Page 1

setting standards in financial auditing & accountancy

ZAMANI’S ZENITH

First Emirati to obtain ACA qualification through the ICAEW Emirati Scholarship Scheme speaks about his journey to the top

INSURANCE ACCOUNTING

UAE AED 15 | Bahrain BHD 1.5 | Qatar QR 15 | Oman OR 1.5 | Saudi Arabia SR 15 | Kuwait KD 1.2

Industry experts weigh in on why insurance contracts are in dire need of fundamental overhaul

THINK GLOBALLY, ACT LOCALLY HLBI’s executives on how the international accounting firm is positioning itself as it seeks new partners in the Middle East

PUBLICATION LICENSED BY IMPZ

FEB - MARCH 2014


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editor's audit

Chairman Dominic De Sousa

Busy season is…well, very busy

Group CEO Nadeem Hood

AT THE turn of the year, my Editorial Director tasked me with compiling a calendar of all the events lined up in the finance and accountancy industry, for the months to come. Once I got down to listing the nationally significant events focusing around key dates relevant to the sector, it dawned on me that 2014 is set to be manic and more action-packed than any other year in the recent past.

EDITORIAL Group Director of Editorial Paul Godfrey paul.godfrey@cpimediagroup.com +971 4 440 9105 Group Managing Editor Melanie Mingas melanie.mingas@cpimediagroup.com +971 4 440 9152

Traditionally, the second half of February through second half of April is usually the busiest time for finance and accountancy professionals. The industry may have other times of the year that it goes through busy spells, but since most clients have calendar year-ends, most busy seasons fall in winter months (January through March) as events and audit work commences as soon as clients close their books. Certainly there are some clients that end their fiscal years in other seasons but most of them will close their books at the end of the calendar year.

Editor Joyce Njeri joyce.njeri@cpimediagroup.com +971 4 440 9140 Contributor Shane Phillips ADVERTISING Group Sales Director Carol Owen carol.owen@cpimediagroup.com +971 4 440 9110 Commercial Director Chris Stevenson chris.stevenson@cpimediagroup.com +971 4 440 9138 PRODUCTION & CIRCULATION Production Manager James P Tharian james.tharian@cpimediagroup.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh.nair@cpimediagroup.com +971 4 440 9147 DESIGN Head of Design Fahed Sabbagh fahed.sabbagh@cpimediagroup.com +971 4 440 9148 Designer Froilan A. Cosgafa IV froilan.cosgafa@cpimediagroup.com Photographers Jay Colina Kader Pattambi DIGITAL SERVICES Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen online@cpidubai.com +971 4 440 9100

There is no getting around the fact that busy season is true to its name: “busy.” However, as harsh as it sounds, the season can go by very fast! Regardless of the firm where you work, the key to maintaining your sanity during these times is solid preparation. Understanding that the industry is naturally structured this way, and that a hefty chunk of work needs to be accomplished in a short period of time, will always help you brace yourself as you get ready for your busy season. So there you have it! If you know what to expect and are mentally prepared for it, you can make your start-of-the-year busy season a success.

Of course, for Accountant Middle East magazine, the frenzied season means intensive and broader coverage of issues in the market and therefore we have been able to expand the range of topics covered in order to continue creating a compelling and engaging editorial platform that taps into the passions of our core readers, and ensuring that this title remains strong. In view of this, I approached eminent personalities in the field of Finance and Accountancy to serve on the magazine’s Editorial Advisory Panel (Page 6). The team will play the essential role in helping keep the magazine on track to consistently produce award-winning issues and ensure that it responds to the everchanging needs of the industry. Enjoy this issue of Accountant Middle East.

Published by

Joyce Njeri Editor, Accountant Middle East

Office 804 Grosvenor Business Tower, TECOM PO Box 13700 Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 SETTING STANDARDS IN FINANCIAL AUDITING & ACCOUNTANCY

Printed by Printwell Printing Press ZAMANI’S ZENITH

INSURANCE ACCOUNTING

Industry experts weigh in on why insurance contracts are in dire need of fundamental overhaul

UAE AED 15 | Bahrain BHD 1.5 | Qatar QR 15 | Oman OR 1.5 | Saudi Arabia SR 15 | Kuwait KD 1.2

© Copyright 2014 CPI. All rights reserved. While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

First Emirati to obtain ACA qualification through the ICAEW Emirati Scholarship Scheme speaks about his journey to the top

THINK GLOBALLY, ACT LOCALLY HLBI’s executives on how the international accounting firm is positioning itself as it seeks new partners in the Middle East

PUBLICATION LICENSED BY IMPZ

FEB - MARCH 2014

Talk to us: E-mail: joyce.njeri@cpimediagroup.com Twitter: @AccountancyME Facebook: www.facebook.com/AccountancyME LinkedIn group: Accountant Middle East

Subscribe now

www.accountancyme.com 3


Contents FEB-march 2014

Main Features

20

4

20

Cover Story:

34

Student Accountant:

46

Personality & Practice:

Think globally, act locally – Chairman of HLB – Mogens Andersen – reveals how the international accounting firm is positioning itself as it seeks new partners in the Middle East.

Zamani’s zenith – First Emirati to obtain the prestigious Associate Chartered Accountant qualification through the ICAEW Emirati Scholarship Scheme programme speaks about his journey to the top.

Young and ambitious – Bahraini-based EY manager - Abdullatif Al Mahmood – on how he trounced competition to emerge the overall winner of the 2013 ICAEW ‘Young Accountant of the Year’.

Feb-March 2014

34


Current Affairs 6 News & Views:

7

News & Views:

Profession Watch

ACCA to introduce IR exams – The Association of Chartered Certified Accountants is to examine students on Integrated Reporting <IR> from December 2014.

10

Focus on ICAI:

16

Professional Development:

70

Corporate Governance:

NRIs cautioned on realty business – Indians residing abroad cannot indulge in property business, says Chartered Accountant R. Bupathy, former President of the Institute of Chartered Accountants of India.

US CPA gains traction in GCC - Students of accounting in the region who wish to join the ranks of a thriving global profession are increasingly pursuing American licensure. Risk appetite - BDO Senior Manager Francisco Basdekis underscores the importance of understanding potential threats in organisations, for management to create and protect enterprise value.

74

30 Special Reports

EY launches business awards – Audit firm announces the launch of ‘Entrepreneur of the Year 2014’ awards scheme in Saudi Arabia.

Industry Appointments:

12

Standards and Practices:

Insurance accounting - Industry experts weigh in on why insurance contracts are in dire need of fundamental overhaul if institutional investors are to bet on insurers.

61

Mergers & Acquisitions:

Mideast sees rise in Chinese investments - Deloitte report shows about 60% of respondents expect region to get a sizable number of outbound energy and resources from the Asian country.

64

Career Development:

Mind the skills gap - As the role of accountants becomes more strategic in the business community, questions over the suitability of their education have been raised.

Revolving door - Find out the latest movement of professionals between roles, companies as well as new industry hires.

52

From the Experts 40 Business Insights:

MENA IPO strong in 2014 - Building on solid momentum in 2013, EY experts expect listings to raise highest capital this year, since 2008.

52

CORPORATE TREASURY:

Making headlines – Mubadala GE Capital financial risk manager and ACT student Rachel Pether tells Sally Percy how she combines careers in treasury and television.

Interactions 3 Editor's audit

5


EDITORIAL ADVISORY BOARD The Editorial Advisory Board comprises of eminent personalities in the field of Finance and Accountancy. The primary role of the members is to provide direction, guidance and assist in the process of ensuring that Accountant Middle East magazine consistently publishes material that is of high standard, ensuring that it responds to the ever-changing needs of the industry.

6

Feb-March 2014

Ian Gomes

Bassam Hage

KPMG's Head of Advisory and Markets (UAE & Oman)

EY Managing Partner Markets, Middle East and North Africa

Susie Isaacson

Brigadier Saif Mohammed Saif

Head of UAE, Association of Chartered Certified Accountants, (ACCA)

Chairman, UAE Accountants & Auditors Association

Hanady Khalife

Geetu Ahuja

Director, Institute of Management Accountants (IMA), Middle East and Africa

Head of GCC, Chartered Institute of Management Accountants (CIMA) Middle East

Hisham Farouk

Dahman Awadh Dahman

Managing Partner, Grant Thornton UAE

CEO & Managing Partner, RSM Dahman


News & Views

DFM ISSUES NEW RULES

DUBAI FINANCIAL Market (DFM) has announced that it has issued the Securities Lending and Borrowing rules (SLB), as part of the exchanges constant efforts to enhance market infrastructure as per international best practices. The operational implementation of the SLB rules is targeted by the first quarter of 2014 and contingent on the readiness of market participants. As per the DFM SLB model, foreign securities lenders and borrowers may arrange loans based on international practices but will have to instruct local approved Lending/ Borrowing Agents to move loaned securities, whereas local lending and borrowing business will be undertaken by approved Lending/ Borrowing Agents which can either be local brokers, local custodians or any entities as may be approved by the Securities and Commodities Authority (SCA). In the initial phase, securities lending and borrowing activities will be limited for market making activities and for settlement of failed securities delivery for DVP trades. Commenting on this development, Maryam Fekri, Executive Vice President & Chief Operation Officer (COO) Head of Clearing, Settlement and Depository, DFM said: “The implementation of Securities Lending and Borrowing (SLB) is an important development for the market because SLB is a key market infrastructure for the development of other market products like ETFs thereby diversifying the range of products to be offered and increasing the UAE’s attractiveness for investments.” Maryam Fekri added. 8

Feb-March 2014

ACCA TO INTRODUCE <IR> EXAMS IN 2014 THE ASSOCIATION of Chartered Certified Accountants (ACCA) is to examine students on integrated reporting (<IR>) from December 2014. After wide consultation during 2013, the International Integrated Reporting Council (IIRC) released last December the first <IR> framework, aimed at improving annual reports by combining financial and non-financial metrics in order to show investors if a company creates value in the short, medium and long-term. ACCA director of learning Alan Hatfield (pictured) said in a statement that most of the elements of <IR> are already included in ACCA global

syllabus, "but we have taken the opportunity to bring them together and IR will form part of our assessment going forward," he added. ACCA has already used the draft <IR> framework guidelines for its annual reports in 2012 and 2013.

EY LAUNCHES BUSINESS AWARD

EY HAS announced the launch of the ‘Entrepreneur of the Year 2014’ award in Saudi Arabia. The programme celebrates the success of entrepreneurs who build and lead successful, growing and dynamic businesses. The event has been running for 27 years in 145 cities across 60 countries. Ahmed Reda, Office Managing Partner, Jeddah and ‘Entrepreneur of the Year’ Leader at EY said: “I’m delighted that this year, the programme will be running in Saudi Arabia for the first time. Globally, every year the award gives entrepreneurs the recognition they deserve.”

This year, EY decided to run the Entrepreneur of the Year award in Saudi Arabia and focus on the SMEs in line with the Kingdom’s strategy as they are the main supporter of the Kingdom's economy. To be eligible for consideration, nominees must be owners and managers who are primarily responsible for the recent performance of a privately held business that is at least two years old. Awards are given to entrepreneurs who have demonstrated excellence and extraordinary success in areas such as innovation, financial performance and personal commitment to their businesses and communities. Selfnominations are encouraged and there is no fee to enter. To apply, entrants may contact EY’s KSA Office at +966 (12) 221-8400 or email ksa.eoy@sa.ey.com.


News & Views

ICAEW JOINS GREEN UHY FIRM STRENGTHENS ECONOMY GROUPING PRESENCE IN MIDEAST GLOBAL ACCOUNTANCY network UHY has extended its coverage within the Middle East region by appointing McKenzie Shaw Ltd, Qatar. The firm will be operating under the UHY branding as UHY Ammo & Co. The parent company, McKenzie Shaw (McKenzie) was established in 2005 in London, United Kingdom. McKenzie Shaw Ltd, the Qatar branch, is mainly engaged in financial and managerial advisory. With a team of 16 staff including 4 partners, the firm’s office is based in Doha. The firm provides accounting, bookkeeping, management advisory services, IT services and also audit and tax services for established and emerging companies in the private and government sectors in the Gulf region. Executive partner of McKenzie Shaw Ltd, Mohamed Shady says: “We have joined the UHY network for a number of reasons. UHY delivers a distinction in services that is sustained by UHY’s understanding of local knowledge combined with national, regional, and international expertise. Our commitment in providing exemplary services, core values of professionalism with client involvement, understanding of business culture, consumer behavior, local market dynamics and our vision of future growth are in line with UHY’s.” Ladislav Hornan (pictured), chairman of UHY commented: “We are delighted McKenzie Shaw Ltd, Qatar has joined the UHY network extending our coverage and capabilities in the Middle East. We fully support the firm’s commitment to expand its operations and to grow its capabilities. Qatar is currently undergoing a transformation under the National Vision 2030 to achieve an advanced, sustainable and diversified economy. It is also expected to become one of the fasted growing economies in the world in the next decade.”

THE INSTITUTE of Chartered Accountants in England and Wales (ICAEW) has joined the Green Economy Coalition (GEC), a group of 29 organisations that promotes the transition to a more sustainable and greener economy. ICAEW said in a statement its main contribution to the GEC's work will focus on natural capital accounting as a means to drive the transition to a green economy. ICAEW is the first professional body to join GEC's membership, which includes among others the United Nations Environment Programme, the Global Reporting Initiative, and The Economics of Ecosystems and Biodiversity for Business Coalition. GEC convenor Oliver Greenfield said that ICAEW is able to get the big picture in the transition to a green economy and also that it has shown

MOCK TRADING A HIT WITH STUDENTS STUDENTS AT American University of Sharjah (AUS) have completed an exciting month-long trading game sponsored by Dubai Financial Market (DFM) and NASDAQ Dubai, in which they gained an insight into real-life investment strategies. More than 30 School of Business Management students took part in the inaugural simulated online Mock Securities Exchange competition. They traded stocks, foreign exchange, indices, exchangetraded funds and commodities.

a consistent leadership in the field of natural capital accounting. "They know that externalities compound together to create systemic risks for businesses, finance organisations, our economies and our broader society," he said. The steering group that governs GEC's activity meets once a month and it's coordinated by a secretariat based in the London offices of one its members, the International Institute for Environment and Development.

Each player started with a notional 100,000 dirhams. The winner was Omar Kayali, who received a nomination for a potential internship at NASDAQ Dubai or DFM and an iPad Air. Zahra Fawzi and Fahad Abdul Ghani, in second and third place, each won an Apple iPad Mini. Hamed Ali (pictured), Chief Executive of NASDAQ Dubai, said: “The students of today are the business leaders, finance experts and investors of tomorrow and it is vital for the economic success of the UAE that they learn responsible and effective investment skills. This online trading initiative sets them on the right path and we are delighted to provide further support by offering the possibility of an internship at the region’s international exchange, as we move into a new period of innovation and expansion.” 9


News & Views

IASB ISSUES INTERIM IFRS 11 IFRS 14 STANDARD TO CAUSE ‘REVENUE FALL’

IFRS 11 Joint Arrangements could cause a material fall in reported revenues, assets and liabilities for financial year 2013 for some European companies when it becomes compulsory in the EU, according to a report published by ratings agency Fitch. IFRS 11 was issued in May 2011, to become effective from 1 January 2013, however it will become mandatory in the EU from December 2014. Fitch noted that, although many companies have already adopted the standard, especially in the UK, other companies are not planning on adopting it until they become compulsory. Fitch studied 24 large European non-financial corporations, of which 13 had been using proportionate consolidation to account for interests in jointly controlled entities. This accounting practice is prohibited under IFRS 11, and these entities will need to use equity accounting instead for structures classed as joint ventures. Fitch said had these 13 companies adopted IFRS 11 they would have reported lower revenues. Three examples include Vodafone Group, engineering company Robert Bosch and chemical firm BASF. Their revenues would have been €7.6bn ($10.3bn), €7.3bn and €6.6bn lower, respectively, if they had adopted IFRS 11 in their most recent financial statements. The report noted that IFRS 11, as well as IFRS 10 Consolidated Financial Statements should not affect credit ratings, as they don't affect underlying credit quality, Fitch said. However, IFRS 12 Disclosure of Interest in Other Entities may, as it "will be useful in assessing the transferability of cash flows within a group and risks arising from interests in structured entities," according to Fitch. 10 Feb-March 2014

THE INTERNATIONAL Accounting Standards Board (IASB) has begun a public consultation of its review of IFRS 3: Business Combinations and also issued an interim standard IFRS 14: Regulatory Deferral Accounts. The IASB is currently considering the broad issues of rate regulation, which IFRS currently doesn't provide specific guidance for, and the standard setter plans to publish a discussion paper on the topic in 2014. Until then, IFRS 14 has been developed as an interim measure. It permits first-time adopters to continue to recognise amounts related to rate regulation in accordance with their previous

GAAP requirements when they adopt IFRS. IT also requires the effect of rate regulation be presented separately from other items for entities that already apply IFRS and do not recognise such amounts. The IASB has also published a Request for Information on experience with, and the effect of, implementing IFRS 3: Business Combinations. Feedback is sought on whether the standard provides information that is useful to users of financial statements, whether there are areas of the standard that represent implementation challenges and whether unexpected costs have arisen when preparing, auditing or enforcing the requirements of the standard. The deadline for feedback on IFRS 3 is 30 May 2014, and IFRS 14 will come into effect from 1 January 2016, with early application permitted.

