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setting standards in financial auditing & accountancy

DECEMBER 2013

SETTING

SIGHTS HIGH Deloitte’s goal is to no longer be part of the Big 4 grouping, but rather to become ‘a category of one’ - Anis Sadek

LEASE ACCOUNTING International standard-setters’ proposal to bring leases on-balance sheet faces fierce criticism from industry players

BEWARE THE FINE PRINT

KPMG Tax expert provides insight into the complex key current international tariff issues

ICAI SILVER JUBILEE

High profile delegates join members as Abu Dhabi Chapter celebrates significant milestone

PUBLICATION LICENSED BY IMPZ


editor's audit

Publisher Dominic De Sousa

Expo 2020: Financial Perspective AFTER MONTHS of frenzy marketing campaigns and cross-border wheeling dealing activities, Dubai has finally been chosen as the host city of the Global Trade Convention in 2020.

Group COO Nadeem Hood EDITORIAL Editor Joyce Njeri joyce.njeri@cpimediagroup.com +971 4 440 9140

So what does this win mean to the Emirate and UAE as a whole?

As I scanned through the various international TV news channels to see how they were covering the historic win on the night of November 27, it was not a surprise to notice that very little, if any coverage, was accorded to the event.

Contributor Shane Phillips ADVERTISING Commercial Director Chris Stevenson chris.stevenson@cpimediagroup.com +971 4 440 9138

This is because as important as it may be, the Expo does not receive as much high-profile attention as, for instance, Fifa World Cup or the Olympics. Fair enough.

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 Published by

Office 804 Grosvenor Business Tower, TECOM PO Box 13700 Dubai, UAE

But to the UAE government and its residents, the Expo 2020 means more than just putting up an elaborate show. It means business.

According to a new research by Deutsche Bank, Dubai requires approximately $43 billion (47% of the estimated 2013 GDP) to significantly upgrade its infrastructure, with the bulk of this investment going into expanding the hotel and leisure industry, while around $10 billion will be spent on improving the transportation network.

So, as cheers that erupted in the Emirate fall into silence and the fireworks that lit up the world’s tallest tower fade out, one thing is for sure. Dubai is on the path to economic greatness. Talking about greatness, one man has made it his number one call to steer Deloitte to grander heights. Anis Sadek, the Managing Partner at the Dubai office of Deloitte, reveals how the ‘Big 4’ firm is no longer just dreaming ‘Big’, but greater. “Our goal is to no longer be part of the Big 4 grouping, but rather to become ‘a category of one’,” he says determinedly. Deloitte is now in many respects the most successful of the ‘Big Four’ and it’s not hard to see why.

Early this year, the firm was ranked among the top Fortune’s annual Best Companies to Work for in 2013, judged on traditional factors such as remuneration and work life balance, operational effectiveness, job satisfaction and employee confidence in the organisation. Anis opens up about Deloitte’s work culture, his early foray into the world of finance, business consultancy and his management style. We have also lined up a rich menu of content including the latest update on lease accounting, IPO appetite, ICAI Silver Jubilee celebrations and much much more… As we close 2013 on a high and await the good tidings that 2014 has in store for us, Accountant Middle East would like to wish all its readers and advertisers a smashing year ahead. Happy holidays!

Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by Printwell Printing Press SETTING STANDARDS IN FINANCIAL AUDITING & ACCOUNTANCY

Talk to us:

Joyce Njeri Editor, Accountant Middle East

E-mail: joyce.njeri@cpimediagroup.com Twitter: @AccountancyME UAE AED 15 | Bahrain BHD 1.5 | Qatar QR 15 | Oman OR 1.5 | Saudi Arabia SR 15 | Kuwait KD 1.2

© Copyright 2013 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.

DECEMBER 2013

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SETTING

SIGHTS HIGH Deloitte’s goal is to no longer be part of the Big 4 grouping, but rather to become ‘a category of one’ - Anis Sadek

LEASE ACCOUNTING International standard-setters’ proposal to bring leases on-balance sheet faces fierce criticism from industry players

BEWARE THE FINE PRINT

KPMG Tax expert provides insight into the complex key current international tariff issues

ICAI SILVER JUBILEE

High profile delegates join members as Abu Dhabi Chapter celebrates significant milestone

PUBLICATION LICENSED BY IMPZ

Subscribe now

www.accountancyme.com 3


Contents DECEMBER 2013

Main Features

12

4

12

Cover Story:

Setting sights high - Anis Sadek, Managing Partner at the Dubai office of Deloitte, on how the ‘Big 4’ firm is repositioning itself to be on a class of its own.

