialised countries to help meet their emission reduction targets under the Kyoto Protocol, which will now be extended until at least 2017 under the Durban pact. But the accounting basis of the CDM and CER framework remains unclear or at best ambiguous in parts. The UN’s climate governing body in Durban agreed only to review the basis of CDM and CER at its next meeting in Qatar in November 2012. Still outstanding is the finalisation of the design of the extended Kyoto emissions commitments to ensure effective operation of emissions trading, ‘taking into account relevant rules, modalities, guidelines and procedures for measuring, reporting, verification and compliance of the CDM process’. The CDM’s executive board has also asked market participants to suggest draft data quality guidelines to use in standardised baselines for emission calculation models. The current lack of a common accounting system to monitor emissions under the UN
climate convention could further complicate efforts to achieve accurate monitoring – which is a necessary underpinning for carbon markets. Niklas Höhne, director of energy and climate policy at Germany-based energy consultancy Ecofys, says: ‘The fragmentation of emission accounting rules will make it very difficult for scientific comparison of pledges and decrease the transparency of government actions. Pledges [of emissions cuts] are based on different assumptions, conditions and implied rules. This complexity is increasing
The complexities inherent in the system have been highlighted by Australia’s emissions policy. Australia pledged to cut emissions by 5% from the levels it produced in 2000 but the industrial sector levels incorporated into the Kyoto Protocol would in theory allow Australia to increase its emissions by as much as 26% over 1990 levels. These apparent contradictions emerge because Australia calculated its emission reduction target for 2020 on the basis of the sectors listed in the Annex A of the Kyoto Protocol – namely, energy, industrial
Riding the revolution: cyclists power lights on an installation depicting a baobab tree on Durban’s beachfront
since some parties are using Kyoto Protocol rules for counting their pledge and others aren’t. This, in turn, will increase the level of uncertainty in evaluating the global emissions we really have now and where they are headed.’
and agricultural emissions – plus the emissions from afforestation, reforestation and deforestation, based on another Kyoto clause. As emissions from afforestation, reforestation and deforestation are projected to be much lower in 2020 than in 1990,
Feel the heat: supporters of southern African grouping the Rural Women’s Assembly raise awareness at Durban of the impact of climate change on ordinary people
emissions of all other sectors can be higher, according to environmental consultancy Climate Analytics. ‘A set of common rules would ensure a higher level of transparency, ensure comparability and build confidence,’ Höhne says. The European Union, long Kyoto’s most significant supporter, reaffirmed in November 2011 that timely and accurate figures on emissions are vital and has proposed legislation to boost monitoring and reporting of emissions, especially for the period 2013 to 2020. The legislation also aims to cover reported emissions from land use, land use change and forestry, aviation and maritime transport among other sectors. Its main objectives include measures to improve the quality of data reported and to ensure that EU states comply with current and future international monitoring and reporting obligations and commitments. The UN climate body is also trying to iron out problems but negotiations will take at least a year. A decision over establishing a CDM appeals process was deferred to the Qatar meeting after delegates in Durban failed to agree on how appeals would operate.
Materiality threshold A separate provision for a ‘materiality threshold’ under the CDM was agreed in Durban, and emissions reporting errors too small to have any significant impact will in future be disregarded. Information relating to a CDM project will be considered material if its omission, misstatement or noncompliance with a requirement results in an overestimation – above a certain allowable level – of total emission reductions achieved. Large projects are allowed a smaller margin of error than small ones. In the case of projects that offset more than 500,000 tonnes of carbon dioxide equivalent (CO2e) a year, total emission reductions may not be overestimated by more than 0.5%. Meanwhile, the deal reached in Durban should be a boost for the EU’s own emissions trading scheme (ETS) carbon market. Without Kyoto and its commitments from mainly EU countries to cap their greenhouse gas emissions, the ETS would have been under threat. The EU pledged in Durban to cut its emissions by 30% by 2020 compared with 1990 levels. The EU ETS covers some 11,000 power stations and industrial plants in 30
countries and will extend to the civil aviation sector from January 2012. But the ETS has not had an easy ride since its inception in 2005. Carbon prices have slumped to around €7 a tonne CO2e, far below record highs of around €30/t CO2e and well below the minimum of €20/t CO2e seen as needed to attract investment in new clean technologies. The euro crisis, the grim global economic outlook and an oversupply of allowances issued by polluters that expect their power stations and other facilities to pump less in the downturn have pulled down allowance prices on the ETS. Banking group UBS has been highly critical of ETS, arguing it has cost EU consumers almost US$290bn for ‘almost zero impact’ in cutting emissions. UBS has also warned that ETS prices will crash in 2012. The ETS is trying to recover its reputation after a series of high-profile theft and fraud scandals which has knocked confidence in the scheme. ‘Clearly, the market is in a dark place, being awash with supply and facing big European macroeconomic risks,’ a spokesman for British banking group Barclays said.
US investment bank Goldman Sachs has even warned that EU politicians may be tempted to intervene in the ETS to prevent allowance prices falling even more. ‘We see a potential catalyst for carbon prices from political intervention, either through a tightening of the scheme or from a carbon floor price,’ said a Goldman Sachs spokesperson. ‘We believe the significant influence of green party agendas across Europe, combined with the potential revenue for cashstrapped governments, is the basis for risks of intervention in the carbon markets.’
EU ready to act Denmark, which took over the EU presidency for six months starting in January 2012, is seen as sympathetic to EU action in the market. In a further sign of EU intervention in the carbon market, there are plans to ensure EU spot carbon permits are regulated by the European Commission under the Markets in Financial Instruments Directive (MiFID). MiFID may ensure that future carbon registry account holders in the ETS will be restricted to prevent fraud. At the start of 2011, a total of 4m tonnes CO2e of EU ETS allowances (EUAs) was stolen by hackers who accessed online registry systems of the ETS. ‘While it is impossible to fully legislate against theft, the question remains as to why we continue to facilitate access to our market to the criminal element by allowing almost anyone to open up a registry account,’ said a carbon market analyst at Deutsche Bank. With Europe in a funk, the biggest potential boost to carbon markets may come with its development in China and Australia. China, the world’s biggest emitter of greenhouse gases used the UN climate talks in Durban to confirm it was aiming to launch a working carbon market which would act as a market-based mechanism to incentivise its main polluters to reduce emissions. ‘We will actively develop the market mechanism of carbon trading pilot projects to
A KEY ROLE
Delegates at the UN Climate Change Conference in Durban
A new report from ACCA, COP 17 and Accountants: Where Next?, makes it clear that business and climate change experts believe accountants have the technical skills and expertise to make a real difference to climate change mitigation activities. However, the experts also believe that the profession needs to develop its knowledge and mechanisms to meet new demands, and to reshape its training and skills courses to provide the necessary confidence and trust in accountants’ capabilities and integrity. Rachel Jackson, ACCA’s head of sustainability, says: ‘The profession has work to do to get to where it needs to be on sustainability accounting, but it has been flexible in the past and should rise to this new challenge. The fight against climate change is going to be a collaborative effort. Accountants, countries, and private enterprise and finance will all have a role to play.’ View the report at www2.accaglobal.com/cop_17
explore the establishment of carbon trading markets,’ China’s top climate negotiator Xie Zhenhua said in Durban. China’s Industrial Bank and the Shanghai Environment Energy Exchange in November signed an agreement to test an emissions trading scheme in Shanghai. China’s economic planners want similar exchanges in Beijing, Guangdong, Tianjin, Hubei and Chongqing by 2015. Like China, Australia has plans to bring in a carbon market in 2015. The proposed Australian carbon market would be linked to the EU’s ETS system. Talks between senior Australian and EU officials will focus
on how Australia and the EU can work together to promote deep, liquid and integrated carbon markets. The talks ‘will also examine the mechanics of linking Australia’s carbon pricing mechanism with the EU’s ETS’, according to the EU and Australia. The negotiations could be a sign of the times: the Asia Pacific region will increasingly take the lead in developing carbon pricing and market mechanisms as part of global climate change mitigation efforts, according to the International Emissions Trading Association (IETA). George Stone, journalist
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A monthly round-up of the latest from the standard-setters INTERNATIONAL IFRS 9 CHANGES The International Accounting Standards Board (IASB) issued IFRS 9, Financial Instruments, in November 2009. At that time it also said that it might be necessary to make further changes as a consequence of the ongoing project to develop an IFRS for insurance contracts. The IASB has now announced that it will undertake a project to make limitedscope changes to IFRS 9. At the same time, the IASB and US Financial Accounting Standards Board (FASB) will work together to try and reduce the differences that currently exist in their respective models for classification and measurement. The IASB has also stated that in making any amendments, it will be mindful of the fact that many preparers will have already invested time in planning for the implementation of IFRS 9 in 2015. While it has been a slow start to the year as new pronouncements and exposure drafts are concerned, this is unlikely to remain the case as 2012 progresses. A review of the IASB’s work plan shows that there are a number of very important exposure drafts and standards due in the first half of the year. These are listed below. Leases – a revised exposure draft is anticipated which will continue with a
model that will require the majority of lease contracts to be recorded ‘on balance sheet’, but will simplify the way in which those leases are measured compared with the original proposals, particularly for lessors. Financial instruments – a new IFRS for general hedge accounting, which the IASB considers will reduce complexity and allow entities to more closely align their accounting to the hedging models they apply in running their businesses. An exposure draft in respect of macro hedging will follow in the second half of the year. There are also plans to re-expose the proposals addressing the impairment of financial instruments. Insurance contracts – originally exposed in 2010, the proposed standard has been subject to substantial reworking in many key areas and will therefore also be re-exposed.