DFM ACCREDITS NEW FIRM DUBAI FINANCIAL Market (DFM) has announced that “Naeem Shares and Bonds” has been accredited to provide Margin Trading, lifting the total number of DFM brokerage firms providing this service to 12 companies. The exchange is currently processing similar applications from other brokerage firms in collaboration with the Securities and Commodities Authority (SCA). Margin Trading permits brokerage companies to fund a percentage of the market value of securities traded, and secure as collateral for the same securities or any other collateral as required by the SCA’s license.

Margin Trading service providers on DFM: COMPANY 1

EFG-HERMES UAE BROKERAGE

2

Al Ramz Securities

3

Direct Broker For Financial Services

4

NBAD Securities

5

Finance House Securities Company

6

Al Ansari Financial Services

7

ADIB Securities

8

Mena Corp Financial Services

9

Vision Capital Brokerage Company

10 Al Dhabi Brokerage 11

Securities & Investment Company UAE

12 Naeem Shares and Bonds


News & Views

INCREASE FOCUS ON FRAUD, AUDITORS TOLD AUDITORS NEED to increase their focus on identifying risk factors in both the planning and the conducting of audits in a report published on 23 January. In a report titled; Audit Quality Thematic Review: Fraud Risks and Laws and Regulations, the UK Financial Reporting Council (FRC) called for auditors to have more discussions with management focused on risk, and in particular, for fraud discussions among the team to be led by the audit partners. The report also recommended auditors should evaluate the design and implementation of the entity's internal controls to detect and prevent fraud. It also noted that auditors "should exercise greater professional scepticism in identifying and addressing the fraud risks that are specific to the audited entity". Beyond fraud risk, the report also said auditors should improve their identification and assessment of the laws and regulations affecting the audited entity. Auditors' discussions with management should include management responsible for compliance matters and should place more emphasis on identifying the relevant laws and regulations, the report stated. It also proposed that auditors should evaluate the design and implementation of the entity's internal controls to monitor compliance with laws and regulations. As well as calling for more regular and up to date training, the report again said there was a need for greater professional scepticism this time for possible breaches of laws and regulations. "The consideration of fraud risks and compliance with relevant laws and regulations, and the performance of related audit procedures, tends to be viewed as a compliance exercise rather than as an important and integral part of the audit," FRC executive director of conduct Paul George said. The report was based on FRC visits to the six largest audit firms in the UK (the Big Four, BDO UK and Grant Thornton UK) as well as reviews of 26 audits from a variety of entities for the financial year December 2011 to December 2012.

ARQAAM CAPITAL JOINS NASDAQ DUBAI ARQAAM CAPITAL has become an equities trading Member of NASDAQ Dubai, in order to offer its clients exciting new opportunities as market activity increases on the region’s international exchange. The ability to trade shares directly on NASDAQ Dubai significantly expands the services that Arqaam Capital can provide to its international and regional clients, as a specialist emerging markets investment bank based in the Dubai International Financial Centre (DIFC). Riad Meliti (pictured) CEO of Arqaam Capital said: “All the indicators look positive for 2014 being the start of a spell of strong performance for the UAE’s economy and its capital markets. By extending our membership of NASDAQ Dubai, we are ensuring we can give our clients the access they need to a vibrant market.” Arqaam Capital is already a Member of NASDAQ Dubai’s equity derivatives market, which comprises futures on the FTSE

UBF SUPPORTS DEBT FUND INITIATIVE

THE UAE Banks Federation, a professional representative body representing 50 member banks operating in the UAE, has reaffirmed its strong and full support for the government’s initiative to reduce the serious debt burden being experienced by some UAE Nationals.

NASDAQ Dubai UAE 20 index and on 20 prominent companies listed in the UAE. Arqaam Securities, the bank’s UAE brokerage company, is also a member of the NASDAQ Dubai equities market. Hamed Ali, Chief Executive of NASDAQ Dubai, said: “As a leading investment bank and broker with a substantial client base, Arqaam Capital adds further depth and reach to NASDAQ Dubai’s equities framework. The exchange looks forward to working with Arqaam Capital in a number of areas to develop the investment and hedging tools that we offer to market participants.”

Underlining its excellent and on-going relations with the fund, the Federation has urged its member banks to co-operate in the scheme and continues to coordinate with its member banks to support this important national initiative. For the past 12 months, the UBF has been encouraging all members to focus on promoting financial literacy and responsibility programmes which will help to prevent such indebtedness recurring in the future. The Federation hailed those member banks which have assisted debt-burdened nationals and is seeking all the other banks to make a similar contribution. 11


Standards and Practices

INSURANCE

ACCOUNTING

Industry experts weigh in on why insurance contracts are in dire need of fundamental overhaul if institutional investors are to bet on insurers.

T

HE C URRENT i n c o m p l e t e approach to insurance accounting has created the perception that investing in insurance companies is only for specialists, which could discourage general investors from venturing into the sector, an expert of Standard & Poor's (S&P) has told The Accountant. S&P financial services ratings managing director Rob Jones says many general investors stay clear of the sector because it's viewed as a difficult one to analyse and requires great effort and time to understand, partly due to its accounting.

12 Feb-March 2014

Valuation of liabilities Currently, accounting practices vary substantially from market to market because there's no global standard to account for insurance contracts. IFRS 4 issued in March 2004 remains an interim standard that doesn't specifically tackle insurance issues, notably the valuation of insurance liabilities.

"It was something pragmatic at the time. Because the EU was moving towards recognising IFRS as the financial reporting medium in 2005, there was a bit of a race to get something into the accounting standards for insurance, but there just wasn't sufficient time for it to be a comprehensive standard," Jones says.


Standards and Practices

Many investors stay clear of the insurance sector because it's viewed as a difficult one to analyse and requires great effort and time to understand, partly due to its accounting. Both the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have published Exposure Drafts (ED) that closed for comment on 25 October. S&P commented on both EDs and stated it welcomes the level of convergence that may emerge from these consultations. The rating agency supports the objectives of both standard-setters and even if the two EDs were to be implemented as presented, Jones observes, that in itself would represent a giant leap forward in terms of global consistency of insurance accounting. "If you look around the world there are dozens of different approaches to insurance accounting because IFRS 4 didn't really address many of the insurance liability issues," Jones says. Comparability issues Nonetheless, S&P regrets the proposals of the IASB and the FASB are "unlikely to achieve" a fully unified standard as there are still clear differences between them which wouldn't solve completely comparability issues. "Convergence is an imperative for the boards and we regard as a real disappointment that there isn't one global standard being proposed. The difference between the two are unfortunate," Jones says.

In its response to the public consultations, S&P stated that both EDs, although "similar, are not the same" and added that there are differences that would impede analysing and comparing insurance companies globally. One of these differences relates to margin measurement and recognition as both EDs are likely to produce different earning patterns, according to the rating agency.

The differences S&P argued that both EDs propose two distinct definitions of how to recognise revenue. In addition, the IASB's ED includes two elements that FASB doesn't. First, "an explicit risk adjustment" and secondly "requiring subsequent adjustment to reflect changes in cash flow estimates for future coverages or estimates," S&P wrote.

For Jones, one recurring theme from feedback the proposals are receiving is on the issue of volatility. In his view the IASB's latest Exposure Draft was improved in that respect, reducing volatility but adding complexity in turn. "The sector is perceived to be one that has particularly volatile results. As long as the accounting volatility remains in the financial reporting, that would have an adverse effect on the insurance cost of capital," Jones says.

Jones adds that in the corporate world there's much greater acceptance of IFRS, but not when it comes to the insurance sector. For Jones insurance is perceived as being different from other corporate activities where general investors are relatively comfortable with the accounting framework in place. "An objective for the industry would be to get towards a proposal that would attract more investors into the sector - perhaps with fewer surprises than there might have been in the past, like large unexpected increases on insurance liabilities. Or at least a way of trying to communicate better the expected level of volatility of the insurance business," Jones concludes.

Accounting principles Insurance Europe (IE), a federation of national insurance associations, agrees with S&P that the current approach to insurance accounting is putting off investors from embarking into the sector. "We often hear our business is difficult to understand and that current IFRS 4, being an interim standard, adds to the difficulty for potential investors to understand the business 13


Standards and Practices

Insurance Europe deputy director general Olav Jones: â&#x20AC;&#x153;If accounting measures are not appropriately designed for the insurance business models, it's easy for the investors to get confused by the way profit flows are reported.â&#x20AC;?

model and profitability," IE deputy director general Olav Jones says.

IE said the IASB proposals for insurance contracts, also known as IFRS 4 Phase II, and the standard for financial instruments (IFRS 9) are interrelated and therefore consistency should be ensured between the two.

"In order to reflect the insurance business models used across the European markets, it's particularly important that the accounting principles for insurance companies capture the long-term nature of our business and the links between assets and liabilities," Olav Jones says. Business models According to IE, there are two main areas that can be difficult for investors to understand.

First, the way provisions for future liabilities (that is, insurance claims) are built up and paid out

If you look around the world there are dozens of different approaches to insurance accounting because IFRS 4 didn't really address many of the insurance liability issues.

14 Feb-March 2014

over time. "For some businesses this process of building up and paying out can cover many years. These provisions can be funded from both new premiums and investment income from the assets backing existing provisions," Olav Jones says. Secondly, how investment performance on assets flows through both balance sheet and profit and loss accounts. According to Olav Jones, due to the nature of the insurance business what matters more is the long-term performance rather than short-term performance. For Olav Jones the challenge for accounting measures is how to represent these long-term and often multi-year processes in quarterly or yearly financial reporting.

"If accounting measures are not appropriately designed for the insurance business models, it's easy for the investors to get confused by the way profit flows are reported or by short-term volatility due to temporary market fluctuation," Olav Jones explains. All in all, IE regarded the proposals on IFRS 4 Phase II as a step in the right direction, although they need further critical amendments to achieve a workable accounting standard. â&#x20AC;˘ Article by Carlos Martin Tornero, The Accountant, UK


Career Development

US CPA

GAINS TRACTION IN

GCC

Students of accounting in the region who wish to join the ranks of a thriving global profession are increasingly pursuing American licensure.

M

ANY CURRENT accountants in the UAE and Gulf region who wish to advance their careers and demonstrate their dedication to the accounting profession are choosing to sit for the Uniform CPA Examination and obtain their US CPA license.

Michael Decker Director of Examinations â&#x20AC;&#x201C; AICPA

16 Feb-March 2014

The US CPA license is the premier accounting credential in the United States, backed by a rigorous exam, strict licensing requirements and a code of ethics, and is highly regarded throughout the world as a leading credential. The high regard

for the US CPA license is one of the reasons we have seen growth in both the number of candidates taking the exam internationally, as well as the level of international interest in the CPA.

Skills and knowledge Accounting professionals look to the US CPA as a way to show verification of their skills and knowledge to the international business community. Additionally, in the US, research shows that employers prefer to hire a CPA over a non-CPA accountant and that CPAs tend to earn a higher salary.


Career Development

CPA Exam testing in all international locations, including the UAE, has recently been expanded to the first two months of the testing window: January and February, April and May, July and August and October and November, the same as in the US. professionals for todayâ&#x20AC;&#x2122;s global business environment and expands career opportunities.

Details on the US CPA Exam in UAE Passing the US CPA Exam is one of the three requirements for licensure as a US CPA, along with education and experience requirements. The US CPA Exam is administered internationally as a service to foreign nationals, as well as in response to escalating international demand for the US CPA license. The Exam is administered in English.

Accounting professionals look to the US CPA as a way to show verification of their skills and knowledge to the international business community. Additionally, in the US, research shows that employers prefer to hire a CPA over a non-CPA accountant and that CPAs tend to earn a higher salary.

In the US, CPAs serve the complex demands of a rapidly changing business environment. Capital markets rely on the work of CPAs to ensure that investors have access to reliable and transparent financial statements.

According to AICPA research, the US CPA is the most highly regarded and trusted financial professional, and both investors and business decision makers rank the CPA first among financial and business professionals. Simply

put,

the

CPA

pathway

prepares

Colleen Conrad CPA, Executive Vice President and Chief Operating Officer, NASBA

The international administration of the Exam in the UAE and the Middle East is the same as the US Exam administered by the AICPA (American Institute of CPAs), NASBA (National Association of State Boards of Accountancy) and Prometric in the United States.

The AICPA, NASBA and Prometric are providing the same services as they do for the domestic program, so that the Exam and the licensure process will be the same for international examinees as it is for examinees within US jurisdictions. In addition, CPA Exam testing in all international locations, including the UAE, has recently been expanded to the first two months of the testing window: January and February, April and May, July and August and October and November, the same as in the US. Requirements for Licensure Licensure requirements for international candidates are the same as for US CPA candidates.

17


Career Development

In order to qualify to take the CPA Exam outside the US, candidates will have to first establish their eligibility through application to a state board participating in the International CPA Examination Administration Programme. Along with passing the Uniform CPA Examination, international candidates must meet educational and experience requirements as mandated by US state boards of accountancy.

In order to qualify to take the CPA Exam outside the US, candidates will have to first establish their eligibility through application to a state board participating in the International CPA Examination Administration Programme.

For specific instructions on how to apply to take the CPA Examination, visit the CPA Exam section of the NASBA website - http://nasba.org/exams/ internationalexam/international-process-toapply/. Since every licensing jurisdiction in the US except Puerto Rico has an experience requirement in place for initial licensure – it is crucial that those who wish to become CPAs have a plan in place to gain some work experience before they can become licensed. Upon completion of the Exam, candidates must complete one year of experience under a licensed CPA or have a licensed CPA sign-off on their professional experience.

Exam Content and Scoring The CPA Examination protects the public interest by helping to ensure that only qualified individuals become licensed as US CPAs – so you need to have a great deal of knowledge in order to pass. Although a challenging process, it is worth the effort. All candidates – both in the US and internationally - must meet the same requirements for exam and licensing. The passing score is 75 on a scale that runs from 0 to100 for each section of the Exam.

Candidates must pass all four sections: Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG). These four sections represent a total of 14 hours of testing and must all be completed within an 18-month testing window. The approximate pass rate for Middle East candidates is 40% depending on section taken. Pass rates for FAR and REG are over 40% (data taken from 2011 Q3 to 2012 Q3).

There are a number of review course providers who have materials which will help candidates prepare for the Exam, however the AICPA and NASBA do not endorse any specific review course providers. The AICPA website has a tutorial and sample test which serves as a guided tour of the CPA Examination. It demonstrates the functionality of question types, tools, resources and navigation found in the Uniform CPA Examination and candidates are encouraged to visit it before they take the exam.

Below is a full list of jurisdictions that currently participate in the international administration of the CPA Examination. Alaska Arizona Arkansas Colorado Connecticut District of Columbia Florida Georgia Guam

18 Feb-March 2014

Hawaii Illinois Indiana Iowa Kansas Louisiana Maine Massachusetts Michigan

Minnesota Missouri Montana Nebraska Nevada New Hampshire New Mexico New York North Dakota

Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina Tennessee Texas

Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming


Career Development

Exam fees The total cost includes application and administration fees, in addition to the examination fees listed below.

The fees per examination section are: Auditing and Attestation (AUD) $309.65 Business Environment and Concepts (BEC) $328.75 Financial Accounting and Reporting (FAR) $309.65 Regulation (REG) $328.75

The cost varies for each state or jurisdiction, so candidates should refer to their jurisdiction’s application materials for additional information. The majority of candidates from the Middle East apply to the states of New Hampshire and Colorado. About the AICPA and NASBA The AICPA is the world’s largest member association representing the accounting profession, with more than 394,000 members in 128 countries and a 125-year heritage of serving the public interest. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for the profession and US auditing standards for audits of private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination

Celebrating more than 100 years of service, the National Association of State Boards of Accountancy (NASBA) serves as a forum for the nation’s Boards of Accountancy, which administer the Uniform CPA Examination, license more than 700,000 certified public accountants and regulate the practice of public accountancy in the United States. NASBA’s mission is to enhance the effectiveness and advance the common interests of the Boards of Accountancy in meeting their regulatory responsibilities. The Association promotes the exchange of information among accountancy boards, serving the needs of the 55 US jurisdictions.