30

Student Accountant:

42

Tax Matters:

Whatever your dream is, go for it! – Uzair Khan is not your average young accountant. His affable, soft spoken demeanour hides an ambitious 27-year-old go-getter lad with an impressive résumé that would make many envious.

Beware the fine print – KPMG's Nilesh Ashar provides insight into the complex key current international tax issues that could impact Middle East based companies and government owned entities with international operations.

December 2013

62


Current Affairs 6 News & Views:

7

News & Views:

Profession Watch

ACCA launches ‘soft skill’ modules – Two new e-learning courses expected to help students and affiliates with the essential ‘people skills’ as well as provide practical expertise needed to work in the financial world.

10

Islamic Finance:

GCC Islamic banking assets to hit $515bn – Saudi Arabia biggest market with an estimated $245 billion in assets at end of 2012 financial year.

20

Focus on Deloitte:

22

Technology Talk:

New partners, stronger mission - Deloitte says admission of 55 associates, principals and directors to better serve the Middle East markets and clients.

App and away - Deloitte’s new issue of the ‘Middle East Point of View’ iPad, print and online magazine provides insights into Gas, Russia and the Middle East.

74

24 Special Reports

New hedging standards to simplify accounts – The IASB has announced a package of amendments to the accounting requirements for financial instruments.

Smart Business:

48

IPO Report:

50

Crisis Management:

54

Lease Accounting:

KPMG Capital formed - New investment fund will support partnerships and acquisitions, to help firms’ clients unlock tangible value of their data. Renewed vigour stirs market - DFM and NASDAQ Dubai discuss the role of listings in diversifying investment opportunities and achieving sustainable growth.

Preparing for corporate crisis – BDO’s senior manager Francisco Basdekis highlights the steps to be taken in disaster management. Debate rumbles on - International standard-setters’ proposal to bring leases onbalance sheet faces fierce criticism from industry players. Will efforts to reform lease accounting be withdrawn again?

Industry Appointments:

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

42

34

From the Experts 36 Business Insights:

India prepares for growth and change - Despite a significant slowdown, the Indian economy continues to grow and the accountancy profession is growing with it.

70

CORPORATE TREASURY:

Leading from the front – Peter Matza explains how treasurers contribute toward the successful health and growth of their organisations.

Interactions 3 Editor's audit

5


News & Views

NEW HEDGING CIMA SURVEY REVEALS RISING SALARIES STANDARD TO SIMPLIFY ACCOUNTS THE INTERNATINAL Accounting Standards Board (IASB) has announced a package of amendments to the accounting requirements for financial instruments. It includes a final hedge accounting standard, making a complex area of accounting a little bit simpler. Commenting on the publication of the final standard, Dr Nigel Sleigh-Johnson (pictured), Head of ICAEW’s Financial Reporting Faculty, said: “Hedge accounting is arguably one of the most complex areas of accounting. The current hedge accounting standard is rules-based, is difficult for companies to use and does not reflect risk management activities well, so it was ripe for replacement.” “With the new standard, hedge accounting – which is a way for companies to reduce volatility in their reported results stemming from, for example, foreign currency exposure, and is widely used by both financial and nonfinancial companies – should become more accessible, allowing companies to better align their accounting with their risk management strategies,” he added. The new standard will require more disclosures because it is more principles-based than the standard it replaces. That brings with it some challenges in itself, and highlights the difficulties involved in reducing the length of IFRS financial statements. The hedge accounting standard is part of IFRS 9, which will replace IAS 39, the accounting standard that received so much attention in the wake of the global financial crisis. IFRS 9 is not yet complete however, as there are still deliberations on impairment going on. 6

December 2013

THE ANNUAL salary survey conducted by the Chartered Institute of Management Accountants (CIMA) shows that in 2013, qualified CIMA members in the UAE are earning on average AED47,765 in basic monthly salary plus AED3,571 in bonus payments. Meanwhile, part-qualified CIMA students are earning on average AED16,950 in basic monthly salary plus AED867 in bonus payments. The 2013 survey results for average basic salaries represent a 6.2% increase on the equivalent 2012 figures for CIMA qualified members. Geetu Ahuja, CIMA Head of GCC, Middle East said, “The CIMA annual salary survey reiterates the impact of professional qualifications on earning

potential, salary satisfaction and the ability to realise ambitions such as moving to a new organisation, or working abroad. The 2013 survey results indicate that 80% of members and students agree that the CIMA qualification has strengthened their ability to move internationally with their career. The key motivator at work for CIMA members and students is a good working environment (59%), flexibility or work-life balance (34%), financial reward (39%), job security (30%) and a challenging workload (30%). The skills qualified CIMA members most want to develop, over the next 12 months, include strategic planning and implementation, and leadership.