Yvonne Lang, director, Smith & Williamson
MALAYSIA PN13/2011 ISSUED On 23 December 2011, the Companies Commission of Malaysia (SSM) issued Practice Note No. 13/2011 (PN13), Circumstances and Procedures for Rectification of Documents Lodged and Registered with the Companies Commission
of Malaysia. This note clarifies the circumstances and procedures in which documents that have been lodged and registered with the SSM may be rectified. It also reiterates the importance of ensuring that companies lodge documents which contain adequate and accurate information. The full PN13 is available from www.ssm.com.my BANK NEGARA MEASURES On 31 January 2012, Bank Negara Malaysia announced the following liberalisation measures as part of continuous efforts to enhance competitiveness in the economy and to develop the domestic financial markets: Licensed onshore banks are permitted to trade foreign currency against another foreign currency with a resident. A licensed onshore bank is allowed to offer ringgitdenominated interest rate derivatives to a non-bank non-resident. Flexibility is permitted for a resident to convert their existing ringgit or foreign currency debt obligation into a debt obligation of another foreign currency. For more information, contact Bank Negara Malaysia toll free on 1 300 88 5465 (BNMTELELINK), email email@example.com. my or log in to www.bnm. gov.my/fxadmin
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PUBLIC RULINGS ISSUED On 20 December 2011, the Inland Revenue Board issued Public Ruling No. 11/2011
(PR11), Bilateral Credit and Unilateral Credit and Public Ruling No. 12/2011 (PR12), Tax Exemption on Employment Income of Non-Citizen Individuals Working for Certain Companies in Malaysia. PR11 provides an explanation on bilateral credit and unilateral credit that may be claimed by a person who has been charged tax on the same income in Malaysia and in another country. PR12 provides an explanation on the tax treatment of employment income derived by non-citizen individuals working for an operational headquarters company, regional office, international procurement centre company or regional distribution centre company in Malaysia. Both are effective from year of assessment 2011 and subsequent years of assessment. They can be downloaded from www. hasil.gov.my/pdf/pdfam/ PR11_2011.pdf and www. hasil.gov.my/pdf/pdfam/ PR12_2011.pdf, respectively. Vilashini Ganespathy, head – technical and professional development, ACCA Malaysia
SINGAPORE 2012 BUDGET STATEMENT The 2012 Budget Statement was delivered by deputy prime minister and minister for finance, Tharman Shanmugaratnam, in parliament on 17 February. More details can be found at www.mof.gov.sg
ACRA ISSUES DIRECTIONS The Accounting and Corporate Regulatory Authority (ACRA) has issued Financial Reporting Practice Direction No. 1 of 2012. This direction urges company directors to focus their attention on those Singapore Financial Reporting Standards which require significant management judgments and estimations in this uncertain economic environment. ACRA has also issued Practice Direction No. 1 of 2012, Applications for Exemptions under Sections 373(5) and 373(7) of the Companies Act, Cap. 50. This direction serves to identify: a) The legal requirements relating to financial reporting imposed on foreign companies. b) Policies supporting these requirements. c) The criteria and conditions imposed by ACRA for applications under section 373(5) of the Companies Act, Cap. 50 for waiver from filing of local branch accounts, and section 373(7) of the act for relief from the requirements relating to the form and content of accounts or reports lodged. ACRA has also issued an article, Discussion of Past Disciplinary Cases against Public Accountants and Public Accounting Entities. This sets out the decisions or rulings extracted from past disciplinary cases against public accountants and public accounting entities. Its purpose is to raise
awareness of appropriate and acceptable professional conduct, and to make known actions taken by ACRA to uphold professional conduct. The documents can be downloaded from www.acra. gov.sg LICENSING FOR CRAS The Monetary Authority of Singapore (MAS) has implemented the regulatory framework for Credit Rating Agencies (CRA), with effect from 17 January 2012. Under the new CRA regulatory framework, the provision of credit rating services will be regulated under the Securities and Futures Act (SFA). CRAs will consequently have to be licensed under the Capital Markets Services (CMS) licensing regime under the SFA and be subject to licensing obligations. CRAs will be required to comply with existing regulations, guidelines and notices under the SFA that apply to all CMS licensees. In addition, CRAs will also have to comply with a new code of conduct for CRAs that MAS will introduce in conjunction with the establishing of a regulatory regime for CRAs. MAS will also require CMS licensees providing credit rating services to appoint and register under the Representative Notification Framework any individual who acts as their representative in providing credit rating services. Representatives providing credit rating services will be required to hold, as
a minimum, a Bachelors degree in a relevant discipline that will allow them to perform the job function effectively. Existing CRAs will be given a transition period of six months to apply for the required licence. For more, go to http:// tinyurl.com/7unk4bd CONVEYANCING WORKFLOW The Ministry of Law implemented new measures on 1 August 2011 to protect conveyancing money, by regulating how lawyers can receive and hold conveyancing money. These measures include requiring lawyers to hold conveyancing money in conveyancing accounts with specially appointed banks, namely: Bank of China, Bank of East Asia, CIMB Bank, DBS Bank, Far Eastern Bank, OCBC and UOB. Alternatively, lawyers can hold such money through the Singapore Academy of Lawâ€™s conveyancing money service, or via escrow arrangements. The withdrawal of money from such accounts requires joint authorisation by lawyers acting for different parties. As a further enhancement, from 1 January 2012, the Singapore Land Authorityâ€™s Electronic Payment Instruction (ePI) service will allow lawyers to electronically notify banks of the details of conveyancing money paid into conveyancing accounts, instead of using hard copy forms. The Inland Revenue Authority of Singapore will
also accept electronic stamp duty payments via the ePI service, which will reduce processing time and further streamline conveyancing transactions. For more, go to www. conveyancing.sg Joseph Alfred, policy and technical adviser, ACCA Singapore
HONG KONG ANTI-MONEY LAUNDERING The Securities and Futures Commission has released a new set of guidelines on anti-money laundering and counter-terrorist financing, which will come into effect on 1 April 2012. These provide guidance to licensed corporations relating to the operation of the provisions of schedule 2 to the AntiMoney Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO). Schedule 2 of the AMLO aims to bring customer due diligence and recordkeeping requirements in line with the latest international standards. The guidelines assist corporations to design and implement appropriate and effective policies, procedures and controls so as to comply with the AMLO, and include examples of industry-specific suspicious transactions that may warrant reporting to the Joint Financial Intelligence Unit. Sonia Khao, head of technical services, ACCA Hong Kong
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Current or non-current liability? Accounting for liabilities may appear to be straightforward but simple rules can have significant effects on corporate financial statements, explains Graham Holt
There have recently been some major breaches of debt covenants reported by companies, but the issue then arises as to how this liability is reported. The question is whether the liability is a current or non-current liability and how to present the liability in the statement of financial position. IAS 1, Presentation of Financial Statements, paragraph 60 stipulates that an entity should present current and non-current liabilities as separate classifications in its statement of financial position, except when a presentation based on liquidity provides more relevant and reliable information. Whatever the method of presentation, an entity should disclose the amount expected to be settled after more than 12 months and less than 12 months. When an entity supplies goods and services with an identifiable operating
Financial liabilities include trade and other payables. If a liability category combines amounts that will be settled after 12 months with liabilities that will be settled within 12 months, note disclosure is required which separates the longer-term amounts from the 12-month amounts. Paragraph 69a窶電 of IAS 1 states that liabilities are to be classified as current if any one of four specified conditions is met. The conditions are: A It expects to settle the liability in its current operating cycle B It holds the liability primarily for trading C The liability is due to be settled within 12 months D It does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. All other liabilities are to be
SOME CURRENT LIABILITIES SUCH AS TRADE PAYABLES AND EMPLOYEE COSTS ARE PART OF THE NORMAL WORKING CAPITAL cycle, separate classification of current and non-current liabilities highlight liabilities due for settlement in the period. Information regarding the realisation of liabilities is useful in assessing the solvency of an entity as IFRS 7, Financial Instruments: Disclosures, requires disclosure of the maturity dates of financial liabilities.