In addition, NASBA hosts the National Candidate Database, a database of CPA candidate information created to help NASBA, Boards of Accountancy, the AICPA and the testing centers protect the personal data provided by candidates during application and examination processes.

In the US, CPAs serve the complex demands of a rapidly changing business environment. Capital markets rely on the work of CPAs to ensure that investors have access to reliable and transparent financial statements.

As a central repository for all CPA Examination candidate information, the National Candidate Database is a global tracking system for CPA Examination candidates. With the ability to track a candidate’s history, from initial application to grading of the examination, the National Candidate Database is a powerful tool for managing testing information. 19


Spotlight on HLB

THINK GLOBALLY,

ACT LOCALLY

International accounting network HLB well positioned as it seeks new regional members.

20 Feb-March 2014


Spotlight on HLB

13

Ranking of HLB International in 2013, according to the International Accounting Bulletin

A

CCOUNTING GIANT HLB International is currently rethinking its strategy in the Middle East and other emerging markets, in what promises to be an efficacious move.

DYNAMIC DUO: HLB International Chairman Mogens Andersen, and Marco Donzelli, the firm's Head of Strategic Network Development.

As part of this drive into Middle East and Africa markets, HLB is seeking new members in a bid to expand its network, a move that will certainly help the organisation tap the region’s current windfall, particularly in oil and gas, telecoms and financial services.

Leading this drive are the network’s Chairman Mogens Andersen, and Marco Donzelli, Head of Strategic Network Development, who were recently in Dubai for a three-day tour to meet with the network’s member firms in the region.

New business leads In addition to addressing the latest developments of the network, the meeting provided an opportunity for the member firms to explore new business leads in the

21


Spotlight on HLB

Speaking of the Arab Spring, there’s no doubt that the business landscape has been affected, particularly since the restiveness came immediately after the global financial crisis. region, post the infamous ‘Arab Spring’, and for the network to develop its already strong transnational relations. “Part of our network’s success is due to the close collaboration and mutual knowledge between neighbouring countries. We see a lot of potential in this region,” Andersen said in an exclusive interview with Accountant Middle East.

As chairman of HLB International, Andersen’s primary role is to ensure that the network’s board is effective in its tasks of setting and implementing the organisation’s direction and strategy. The Danish national also acts as HLB’s leading representative which involves the presentation of the network’s aims and policies to the outside world. Speaking about his role as Chairman of HLB International, Andersen said; “there are vast challenges in running a global network, but the nature of the task is changing with the accelerating shift of economic activity from Western economies to emerging markets particularly here in the Middle East, Africa, Asia and Latin America.”

“This is where we are directing our growth strategies,” he said. According to McKinsey Global Institute research, 400 midsize emerging-market cities will generate nearly 40 per cent of global growth over the next 15 years.

“On a positive note, managing business across borders has been made possible due to continuing advances in technology, as communication with international partners has been made easy without the need for travel,” he added. 22 Feb-March 2014

The Arab Spring Formed in 1969, the HLB International network has 16,000 staff based in 500 offices in more than 110 countries. The network is the 14thlargest accounting network in the world. Here in the UAE, the network is represented by HLB Hamt, based in Dubai, and HLB Jivanjee based in Abu Dhabi. Speaking of the Arab Spring, there’s no doubt that the business landscape has been affected, particularly since the restiveness came immediately after the global financial crisis. Andersen admits the political strife in some countries in the region affected HLB operations as well.

“Naturally the accounting profession suffered from the weakening economic environment, however not with the same intensity as other businesses since the network’s other operations such as mergers and acquisitions, reorganisation, corporate restructuring and insolvency were more active when economies were changing,” the chairman said.

“The slackening economy has caused many companies to cut back, and this in turn, has forced consulting firms to shift resources to different kinds of projects, to look overseas for new business and to scale back their recruiting efforts. However on a positive note, when companies are going through tough times, they'll hire consultants to help them cut costs. So the issue here is to know how and where to redirect consulting efforts,” he added. One of HLB’s business strategy is to forge and encourage sub-regional collaboration, that is, more collaboration between neighbouring countries, as they very often have a lot of interests and business – and quite often language as well - in common. “The main goal is to find opportunities for value creation in tapping the differences at the borders of the various markets. As a result, we increasingly see value chains spanning multiple regional countries,” he added. Growing the network HLB’s rapid-growth strategy in new markets has necessitated the staffing of a highly effective international management team that


Spotlight on HLB

As chairman of HLB International, Mogens Andersen’s primary role is to ensure that the firm’s board is effective in its tasks of setting and implementing the company’s direction and strategy.

is well versed with different local cultures and has a good understanding of global markets. “That’s the reason we hired Marco Donzelli as the network’s Head of Strategic Network Development division to integrate our talent management and global mobility strategies,” quips Andersen, adding, “We have seen tremendous growth in the region and at HLB we have aligned ourselves to this growth. For instance we appointed Marco to help us find new firms that we could partner up with and help us spread our tentacles to other markets and grow the network.” HLB is venturing into markets where “we feel we can improve coverage,” Donzelli says.

“While at it, we are focusing so much at quality, right size, and we have key performance indicators (KPIs) that help us measure the suitability of potential partners. For the

moment, we reckon the Middle East and Africa as regions that promise very good potential and we have succeeded in finding some good firms to recruit. Also of course relating to business, we are aligning ourselves with firms that are, for instance, active in the oil and gas sector,” Donzelli adds.

Focus in HLB has mainly been strengthening the network. The executives say they try to recruit firms who rank top 10 nationally or locally and are able to keep the pace of a growing economy. Generating business And where does HLB rank among other midtier networks?

According to the ranking of the International Accounting Bulletin, in 2013, HLB was number 14, having slid a few points down due to the loss of US firms. 23


Spotlight on HLB

“We are however working to improve both our ranking and annual returns. At the moment our global turnover is 1.7 billion but we are aiming to close 2014 at over 2 billion,” Donzelli said.

“The two main drivers for our development are quality, turnover of the firm, and the amount of exchange of business among member firms across countries. We have identified several micro-regions around the world and we assess these against two KPIs, measured against

One of HLB’s business strategy is to forge and encourage sub-regional collaboration, that is, more collaboration between neighbouring countries.

the GDP of the country or the continent and they are also measured against the amount of exchange of business.” “We also have objectives for each of these regions in the world, we have identified 15 regions, five of them are in the Middle East and Africa region, specifically Mena, West Africa, East Africa, Central Africa and Southern Africa. We have a clear focus on generating and tracking referred business which allows us to constantly create and maintain engagement from member firms. We have a flexible growth strategy, as long as our firms focus on international business and quality of service,” Donzelli added.

Governments have been put ting measures in place in an effort to minimise audit mistakes and fraudulent deals, particularly following the financial crisis. Andersen admits that for a major audit net work like HLB

“HLB’s main goal is to find opportunities for value creation in tapping the differences at the borders of the various markets,” says Marco Donzelli.

24 Feb-March 2014


Spotlight on HLB

which markets itself as a seamless global organisation, some of these legislations are challenging auditors. “No doubt that operating globally generates a wide variety of legal, HR and finance issues. HLB is structured to comply with host countries' laws on practical issues such as tax, business practices and human resources. The most important thing is to strike the right balance between the requirements of international standards and responsiveness to local conditions,” says Andersen. “Our member partners are legally independent, but they have to comply with HLB’s own standards that are favourable to the business and that comply with the required international standards,” the chairman added.

Flexibility and adaptability With different countries reacting to the financial crisis by implementing massive regulatory overhaul, many audit networks like HLB are devoting greater attention and resources into compliance with these regulations. But according to Donzelli, his network’s flexibility makes all the difference. “These changing regulations tend to put a lot pressure in consultancy businesses, however HLB’s flexibility and adaptability to these changes has played an essential role in helping the network withstand rough currents,” Donzelli said.

On the same note, government regulations are on the rise, which also means that auditors are walking a tightrope as their risk of potential liability is increasing. This, the Chairman thinks will make auditors subject to increased litigation in the future. However, he says risks can be reduced by taking actions to mitigate against lawsuits, “for instance, by adding

The slackening economy has caused many companies to cut back, and this in turn, has forced consulting firms to shift resources to different kinds of projects.

experts, additional reviewers, and providing other resources to the audit team.”

There have been reports about how audit firms are screaming about their increasing liability and saying that new standards like the IFRS, corporate and sustainability reporting and Sarbanes-Oxley have put them in a real bind by demanding a certain level of accountability. In Andersen’s assessment, these standards have no doubt impacted the audit industry in various ways, in the short and long term. “The changes mandated by these new standards will, no doubt, affect both audit firms and their clients,” Andersen says.

“Traditionally, the issuance of new laws did not impact clients so much as audit firms since these standards applied to the conduct of the audit and not the preparations of financial statements. However, new requirements such as requiring auditors to document a complete understanding of their clients and the environments they operate in, will have a much more wide-ranging impact on how audits are performed.” “These new procedures have made it more expensive for clients, because there are many things that auditors have to do to comply with the standards. In the end, the costs incurred are transferred to the client. Accordingly, companies need to have a clear expectation of how these new standards may affect their businesses, and should begin making preparations to minimise any negative repercussions resulting from implementation of these new procedures,” he warned.

“In Denmark, where I come from, we decided that these standards are becoming a bit too much especially for the small and medium enterprises. The Danish Institute together with the Danish government created another national standard that targets SMEs, and of course is complemented by the IFAC standard. This is a special tool and it works really well for companies. I wish other governments would replicate that idea. SMEs really do not need full audit, they can have what we call an extended review, which is something in between the review and full audit, just to 25


Spotlight on HLB

come back to the client and say, we know it’s becoming too expensive but this should be an easier alternative for you,” Andersen explains. Work smarter and faster With the profession undergoing perhaps its biggest technological change, no doubt that mobile devices, cloud computing, and analytics are faster transforming how accounting and audit is done. Advances in technology have made it possible for the auditors to work smarter and faster, and Donzelli says HLB is also utilising the latest software, social media and technology-based analytics and tools.

“Today, the cloud and mobile devices including phones, tablets, ultrabooks etc, will continue to help further integrate technology into all aspects of accountants and auditors’ daily duties. Internet connectivity is helping us work more efficiently and exchange information more effectively. It will result to HLB leveraging the growing power and reach of the internet in everything we do,” says Donzelli. The executives also addressed in detail the issue of risk management, saying that HLB is responding to today’s complicated risk landscape by putting it at the top of the network’s agenda.

“Today, more than ever before, risk capability plans should be in concert with the organisation’s business development plans. It should be leading, rather than lagging. Risk management capabilities should be prioritised and focused on the things that matter to move the needle for the organisation.” So, how do they see risk management changing? “We see much more connectivity. One of the recurring issues from our discussions over the past months has been that of connectivity and risk. Traditionally, risk management was as moving beyond compliance, whereas these days, it is being much more integrated and connected, playing a much larger role in decision-making across the organization —particularly in budgeting, investment and strategy.”

“In order to survive and certainly to grow every company should strive to innovate and move its business forward. Simply pushing forward without understanding and mitigating the risks ahead could ultimately lead to disaster in some form.” 26 Feb-March 2014

Mogens Andersen, and Marco Donzelli: “HLB is venturing into markets where “we feel we’re not covered well enough.”


“Enhance Career Opportunities”

Be a U.S. Certified Professional CPA - Certified Public Accountant CMA - Certified Management Accountant CIA - Certified Internal Auditor IFRS - International Financial Reporting Standards New BATCHES COMMENCE SHORTLY ‡ Books & Software from publishers ‡ U.S. Certified Instructors ‡ Live Classes with visual aids ‡ E-Group to share and learn ‡ Instructors’ support after review ‡ Assistance for registration ‡ Hands-on & Home Exercises ‡ Mock test and follow-up ‡ Preparation & Exam strategy

“Leading you to the Global Business Community” M02, Mina House, Mina Road, Bur Dubai, Dubai, UAE Dubai Tel. No.: 04-3521133 E-mail: info@emergeuae.net Web: www.emergeuae.net


Tech Talk

TECH TRENDS FOR 2014

Deloitte predicts global sales of smartphones, tablets, PCs, TV sets and gaming consoles to exceed $750 billion.

T

HE TOP global technology, media, and telecom trends for 2014 include 50 million homes doubling up on pay-television (TV); the global value of premium sports video rights increasing 14 per cent led by North American sports leagues and European football (soccer); according to Deloitte’s 13th edition of the Global TMT Predictions just released.

revenues are projected at about $100 billion this year, compared to just $2 billion for mobile IM services. Globally volumes of mobile IMS and text messages will grow, even though some developed markets may see falling SMS volumes.

In addition, the report predicts that phablets — an oversized smartphone that’s part cell phone, part tablet — will outsell tablets by $25 billon and the total global sales of smartphones, tablets, PCs, TV sets, and gaming consoles will exceed $750 billion in 2014 and then plateau as consumer usage will continue to converge.

“Getting baby-boomers to engage all functions of their smartphones and not just use it as a feature phone represents a great opportunity for carriers. They need to be up for this challenge though, since we expect that a quarter of these smartphone owners may not download a single app,” Saguto added.

“Our report details many watched and often contended trends in the industry”, said Santino Saguto, partner in charge for the Telecommunications, Media and Technology (TMT) industry at Deloitte Middle East. “Smartphones, the largest component in the converged living room group ($375 billion revenue in 2014), are nearing saturation among most age groups except the 55+ demographic, which will experience a steep rise in usage this year.” Perfect storm In 2014, mobile instant messaging services (IMS) will generate about 70 per cent of all messages sent from mobile phones, but only about three per cent of the value. Every day, 70 billion messages will be sent via mobile, of which only 21 billion will be via short messaging service (SMS), but text message 28 Feb-March 2014

Additionally, while 2014 will be the year of the baby boomer, the group also comes with its own set of challenges and opportunities.

The report also looks well beyond 2014 and predicts a “perfect storm” of conditions that could make Massive Open Online Courses (MOOCs) a major factor by 2020, representing over 10 per cent of all courses taken in tertiary and enterprise continuing education. New technology, alternative modes of teaching and a need to continuously update quickly obsolete skills are driving the trend, suggesting MOOCs will grow enormously over the longer term, even if disruption is minimal in 2014. Additional highlights and details of this year’s TMT predictions to impact the marketplace in 2014 include: i) Technology

The $750 billion converged living room: a plateau approaches- Global sales of smartphones, tablets, PCs, TV sets and videogame consoles will

$100bn Deloitte’s projected text message revenues in 2014


Tech Talk

One became many: the tablet market stratifies The installed base of compact tablets (with screens smaller than 9 inches) will surpass the base of classic tablets (9 inches and larger) for the first time. By end the first Quarter, we expect the base of compact tablets to be 165 million units, slightly ahead of the classic tablet base, with 160 million.

Shutterstock / Tanjala Gica

ii) Media and Entertainment

David Burns, Partner at UHY Saxena: “Eliminating tax on repatriated income encourages companies to bring income back into UAE, spurring investment and job creation.”

Phablets — an oversized smartphone that’s part cell phone, part tablet — will outsell tablets by $25 billion in 2014, according to Deloitte’s new survey.

exceed $750 billion in 2014, up $50 billion from 2013 and almost double the 2007 total. However a plateau appears likely: sales are expected to continue growing, but at a slower rate than over the past 10 years, with an estimated ceiling of about $800 billion per year.

Massive Open Online Courses (MOOCs): not a disruption zone yet, but the future is bright- Student registrations in MOOCs will be up 100 per cent compared to 2012 to over 10 million courses, but the low completion rates mean that less than 0.2 per cent of all courses completed in 2014 will be MOOCs. The growing awareness of online education will force educational institutions to increase investment in this area, drive more acceptance of online education as it becomes accredited, and increase adoption by corporate training groups.

“Getting baby-boomers to engage all functions of their smartphones and not just use it as a feature phone represents a great opportunity for carriers.”