STATS FACT:

6.2%

average basic salary increase of CIMA qualified members compared with 2012

AL HILAL HONOURS GRADUATES

AL HILAL Bank honoured the exceptional efforts and performance of 115 of its staff who have successfully graduated from an intensive two-year ‘Boot Camp’ via a special Graduation Ceremony held recently in Abu Dhabi. Running since 2009, Al Hilal Bank’s two-year training programme consists of 15 modules covering various banking subjects. This Boot Camp is intended for all staff members up to the bank’s

Senior Officers. It lasts for 35 training days which are spread over two years, with trainees attending one module every two months. “Al Hilal Bank considers its people its major asset and so we constantly provide progressive education for all our members. We are very proud of the achievements of the fourth batch of our programme graduates, who represent the next generation of Islamic banking in the UAE. They will play key roles in changing not only our bank’s future but the face of Islamic banking in Abu Dhabi and throughout the UAE as well,” said Mohamed Jamil Berro, Group CEO, Al Hilal Bank.


News & Views

EY: FOSSIL FUEL RAK CAPITAL DEMAND TO SOAR SUKUK STIRS NASDAQ DUBAI

HIS HIGHNESS Sheikh Omar bin Saqr Al Qasimi, Executive Manager of the Investment & Development Office of Ras Al Khaimah, recently celebrated the listing of a 500 million dollar (AED1.84 billion) Sukuk by RAK Capital on NASDAQ Dubai, by ringing the market opening bell at Dubai Financial Market (DFM) (pictured). It was the ninth Sukuk listing on Dubai’s exchanges so far this year. This brought the total nominal value of all their listed Sukuk to 12.58 billion dollars (AED 46.2 billion), the third highest amount in the world, underlining the growing success of the initiative dubbed ‘Dubai, the Capital of the Islamic Economy’. The bell-ringing ceremony took place in the presence of Essa Kazim, Chairman of Dubai Financial Market (DFM) and Secretary General of the Higher Committee for Development of the Islamic Economy sector; Abdul Wahed Al Fahim, Chairman of NASDAQ Dubai; and Hamed Ali, Chief Executive of NASDAQ Dubai. His Highness Sheikh Omar bin Saqr Al Qasimi said: “The highly successful Sukuk issued by the Emirate of Ras Al Khaimah via RAK Capital provides Shari’a compliant financing that will support the continuing sustainable economic development and infrastructure expansion in the Emirate of Ras Al Khaimah. Our sole listing on NASDAQ Dubai, as an exchange in the UAE that operates to international standards, provides us with a first-class regulatory environment that is well respected regionally and internationally.”

NATURAL GAS is likely to grow in importance over the next few years, with the Middle East, China, Africa and India in particular set to record significant increases in demand. According to EY’s recently released ‘Business Pulse Oil and Gas’ report, demand for natural gas is expected to increase steadily as a percentage of the global fuel mix over the next two decades, and is estimated to account for almost a quarter of the world’s energy demand by 2035. Commenting on the findings, Dr Thorsten Ploss (pictured), EY’s Middle East and North Africa Oil & Gas Leader, says: “Natural gas is seen as

a potentially cleaner replacement for coal and also as a ready replacement for nuclear power in countries which have phased out nuclear power due to public concerns. Countries needing to increase power capacity quickly are particularly likely to turn to natural gas, as the construction time for natural gas generating plants is just two to three years.” Oil majors are going to find accessing oil reserves progressively more difficult, so their reserves and production are likely to shift further toward gas. On the other hand, many NOCs still have access to large oil reserves, hence the pressure to shift towards gas is lower. With gas likely to constitute a greater share of the world’s future energy production, this opportunity will continue to rise in importance in the years ahead.