classified as non-current. IFRS 7 does not deal with the classification of financial liabilities but the disclosure of information that enables users to evaluate the nature and extent of risks arising from financial liabilities to which the entity is exposed. IFRS 9, Financial Instruments, deals with the classification and
measurement of financial liabilities. In October 2010, the International Accounting Standards Board (IASB) published additions to the first part of IFRS 9 on classification and measurement of financial liabilities. The requirements in IAS 39 regarding the classification and measurement of financial liabilities have been retained, including the related application and implementation guidance. This means that there are two measurement categories for financial liabilities, which are fair value through profit or loss (FVTPL) and amortised cost. The criteria for designating a financial liability at FVTPL also remain unchanged. Some current liabilities such as trade payables and employee costs are part of the normal working capital of the entity and the entity classifies the amounts as current even if they are to be settled outside of the 12-month period. There are some current liabilities that are not part of the working capital cycle but are due for settlement within 12 months or are held for trading. Financial liabilities are an example of this fact. Financial liabilities are classified as current when they are due for settlement within 12 months, even if the original term was for a longer period than 12 months and an agreement to refinance on a long-term basis is completed after the reporting date but before the financial statements are authorised for issue.
TO GET THE QUESTIONS GO TO www.accaglobal.com/ab_tech
Case study 1 An entity operates in the oil industry. It is constructing and operating an oil rig, which is financed partly by a loan raised in 2010 and the entity classified the loan correctly as a non-current liability in accordance with paragraph 69 of IAS 1. In the statement of financial position at 31 December 2011, the entity reclassified the loan as a current liability. In the 2011 financial statements, the entity disclosed, as an event after the reporting period, that the loan had been settled with cash received under an oil production agreement. The entity also disclosed that a letter of intent in connection with the agreement had been signed by the end of the 2011 financial year. In the directors’ report for the year, the entity stated that the loan was classified as a current liability due to the fact that the loan had been settled in February 2012 when the oil production agreement became legally binding. The original settlement date was 31 December 2015. The entity stated that it had reclassified the loan in accordance with IFRS 7, Financial Instruments: Disclosures.
Solution IFRS 7 applies only to information disclosed in the financial statements and not to the classification of liabilities. Therefore, the standard is not relevant. The classification of the loan as a current liability does not comply with paragraph 69 of IAS
1. In respect of the 2011 financial statements, the oil production agreement, effective in February 2012, was a non-adjusting event after the reporting period as determined in accordance with IAS 10, Events After the Reporting Period. It can be concluded that the loan should have been classified as a non-current liability in the 2011 statement of financial position because the entity did not meet any of the conditions set out in paragraph 69a–d of IAS 1: A The project loan is not a liability which would be settled in the issuer’s normal operating cycle (paragraph 69a). The loan is a financial liability providing financing on a long-term basis. It is not part of the working capital used in the entity’s normal operating cycle. B The issuer did not hold the loan primarily for the purpose of trading but for the purpose of financing the construction of the oilrig (paragraph 69b). C The loan was not due to be settled within 12 months after the reporting period (paragraph 69c). D The entity had an unconditional right to defer settlement of the liability for at least 12 months after the reporting period, because the loan was not due to be settled within 12 months after the reporting period (paragraph 69d). Paragraphs 74–76 of the standard address the consequences of a breach
FINANCIAL LIABILITIES ARE CURRENT WHEN THEY ARE DUE FOR SETTLEMENT WITHIN 12 MONTHS, EVEN IF THE ORIGINAL TERM WAS FOR A LONGER PERIOD AND AN AGREEMENT TO REFINANCE IS COMPLETED AFTER THE REPORTING DATE BUT BEFORE THE FINANCIAL STATEMENTS ARE AUTHORISED FOR ISSUE of a provision of a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand. In this case, the liability is classified as current, even if the lender has agreed, after the reporting period and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach. Under IAS 1, a liability is classified as current as the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. However, the liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.
Case study 2 In December 2010, an entity agreed a 10-year leasing agreement
with a leasing company and undertook to comply with certain covenants during the term of the lease agreement. The agreement stipulated that, in the event of a failure by the entity to fulfil any of the contractual obligations, or having failed to rectify any such breach within a one-month period, the lessor had the right to terminate the leasing agreement. In such a case, the entity would have to pay all unpaid amounts due before the termination of the agreements. As at 31 December 2011, the entity was not in compliance with the covenants stipulated in the leasing agreement. It was additionally established that on 31 January 2012, the entity was still not in compliance with the specified leasing covenants. In the 2011 consolidated financial statements, the debt relating to the leasing company was classified as non-current in accordance with the payment schedules included in the original agreement. The entity had received, from the lessor, a notification confirming the failure to comply with
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the covenants as of 31 December 2011. Thus, as at 31 December 2011, having failed to fulfil the contractual obligations and being in breach of relevant covenant, the leasing company was entitled to require the entity to repay the debts immediately.
Solution The entityâ€™s presentation of the debt as a non-current liability is not in accordance with IAS 1, paragraph 60 that specifies the circumstances in which liabilities are to be classified as current. The amounts outstanding in respect of this arrangement at 31 December 2011 should have been disclosed as a current liability. IAS 1 stipulates that a liability shall be classified as current where it is due to be settled within 12 months after the reporting date, and the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
Conclusion Accounting for liabilities may appear to some to be relatively straightforward but simple rules can have significant effects on corporate financial statements. 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
Financial statements: the pitfalls A recent report from the Financial Statements Review Committee observes some common errors in financial statements. But what does it mean for SMEs, asks Kaka Singh
Each year the Financial Statements Review Committee (FSRC) of the Institute of Certified Public Accountants of Singapore (ICPAS) issues a report on observations from its review of the financial statements of reporting entities. The financial statements selected at random are from those lodged with the Accounting and Corporate Regulatory Authority (ACRA). Others are selected on the basis of the entity’s specific factors and complaints.
to revise its defective financial statements (as this could serve as a complementary enforcement action). There would be reviews by parties within ACRA and they could be in addition to those of the FSRC. The FSRC’s remit is wider; it also provides constructive feedback to members, responding in principle to questions on compliance, referring members for counselling and investigation where appropriate.