Doubling up on pay: TV- By the end 2014 up to 50 million homes around the world will have two or more separate pay-television subscriptions, with the additional subscriptions generating about $5 billion in revenues. A further 10 million homes will receive premium programming as part of their subscription to another service, such as broadband. Broadcast sports rights: premium plus - The value of premium sports broadcast rights will increase to $24.2 billion, a 14 percent rise on 2013, equivalent to an additional $2.9 billion. This increase in rights fees will be driven by new agreements with certain top tier European domestic football (soccer) leagues and major North American sports leagues. iii) Telecom

Phablets are not a phad - Shipments of phablets, smartphones with 5.0-6.9 inch screens, will represent a quarter of smartphones sold, or 300 million units. That is double the 2013 volume, and 10 times 2012 sales. But after initial rapid consumer success, 2014 may mark a ‘peak phablet’ year, as only a (sizeable) minority of smartphones users will want to handle such a large device.

The smartphone generation gap: Over 55? There’s no app for that- Over-55s will be the age group experiencing the fastest year-on-year rises in smartphone penetration across developed markets. Ownership should rise to between 45 to 50 percent by year-end, lower than the approximately 70 percent penetration rate for 18-54 year olds, but a 25 percent increase from 2013.

Short messaging services versus instant messaging: value versus volume- Instant messaging services on mobile phones (MIM) will carry more than twice the volume (50 billion versus 21 billion per day) of messages sent via a short messaging service (SMS). 29


Women in Finance

WOMEN RISING

Pearl Initiative and SBWC combine efforts to encourage women in the GCC into senior leadership roles.

Imelda Dunlop (left), Executive Director of the Pearl Initiative, Badr Jafar, Founder of the Pearl Initiative and Ameera Abdelrahim Binkaram, the Chairperson of the Sharjah Business Women Council) exchange documents to promote programmes that encourage women to progress into executive positions of companies in the region.

T

HE PEARL Initiative, the GCCbased, private sector-led, notfor-profit organisation developed in collaboration with the United Nations Office for Partnerships to promote best business practices in the Gulf Region, has signed a Memorandum of Understanding with Sharjah Business Women Council (SBWC) to focus on programmes that encourage women to progress into executive positions and board members of companies in the region. The agreement was signed by Ameera Abdelrahim Binkaram, Chairperson of the Sharjah Business Women Council and Imelda Dunlop, Executive Director of the Pearl Initiative, in the presence of Badr Jafar, Founder of the Pearl Initiative and Managing Director of the Crescent Group and Eman Al Mahmoud, Secretary General of the Executive Board of Sharjah Business Women Council. Aim of agreement As a platform for change and development in corporate governance practices across the 30 Feb-March 2014

Gulf region, the Pearl Initiative will work with SBWC to clearly define the business case for the advancement of women in senior management and board positions in organisations across the GCC. The overall aim of the agreement is to develop a first-of-a-kind programme that will inform business leaders on practical methods of attracting, developing and retaining women into senior positions in the UAE and GCC region, and thereby create a larger pool of Board-ready women. The agreement will enable both organisations to develop insight and increase dialogue among business leaders, academia, the investment community and the media with a view to improving Board diversity, strategic decision making and competitiveness.

The first project this agreement will facilitate is a major survey of women in senior management and leadership positions within the Gulf Region to examine the processes and procedures that enabled


Women in Finance

them to reach senior levels in their organisations so these steps can be developed into a framework for assisting career development for women. Improving dialogue Commenting on the signing of the agreement, Imelda Dunlop, Executive Director, of the Pearl Initiative, said: “The signing of this agreement represents an important step in helping the Pearl Initiative build and raise awareness of the business benefits of the advancement of women in decision-making positions. In doing this we will be able to improve the dialogue needed to create an environment where women are fundamental to the sustainable success of the private sector.”

“With a focus on preparing the next generation of leaders on the importance of integrity and ethics, we aim to ensure the next generation of women leaders are inspired to pursue the career paths they choose to follow free of glass ceilings.” Dunlop added. Speaking about the agreement Ameera Abdelrahim Binkaram, Chairperson of Sharjah Business Women Council said: “Our primary goal at the Sharjah Business Women Council is to encourage women to excel in the field of business and to facilitate the healthy growth of women-owned businesses. To this end collaboration among the stakeholders in the business community is essential. We are therefore extremely pleased to be entering into this agreement with the Pearl Initiative and look forward to seeing the business women in our region reap the rewards of our cooperative efforts.”

The overall aim of the agreement is to develop a first-of-a-kind programme that will inform business leaders on practical methods of attracting, developing and retaining women into senior positions in the UAE and GCC region. The Sharjah Business Women Council was established by virtue of Amiri Decree by His Highness Sheikh Dr Sultan bin Muhammad Al Qasimi, UAE Supreme Council Member and Ruler of Sharjah, to support the integration of women in all economic activities.

The (SBWC) is being supported by Her Highness Sheikha Jawaher bint Mohammed Al Qasimi, wife of the Ruler of Sharjah, Chairperson of the Supreme Council for Family Affairs and Honorary Chairperson of the (SBWC). The council aims to encourage women’s contribution in the development process in the UAE in general and Sharjah in particular. It offers women wider fields to develop their personal skills, opportunities for more creativity and improvement of performance in their professional and business endeavours. Moreover; the Council contributes in developing women-owned businesses through guidelines by economic and finance experts.

“Both parties will immediately start work on a joint programme to develop important regional insight and foster communication between business leaders.” Good practice Since 2010, the Pearl Initiative has been driving extensive programmes that positively influence business thinking in all six countries of the GCC, and produces regionally-focused research-based insight reports and corporate good practice case studies. Programmes for 2014 include those on Women in Business, Corporate Governance in Family Firms and Anti-Corruption. The Pearl Initiative also convenes business, government and civil society leaders at the highest levels and at the operational levels, in dialogue forums and capability-building seminars.

31


Focus on ICAI

NRIs CAUTIONED ON REALTY BUSINESS Indians residing abroad cannot indulge in property business, says Chartered Accountant R. Bupathy, former President of the Institute of Chartered Accountants of India.

P

ROPERTY ACQUISITION, disposal and remittance in India are governed by the general and specific permission of the country’s Reserve Bank, and Indians residing abroad cannot indulge in real estate business, Chartered Accountant R. Bupathy, past President of the Institute of Chartered Accountants of India (ICAI), has clarified. Bupathy was speaking recently during an event organised by the Abu Dhabi Chapter of the Institute of Chartered Accountants of India (ICAI), in the UAE’s Capital, which was attended by a 165 plus strong audience. The main topics of discussions were; ‘Changes in Direct Taxation with reference to Non Resident Indians’ and ‘Unleash your Expo 2020 DNA’.

New formalities Bupathy expounded more on the provisions relating to India’s Foreign Exchange Management Act (FEMA), income tax and wealth tax. He talked about specific provisions relating to NRIs which affect property related transactions and new formalities that need to be completed. He also specifically talked about provisions affecting NRI senior citizens returning to India on retirement. “Non Resident Indians (NRIs) / Persons of Indian Origin (PIOs) can acquire by purchase, gift or inheritance, immovable property in India other than agricultural land/ plantation/ farm house, under general permission,” he said, adding, “to acquire agricultural land, plantation and farm house prior permission of the Reserve Bank of India (RBI) is required, except by way of inheritance.” Tax deductions Bhupaty mentioned that all income generated in 32 Feb-March 2014

India except for the interest on NRE and Foreign Currency Non Resident (FCNR) accounts are taxable in India for a non-resident. To recover the tax on the income, the Government looks to tax deduction at source (TDS).

“It places an onerous responsibility on the payer to deduct and promptly deposit prescribed taxes on specified payments and file quarterly TDS returns. In the process, there is the necessity to obtain Permanent Account Number (PAN) to execute certain transactions,” he said. “Failure in complying results in liability to interest, penalty and even prosecution,” he cautioned.

The Chairman of the Abu Dhabi Chapter, CA Padmanabha Acharya inaugurated the seminar by informing about some major activities the Chapter has planned for 2014. CA Acharya mentioned that with the falling rupee and economic climate in India, real estate purchases is on the minds of many NRIs, and therefore “an insight on the direct and indirect taxes applicable for property and clarification of the relevant rules and regulations would be of utmost use to all Non Resident Indians.” Entrepreneurial spirit Reg Athwal, who is an entrepreneur, advisor, angel investor and a motivational speaker, gave a talk on how to capture the potential entrepreneurial spirit in each one of us.

ICAI is the second largest professional accounting body in the world in terms of membership, second only to American Institute of Certified Public Accountants. The Abu Dhabi Chapter of the Institute of Chartered Accountants of India is now 28 years old and comprises of 600 members and is one of the most active chapters among 21 overseas chapters of the Institute.

R. Bupathy, a tax expert from India, presents his analysis on the “Changes in Direct Taxation and with reference to NRI”, during an event organised by the Abu Dhabi Chapter of the Institute of Chartered Accountants of India (ICAI), in the UAE’s Capital.


SEARCHING

FOR REGIONAL DIRECTOR MEASA

Shane Phillips Consultants is currently searching for a Regional Director MEASA for the Institute of Chartered Accountants England and Wales (ICAEW). As one of the world’s most coveted qualifications our preferred candidate will be an ICAEW qualified chartered accountant and will share our excitement for the institution. The Regional Director MEASA will be the spearhead of the ICAEW’s expansion across the Middle East, Africa and South Asia. As such we are looking for seasoned candidates who have the pedigree and gravitas to create influence and consensus with Sheikhs, Royalty, Ministries, Government Heads, CEOs, Board members and senior stakeholders. If you would like to be part of the next milestone of the ICAEW’s history in the emerging markets, please contact us for a face to face meeting at shane@shanephillips.net or call me directly at +971 50 940 7537.

SHANE PHILLIPS CONSULTANTS +971 50 940 7537 |

shane@shanephillips.net |

www.shanephillips.net


Student Accountant

ZAMANI’S ZENITH

First Emirati to obtain the prestigious Associate Chartered Accountant qualification through the ICAEW Emirati Scholarship Scheme programme speaks to Accountant Middle East about his journey to the top.

M

OHAMMAD ZAMANI, an Associate at KPMG has become the first Emirati to obtain the prestigious Associate Chartered Accountant (ACA) qualification though the ICAEW Emirati Scholarship Scheme (IESS) programme. IESS was launched in 2010, under the patronage of H.H. Sheikh Nahyan Mubarak Al Nahyan, Minister of Culture, Youth and Community Development for UAE, to attract top Emirati students into the accountancy and finance profession.

Broad spectrum Having passed all his exams in December 2013, Zamani was ecstatic: “The ACA builds a strong understanding of business operations and dynamics. I would encourage more Emiratis to become Chartered Accountants.” “Obtaining the ACA through IESS has provided me with the opportunity to gain experience at a top tier firm and obtain a highly respected qualification that is directly applicable to business. The syllabus covers a broad spectrum of topics that are indispensable to industry needs and those of business professionals. Over my three-year training programme, not 34 Feb-March 2014

only have I learnt a lot, I have also developed strong networking capabilities as a direct result of exposure to experienced industry professionals,” he added.

Internationally recognised as the premier financial business qualification in 160 countries around the world, the ACA from ICAEW is held by more than 140,000 professionals who have undertaken the requisite theoretical and practical training. Through IESS applicants secure an ACA training place and a three-year contract with either Deloitte, Ernst & Young, KPMG or PwC. With the UAE’s GDP expected to increase to AED1.7 trillion in 2018, ICAEW says the country will need to attract more skilled and qualified national talent to the finance profession to sustain its long term economic growth.

Economic development Peter Beynon, ICAEW Regional Director Middle East, said: “A robust and well-functioning financial sector is essential for economic development. However, the UAE does not currently have enough Emiratis training to become future leaders in accounting and finance. The ICAEW Emirati Scholarship Scheme is, with


Student Accountant

Mohammad Zamani, Associate at KPMG

35


Student Accountant

“Over my three-year training programme, not only have I learnt a lot, I have also developed strong networking capabilities as a direct result of exposure to experienced industry professionals.”

the support of our government and authorised training partner, helping to close this gap.”

“I’d like to congratulate Mohammad on his achievements, which is a fantastic personal accomplishments and a milestone for ICAEW in the Middle East. We are confident he will continue to enjoy a bright future in his professional career and serve as a positive role model for his fellow peers,” said Martyn Jones, ICAEW President.

The ACA has integrated components which give students an in-depth understanding across accountancy, finance and business. To qualify as an ICAEW Chartered Accountant, students will need to complete all components of the ACA qualification which include exams and practical work experience.

The launch of the ICAEW Emiratisation Scholarship Scheme (IESS) is an example of one of the successful efforts to qualify more Emiratis and encourage them to pursue Chartered Accountancy. 36 Feb-March 2014

Accountant Middle East caught up with Mohammad Zamani for this exclusive interview, where he spoke about his journey to becoming an ICAEW-qualified professional. Excerpts from the interview; Why did you decide to study accountancy?

One of the main reasons I chose this field is that through learning accountancy and working in an audit firm, I can get insights of various businesses and can also develop my analytical thinking which helps me in different aspects of life. Statistics show that 84% of FTSE 100 companies have an ICAEW Chartered Accountant on their board, which proves the necessity of having a strong accounting and financial background. Another reason why I decided to study accountancy is because I realised that there aren’t enough UAE nationals who are qualified accountants in the market and given the magnificent expansions that the economy of Dubai is witnessing, this gap will further increase in the future. Therefore, when I chose accountancy, I thought that this career gives me the opportunity to stand out among the other graduates.


Student Accountant

Internationally recognised as the premier financial business qualification in 160 countries around the world, the ACA from ICAEW is held by more than 140,000 professionals who have undertaken the requisite theoretical and practical training. Is your role with KPMG your first professional position? What is your current role and how did you go about securing it? I started my career as an associate with KPMG in the audit department (Financial Sector). I was recruited after interviews and psychometric tests conducted by ICAEW as part of the ICAEW Emiratisation Scholarship Skills. Through the state-of-art training I acquired at KPMG and my involvement with big national and international clients, I am now able to take full responsibility of various areas and diverse clients. What do you think are the challenges in your job today?

There are several challenges that face most auditors today. The first one is the expectation gap between what we actually do and what the clients and other stakeholders expect us to do. The trend is now a shift towards a more forward looking rather than backward. Another challenge in todayâ&#x20AC;&#x2122;s market is the fact that new regulatory requirements are being put in place, which the clients are supposed to meet.

In addition to the audit, we need to help clients comply with those requirements. Further, although the competition is tough, I believe that winning new clients and assignments should move from fee based decisions to more quality based ones. This guarantees a premium level of service to clients. Another challenge that I face is the ability to cope with changes in the client environment. There is a tough competition in the market and auditors are now expected to provide valueadded services to clients in addition to the audit. Since each client faces unique challenges, I believe that increased efforts should be spent to be able to provide those services.

What skill sets do you require in your current role to support day-to-day business operations? The skills required depends on the stage of career; the more senior I become, the more client relationship skills I am required to have compared to technical skills. Currently, for my day-to-day tasks, I believe that both the ACA and the on-job training at KPMG have provided me the required technical accounting and auditing skills. However, given that we have to deliver high quality assignments usually within a limited timeframe, I also need to have a wide range of soft skills such as time management, and the ability to work in diverse work environments. Do you think having a prestigious accountancy qualification such as the ACA is a must for succeeding in your profession?

This is a subjective question and the answer varies from a person to another. What I personally believe is, gone are the days where school dropouts become business tycoons. Education and the right qualification matter. Given that the market in this region is evolving and the number of fresh graduates who are seeking careers in accounting and finance professions is also increasing, students need to have qualifications that distinguish themselves as to meet the challenging selection criteria of large and reputable companies. What does an ACA qualification add to your credentials?

In my view, through building a very solid business foundation, the ACA qualification adds credibility to my profile resulting in giving me the opportunity to analyse why businesses succeed or fail. Therefore, the ACA qualification has offered me an accelerated learning experience in my career.

What challenges and incentives motivate you to expand your role? Frankly speaking, in terms of challenges, the main one was building my reputation in a multinational firm, given the limited number of Emiratis in this field, and the ability of gaining the trust of my peer expatriates. This challenge however not only motivated me to excel in my work but also attempt to establish a positive image of UAE nationals. I have received 37


Student Accountant

recognition for my efforts from KPMG, ICAEW, clients, family and friends which were incentives for me to continue to succeed.

Where do you see yourself 5 years from now? This is an interesting question that I keep revisiting every now and then. I believe that my next career objective is to get some international experience. However, if things go the way they are going now, I would continue my career with audit and will aim to become a partner. However, I might also evaluate different other opportunities that suit my career path at that time.

With the UAE’s GDP expected to increase to AED1.7 trillion in 2018, ICAEW says the country will need to attract more skilled and qualified national talent to the finance profession to sustain its long term economic growth.

As the first Emirati to receive an ACA qualification locally, what is your perception of financial and accountancy education in the UAE? Is it evolving? Is vocational training important to supplement what you have learnt at university? Would you recommend more Emiratis join the accountancy and finance profession? Why? As mentioned earlier, as a result of the misperception of the accountancy profession, there is a gap in the market. Students should be aware of the difference between becoming a Chartered Accountant and normal bookkeeping. I believe that there are collective efforts from the government, firms, private companies, financial institutions, and universities to reduce this gap.

The launch of the ICAEW Emiratisation Scholarship Scheme (IESS) is an example of one of the successful efforts to qualify more Emiratis and encourage them to pursue Chartered Accountancy. It provides them with the required training to be able to take up strategic positions in the financial and accountancy professions.

“Obtaining the ACA through ICAEW Emiratisation Scholarship Scheme has provided me with the opportunity to gain experience at a top tier firm and obtain a highly respected qualification that is directly applicable to business.”

38 Feb-March 2014


IPO Insight

MENA IPO

STRONG IN 2014

Building on solid momentum in 2013, EY experts expect listings to raise highest capital this year, since 2008.

M

ENA IPO activity is expected to remain on firm footing in 2014 following a strong uptick in listings in the last quarter of 2013, to close the year with a total of seven deals raising around $726.2 million, according to EY MENA IPO Update: Q4 2013.

Better market fundamentals are expected to support a solid start to 2014 for new offerings.

Phil Gandier, MENA Transaction Advisory Services Leader, EY, says: “The MENA IPO market is rebounding and recovering. The improving macro-economic backdrop driving up stock

EY Q4 MENA IPO Update Factsheet MENA IPO Update - Q4 2013 Q4-12

Q4-13

Q4-13 vs. Q4-12

2012

2013

2013 vs. 2012

3

7

133%

14

23

64%

Capital Raised (US $ mn)

$339.8 $726.2

Capital Raised (US $ bn)

$0.3

$0.7

114%

$1,972.0 $2,980.5

114%

$2.0

73%

51%

$3.0

51%

MENA IPO Activity (2008-13)

$91.6

$1,366.8

3

$226.1

4 2

$339.8

$726.2

Q4-08 Q4-09 Q4-10 Q4-11 Q4-12 Q4-13* Value of IPOs (US $ mn)

40 Feb-March 2014

8

6

4

3 $22.4

7

Volume (No. of IPOs)

0

Capital Raised (US $ bn)

10

8 5

$14

Volume

Capital Raised (US $mn)

MENA IPO Activity - Q4 (2008-13) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0

of executives in MENA see the local economy improving according to EY’s Capital Confidence Barometer

54

60

$12

50

$10

40

$8

25

$6

18

$4 $2 $0

23 15

14

20

$13.2

$2.1

$2.7

$0.8

$2.0

$3.0

2008

2009

2010

2011

2012

2013*

Capital Raised (US $ bn)

30

Volume (No. of IPOs)

10 0

Volume

Volume (No. of IPOs)


IPO Insight

Financial services was the leading sector in 2013 by deal volume with seven IPOs, followed by three in the power and utilities sector and two each in transport and the real estate sector. market valuations and rising investor confidence in key markets saw the IPO year end on a high. Q4 has seen an increase in both volume and value compared to 2012, registering the highest value of IPOs since 2008.”

“Additionally, in our Capital Confidence Barometer report, 73% of executives in MENA see the local economy improving, with the highest percentage of confidence being in indicators such as economic growth (70%), employment growth (64%) and credit availability (59%). The confidence in these indicators bodes well for the region as economic growth and credit availability are key drivers for the IPO market,” says Phil. UAE leads the way in Q4 2013 In Q4 2013, seven IPOs in MENA recorded a 133% increase in terms of volume and 114% in terms of value compared to Q4 2012. The largest IPO was from UAE with DAMAC Real Estate Development Ltd listing on the London stock exchange and raising $348 million in a global depository receipt (GDR) offering.

Two other IPOs from the UAE were also in the UK, with two in Oman and one each in Saudi Arabia, Morocco and Tunisia.

3 IPOs in the UAE that raised $740.7 million from foreign listings on the London stock exchange in 2013.

“Although IPOs have still not reached prefinancial crisis levels, there has been a notable improvement in performance. The stage is set for this momentum to continue across the region and we expect the strong performance in the US and Europe to reflect in MENA,” says Phil. In 2013, 23 MENA IPOs raised US$3 billion, a 64% increase in terms of volume and 51% increase in terms of value compared to 2012. Tunisia led with nine IPOs, followed by five in Saudi Arabia, four in Oman, three in the UAE and one each in Iraq and Morocco. “Family businesses are increasingly looking at

Phil Gandier, MENA Transaction Advisory Services Leader, EY: “The MENA IPO market is rebounding and recovering.”

IPOs as a means of monetising wealth, raising capital and institutionalising the business and the MCSI upgrading of Qatar and UAE to emerging markets may help to boost interest in the region,” says Phil.

Going overseas Financial services was the leading sector in 2013 by deal volume with seven IPOs, followed by three in the power and utilities sector and two each in transport and the real estate sector. The largest IPO during 2013 was Asiacell Communications in Iraq with a capital raise of $1.3 billion. Three IPOs from the UAE (Al Noor Hospital, DAMAC Real Estate Development Ltd and Action Hotel Plc) raised $740.7 million from foreign listings on the London stock exchange in 2013.

“Some issuers have decided to go outside of MENA and it will be interesting to see how this trend of issuers going overseas will develop in the coming year. There is a strong pipeline of good quality businesses preparing to IPO over the next nine months.”

“It usually takes companies 12 to 18 months to get ready to float and there is plenty of preparatory work under way. If the macroeconomic conditions in the region continue to improve, the next 18 months to two years will be quite busy,” says Phil. 41


Taking Stock

DFM NET PROFIT

SOARS 709%

Impressive returns spurred by restoration of usual trading rhythm and the strong return of local and foreign investors, according to Essa Kazim, the exchange’s Chairman.

Imelda Dunlop (left), Executive Director of the Pearl Initiative, Badr Jafar, Founder of the Pearl Initiative and Ameera Abdelrahim Binkaram, the Chairperson of the Sharjah Business Women Council) exchange documents to promote programmes that encourage women to progress into executive positions of companies in the region.

DFM’s active participation in Dubai’s efforts towards becoming the capital of Islamic economy helped to increase the value of listed Sukuk on Dubai markets by 44.5% to AED 48.8 billion by the end of 2013.

42 Feb-March 2014

D

UBAI FINANCIAL Market (PJSC) has announced its results for the financial year ending 31st December 2013. The company recorded a net profit of AED284.6 million for the year 2013, compared to AED 35.2 million in 2012. Total revenues reached to AED 453.1 million at the end of 2013, compared to AED 191 million in 2012. The total revenue comprised AED400 million of operational revenues and AED 53.1 million of investment revenues and others.

During its meeting on January 30th 2014, the Board of Directors reviewed and approved the annual results, which will be presented for ratification at the annual general meeting of the company due to be held on March 3rd 2014 in coordination with the UAE Securities and Commodities Authority (SCA). The board also proposed a cash dividend of 5% of the capital equivalent to AED 400 million. Enormous achievements Essa Kazim, Chairman, Dubai Financial Market (PJSC) said: “The year 2013 was packed


Taking Stock

with enormous achievements and positive developments, as DFM started to reap the fruit of many years of hard work and efforts to develop its infrastructure in accordance with international best practices and reflect the sound fundamentals of the national economy which placed DFM as the second best-performing exchange globally in 2013.”

This impressive performance stems from the growing awareness among various investors, and the decision to upgrade the UAE market to ‘Emerging Market’ status.

The DFM General Index recorded a phenomenal growth rate of 107.7% and the daily average of trading value significantly increased by 231.8% to AED 642.1 million compared to AED 193.5 million in 2012. The total traded value also increased in 2013 by 227.8% to AED 159.8 billion, in comparison to AED 48.7 billion during 2012.

“This impressive performance stems from the growing awareness among various investors of the underlying values and attractive investment opportunities offered by the DFM. These factors have played a pivotal role in the MSCI Inc and S&P Dow Jones decision to upgrade the UAE market to ‘Emerging Market’ status. We believe that the boom in 2013 represents a new starting point for DFM,” added Kazim.

Key initiatives As part of the ongoing development steps, the DFM has implemented key initiatives in 2013 based on international best practices including; (Buyer Cash Compensation); the preparation of (Securities Lending and Borrowing) rules; and the expansion of Margin Trading services, lifting the number of DFM-approved brokerage firms providing this service to 11 by the end of 2013. The DFM also introduced Direct Market Access (DMA) and approved 6 brokerage firms to provide this service to international investors. The exchange further increased its efforts in 2013 to provide electronic services and smart phone applications as part of the Company’s innovation and development strategy adopted since its inception in the year 2000.

“In this context, DFM has further expanded its electronic services, smart phone applications and innovative solutions whether directly provided by DFM or via licensed brokerage firms. We have developed an advanced infrastructure to support mobile trading and launched the DFM smart phone application which places our services in the palm of the hands of our market participants with all the

Essa Kazim, Chairman, Dubai Financial Market: “We believe that the boom in 2013 represents a new starting point for DFM.”

latest updates, share prices, market news and company disclosures,” Kazim added.

Islamic economy DFM has actively participated in Dubai’s efforts towards becoming the capital of Islamic economy and to strengthen the Emirate’s position as a global Sukuk centre. It has worked to encourage the issuing, listing and trading of Sukuk on the Dubai capital markets. This attracted several listings from local, regional and international institutions, raising the total value of listed Sukuk on the Emirate’s markets by 44.5% to AED 48.8 billion ($13.3 billion) by the end of 2013 in comparison to AED 33.8 billion ($9.2 billion) at the outset of the same year. “The exchange also introduced its Standard for Issuing, Acquiring and Trading Sukuk as part of its extensive efforts towards creating a favorable environment for the prosperity of the Islamic finance sector, including the creation of standard frameworks which encourage local and foreign institutions to rely on Islamic finance solutions,” Kazim added.

5% cash dividend that the DFM board proposed after announcing a net profit rise of 709% 43


Associations News

CIMA SIGNS DEAL WITH VARSITY Agreement to enable business, accounting and finance students at Abu Dhabi University acquire globally accredited awards and titles.

A

BU DHABI University (ADU ) has signed a 5-year Memorandum of Agreement with the Chartered Institute of Management Accountants (CIMA).

Geetu Ahuja, the Head of CIMA in the GCC region, said: “Our partnership with ADU will give more young university students access to professional qualifications that will benefit them substantially in the job market.”

The agreement will enable accounting and finance students and MBA students at the university to acquire globally accredited awards and titles of a Diploma in Management Accounting or an Advanced Diploma in Management Accounting from CIMA, once they complete the degree requirements in accounting or finance at the University.

Recognised worldwide as one of the most relevant global finance and accounting qualification for business and as the world's largest professional body of management accountants, the CIMA qualification will give students and graduates of ADU an additional competitive advantage in their professional careers. Open new horizons Details of the agreement were announced during the signing ceremony which was held at Abu Dhabi University campus in the presence of Dr Nabil Ibrahim, Chancellor of Abu Dhabi University, Geetu Ahuja, the Head of The Chartered Institute of Management Accountants GCC - Middle East, Dr Jacob Chacko Dean of the college of Business administration, Dr Sherine Farouk, Associate Professor and Coordinator of the Accounting Program at ADU 's College of Business Administration and several officials from both parties.

Commenting on the importance of the partnership, Dr Nabil Ibrahim Chancellor of Abu Dhabi University explained that the agreement will open new horizons for accounting and finance students atADU 's College of Business Administration as it will allow them to gain these internationally recognized professional diplomas concurrently with the completion of their degrees from ADU . 44 Feb-March 2014

"CIMA's review and recognition of the accounting and finance curricula at ADU is proof of the relevance and rigor of our business curricula. This external validation gives our students a head start in today's extremely competitive labour market, where most employers seek graduates armed with a professional qualification,” said Dr Ibrahim. Professional qualifications On her part, Geetu Ahuja, the Head of CIMA in the GCC region, said: "Our partnership with ADU will give more young university students access to professional qualifications that will benefit them substantially in the job market."

"CIMA will offer ADU students the chance to gain valuable skills that are transferrable to the business, finance and accounting profession here in the UAE. At ADU, we see a wide caliber of students with high ambitions, who would like to be better prepared for a career in business, finance and accounting.”

Certification bodies Dr Jacob Chacko Dean of the College of Business Administration, commented; "The usual process to acquiring the CIMA membership takes students an average of two to three years. This partnership with CIMA, will allow our students to obtain the certificate in a few months, which is quite a feat, especially since Abu Dhabi University will be the first educational institution in Abu Dhabi to offer its students this prestigious qualification." Explaining the details of this unique partnership, Dr Sherine Farouk, Associate Professor and Coordinator of the Accounting Programme at ADU 's College of Business Administration said: "We worked closely with CIMA for over a year, aligning our accounting and finance courses with their requirements, which resulted in the accreditation of our courses and will now enable our students to acquire the Diploma in Management Accounting or an Advanced Diploma in Management Accounting from CIMA after sitting for only one exam instead of covering up to 11 modules over a period of almost three years.”


Personality IFRS Special & Practice

YOUNG AND AMBITIOUS

Bahraini-based EY manager - Abdullatif Al Mahmood – tells Joyce Njeri how he trounced competition to emerge the overall winner of the ICAEW ‘Young Accountant of the Year’.

O

N THE evening of 11.12.13, Bahraini-based Abdullatif Al Mahmood, who works as Assistant Manager at EY in Manama was declared the ICAEW ‘Young Accountant of the Year’. The third annual ICAEW Middle East Accounting and Finance Excellence Awards celebrated the achievements of both individuals and organisations in the fields of accountancy and finance at a gala ceremony at the Ritz-Carlton, Abu Dhabi.

While recognising Abdullatif with the award, the ICAEW judges were unanimous; ‘The recipient of this award holds both excellent academic qualifications and employer recommendations. This individual possesses the commitment and determination required to achieve great results, both personally and professionally, in an everyincreasingly competitive global marketplace driven by maturity, technical ability, relationship management skills, outstanding drive and an unwavering determination to succeed.’ This aptly describes Abdullatif. In an exclusive interview with Accountant Middle East, the

I believe that wining the Young Accountant of the Year Award is a big achievement. However, such achievement puts a higher benchmark for future targets.

46 Feb-March 2014

young accountant reveals how he combines his demanding work schedule with family responsibilities. Here are the excerpts from the interview; Firstly, congratulations on your win at the ICAEW Middle East Accountancy and Finance Awards. How did you feel when you were called out to accept the award when you were up against other top class young chartered accountants?

It is an amazing feeling to be selected as the ‘Young Accountant of the Year’ against many talented professionals in the Middle East who were competing for such an award. Did you know you were shortlisted for the award, or was it a surprise?

I was aware that I was shortlisted with two other nominees. However, seeing my name as the overall winner on the big screen at the award ceremony was a totally different feeling. The competition for the coveted title was tough. What does winning the ‘Young Accountant of the Year Award’ mean to you?

That is very true, the competition was really tough considering the number of candidates all over the Middle East and the increasing competition in the region’s accounting profession.

I believe that wining the Young Accountant of the Year Award is a big achievement. However, such achievement puts a higher benchmark for future


Personality & Practice

Abdullatif Al Mahmood, Assistant Manager, EY Bahrain

47


Personality & Practice

targets. I believe that winning the award means that I’m on the right track to achieving my long term career aspirations. Going back in time now, share with us why you entered the award in the first place and what you were hoping to achieve.

I was nominated by EY and actually got to know I was shortlisted only a few weeks before the awards ceremony. The following day when you went back to Bahrain, how did you share the news with your colleagues? And how did you as a team celebrate?

All my colleagues congratulated me on winning the award. I have been receiving many emails from our regional leadership commending me on this achievement and telling me to keep up the hard work. Also, many of my colleagues have been applauding me through the social media network. Now that you have been declared the Young Accountant of the Year, what would you do differently in 2014? How would you describe your mission in the accounting profession?

Having been selected as the ‘Young Accountant of the Year’, I would be seeking bigger achievements in the future. The award has become a benchmark for my future performance.

As a young accountant I was more of a learner in the profession rather than a competitive contributor. I hope that moving forward, I’m able to contribute more to the profession. Who has been your mentor throughout your career?