MANY IMPROVEMENTS HAVE BEEN NOTED ALTHOUGH THE FSRC ADDS THAT IT IS SEEING SIGNS OF THE STANDARD OF REPORTING SLIDING The latest FSRC report was published in July 2011. This was followed by a seminar in October 2011. Both are available from the ICPAS website (www.accountants.org.sg). The FSRC’s mission include assisting members in questions of compliance. One of the many functions is a review with the objective of providing constructive feedback in areas where the presentations appear to fall short of compliance with the statutory requirements and Singapore Financial Reporting Standards (SFRS). There are proposals for amendments to the Companies Act that will empower ACRA to require a company
Many improvements have been noted compared with past years, although the FSRC adds that it is seeing signs of the standard and quality of reporting sliding. In particular, the report indicates that there are repeats of findings of non-compliance of some of the requirements under FRS 1, Presentation of Financial Statements and FRS 107, Financial Instruments: Disclosures. There were also ‘boilerplate’ note disclosures. The FSRC reviews are based on SFRS that applied to all entities. From 1 January 2011, small and medium-sized enterprises (SMEs) that qualify can opt to apply the Singapore Financial
Reporting Standard for Small Entities (SFRS for SEs). These have eliminated many of the disclosure requirements in FRS 1 and FRS 107. The focus of this article is on the observations relating to financial statements of SMEs.
Boilerplate disclosures The FSRC also made a new observation about ‘boilerplate note disclosures’. Many agree that a problem exists. The FSRC’s letters to auditors and the way auditors respond behaviourally also contribute to the ‘boilerplates’ we often see in financial statements. In the UK the Financial Reporting Council noted that those providing guidance, such as auditors and regulators, contribute to the problem. ‘Boilerplate’ could refer to two areas: immaterial disclosures that inhibit the understanding of relevant information, and explanatory information that is irrelevant. Immaterial disclosures are remarkably common – for example, finance and operating leases. These are usually immaterial for most SMEs’ operations and for tax reasons (disincentives). An example of a behavioural influence is the way in which some preparers use illustrative financial statements. These are prepared covering every eventuality, assuming everything is material. Although helpful, as they are unchallenged the disclosures are reproduced without first addressing the relevance.
The FSRC’s guidance on materiality focuses on what to include rather than what can be taken out and its reviews tend to result in a checklist for inclusion. Therefore, notes are included to avoid lengthy debates with the FSRC. The FRC says that the reviews by its Financial Reporting Review Panel may give an appearance of seeking ‘tick-box’ compliance with disclosure requirements, but asking about a particular disclosure leads to companies adding it to their reports, even if this was not the intention of the question. FRS 1.31 states that an entity need not provide a specific disclosure
management of capital; non-disclosure of significant estimates and judgments; combining material amounts; offsetting material amounts; non-disclosure of nature and terms of related party transactions; nondisclosure of new and future FRSs; non-mention of reasons for making or reversing impairment allowance and the related calculations; in relation to financial instruments, non-presentation of sensitivity analysis; gross cashflows to settle liabilities and ageing; and impairment of receivables. SMEs that qualify and do use the SFRS for SEs will find that many of these disclosures are regarded as ‘not
THE FSRC’S GUIDANCE ON MATERIALITY FOCUSES ON WHAT TO INCLUDE RATHER THAN WHAT COULD BE TAKEN OUT AND ITS REVIEWS TEND TO RESULT IN A CHECKLIST FOR INCLUSION. THEREFORE, NOTES ARE INCLUDED TO AVOID LENGTHY DEBATES WITH THE FSRC required by an FRS if the information is not material (relevant). The summary of significant accounting policies required by FRS 1 can be simplified and not merely copied from FRSs or model illustrations. The FSRC report has 20 headings in 14 pages but for the seminar it listed its top-10 findings: non-description of
relevant’ or understood. For example, on management of capital, what more can one say except the irrelevant – that the share capital is S$x of y number of ordinary shares? In the Singapore context, where there is only no par share by law, do we need to mention that it has no par value? The FSRC requires it, and so does the specimen
in the SFRS for SEs (perhaps necessary in this specimen as the entity is incorporated in Land A and not in Singapore). However, on the disclosure of nature and terms of related party transactions, small entities should note that the specimen does not disclose terms and transactions.
Future FRSs The FSRC findings indicate the nondisclosure of new FRSs adopted that have an effect on the current or prior year and any new FRSs issued but not yet effective (FRS 8.28 and 8.30). For new adoptions the title of the FRS and the nature of the change and amounts involved should be disclosed. For future FRSs, the title of the FRS and the nature of the impending change and impact should be disclosed. Many financial statements give definitions and summarise new and future FRSs even when they are irrelevant, contributing to ‘boilerplates’. The FSRC made repeat findings relating to FRS 107, such as sensitivity analysis, cashflows on liabilities and receivables. FRS 107 is concerned about the significant underlying complexity of financial instruments and complex risk reporting. For most SMEs, most of the requirements in FRS 107 would not apply. Remember to disclose revenue, expense, gain and losses from financial instruments in profit or loss. For financial assets and
liabilities the amount they expect to be settled would require disclosure and, as the amounts are likely to be affected by the underlying risk, qualitative and quantitative disclosures are required on the nature and extent of risks. For most SMEs the disclosure consideration would, for assets, be impairment allowance and for liabilities the settlement amount. The settlement for a liability (liquidity risk) would be higher than the recorded amount as it should include future interest payments. From the specimen in the SFRS for SEs, it is apparent that the standards on financial instruments are not relevant to most small entities. This would also be true for many SMEs applying SFRS. FRS 107 applies only to disclosures of conditions that change fair value significantly and policies that have the most significant effect on the amounts recognised in the financial statements.
Statement of cashflow Findings relating to the statement of cashflow have appeared frequently. A typical finding is on non-narration on bank overdrafts forming an integral part of cash management and so should be included. FRS 1 indicates the differences in some countries but, in the Singapore context, what else can it be except an integral part of cash management for most SMEs? The FSRC report goes on to say that if the cash
was negative for both years after including the bank overdraft, the changes in the overdraft should be classified under financing activities. An entity can borrow money (financing) at year-end to increase cash balances but it cannot borrow more overdraft to increase cash. For a large company perhaps a reconciliation of net debt makes such transactions transparent. The specimen in SFRS for SEs has an overdraft for both years but it is not classified under financing activities For the past few years the FSRC made recurring comments on income tax disclosures. It would appear that the problem is due to the fact that entities seem to take the view that income tax is merely the tax liability payable and if the entity had no taxable profits there would be no further disclosures required. Income tax accounting should be viewed from at least three perspectives: (1) income tax expense or benefit as a profit and loss item; (2) assets and liabilities in the statement of financial position; and (3) cash payments. A reconciliation of the income tax expense/income is required between (a) profit before income tax and (b) profit before income tax plus/minus permanent differences plus or minus over/under accruals for prior years. An analysis is required for the deferred tax amounts appearing in the statement of income and in the statement of financial position. Please note that the
new amendment to FRS 12 now clarifies deferred tax on the recovery method for revalued depreciable assets. Simply remember that if there is profit or loss, there should be an income tax expense or income in the statement of income. Once the income tax expense has been determined, the next step is to allocate it between current and deferred tax expense/ income. The temporary differences should support the deferred tax credit and/or debit appearing in the statement of financial position at the end of the year and in the statement of income. It is necessary to disclose the estimated cash outlay for the next two or more years (FRS 12.74). The presentation of tax loss carryforwards is another difficult area â€“ for tax loss carryforwards (a) used and (b) balance available at year-end and expiry date. An assessment has to be made of the benefit from tax loss carryforwards (an asset if recorded or a contingent asset if unrecorded). The description can be overwhelming. SFRS for SEs has made it easier by describing it as an allowance and therefore a table with figures can explain a thousand words. The report is instructive and does go a long way in helping entities in avoiding common errors that appear in financial statements. It is good guidance. Kaka Singh is chairman of RSM Chio Lim LLP and president of ACCA Singapore
Not just the guardian of costs [
Participants at ACCA’s CFO Summit discussed the myriad responsibilities that now fall to the CFO, from keeping stakeholders happy to staying up to speed with the fast-moving regulatory landscape
Four years after the global financial crisis, CFOs are reeling from the pain more than ever before. The challenging economic environment and slew of post-2008 regulatory changes are putting tremendous pressure on the finance function and the role played by the CFO, such that observers – not to mention those in the hot seat themselves – could be forgiven for thinking that the CFO might as well be a second CEO. This was the focus of discussion at the ACCA CFO Summit 2012 in January. ‘As a former CFO, [CFOs today] have my respect because [they] are all very brave to hold this position,’ said Dr Andreas Raharso, director of the Hay Group Global Research Centre for Strategy Execution. He said that the CFO’s job has become far more complex today than it was a decade
ago, with the economy no longer predictable and the role itself constantly expanding. Other speakers at the summit were of a similar opinion. Irving Low, head of risk consulting at KPMG Singapore, quipped that CFOs are not being paid enough for the job that they are expected to do. He pointed out that changes in the corporate governance environment are throwing up an increasing number of challenges for CFOs today, the four major ones being: the need to assume multiple roles; the need to possess or acquire industryspecific experience; the need to maintain the company’s relationship with other stakeholders; and the need to keep pace with changes in the regulatory landscape. ‘We’ve moved away from the bean-counter role,’ he said. ‘You’re
really a business partner in a lot of ways.’