My current manager Aanand Kamath has been my counsellor all along and I’ve worked closely with and learnt a lot from him. He also supported my award nomination.

I believe that anyone who has taught me throughout my career would also be a mentor to me. Equally, I believe that a person has different things to learn from everyone they interact with. As Assistant Manager at EY Bahrain, what does your work entail?

I work with internal (EY) and client teams on a 48 Feb-March 2014

suite of audit, review and compliance services. The supervisory role of my function entails managing a small team assigned to client projects. What are the best and worst things about your job?

Abdullatif Al Mahmood (right) receives his Young Accountant of the Year’ gong during the ICAEW Middle East Accounting and Finance Excellence Awards at a gala ceremony held at the RitzCarlton, Abu Dhabi.

One of the best things about my job is working with many different people. I get to work with different teams within EY on different assignments, and with different clients from diverse industries.

I don’t think that there is anything which I really don’t like about my job. I guess the only thing which I miss is spending more time with my family as my job is taking most of my time. Please share with us your key career moments in the journey to becoming an Accountant.

I graduated from school from the Science stream and got a scholarship to study Petroleum Engineering. Frankly, I was not a big fan of Science as I wanted to study something more related to business which led me to accounting.

As a young accountant I was more of a learner in the profession rather than a contributor. I hope that moving forward I’m able to contribute more to the profession.


IFRS Personality Special & Practice

The role of accountants has been changing and is getting more critical. They are no longer expected to do simple book keeping for organisations. The role requires preparing the appropriate reports which are used for decision making. They are also required to advise on the implication of business decisions on the performance of the organisation. What advice would you give to your peers in terms of minimising reporting mistakes?

I believe that the key things to achieve perfection in a task is having the right knowledge and staying updated, seeking advice from people with experience and knowledge and working hard to achieve those tasks. What is most important to you as an accountant when it comes to building a successful best accounting team at your organisation?

I always believe that the key factor for any successful team is communication. For a team to achieve its targets, right communication channels should be there and should be utilised. Also, targets and the plan on how to achieve them should be shared clearly among all members of the team. In addition, expectations from each member of the team should be clearly stated and communicated. What are some of your favourite gadgets, apps, tools, and products - especially related to social media?

“The role of accountants has been changing and is getting more critical,” says Abdullatif Al Mahmood.

I graduated with a Bachelor’s degree in Accounting from King Fahd of Petroleum and Minerals in Saudi Arabia. After graduation I went to Lebanon and did an intensive Master’s course in Finance in the American University of Beirut. I came back to Bahrain and started working with EY and at the same time started my professional qualification. After completing three years and related exams, I became a member of the Association of Chartered Certified Accountants. On the same issue, the role of accountants has broadened from being just technical to advisory and corporate strategy formation. Can you share with use about these changing roles in today’s globalised world?

I usually use applications to keep myself updated on news in the industry and social tools. I guess in this fast and connected world, such applications have become essential for work and life. I’m currently using many applications including Feedly, Linkedin, Whatsapp, Facebook, Twitter, Instagram and others. I expect in the future that new applications will come up which will be part of our daily lives. How do you spend your free time? What are your sporting interests, if any?

Work takes most of my time. However, when I have some free time, I try to spend most of it with my family as much as possible. I also try to meet up with my relatives and friends. I also use my free time to read on various books on subjects of my interest. 49


Internal Audit

KUWAIT’S IAA CHAPTER MOOTED Establishment of a dedicated Internal Audit faculty in the country to help professionals in wake of introduction of new laws and regulations.

Dubai World was the keynote speaker of this event and facilitated a platform for knowledge sharing and dialogue on the growing momentum of Internal Audit function as a profession and the opportunities associated with it. He engaged the audience by sharing his personal experiences and lessons learnt during his tenure both as a chief audit executive and an auditor.

Another presentation delivered by the IAA committee member, Ayesha Bin Lootah, gave insight into the future prospects of choosing Internal Audit as a profession vis-à-vis challenges faced by young auditors. Changing paradigms The highlight of the event was a thought provoking panel discussion on the changing paradigms of internal audit landscape in Kuwait featuring senior internal audit executives from leading organisations in Kuwait who echoed the establishment of a dedicated Internal Audit chapter in Kuwait in the wake of recent CMA & CBK corporate governance regulations while predicting more dynamism in the country’s business environment in 2014.

Abdulqader Obaid Ali, President of UAE Internal Audit Association and Chief of Internal Audit for Dubai World during the seminar held in Kuwait.

I

NTERNAL AUDIT practitioners globally are bearing the brunt of dramatically shifting reforms and changes in the business environment, technology and regulatory landscape. The economic environment in Kuwait is no different. With the changing regulatory and business environment, the responsibilities of Internal Auditors are expanding and the focus on Internal Audit function has heightened. To address the problems and challenges faced by professional auditors of the 21st century, UAE Internal Audit Association (IAA) in conjunction with Protiviti, a global consulting firm, organised a seminar on Internal Audit in Kuwait, recently. Attended by the Chief Internal Audit executives and Internal Audit professionals of all levels, the event witnessed participation of over 150 delegates from the public and private sector companies in Kuwait. Platform for knowledge Abdulqader Obaid Ali, President of UAE Internal Audit Association and Chief of Internal Audit for

50 Feb-March 2014

Few other topics discussed during the panel focused on the growth prospects of IA function in the next two years, impact of emerging trends in IT and data analytics on an organisation’s IA system, possible threats and opportunities for Internal Audit practitioners in Kuwait. “Organisations in Kuwait have already embarked on the journey of recognising Internal Audit function and the profession as a value addition rather than a mere tick in the box process,” said Protiviti MD & Head of Banking & Financial Services in Kuwait, Adnan Zakariya.

“Collaborative industry initiatives such as this seminar are in the best interest of the IA function and its objective of achieving operational excellence for any organisation,” he added.

Protiviti MD & Head of Banking & Financial Services, Adnan Zakariya led the Panel Discussion at Protiviti & UAE IAA seminar on Internal Audit in Kuwait.


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Corporate Treasury

MAKING

HEADLINES Mubadala GE Capital financial risk manager and ACT student Rachel Pether tells Sally Percy how she combines careers in treasury and television.

V

IEWER S O F D u b a i - b a s e d fitness television channel Physique TV may be familiar with the lovely face of Rachel P e t h e r, f i n a n c i a l r i s k m a n a g e r a t Mubadala GE Capital. That’s because New Zealand-born Pether presents its What’s Up programme every Saturday. And not only does she juggle being a part-time television news anchor with her full-time job at Mubadala GE Capital – a commercial finance joint venture between Mubadala and GE Capital – she is also studying for two separate qualifications – the AMCT and the Chartered Financial Analyst (CFA) qualification. Juggling two jobs Pether has a punishing workload and if you’re not already impressed by her drive and dedication, you soon will be. Few people would

“Hard work and good luck are the best of friends. That’s something I grew up with. I don’t mind putting in the hours. It’s an investment in my future.”

52 Feb-March 2014

ever attempt to do two jobs while studying for up to 30 hours each week and even Pether doesn’t pretend that it’s easy. “I’m very good at time management and disciplined in my approach,” she admits. “It’s worth working a bit harder for the things that matter.”

For Pether, what matters is becoming professionally qualified in treasury after switching to the career midway through her twenties. She originally trained as a business journalist in Wellington, then moved to the UK where she spent several years working for the BBC. But due to her passion for numbers, she moved into equities trading in London, before heading to the United Arab Emirates in 2008, where she worked in investor relations for the Abu Dhabi governmentowned investment and development company Mubadala. Soon after joining Mubadala, Pether passed her CFA Level 1 exam and transferred into a treasury operations role. “Treasury fascinated me,” she explains. “You get a good view of the entire business and I’ve always been interested in numbers.”


Corporate Treasury

Mubadala GE Capital financial risk manager and ACT student Rachel Pether.

53


Corporate Treasury

Since then, she has moved into financial risk management, which she loves. “Financial risk management is my favourite part of treasury,” she says. “It’s the most technical, the most numerical; I really enjoy it.” Treasury qualification Fortunately, she can immerse herself in the discipline in her current role, which is a secondment to Mubadala’s joint venture with US financial services group GE Capital.

There she manages the monthly reporting cycle for Mubadala GE Capital’s asset and liability committee, including interest rate risk, FX risk, liquidity, capital adequacy and financial institution counterparty credit risk. “We’re involved in some really pivotal strategies,” she explains. “We get new projects coming in every day, which certainly keeps things both interesting and challenging.” Pether enrolled for the AMCT because she believed that having a professional treasury qualification would give her an edge.

“It gives you more credibility and increases your focus and understanding. If you are serious about a career in treasury, I would recommend it to increase your technical skills and fast-track your career.”

While she was exempted from the AMCT Level 1 exams due to the fact she was studying for the CFA qualification, she has passed the certificates in international treasury management (CertITM), risk management (CertRM) and financial maths and modelling (CertFMM).

“It’s good to be challenged. You can’t learn unless you get out of your comfort zone.”

54 Feb-March 2014

All the papers have been relevant to her day-to-day work, but she found the practical skills in CertFMM particularly useful, along with the financial market risk section of the CertRM since “it made you consider the bigger picture before thinking of the calculations behind it”. The ACT papers offer an excellent grounding


Corporate Treasury

“Never give up. Studying and working fulltime is difficult. If it were easy, everyone would do it. You need something to set you apart.” in treasury, according to Pether, and her advice to those who don’t know where to start is to sit the CertITM. “If you don’t know exactly what interests you, CertITM can help you to work it out,” she explains.

Use of technology When asked if there was any way the AMCT course could be improved, she suggests that greater use could be made of technology such as visual tutorials and podcasts.

When she was preparing for the ACT papers, Pether worked to a military schedule. She would study for an hour every morning, an hour at lunchtime and an hour each evening, wracking up a further 10 hours at the weekend as well. “With qualifications, it’s not just the knowledge that matters: they demonstrate that you can commit to something,” she notes.

“The structure of the AMCT made it easy to fit round my daily life. There’s lots of optionality with the way you study for the modules.” Now gaining the AMCT qualification rests on Pether’s ability to pass the CFA Level 3 exam, which she hopes to do this year. She has found that the two sets of studies complement each other while offering a different perspective. “But I wouldn’t recommend to anyone to do both qualifications at the same time because it completely destroys your social life,” she says, sounding surprisingly upbeat nevertheless. Pether describes Mubadala as an “employer of choice” in the UAE and she appreciates the

emphasis that the company puts on career development. It runs a ‘human capital mobility scheme’ under which it places key employees in its subsidiaries to fast-track their skills. The company has also supported her throughout her studies and she credits Matthew Hurn, Mubadala’s group treasury executive director, with being a great mentor. “Mubadala is very progressive,” she says. “I’ve always been passionate about education, so to have a management team that supports it is amazing.”

But she says that treasurers who don’t work for such encouraging employers should not be afraid to speak up.

“If you don’t ask, you don’t get,” she points out. Global players Working in the Middle East also opens up a wealth of opportunities, Pether believes. She landed her news anchor role through a contact she met at her gym who knew about her broadcasting background. But being able to combine two such different careers is not something she can envisage doing in either the UK or her New Zealand homeland.

“In this region, achievement, self-development and entrepreneurship are actively encouraged,” she says. “It’s a place where you can do anything and be anyone. It’s almost expected that you’ll do something different. It’s a great place to be. I wouldn’t be anywhere else.”

As for being a woman in the region, Pether says: “Before I moved out here, I had a few misconceptions. But I’ve never felt so safe and well supported.”

The Middle East is also an exciting place to be for treasury professionals who want to make a name for themselves.

“Companies are becoming global players, so greater importance is placed on regulation, automation and the centralisation of treasuries,” says Pether. 55


Corporate Treasury

Inevitably, there are challenges, particularly in the areas of governance and transparency.

“Most Middle Eastern companies are willing to be transparent, but processes and policies are preventing them,” she explains. “They need to focus on financial governance and transparency.”

As you’d expect from someone who grew up in the great Kiwi outdoors, Pether is a fitness freak. In the rare moments when she’s not working, she loves paddle boarding in the mangroves off the coast of Abu Dhabi, staying fit and travelling.

This active lifestyle helps to explain how she has the stamina to juggle two jobs and two sets of studies, but does her phenomenal workload ever seem so great that she thinks she can no longer manage both her treasury and television careers any more? “The hours are quite long,” she concedes. “But I don’t want to give either of them up.” Sally Percy is editor of The Treasurer and Middle East Treasurer

“It’s never too late to be the person you want to be. Don’t let self-doubt hold you back.”

Photos Courtesy: Louise Shrigley

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• Cash management: practices and processes | 16-17 March 2014, Dubai Early bird rate expires on 21 February 2014 • Auditing the treasury function | 22-23 April 2014, Dubai Early bird rate expires on 27 March 2014

56 Feb-March 2014

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Tax Insight

DUBAI

ON POLE IN HARNESSING

GLOBAL TRADE Authorities impose no tax on repatriated profits to encourage overseas expansion.

D

UBAI IS outpacing the rest of the world in the race to capitalise on globalisation and is set for positive future economic growth as a result, according to a new study by UHY, the international accounting and consultancy network. UHY taxation and business advisory professionals in Dubai and 26 other countries around the world rated their economies on several factors including taxation and trade policy, that indicate how internationalised an economy already is and how well positioned it is to take advantage of future globalisation of trade.

The factors examined in UHY’s study included; how successful a country has been in negotiating favourable tax arrangements with potential trading partners, how successful it has been in growing exports, how important a part trade already plays in its economy, how much tax it imposes on companies ‘repatriating’ overseas profits, how it is rated in the 58 Feb-March 2014

World Bank’s ‘Ease of Doing Business’ survey and labour costs. Job creation Assessed on these factors, UAE ranked 1st in the study with an overall score of 6.6 out of ten. Germany came second with a score of 6.3, while Slovakia was not far behind on 6.3 points. China was the best performing of the world’s Top 3 economies with a score of 4.6.

David Burns, Partner at UHY Saxena, UHY’s member firm in the UAE explains: “UAE ranked highly in the study as it doesn’t levy any charges to businesses repatriated profits. Eliminating tax on repatriated income encourages companies to bring income back into UAE, spurring investment and job creation.” “Dubai is doing very well from its position as the crossroads between the West and East. Its huge investments in port facilities and other infrastructure is now paying off.”


Tax Insight

“The importance of trade to Dubai’s economy is highlighted by the high ranking in terms of having a high percentage of its GDP related to trade, however Dubai could take further steps to internationalise its economy.” Dual tax treaties David explains: “UAE ranked poorly in terms of ratings for the number of dual tax treaties, with only 50 in place. International trade is encouraged when treaties are in place to minimise or avoid double taxation, and by increasing the number of countries it holds treaties with, UAE could take boost its competitiveness in this area and create opportunities for a wider range of local businesses.”

While the USA and Japan both did well on their ‘Ease of Doing Business’ rating, their economies still remain more aligned to domestic activity than many of their competitors. UHY explains that this means companies in these countries are not fully exposed to international competition, which may make them less effective internationally. Additionally, both countries also had low scores for the factors measuring their success in negotiating favourable tax treatment by trading partners. Germany topped the ratings with a score of 6.4 out of ten, while Slovakia was not far behind on 6.3 points. China was the best performing of the world’s top 3 economies with a score of 4.6, and India was the best-performing BRIC with a score of 5.1, helped by its low labour costs with an average monthly salary less than half as high as China’s. Global competition Ladislav Hornan, chairman of UHY commented: “While both Japan and the USA still have huge domestic economies to help generate growth, making a more concerted effort to open themselves up to global trade and global competition could pay dividends in the future. Japan in particular is very conscious of the need

Dubai is doing very well from its position as the crossroads between the West and East. Its huge investments in port facilities and other infrastructure is now paying off.

David Burns, Partner at UHY Saxena: “Eliminating tax on repatriated income encourages companies to bring income back into UAE, spurring investment and job creation.”

to revive its economy after the lost decade has drifted into two decades.”

“Japan was once seen as having an unassailable lead in consumer electronics and a level of hightech expertise that outweighed relatively high labour costs. No longer: Korean and Taiwanese giants like Samsung, LG and Foxconn now dominate that industry.” Rick David of UHY LLP, member of UHY in the USA, stated: “In the past Canada, Mexico, Japan and the EU have been some of our most important and most co-operative trading partners, but it is perhaps time for policy makers to look at how we can improve relationships with emerging economies in Africa and Southern and South East Asia that are going to become bigger consumers and bigger importers as their incomes grow.” Akira Wakatsuki of UHY Tokyo & Co and member of UHY in Japan, comments “So far, one of the centre pieces of recent Japanese economic policy - the devaluation of the Yen – has only had a limited impact on exports. It may be that domestic structural reforms and Japan’s intention to open up more to free trade through its participation in talks on the Trans-Pacific Partnership (TPP) are ultimately more successful in helping the economy to compete more successfully with cheaper, rival Asian economies.” Export growth Within Europe, UHY point out that Slovakia, the 59


Tax Insight

agenda, and thanks to its traditional strengths in manufacturing, it’s becoming an increasingly important location for international businesses.” “Currently countries like the Czech Republic, Romania and Slovakia all benefit from fairly low labour costs. As they continue to build up their skills base, improve infrastructure and reduce local bureaucracy they could become formidable competitors, especially if they are able to make the transition from trading within the EU to trading globally.”

Ladislav Hornan, Chairman of UHY: “Japan in particular is very conscious of the need to revive its economy after the lost decade has drifted into two decades.”

Czech Republic and Romania have been very effective in taking advantage of the opportunities presented by the single market.

Meanwhile, Spain, pulled out of recession in the third quarter of 2013 thanks to export growth, and could potentially see its trade position improve in the future. Georg Stöger of AUDITOR, UHY member firm in the Czech Republic and Slovakia said: “Slovakia in particular has been very effective in making the most of its EU membership and still relatively low labour costs. Its government has pursued a liberalisation

Repatriating profits While China did far better overall than the USA, with an overall score of 4.6 out of 10, both of the world’s two largest economies’ scores - were also brought down by the high taxes their governments impose on corporates ‘repatriating’ overseas profits. UHY says that these taxes reduce the incentive for businesses to set up subsidiaries overseas, particularly for SMEs for whom the costs of setting up international operations would be proportionately more expensive. Just under half of the countries in the study imposed no tax on repatriated dividends at all.

Rick David added: “American firms are household names around the world but actually our taxation system is very poorly geared towards encouraging US companies from growing overseas, with the highest tax on ‘repatriated’ profits of any country in the study.”

Rankings showing 27 countries’ ability to take advantage of future globalisation of trade Ranking

Country

Marks out of 10

Ranking 15

Country

Marks out of 10

1

Dubai

6.6

Russia

4.7

2

Germany

6.4

3

Slovakia

6.3

15

Australia

4.7

17

China

4.6

4

Netherlands

6.0

17

Uruguay

4.6

4

New Zealand

6.0

17

Spain

4.6

4

United Kingdom

6.0

20

Mexico

4.4

7

Denmark

5.4

21

Canada

4.3

8

France

5.3

21

Austria

4.3

9

Czech Republic

5.1

23

Israel

4.1

9

India

5.1

24

Nigeria

4.0

9

Croatia

5.1

25

Italy

3.7

12

Romania

5.0

25

United States

3.7

27

Japan

3.0

12

Brazil

5.0

12

Ireland

5.0

60 Feb-March 2014


Mergers & Acquisitions

MIDDLE EAST SEES RISE IN CHINESE M&A INVESTMENTS

Deloitte survey shows about 60% of respondents expect region to get a sizable number of outbound energy and resources from the Asian country. and Resources and Consumer Business industries in the Middle East and globally. Over H1 2013, outbound deals in these two sectors accounted for 53.1 per cent of total volumes (valued at $29.1bn), up from 50.5 per cent (valued at $17bn) over the same period in 2012. “Respondents are more optimistic about the China outbound M&A landscape than they were 12 months ago,” explains James Babb, Clients & Industries Leader, and responsible for the China Services Group at Deloitte Middle East.

“A cumulative 74 per cent of respondents believe that activity will increase over the coming 12 months, whereas when interviewed the same time last year, just two-thirds of respondents answered similarly”.

50% proportion of survey respondents who find consumer business assets in the Middle East attractive.

T

HE FIFTH edition of the Deloitte 2013 Greater China outbound Mergers & Acquisitions (M&A) spotlight, ‘Graduating up the value chain’survey finds that Chinese outbound M&A investments increased over the first half of 2013 as local investors became increasingly confident about overseas prospects in the new economic normal. The Deloitte 2013 outbound M&A survey suggests that close to three-quarters of respondents (all based in China) say that levels of outbound M&A would rise in the coming 12 months.

The Deloitte report states that over the first six months of 2013, 98 outbound deals, worth a cumulative $35.3 billion were announced, whereas for the same period in 2012, 97 transactions worth $22.9 billion came to market.

Outbound deals The Deloitte report also finds that the composition of these deals has remained broadly similar to previous years, with data showing that the focus of outbound deals flow remained within the Energy

Key findings of the report include:

63 per cent of respondents surveyed expect the Middle East to see a sizable number of Consumer business and Transportation Chinese outbound M&A investments taking place, ahead of North and South America (45 and 44 per cent) and Africa (35 per cent). The Middle East ranked third after Asia and Europe. 60 per cent of respondents surveyed expect the Middle East to see a sizable number of Energy and Resources Chinese outbound M&A investments taking place, ahead of Europe (49 per cent). 45 per cent of respondents surveyed expect the Middle East to see a sizable number of Real estate and Construction outbound M&A investments taking place, after Asia (76%), Africa (55%) and South America (51%). On the other hand, real estate investments in North America and Europe are expected to make up a minor proportion of the total.

Deloitte Middle East will host the 2014 EMEA Chinese Services Group Meeting. The event will be held in Dubai, UAE in the March/April timeframe and will involve prominent Deloitte experts from throughout EMEA as well as the China Firm. 61


Idea Watch

NEW SYSTEM ‘TO ABATE FINANCIAL CRIMES’

‘Know Your Customer’ Registry, an initiative launched by SWIFT, will collect and distribute information required by banks as part of their due diligence processes.

G

LOBAL FINANCIAL network SWIFT – has announced the creation of ‘Know Your Customer (KYC) Registry’, a centralised utility for the collection and distribution of standard information required by banks as part of their due diligence processes. Based on a collaborative industry-wide approach, the new utility will help banks to manage compliance challenges and reduce the high costs associated with implementing KYC-related regulations. SWIFT’s new service will provide banks with access to a central repository of up-to-date institutional information collected by SWIFT from participating banks. It will host and manage the utility, verifying the completeness, validity and accuracy of the data provided, whilst member banks will retain ownership of and responsibility for their own information. Natural evolution The KYC Registry will initially focus on correspondent banking requirements, which is the most urgent challenge facing the industry, but SWIFT may subsequently extend the service.

Yawar Shah, Chairman, SWIFT, said: “The Board has given SWIFT a strong mandate to address the financial crime compliance needs of banks worldwide. This is a natural evolution for SWIFT as an industry-wide cooperative, extending its strategic offering beyond payments and securities into compliance services.”

Gottfried Leibbrandt, CEO, SWIFT, added: “Compliance with financial crime regulation is one of the major challenges that banks face globally, and customers have been asking us to provide industry-wide solutions to streamline their associated processes, cut cost and reduce risk. SWIFT is meeting that challenge with 62 Feb-March 2014

the KYC Registry, which leverages our core strengths: our community, our network, our expertise in standards, and our track record of operational excellence.”

A major challenge With financial crime compliance now at the top of the international regulatory agenda, SWIFT has created a dedicated Compliance Services unit to manage its growing compliance services offering. Luc Meurant has been appointed to lead this new unit and is building a team of sanctions, KYC and anti-money-laundering (AML) industry experts to build solutions serving the needs of financial institutions worldwide.

“KYC compliance presents a major challenge for many banks,” said Luc Meurant, Head of Banking Markets and Compliance Services, SWIFT. “Collecting and maintaining up-to-date information about other institutions and performing due diligence checks on correspondent banking partners are time-consuming and duplicative tasks for banks. By developing a central, global KYC Registry, SWIFT can help banks reduce KYC-related costs and mitigate compliance-related risks, enabling them to manage better their financial crime compliance processes,” he added.

The KYC Registry is the latest in an expanding set of financial crime compliance solutions from SWIFT. The portfolio already includes Sanctions Screening and Sanctions Testing tools, and will soon be complemented by new business intelligence for compliance service.

Yawar Shah, Chairman, SWIFT: “The Board has given SWIFT a strong mandate to address the financial crime compliance needs of banks worldwide.”


Career Development

MIND THE SKILLS GAP

As the role of accountants becomes more strategic in the business community, questions over the suitability of their education have been raised. Jonathan Minter investigates if education providers are properly sharpening accountants’ talent.

C

OMPLAINING ABOUT the young isn’t a modern phenomenon. Socrates is alleged to have complained about the manners of the youth in his day, their contempt of authority and the way they treated their teachers. Whether this tale is apocryphal or not is the subject of academic debate, but it's certainly true that, as long as there have been generations, the older one has complained about the younger, with various degrees of justification.

Over the past decades, both the roles of finance staff and the way business is conducted has dramatically changed. For this reason those entering or about to enter accountancy are coming in at both a challenging and an exciting time. It is in this context that an apparent 'skills gap' has appeared in the world of accounting. 64 Feb-March 2014

Case of perception The question, then, is to what extent there is a genuine skills gap between what students are being taught and what employers want, and to what extent it's a case of perception. Accountants and academics The Accountant spoke to generally agreed that there was an element of both.

The 2013 Chartered Institute of Management Accountants (CIMA) report titled; ‘From education to employment’ highlighted why assessing a skills gap and seeking to close it is important: despite high levels of youth unemployment, believed to be 75 million people globally, just 43% of those employers CIMA surveyed for the report agreed they could find enough skilled entry level workers. One area which draws a lot of attention is the communication skills of young people. Universally,


Career Development

their ability to get to grips with new forms of technological communication, such as social media, is something admired. CIMA executive director of education Noel Tagoe, for example, suggests that "they are very good at virtual communication and we have a lot to learn from them on this. It's not a trivial skill they have."

Institute of Chartered Accountants of England and Wales (ICAEW) director of qualifications Gavin Aspden specifically highlights the social media skills of young people as an advantage they have, but notes this sometimes comes at the expense of more traditional communication and team building skills. He suggests putting 15 young people in a room to communicate can be the equivalent to putting a deer in front of headlights, but connecting the same 15 people electronically will give different, more positive results.

"They might have very good social skills electronically, but maybe haven't had the opportunity to show those skills in an environment which employers traditionally value," he says.

Universities face a balancing act of making sure students reach a certain academic level while also teaching them as much of the technical areas of accounting as possible.

So sometimes traditional forms of communication can suffer. Tagoe goes further and notes that "Twitter forces you to distil your thoughts into a few words. Also it can be used for trivial as well as important communications and can blur the distinction between the two. Sometimes that carries forward into work communication and often young people are unable to put together a well-reasoned communication of suitable length." Tagoe says there's also an "expectation gap" which exists for communication, alongside the skills gap. As he puts it: "When people talk about what they expect from graduates, I say: 'when you were a recent graduate, could you do what you expect

Over the past decades, both the roles of finance staff and the way business is conducted has dramatically changed. Those entering accountancy are coming in at both a challenging and an exciting time.

them to do?' So, although you graduated years ago, you expect recent graduates to communicate in the same way you do."

In the case of communication, some elements could be improved earlier, but in other cases, "all it takes is time and exposure", he says.

Experiential learning Association of Chartered Certified Accountants (ACCA) head of corporate sector Jamie Lyon argues a similar line: "When you think of things like communication skills, negotiation skills, influencing skills, they're not the type of skills always taught at an undergraduate level. It comes down to experiential learning and developing those skills in the workplace."

Aspden also describes attempts to apply 40-year-old skill sets to 20-year-old brains as unfair. Instead he says "What the 40-year-old needs to do is look at the 20-year-old and ask if he or she can do some things faster than the 40-year-old can?" There are other skills gaps CIMA has identified though, which Tagoe says are legitimate concerns. One such area he mentions is the ability to use information from across different areas, or think in an integrated fashion.

Tagoe also speaks of a lack of ability to 'do'. He says that students tend to be very well trained on a theoretical level, often able to talk about the sociology of accounting or the economics of accounting, but not always able to do the actual accounting.

There are two reasons why students are being trained in these ways he suggests. The first is the specialist nature of academia. The second reason Tagoe brings up is that "often they [academics] don't do much engaging with the users of the products of the education system and ask them what they are looking for in people". This is something academics disagree with strongly. Nottingham University associate professor and course director of the upcoming BSc accountancy degree Carolyn Isaaks, for example, says Nottingham regularly asks employers about their experiences with new graduates and what they're looking for through both formal and informal channels. 65


Career Development

ability to take these facts and interweave them into a coherent report.

The US Institute of Management Accountants (IMA) broadly defines the skills gap as students qualifying with excellent technical knowledge, but without the ability to see the big picture. Chief executive of IMA Jeff Thomson explains: "Students are taught the technical details of how to conduct audits, how to prepare financial reports etc, but they also need to have the opportunity to synthesise data and convert raw information to intelligence and insights."

Chief executive of IMA Jeff Thomson: "Students are taught the technical details of how to conduct audits, how to prepare financial reports etc, but they also need to have the opportunity to synthesise data and convert raw information to intelligence and insights."

She adds the University also speaks to alumni to find out what they thought was especially useful in their course and what they would have wanted to learn with the benefit of hindsight. Conducting audits Bath University senior lecturer in accounting Phillip Cooper argues along a similar line, pointing out that, in order to ensure their courses remain accredited, faculties need to be in regular contact with the various institutes.

Tagoe's views are a summary of his research in 15 countries, and so some of what he says may not be applicable in every case. For example, he says "graduates from the very good universities are coming with the ability to think through issues, but I don't see it as widespread." Tagoe finds students from other universities tend to be good at finding information, but less skilled when attempting to gain insight from the data in a presentable fashion. He describes this as the distinction between synopsis - a general survey of facts - and synthesis, the

Students tend to be very well trained on a theoretical level, often able to talk about the sociology of accounting or the economics of accounting, but not always able to do the actual accounting.

66 Feb-March 2014

According to finance director at Microsoft and dean of the IMA Leadership Academy David Elrod the skill gap between theory and practice has been growing over the past two decades, as a constant pressure to improve the technical side of the training converges with the business world becoming increasingly competitive and globally oriented.

While both Elrod and Thomson are keen to emphasise the importance of the technical side of the training, they point out it's not enough. Elrod, for example, points out "we have a lot of strong, technically competent accountants who help with cost accounting. The problem comes in when they try to translate that into a story that the business operators can use". In the US, an accounting degree is necessary to become an accountant, and this can contribute to the problem. According to Elrod, "I went to a liberal arts school, so there was a lot of focus on making a broader person. A lot of schools since have focused on accounting in a technical way, which is good, but they need to broaden their skills." Distance learning According to Thomson, undergraduate accounting curricula have focused more on improving content delivery, such as the use of distance learning and using the internet, rather than content changes over the past few decades. He adds: "In the meantime, the role and challenges for today's CFO have expanded well beyond traditional value preservation and financial accounting."

Cooper at Bath University agrees that the ability to present ideas to non-specialists is "absolutely critical", but warns that it's "very difficult actually to set up a situation where students can learn about communicating with non-accountant business specialists."


Career Development

Although different countries have different ways of teaching accounting, the dramatic evolution of the role of finance professionals, both those who work as accountants and those who move into industry, over the past decades has been a worldwide phenomenon. This has meant that the modern young accountant needs skills that were perhaps previously unnecessary. ACCA's Lyon suggests the current generation is facing the dilemma as "what the profession needs is people who are numerate and capable at the technical side, but who also have this broader compliment of skills", which is the core problem leading to the skills gap.

As is the case in the US, the UK and elsewhere, "the role of accountants is changing, it's also about having commercial acumen," he says. While the role of finance professionals has become broader, what is expected of new recruits has also risen, according to ICAEW's Aspden, who says "the demand on new recruits is far higher than before."

Tagoe at CIMA says that the gap is reasonably present across the globe, but more noticeable in some countries. For example, Asian students tend to have high numeracy skills but can be found wanting in other areas compared to Western countries, "particularly the UK". But these differences are not as great as they might be, as universities tend to work in close cooperation with each other, he says.

Association of Chartered Certified Accountants (ACCA) head of corporate sector Jamie Lyon: "When you think of things like communication skills, negotiation skills, influencing skills, they're not the type of skills always taught at an undergraduate level.â&#x20AC;?