Multiple roles The CFO’s traditional role as guardian of costs still remains, agreed speakers. But it is increasingly complicated by the global economic situation and widened by changes in the regulatory environment. Alex Hungate, CEO of HSBC Singapore, offered up a wish list of what CFOs can do to support their CEOs, starting with the most basic role: keeping the financial function in good shape throughout the current period of volatility. ‘Clearly we have to prepare our organisations with the financial flexibility to account for any eventuality in this environment,’ he said. ‘And when you talk about financial flexibility, you have to start with the balance sheet.’
‘HOW DO YOU MAINTAIN A SOUND BALANCE SHEET BETWEEN MANAGING RISK AND PURSUING GROWTH?’ DARRYL WEE, COUNTRY HEAD, ACCA SINGAPORE ‘PEOPLE RISK, IN MY VIEW, CUTS ACROSS EVERY ORGANISATION, WHETHER YOU ARE BIG OR SMALL, WHETHER YOU ARE IN FINANCE OR MANUFACTURING. IT ALL STARTS FROM THE PEOPLE’ IRVING LOW, HEAD OF RISK CONSULTING, KPMG ‘THE TASK OF THE CFO IS TO BE THE MODERATING VOICE BETWEEN THE DIFFERENT FUNCTIONS WITHIN THE ORGANISATION’ VIKTOR LEENDERTZ, CFO, DYSTAR SINGAPORE
From left: R Raghunathan, partner, PwC; Robin Ong, CFO, UBS AG Singapore; Viktor Leendertz, CFO, Dystar Singapore; Dominique Loh, producer presenter, Channel NewsAsia (moderator); and Fermin Diez, Asia Pacific business leader for human capital, Mercer
In addition, he said, a CFO could become a guardian of talent. Citing the continuing squeeze in the Singapore labour market despite the economic downturn, he cautioned CFOs against not being proactive enough with human capital. Summit panellist Fermin Diez, Asia Pacific business leader for human capital with Mercer, concurred. Pointing out that ‘people risk’ is the fourth most worrisome risk faced by a company and is a concern even at board level, he emphasised that CFOs have to balance cost-cutting – via the retrenchment of personnel – with the need to preserve talent. ‘You need to protect your key people. You need to protect your high performers. You need to protect the people who will take you through bad times and grow you in good times. At all costs, you should keep these people,’ he said. Even without overseeing a company’s talent management, CFOs tend to shoulder a wide variety of other duties. Hay Group’s Dr Raharso pointed out, for instance, that many CFOs double as chief operating officers (COOs). ‘CFOs are always the most trusted person, so they end up filling the COO’s shoes as
‘THE CFO’S RESPONSIBILITIES NOW INCLUDE RISK MANAGEMENT AND INTERNAL CONTROLS; THE CEO’S ROLE NO LONGER COVERS THESE’ well,’ he said, citing that 76% of Fortune Global 100 companies do not have a formally appointed COO according to Hay Group research, the role instead often filled by the CFO. Earlier, Low had also brought up data from KPMG research which shows that a third of CFOs hold two or more positions, most commonly that of company secretary. On top of this, the trust placed in the CFO forces him or her to take on a stakeholder communication role, said UBS AG Singapore CFO Robin Ong. Noting that a CFO’s position automatically grants him or her access to a great deal of information, he pointed out that this places a heavy onus on the CFO, who has to keep the board apprised of concerns arising from that information and also communicate with the board, team and stakeholders. ‘We as CFOs are the voice of truth of the organisation. I think we should communicate more,’ he said. Agreeing, Hungate pointed out that
banks and markets need increased reassurance in the current economic climate. ‘There has to be a reinforced communication programme with the capital markets, because they start to get very jittery under these circumstances,’ he noted. ‘You can’t over-communicate in this situation, because markets overreact; when there is a lack of information, they will tend to penalise.’
Challenge from change The challenges facing CFOs today are closely linked to the economic and regulatory environment, speakers agreed. To begin with, said panellist Viktor Leendertz, CFO of Dystar Singapore, global economic volatility is hampering their ability to predict the impact of changes in inflation, commodity prices and other factors. ‘It is so unpredictable that we are no longer able to give trends and forecasts as accurately as we used to,’ he said. ‘What has worked for the last 10
‘TECHNOLOGY IS THERE TO HELP YOU ARTICULATE IT, [ANY COMMUNICATION YOU MIGHT WANT TO MAKE TO STAKEHOLDERS AND/OR THE BOARD] NOT THE OTHER WAY AROUND’ ROBIN ONG, CFO, UBS AG SINGAPORE ‘A LOT OF IT COMES DOWN TO THE PERSONAL QUALITIES OF THE CFO HIMSELF AND HIS ABILITY TO MOTIVATE THE ORGANISATION’ R RAGHUNATHAN, PARTNER, PWC ‘THE THREE CORE ISSUES OF ACCOUNTING ARE VERY SIMPLE. ONE: DEFINITION. TWO: MEASUREMENT. AND THE LAST IS DISCLOSURE. IN EVERY SINGLE FINANCIAL TRANSACTION, WE GO BACK TO THESE FUNDAMENTAL PARAMETERS’ PROFESSOR HO YEW KEE, VICE DEAN (FINANCE AND ADMINISTRATION), NUS BUSINESS SCHOOL years will now not work for the next 10 years,’ agreed Ong. One trend, said Diez, is that of Asian companies taking advantage of currency differences and going West to buy assets. This, he said, creates an opportunity – as well as a necessity – for CFOs to involve themselves in the transactions and use their authority to ensure that not just the finances but the human capital aspect are well covered. ‘CFOs need to lead the way, to bring in the human resources function,’ he noted. On a more localised front, according to KPMG’s Low, changes to corporate governance are also placing an increasing burden on CFOs. ‘The audit
committee will definitely look to the CFO for reassurance,’ he said, listing changes to the Singapore Code of Corporate Governance, the Singapore Companies Act and the Singapore Exchange Listing Manual which call for the CFO, as well as the CEO, to give assurance on not only financial records but internal controls. ‘The CFO’s responsibilities are expanded to include risk management and internal controls, because the CEO’s role no longer covers these.’ HSBC CEO Hungate also pointed out that CFOs’ privileged access to external information automatically places them in the position of risk manager, especially in times of crisis. ‘It makes you a pivotal member of the
management team, but only if you respond and take on that role,’ he said. Ultimately, said Diez, CFOs need to strike a balance between achieving cost management and not compromising future growth. ‘You have the novel hat of looking out for the best interests of your shareholders while at the same time looking out for the best interests of your business,’ he observed. And as the role becomes more important, so does the CFO’s visibility and leadership style, noted Leendertz. He quipped: ‘We are all potential CEOs, in a way.’ Mint Kang, journalist
A novel idea Meet Penny Avis – the high-flying ex-corporate finance partner who, having smashed glass ceilings and weathered corporate storms, is now embarking on a writing career Ex-Deloitte corporate-finance partnerturned-author Penny Avis is already making plans for her 50th birthday, even though she is only 43. ‘I’ll either be making a speech saying: “I gave up the best job in the world that I worked so hard for to write a book that nobody read,” or it’ll all pay off and be a bestseller. Who knows? Either way it’s been fun.’ But what makes someone at the height of their professional career, who has seemingly smashed through any glass ceilings quicker than neutrinos in the Large Hadron Collider, give it all up to write a novel? The clues are in Avis’s determination in the world of corporate finance and how she has successfully managed her career with being a mother of two. Avis’s career is even more surprising given that she didn’t have an early vocation for accountancy, instead
reading law at Sheffield University. ‘I couldn’t decide what I wanted to be and when I spoke to careers people they said to do a good degree. I thought I wanted to be a management consultant but I didn’t know what that was.’ Luckily, an innate numerical streak meant that at the university milk rounds Avis’s head was turned by Price Waterhouse and she applied to train with the then Big Six firm, moving to its Manchester office. ‘I got my ACA qualification and became an audit manager. What you get from audit is the ability to look at new businesses all the time and learn what’s good and what’s bad about them; the ability to walk into a business and say, look, I can understand why this business is doing well, or not so well, and where it sits in its competitive
environment by looking at the bigger picture.’ Having graduated in 1989, by 1994 Avis had decided to move to London, a decision driven by friends and the desire to have a change of scene. The only secondment available at the time was in the technical department answering a hotline on accounting queries. ‘I wasn’t renowned for my deep technical expertise, but it was available immediately.’ The job involved giving ‘the ultimate view’ on any queries from teams and partners in the UK who were after technical sign off. ‘I had to be interviewed and crammed about standards that were coming out. Amazingly enough I got the job.’ It was, she says, ‘the best thing I ever did, for two reasons. Firstly, it gave me utter confidence in the field. I knew that they could throw anything at
me and I knew how to get the answer. It taught me the route to finding the answer.’ The second benefit was that it was the perfect springboard for what turned out to be the rest of Avis’s career in professional services. ‘Another job came up, in transaction services, and the candidate had to be available immediately. I’d just done a stint for four weeks to help with a crisis in transaction services. Although they were only taking 10 people, they liked my technical background plus the work I’d done on the project, so I got one of the 10 jobs in the fledgling transaction services in 1993, when I was 25.’ The move took her career in a new direction and led to her going through the transaction services director panel while pregnant with her first daughter, Charlie, in 2000.
Simple decision It’s at this point that many women in the City face a sometimes difficult decision: when, and how, to pick up, continue or advance their career post children. For Avis, it was surprisingly simple: ‘I never thought I might give up,’ she says. ‘I took three-and-a-half months off and went back full time.’ Avis appreciates that she was in a financial position to afford the help that made this possible. ‘I had a maternity nurse when Charlie was first born, then recruited a full-time nanny a month before I went back to work so there was a proper handover.’ She did suffer first-day guilt, though not perhaps for the expected reason. ‘I got in, briefcase down and someone said: “You’re back, can you come to this meeting?” So I was straight back in there with no time to think, and when I got home I thought: “Oh God, I’m the worst mother, I didn’t even ring!”’ From then
on, she arranged that the nanny would send regular texts – ‘my fix’ – so that she knew what was happening at home. While Avis’s advice for women in the workplace isn’t that they should pretend to be men, she admits that super-sensitive HR departments might erroneously read that message into it. ‘My philosophy is that you should be a swan at work, however hard anything else is. Sometimes people think I’m saying women shouldn’t be who they are but I’m not, I simply believe they should think carefully about how much of their home life they should bring into the office. ‘I think it’s a matter of giving the impression that sometimes you’re a little bit more in control than you are. Don’t go in sobbing when you’re in the middle of a crisis.’ Avis’s own role model is her mother who has always worked. And with a childhood that at one stage involved five sisters in one household, she hasn’t been short of watching women work and interact. She currently mentors partner-track women at Deloitte on a pilot scheme, with two-hour sessions helping them prepare personally and professionally.
Avis credits her friendship network and ‘a husband who completely supports me’ as being crucial to her own success. She was also a founding member of the City Women’s Club, a network of senior women working in financial services. ‘I do think networks – formal or informal – are incredibly important,’ she says. And while her hard work gave her the financial stability to fund comprehensive childcare, Avis is quick to point out that ‘if you’re going to work at your career you have to invest in it and it will get easier. We didn’t have loads of money; I was a director and so with that first nanny, [finances were] almost neutral, but I knew I had to do it to get partnership.’ With her sights set on being a partner, Avis faced another crossroads when Price Waterhouse and Coopers merged. ‘I was going through partner promotion but I felt I was going to be partner 26 of 26 and have a tiny role.’ She ended up undergoing the partner process at competitor Arthur Andersen at the same time and, when the firm offered her a meaty role plus partner, she jumped at the chance. She was, she says, ‘very proud of myself’. It was March 2001. Little did Avis know that just a year later she would be forced to vote for her survival after the Enron scandal, which brought down Andersen and rocked the accountancy world.
‘Baptism of fire’ ‘My abiding memory of the Enron crisis is calamity, shock, how the place falls apart, when the US freeze money and you can’t pay payroll and bizarre messages from South American partners. I had some of the hardest meetings of my career; it was a
baptism of fire for a new partner.’ She was offered a job at Ernst & Young. ‘I didn’t feel I had any loyalties anywhere but we were encouraged to stay with the marching army.’ So she held on to wait and see what deal was being made behind the scenes. In the end, the deal was announced in the less-than-glamorous location of a hotel near Heathrow airport, although the cloak-and-dagger nature of it, plus the doubtless bordering on hysterical Andersen partners, made for an exciting afternoon. ‘We had messages from our partners who were flying down with Deloitte partners, so we knew it was Deloitte [taking over]. Once the deal was presented to the 350-odd Andersen partners, we had to go to the back of the room and vote in favour or not of the rescue transaction. ‘There were 350 partners and 240 places in the deal. What we voted on was the process to agree who those 240 partners should be, not the names, so at the time you didn’t know whether you were a turkey voting for Christmas or not.’ As practically last in, Avis assumed she’d be offered a directorship, but her interview notes with Andersen – ‘the only paperwork they had on me!’ –
were so good that she walked in, as partner, to an enlarged transaction services department. The culture difference between Andersen and Deloitte was, says Avis, immediately obvious. ‘Andersen partners were more outspoken and entrepreneurial – perhaps Deloitte would say more dangerous – while Deloitte was incredibly well run and very risk-focused.’ Avis went on to have a second child, Cole, in 2003, again taking short maternity leave and going back full time, and her star continued in its ascendancy – with highlights including becoming lead client service partner for Unilever and joining the Deloitte board.