Closing the gap As there appears to be a variety of definitions about what any 'gap' is, it's perhaps unsurprising to find a variety of suggested methods for improving the quality of young accountants. The IMA, in conjunction with the Management Accounting Section of the American Accounting Association has developed a curriculum designed to help prepare students both for positions in accounting firms, and also for when they move into industry. The IMA says it's been involved in trying to close the gap for 20 years, and has launched a website called Competency Crisis to bring together IMA's various activities, which Elrod described as "pertinent, given where we are in the profession, and how the profession has evolved."

CIMA holds an annual competition called Global Business Challenge, where students from around the world compete, first in regional heats, then on a global scale. Tagoe says by the end of the competition those taking part are much better able to handle almost contradictory facts, and suggests universities around the world could incorporate elements of the competition into their teaching. Universities are also constantly seeking ways to improve their curricula and keep them current. Nottingham is about is launch a four-year sandwich course, run in conjunction with PwC, which Isaacs has been brought in to run.

Sandwich degrees According to Isaaks, universities can help to broaden the education students receive by giving context to the technical content of the programme. For example she suggests offering sandwich degrees to give students a broader knowledge of the world of business while they're on the programme.

Other ways traditional universities can help is "engaging with visiting speakers, encouraging students to do internships and focusing on careers". For Isaaks, practical experience is important, because without it "it's hard to understand the values of what you're studying."

For Cooper at Bath University, even if a university is unable to equip students with all the skills they will need at the start of their careers, it's important 67


Career Development

they make students aware of what they will need. One example he gives is a course he teaches which bridges the academic material taught with what's going on in the contemporary accounting world.

Institute of Chartered Accountants of England and Wales (ICAEW) director of qualifications Gavin Aspden: â&#x20AC;&#x153;Graduates might have very good social skills electronically, but maybe haven't had the opportunity to show those skills in an environment which employers traditionally value.â&#x20AC;?

However he says: "The people moving to the front office can't compensate for poor technical knowledge with good business knowledge. Technical expertise is still absolutely core. For Aspden, there are ways the gap could be closed, such as more investment in careers centres at schools, not just universities, but, as he puts it: "There will always be conflict between the older generation and the younger generation."

The reason he feels the gap might feel more pronounced nowadays is two-fold. First, expectations for graduates are so much higher now than previously. The second is that "things are changing faster now than at any time in history". As a result, the younger generation has a skill set the older generation haven't fully appreciated yet. At the same time, the younger generation aren't totally sure of the skills they need to offer employers.

Accounting skills Isaaks points out that gaps appear when employers expect graduates to fit into their organisation without further training, warning this will not usually be the case. Both Isaaks and Cooper warn that universities are never consistently going to produce the finished article, as that isn't meant to be their role. Without wishing to discount the role universities have in preparing students, Cooper says: "First and foremost students are at university to get an academic education. That is a basis for what they'll do in later life."

"We've got to get them educated first, but at the same time we're thinking of the skills they're going to need later on. By doing a degree you're going to get skills useful to accounting, but there are some things that are going to have to be developed later."

Ultimately the skills gap appears to be a moving target, one which institutes, employers and universities can only try to minimise. What constitutes the gap varies depending on the institute or employer, however there are a few consistencies. There is recognition that as the role of accountants evolves to include increasing frontend work, expectations need to be tempered. 68 Feb-March 2014

One area which draws a lot of attention is the communication skills of young people. Their ability to get to grips with new forms of technological communication, such as social media, is something admired. Universities face a balancing act of making sure students reach a certain academic level while also teaching them as much of the technical areas of accounting as possible. As Lyon puts it, "having a blend of academic, technical learning with handson experience is the best way of doing it."

Nonetheless, the debate over what extent universities should be preparing students with better communication skills is unlikely to resolve any time soon. In the play The Clouds, Socrates is caricatured by Aristophanes as not teaching his pupils correctly, instead spending his time measuring how far fleas can jump, and ultimately corrupting his young students. Even Socrates, then, could not escape the charges of the disparity between what is taught and what is needed, and it appears this gap has remained relevant to the present day. â&#x20AC;˘ The Accountant, UK


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Corporate governance

RISK APPETITE:

A TOOL FOR CORPORATE GOVERNANCE BDO Senior Manager Francisco Basdekis underscores the importance of understanding potential threats in organisations, for management to create and protect enterprise value. 70 Feb-March 2014


Corporate governance

C

ORPORATE GOVERNANCE is an ongoing process between management and the board to simultaneously create and protect enterprise value.

Francisco Basdekis Senior Manager, Advisory Services, BDO Qatar

In order to strike the appropriate balance between creating and protecting value, management and the board consider an overall risk profile in order to develop expectations that are established by the “risk appetite” of the organisation.

Risk appetite is simply the formalisation of basic business principles such as making risk-taking explicit, making decisions based on risk-reward tradeoffs, understanding potential outcomes of different decisions, and deciding whether the organisation is comfortable with the risk associated with different decisions.

It can be defined as the acceptable parameters for risk taking opportunities that is consistent throughout the organisation, and reflect a mutual understanding between management’s and the board’s willingness to allow risk exposure in pursuit of core strategic objectives. Conversely, managers see risk appetite as an impractical, one-time assessment that limits them when making decisions. We can conclude that even companies that adopt a theoretical notion of risk appetite are still able to articulate the risk appetite of their company based on actions made by management and the board of directors.

Initiating the Dialogue through a Risk Appetite Statement As management and the board interact and make decisions, they are reflecting (whether knowingly or inadvertently) the overall risk appetite of the

As circumstances and opportunities change in the business environment, the company’s board and management should consider adapting the risk appetite to reflect those changes.

company. However, are they consistent in the actions that they take?

The author suggests that to start a conversation of having a clear policy of acceptable risk-taking, the company must align management’s execution of influencing the risk tone of the organisation with the board’s strategic risk decisions. This is best accomplished by developing a risk appetite statement. The risk appetite statement is an aggregate summary of “assertions” that provides a basis for clarifying both risks the company is actively taking and risks that are purposely avoided. These assertions are observations that initiate a continuous, strategic conversation between management and the board to align risk-taking with core competencies. The risk appetite statement contains three key elements: Risks that are on-strategy (acceptable or within the risk appetite). Risks that are off-strategy (undesirable risks that are outside of risk appetite).

Defined parameters (strategic, financial, and operating) to provide a framework within which risks are agreeably undertaken. These three elements are used to develop a risk appetite statement that should be framed around the organisation’s business model. The authors proffer suggestions in framing the risk appetite statement in this context.

The Relationship between Risk Appetite and Risk Tolerance Often, risk appetite is used interchangeably with risk tolerance. Although related and similar, risk tolerance differs from appetite in one fundamental way. Risk tolerances are a more specific subset of the risk appetite and dissect the assertions that make up the risk appetite statement.

Whereas risk appetite is considered in the context of strategic planning and objectives, risk tolerance is considered in developing tactical objectives. That is, it addresses how much deviance from a specific objective the company is willing to allow. 71


Corporate governance

A company that continuously changes parameters within their risk appetite conveys instability, lack of consistency, and short-term focus to the board and investors. The Effect of Risk Appetite on Governance Risks are focused on more when a company is struggling to meet targets or performance objectives, but are potentially looked over when experiencing periods of accelerated profits. Conceptually, this is proof that risk appetite is strategically long-term and dynamic rather than a single determination that rarely is assessed.

After implementing a risk appetite statement into the corporate culture, and management and the board of directors have developed a relationship of continuous conversation about existing and potential risks, the company then has the discipline to address high-level risks even when exceeding investor expectations. The volatility in the current competitive environment demands such discipline. As circumstances and opportunities change in the business environment, the companyâ&#x20AC;&#x2122;s board and management should consider adapting the risk appetite to reflect those changes. However, they should be mutually agreed upon and substantial enough to warrant altering the risk appetite statement. A company that continuously changes parameters within their risk appetite conveys instability, lack of consistency, and short-term focus to the board and investors.

Effectively Communicating Risk Appetite Using the Risk Appetite Statement The importance between constant communication between the board of directors and management has already been discussed. This top-down approach of communication should continue throughout the organisation. Here we present challenges with continuous, effective communication on an entity-wide basis. Management influences the tone of risk-taking through their actions but how often do they

72 Feb-March 2014

explicitly communicate the companyâ&#x20AC;&#x2122;s risk philosophy and to what degree?

How quickly are lower level managers and employees informed of changes in the risk appetite statement and overall risk profile?

These are critical questions for top-level executives to consider. Communication channels should be opened and easily implemented so that all levels of the company are up to date on risk management issues. Lower level employees tend to focus on specific limits defined in risk tolerance as opposed to the high-level strategic objectives and how they are aligned with risk-taking.

Maintaining the Risk Appetite Statement to Monitor Risk Profile Expectations We further proceed to discuss the governance process. It is a process that creates value through strategy setting and protects value through a risk assessment process. Developing a risk appetite falls within the scope of the risk assessment process. The risk appetite statement is a mechanism for enhancing corporate governance by stimulating a conversation between management and the board and should be continuously reassessed. We outline this iterative process in three steps: Determine the historical, inherent risk appetite of the company. Review and revise the risk appetite statement.

Finalise risk appetite statement and review/ modify tolerances to assure they are consistent with risk appetite.

Getting Risk Appetite Right While many companies viewed their risk appetite framework as a safeguard against the type of crisis we are currently in, a lot of these frameworks failed due to design and application problems. However, the concept of risk appetite is still very sound. To improve risk appetite frameworks, organisations can learn from three key failings highlighted by the crisis. 1. Complete Risk Identification Is Needed Risk management and measurement frameworks often look at risk types in separate silos, but


Corporate governance

connections between the risk types need to be visible within the organisation. Operational silos between risk types and across business lines need to be broken down.

of the organisation’s businesses and underlying risks in order to have sufficient knowledge to know when to ask questions of the information received.

Also, there should be an acceptance that risks will not always be measured perfectly but that stress tests and scenario analysis can help gauge an organisation’s ability to cope with surprises and new, emerging risks.

Summary Regardless of whether a company has a risk appetite statement, risk appetite itself is evident in any organisation by observing Management’s and the Board’s decision to act upon, or not, an opportunity that arises.

Steps to break down silos may include risk and business line managers thinking more holistically about issues that could impact their value and redesigning reporting structures to increase information flow throughout the organisation. The scope of the appetite-setting exercise should be expanded to consider how reliant the organisation wants to be on different funding sources.

2. Risk Information and Management Action Must Be Linked Risk appetite must shape the risk-taking behaviour for an organisation to be useful. Risk information should be gathered and reported regularly so performance relative to targets can be monitored.

The risk appetite framework should include an early warning system alerting changes to the underlying risk profile and mechanisms to force the risk profile back within desired parameters.

To effectively challenge management, the mechanisms for questioning need to be revised and upgraded so that scrutiny is more consistent. Another tool the board has for setting risk-taking is compensation because the compensation structure can encourage or discourage excessive risk-taking and help keep risk levels within the organisation’s appetite.

An environment that encourages constant communication of risk-taking at all levels and between Management and the Board assures stakeholders that a consistent and clear enterprise risk management approach is being maintained. Additionally, it provides a framework for the organisation to select between strategic alternatives that better align with the risk appetite of the company.

Management needs to understand the sensitivities and monitor the drivers so they have time to react to changes and can encourage more or less risk-taking when needed. Results of sensitivity analyses and scenario analyses need to be taken seriously and contingency plans for these potential situations should be discussed. Most importantly, linkages between risk appetite and risk-taking behavior need to be operational so that when the board or management changes risk limits, different risk-taking behaviour occurs throughout the organisation.

3. Boards Should Challenge Management To effectively fill their oversight role, boards need to receive timely and relevant information and they need the relevant expertise to challenge management. Board and risk committee members should have a thorough understanding 73


Industry Appointments

APPOINTMENTS If you have made a new appointment, promotion or have any relevant hiring news, please email the details and a photo to accountancy@cpidubai.com

EY has announced the expansion of its Power & Utilities Advisory leadership team in the Middle East and North Africa region. Christian von Tschirschky, who joined EY as a Partner in Dubai, is the new leader of EY’s P&U sector in MENA. Christian has over 15 years of experience in management consulting, focusing on strategy development and transformation programmes in MENA, Europe and the US. He is a graduate in Business Administration from the University of Passau in Germany. Gavin Rennie also joins the EY Doha office as a Partner in P&U. Gavin has over 20 years of management consulting experience in strategy, technology and transformation programmes in MENA, Europe and the US. He is a graduate of Heriot-Watt University Edinburgh with a First Class Degree in Chemical & Process Engineering and is a member of the Institute of Chemical Engineers. The EY P&U team is complemented by Aref AbouZahr, who joined as a Director. Aref has over 10 years of experience in P&U working for a GCC government, a leading technology supplier and a management consultancy. He graduated from the American University of Beirut in Mechanical Engineering and holds an MBA from the University of Texas as well as post-graduate MBAs in Corporate Finance and Strategic Marketing from McGill in Canada. The South Asian Federation of Accountants (SAFA) has appointed Subodh Kumar Agrawal president for the year 2014, effective 1 January. Agrawal, who is also the president of the Institute of Chartered Accountants of India (ICAI), served as SAFA vice-president for the year 2013. He is a member the Small and Medium Practices Committee of the International Federation of Accountants (IFAC), as well as technical advisor for ICAI's representative at the International Accounting Education Standards Board. ICAI is one of the founder members of SAFA, which is formed by ten accounting institutes from Bangladesh, Nepal, Pakistan, Sri Lanka, Maldives and India, where SAFA is headquartered. SAFA 74 Feb-March 2014

is one of the six accountancy groupings acknowledged by IFAC, a status granted to groupings that support the objectives and pronouncements of IFAC as well as the advancement of the accountancy profession within their constituencies.

The International Financial Reporting Standards (IFRS) Foundation has appointed Joanna Perry as chairman of the IFRS advisory council. Previously, Perry served as chairman of the New Zealand Financial Reporting Standards Board (FRSB). She led the evolution of financial reporting standards in New Zealand, including the adoption of IFRS. She takes over from Paul Cherry who served as the chairman of the advisory council for the past five years.

Dubai-based Shuaa Capital, a provider of client-centric, fully integrated financial services, has appointed Soha Nashaat as strategic advisor to the executive chairman. Nashaat joins the company to expand Shuaa’s scope of products and advisory capabilities, increase client engagement activity and ensure delivery of client-centric solutions. She joins Shuaa from Barclays Bank where she was most recently senior advisor and member of the board of Barclays Bank Suisse. She had previously established the footprint and operations for the wealth management business as CEO, Middle East for Barclays Wealth. Emirates NBD bank has announced that it has appointed Jonathan Morris as the Group’s General Manager of Wholesale Banking and member of the Group’s Executive Committee. Jonathan, who will assume overall responsibilities for Corporate and Institutional Banking and Investment Bank for Emirates NBD, joins the Group from Standard Chartered Bank where he held the position of Chief Executive Officer for the UAE. His previous roles at SCB include Chief Executive Officer, Bahrain, Regional Head

of Origination & Client Coverage, Africa, Regional Head of Corporate & Institutional Banking, Europe and Head of Corporate & Institutional Banking UAE & Oman.

Noor Takaful, the Islamic insurance arm of Noor Investment Group, has named Andrew Greenwood acting Chief Executive Officer. Greenwood brings to his role more than 30 years of insurance experience with a strong background in underwriting and marketing. Previously, he has served in senior management capacities, prominently as Chief Executive Officer in two top international insurance companies within the GCC region. Greenwood is a certified Associate of Chartered Insurance Institute (ACII) professional and a qualified Chartered Insurer. Noor Takaful was created to provide innovative, unique and comprehensive Takaful (Islamic insurance) products that support the growing needs of the UAE economy and the GCC. Noor Takaful offers a broad suite of general and family products to cater to individual and corporate customer segments alike.

Standard Chartered has announced Mohsin Nathani as the new Chief Executive Officer for its business in the UAE. Mohsin succeeds Jonathan Morris, who has resigned from the bank to pursue other career opportunities. Mohsin’s appointment is effective as of 1 February, 2014. He joins from Standard Chartered Pakistan where he was the Chief Executive for the past three years. Mohsin is a seasoned corporate banker with over 20 years of international banking experience having worked in East and South East Asia, Middle East and the Levant regions. Prior to joining Standard Chartered Bank in 2010, he was the Country Head and Managing Director of Barclays Bank in Pakistan. Mohsin’s experience spreads across corporate banking, fixed income markets and Islamic Banking. Mohsin holds an MBA from the Institute of Business Administration in Karachi, Pakistan.


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Accountant Middle East - March 2014  

Accountant Middle East - March 2014

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