Never Mind the Botox is a series about four professional women all working on the sale of a high profile cosmetic surgery business. Each book reveals how the women cope with one of the most glamorous but challenging deals of their careers, and the dramatic impact it has on their personal lives. Alex Fisher is a high-flying lawyer close to making partner and busy planning her perfect wedding to Elliott. In the latest book, just published, Rachel Altman is a corporate financier with a prestigious accounting firm who’s desperately trying to keep on the straight and narrow. Hopelessly led astray by her bar-diving boyfriend, she gets the chance to turn things round when her boss gives her the break she’s been waiting for. ‘Rachel is closest to my career,’ admits Avis, ‘though the stories in it are made up. Our risk management brains worked out that it would not be great to have clients ringing up having recognised themselves!’ Cosmetic surgeon Stella Webb and senior banker Meredith Romaine are the main characters in the final two books, both to be published later this year.
enterprise she could set up easily. A chat with Joanna Berry – friend, mother, lawyer and ex-Eversheds partner – clarified things. ‘We started texting ideas and we realised very quickly we could do a four-women series. They are popular – things like Desperate Housewives, Mistresses, Sex and the City – all based around four women with different personalities.’ And so the idea for Never Mind the Botox was born: a series about four professional women – a corporate financier, a lawyer, a banker and a doctor – all working on the sale of a high-profile cosmetic surgery business. With two manuscripts complete, Avis and Berry started looking at the traditional publishing process but in parallel began to explore self-publishing, which is where they decided to invest. ‘If I was advising someone with my business hat on I’d tell them not to do it, but if you self-publish you own the copyright,’ says Avis. ‘We decided to do everything to retail standard plus a little bit more. We hired our own PR, got independent cover designers to pitch, used a freelance editor and set up a professional website.’ Perhaps going back to her audit training, Avis was already looking at the bigger picture. ‘We knew the real success was film or TV and we could see what other books had made the move, like Bridget Jones or The Devil wears Prada.’ Prada Having written a proposal, Avis and Berry toured the trade shows and caught the attention of Future Films, signing a deal in 2011. It may be that Avis is on her way to become the new Helen Fielding or Candice Bushnell, but it seems that although you can take the girl out of accountancy... ‘I’ll always see myself as a corporate finance partner at Deloitte,’ she laughs, ‘I resigned, I have no legal right to even say it, but I can’t not say it!’
Visit www.avisberry.com for more information.
Beth Holmes, journalist
Wake-up call But things changed after the Lehman Brothers collapse in 2008. ‘The work just stopped,’ she recalls. ‘I’d been busy for five years and it was a horrid environment, ringing around for work. I started thinking I would take a sabbatical. I thought, if I don’t take a break now, when the market is rubbish, I’ll be doing this when I’m 50.’ So in 2009 Avis resigned from Deloitte. The idea for a book came while she was driving and musing about what
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Watch your management steps [
Managers have many banana skins to avoid in their roles as leaders, such as openly critising staff and playing favourites. Robert Half’s Pallavi Anand gives six tips for boosting team morale
We all have worked with or heard stories of bad managers – those who make blatant mistakes when overseeing employees, such as criticising people in front of other staff, playing favourites or other behaviour that harm morale, motivation and productivity for the entire team. As the job market improves, these mistakes can also affect turnover, so it’s especially critical to make sure you’re not inadvertently alienating your staff. Here are some common mistakes that may be deflating morale in your group. 1 Keeping staff in the dark It is always a wise move to be upfront about company developments, so employees feel they are in the loop. Otherwise, they may listen to the rumour mill and believe something is being hidden, such as financial trouble. The more connected people are to the organisation and its future, the more motivated they will be. While emails, memos and information on the company intranet provide updates, try to hold group face-to-face discussions whenever feasible, particularly if company events will affect employees directly. 2 Being too involved on the front lines You may pride yourself on being a hands-on manager. In fact, you may be aware of precisely what stage every project is at because you sign off or receive updates during the process. While it may seem like you’re showing an interest in your staff and ensuring you’re always there as a
resource, what you’re really doing is micromanaging. Employees prefer being given the freedom to do their jobs the way they deem best. Try to empower people to make decisions and problem-solve. Not only will you boost morale, but you’ll also be better able to focus on higher priority initiatives. 3 Being too removed from the front line At the same time, be careful about being so involved in your own work that you are unavailable to your employees. Try to respond to emails and calls from staff in a timely manner, otherwise your team may believe they’ve been left to ‘sink or swim’. That feeling is hardly confidence-building. Try to keep a routine of ongoing staff meetings and impromptu discussions with individuals in your group about their projects. If you’re particularly busy, tell people the best way to reach you if needed. Consider designating someone as your backup, so staff have support if they have questions about their assignments. 4 Avoiding risk When business conditions are uncertain, it’s particularly tempting to go with the status quo. However, by avoiding innovation and risk, you may be implying that you don’t value your staff’s suggestions, which can cause people to lose respect for you. Even if you don’t openly tell employees not to offer new ideas, consider whether your actions are sending the same message. Are you critical when suggestions fail? The way you handle
ideas can greatly affect whether staff feel confident enough to make them in the first place. 5 Overlooking burnout If your employees have been asked to do more with less for an extended period, they are at risk of physical or mental distress. Odds are that staff won’t tell you they’ve reached their limits, out of fear of being perceived as incompetent. So, watch for the warning signs that include starting to miss deadlines, having greater conflict with co-workers, customer or internal complaints about job performance, or frequent attendance problems. Even if you can’t afford to hire more full-time staff, look at ways to redistribute assignments. You might also consider bringing in temporary or project professionals to assist with peak workloads. Simply making sure employees use their vacation time can also go a long way towards renewing energy and motivation. 6 Forgetting the power of praise Finally, don’t underestimate the value of showing appreciation to your employees. Even if your budget doesn’t allow you to give expensive rewards, acknowledge the contributions of those on your team. Praise during a meeting or an afternoon off are just a couple ways of offering meaningful thanks for a job well done. People who feel their managers notice their efforts are more likely to give their best to future assignments and maintain high morale. Pallavi Anand is director of Robert Half Hong Kong
Never too late [
You can always change your career, says Kaka Singh, and ACCA offers no better way to make your dreams come true
ACCA provides a wide number of opportunities for everyone. One of our missions is to provide opportunity and access to people of ability around the world – so no artificial barriers, no matter what the background. One group includes those who want to make a change in the direction of their career. This is not restricted to any specific discipline. In fact, a large portion of our entrants are graduates who come to us after several years of work experience. They come from various professional backgrounds and occupations. Making a career change is both challenging and exciting. Let me give you some examples of real ACCA members who successfully made their dreams of a new career come true. Gail Shan – she was a product manager before she retrained to become an accountant. She is now group financial controller of KTL Offshore. Siân Ng – After two years of working in a major law firm, she decided that playing with numbers and accounting was more exciting than playing with words, and she chose to complete the ACCA Qualification. Hans Christian Gunawan – With a first-class honours degree from Nanyang Technological University, and after three years in engineering, he decided to study with ACCA. He came second in the worldwide placing for the ACCA examinations and is now better equipped to understand fair values of financial and non-financial assets. Hans is currently working in the business advisory arm of a Big Four firm. ACCA members with different backgrounds can be found all around the world. We have always ensured that access to our global qualification is open, fair and transparent. It is open to school-leavers, mature students and graduates alike. This is because we believe in the value that accountants bring to businesses. By encouraging individuals to reach for their goals and implement career changes, it not only benefits themselves, but the communities in which they live. With a high demand for accounting talents in Singapore, the profession offers a variety of jobs. Wherever you want to go in life, the ACCA Qualification can open doors and get you there. Each ACCA member is unique with different personality, aptitude and talent. So whether you want to go into the fashion industry, become a forensic accountant or CFO, take your time to choose. Indeed, a great deal of contribution comes from the pleasure of doing meaningful accountancy work. Variety adds to the spice of life. All forms of skills and talent should be encouraged and nurtured. I am glad to say that at ACCA, we walk the talk, and allow our members to reach their highest potential without stifling individual creativity. Kaka Singh is president of ACCA Singapore
CPD: coaching and mentoring If you coach or mentor staff, the activity can count as work-based learning and so help to satisfy your continuing professional development requirement What is work-based learning?
The workplace can be a rich source of learning and many of the activities you carry out can contribute to your continuing professional development (CPD) if they help you develop your knowledge or skills. Members following the unit route can gain both verifiable and non-verifiable CPD from a range of work-based activities. Another way of achieving your CPD requirement is to work for an ACCA Approved Employer – professional development. ACCA will recognise any learning activity you undertake, provided that it is relevant to your role or career and contributes to your individual learning and development needs.
What is coaching and mentoring? Coaching and mentoring is generally undertaken as part of a people management role. It usually involves helping an individual to develop specific skills and knowledge around their job. Coaching is a key part of helping others to develop, but it can also help you to develop new skills. By acting as a coach or mentor, not only will you reap the benefits of working with junior colleagues, who will become more able, enthusiastic and ambitious as a result, but you’ll also develop the characteristics and behaviours required of today’s rounded business professional.
How can coaching and mentoring contribute to CPD? Learning certain techniques can not only help you be an effective coach or mentor, but can also be a valuable contribution towards your CPD. For example, these can contribute if
you are learning new skills through coaching and mentoring a colleague. Examples of how you can gain CPD from coaching and mentoring include: researching for or preparing for a coaching session conducting a coaching session, if this is new to you or if you are attempting new techniques.
How can I calculate verifiable CPD? It is important to consider whether you learned something through the coaching and mentoring session’s
research, preparation or delivery. If you did, it will contribute to your CPD. Keep notes of your research and the session; the person being coached or another colleague can confirm the learning took place. Remember the learning can be counted as verifiable CPD if you can answer yes to the following questions: 1 Was the learning activity relevant to your career? 2 Can you explain how you will apply the learning in the workplace? 3 Can you provide evidence that you undertook the learning activity?
What are the other benefits of coaching and mentoring? preparing for coaching or * From mentoring, through the session
itself to your post-session review, you’ll improve your self-awareness and your ability to identify your own areas for development. By being a workplace mentor to an ACCA trainee, you will be key to them completing their practical experience requirement (PER) and achieving ACCA membership. The achievements and leaps forward of those you coach or mentor will reflect well on your own leadership ability and potential.
Do you want to give something back? The skills described above are also applicable to the role of the ACCA Workplace Mentor, another way of gaining CPD in the workplace. You can learn new skills in a coaching and mentoring role, and also contribute to the development of the profession, helping to ensure that new ACCA members have the skills, attitudes and behaviours required to be a qualified accountant.
What they really want
In an age of information, the annual report remains a key tool for investors. So letâ€™s make it better, says ACCA president Dean Westcott
After all the effort that accountants put into preparing and validating annual reports, there is sometimes a feeling that the intended audiences do not read them carefully and in some cases never even open them. Yet a recent ACCA survey of 500 investors, capital providers, suppliers, customers and report preparers in the UK, the US and Canada found that stakeholders do value the annual report. Half cited it as their primary source of information about a company, and over a third saw it as an easy way to assess information on a company. It all suggests that the annual report has become more important since the financial crisis, with users reviewing reports more carefully than at any time. But that closer scrutiny has brought with it some key issues for all finance professionals who prepare reports. The report, Re-assessing the Value of Corporate Reporting, suggests that for all their usefulness, annual reports are being held back by confusion over their different audiences, their complexity and their lack of timeliness. Respondents say there is a need for a greater focus on forward-facing plans, risk management and the effective integration of these and other issues into the report in a more coherent way, with investors positioned as the single most important audience. Nearly half also said too much â€˜promotional materialâ€™ had crept into reports; 47% added that reports were too long, 40% too general purpose, 35% too backwardlooking and 35% too complex (68% of whom blamed reporting standards and 61% legal requirements). Even more important is what users actually wanted to see in reports. More than two-thirds wanted more on risks that could affect company performance, and how the business planned to manage or mitigate key risks. And while many respondents noted a drop in interest in social and environmental information, they also welcomed a move to integrated reporting as a way of reviving the value of this data to them. There are challenges here: respondents say that reports need to be simplified, written with investors in mind, and more forward-looking and risk-aware. But these challenges also present huge opportunities for us to ensure that report users not only engage with the reports we produce, but get the answers they really want. Dean Westcott FCCA is finance director of Hinchingbrooke Hospital in Cambridgeshire, England
ACCA CFO SUMMIT 2012 More than 100 participants attended the ACCA CFO Summit 2012, held on 10 January at the Four Seasons Hotel, Singapore. The summit explored how the current economic outlook, which is becoming increasingly bearish and pessimistic, will impact the finance department and how skillsets should be transformed to meet the challenges. Distinguished speakers such as Alex Hungate, CEO of HSBC and Bert Hofman, chief economist for East Asia and Pacific of the World Bank Singapore, shared their experiences, strategies and insights on the challenges for business. A panel discussion on the changing global economic outlook and its impact on the finance function comprised senior executives Fermin Diez, Asia Pacific business leader for human capital for Mercer; Robin Ong, CEO of UBS AG Singapore; and Viktor Leendertz, CFO of DyStar Singapore.
FOR MORE ON OUR REPORT P54
ACCA YOUNG PROFESSIONALS NETWORK OFFERS A CAREER BOOST ACCAâ€™s Young Professionals Network was held on 18 January, with a talk by recruitment consultants from Advantage Professional who provided career guidance to participants. Held at the RedDot BrewHouse at Boat Quay, 46 affiliates and students attended this event. It also provided an ideal opportunity to network with peers in a relaxed environment.
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ACCA news Elections to Council As ACCA’s governing body, Council plays a pivotal role in ACCA affairs. It ensures that ACCA operates in the public interest and delivers the objectives stated in its Royal Charter. It sets ACCA’s overall direction through regular approval of strategy. It acts as a link between members and the professional body, and leads the organisation in the interests of both. It is accountable both to members and the public interest. It acts for all members and future members (today’s students). It provides leadership of ACCA and stewardship of its resources. Council develops policy for ACCA as a whole and Council members are volunteer custodians acting for the well-being of the whole organisation. Whatever their geographical or sectoral bases, Council members do not represent particular areas or functions and are elected by the membership as a whole. ACCA members of all ages and backgrounds are encouraged to stand for election to Council. Long-term or technical experience is valuable, but so is proven ability to participate actively in strategic decision-making. Council experience as such is not necessary. However, an understanding of good governance is essential, and personal and professional integrity must be of the highest order. Specifically ACCA expects members to bring the following skills and attributes to Council: an ability to take a strategic and analytical approach to issues and to see the big picture an understanding of the business and the marketplace communication and networking skills an ability to interact with peers and respect the views of others decision-making abilities an ability to act as ambassadors in many different environments planning and time management a willingness to learn and develop. Nominations are now invited for election to Council at the 2012 AGM. Candidates must be nominated by at least 10 other members in good standing. Candidates should supply a head and shoulders photo and an election statement of up to 180 words, which should not include references to email addresses or websites. Candidates are also required to sign declarations of their willingness to comply with, and be bound by, the code of practice for Council members. Further information on the Council election process, including pro forma of nomination forms, may be obtained by writing to the Secretary at 29 Lincoln’s Inn Fields, London WC2A 3EE, by faxing +44 (0)20 7059 5561, or by emailing firstname.lastname@example.org (please put ‘Council Elections’ in the subject box).
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Inside ACCA 64 News ACCA CFO Summit attracts more than 100 delegates; Young Professionals Network held 63 Dean Westcott The annual report has reached a crossroads, says the ACCA president 62 CPD: coaching and mentoring How you support your colleagues can count towards your continuing professional development requirements 61 Kaka Singh If you are thinking of a career change, ACCA can help, says ACCA Singapore’s president
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IMA BOOST FOR ACCA SURVEY ACCA has joined forces with the US-based Institute of Management Acccountants (IMA) to make its Global Economic Conditions Survey an even more robust and powerful record of the state of the world’s economy. The latest edition of the quarterly survey shows that with international trade continuing to dry up at the end of last year, finance professionals expect the global economic downturn to return with full force during 2012. Turn to page 28 for more.
ACCA NOW HOME TO IIRC
The International Integrated Reporting Council (IIRC) has moved into ACCA’s offices in London. The body’s CEO, Paul Druckman, and its UK-located team (around 10 people) will be based at ACCA’s offices for two years. Druckman said: ‘ACCA has been involved for so long in corporate responsibility and sustainability that its deep connection to integrated reporting is only reinforced by this generous gesture.’
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