ACCA LAUNCHES SOFT SKILLS MODULES THE ASSOCIATION of Chartered Certified Accountants (ACCA) has launched two new e-learning modules for students and affiliates. The accountants’ body said the courses will help to give them the essential ‘people skills’, as well as the practical expertise needed to work in the financial world. The optional modules are open to both students and affiliates, designed to help them develop skills in communications, team working and relationship building. ACCA also says the modules will help students in developing the skills they will need to demonstrate in the workplace after

the completion of their practical experience requirements (PER). The two modules are: Communicating Effectively and Working Relationships. Alan Hatfield (pictured), ACCA director of learning, said: “We believe the ACCA Qualification prepares students to become complete finance professionals, with the skills required to meet the needs of employers. Through these developments, we continue to strengthen the competencies possessed by our members to meet the constantly changing needs of business today.” To access the modules, visit ACCA’s student virtual learning centre at http://studentvirtuallearn. accaglobal.com. Login accounts need to be created for first-time users. 7


News & Views

ALLIOTT HADI SHAHID firm IN IFRS DEAL WITH abu dhabi DED

AUDIT FIRM Alliott Hadi Shahid (AHS) and the Abu Dhabi Department of Economic Development (DED) have entered into an arrangement for financial reporting of companies as per IFRS for SMEs. Under the terms of agreement, Alliott Hadi Shahid will help to promote the implementation of IFRS for SMEs in the local groups of companies as well as international business companies on the level of SMEs. “Recently a team of experts from the IFRS Head Office came to Abu Dhabi to train our local office audit staff. In return, they are expected to become trainers or mentors to Chief Financial Officers and accountants in Abu Dhabi,” said Dr Syed Qaiser Anis (pictured), Managing Partner at Alliott Hadi Shahid. On November 12, 2013, AHS conducted the IFRS for SMEs introduction module together with DED. More than 110 CFOs, accountants and other audit and finance executives attended the seminar. “The Alliott Group is proud to play this vital role in helping to promote financial literacy in Abu Dhabi,” he added. The second round of detailed IFRS for SMEs’ course is set to be held at the Abu Dhabi Department of Economic Development and will be conducted by AHS on December 11-12, 2013. 8

December 2013

GLOBAL INVESTMENTS BOOST GCC EQUITY MARKETS A RECENT Bank of America Merrill Lynch research report titled, ‘Frontier EMEA Equity Market Monitor: Frontier leads GEM on flow, earnings and valuation’, says that GCC equity markets will continue to benefit from increased global investment inflows, and specifically from active Global Emerging Market (GEM) funds. “The UAE has emerged as the world’s 2nd best performing market with year-to-date (YTD) increase of 61%, and 2013 earnings growth estimates rising by around 100bp YTD to 9.6%. Meanwhile, Saudi Arabia was ranked as a top 10 market performer with YTD increase of 21%, and similarly Qatar performing equally well with YTD increase of 22%”, said Michael Harris, Managing Director and Head of EEMEA Equity Strategy.

Michael Harris continued, “Along with Saudi Arabia, the UAE equity market could inevitably be a structural winner in the long term. Saudi being the GCC’s biggest economy, there is a lot to benefit when the capital market opens up in the kingdom. Regionally, there will also be far reaching positive implications of the MSCI EM upgrade for the UAE and Qatar.” The equity market is getting more support from key macro drivers but they affect the GCC countries differently. It is particularly favourable for Saudi equities as they stand to benefit from record highs of domestic oil production and stronger China data. Financial stocks are the biggest component of the equity market sector breakdown in the UAE (76%), Qatar (53%) and Saudi Arabia (33%).

ABU DHABI TO DUAL-LIST ITS BONDS ON ADX THE DEPARTMENT of Finance (DoF) announced recently that it will be registering Abu Dhabi’s bonds - which have already been listed on the London Stock Exchange (LSE) since 2009 – for secondary listing on the Abu Dhabi Securities Exchange (ADX). DoF informed the LSE that it would be implementing the legal and administrative procedures for the dual listing soon. Investors will be able to trade Abu Dhabi Government Bonds directly through the ADX and the LSE simultaneously. The Abu Dhabi Government issued these $3 billion bonds in 2009 in two tranches, each worth $1.5 billion. The first tranche is due 2014 and the second in 2019. HE Hamad Al Hurr Al Suwaidi,

Chairman of Abu Dhabi Department of Finance, said: “The secondary listing of Abu Dhabi Government’s bonds on both ADX and LSE falls in line with the Abu Dhabi Vision 2030, which aims to build a business environment that is open, efficient, effective and integrated into the global economy. In addition, Abu Dhabi’s Vision 2030 looks to adopt a disciplined fiscal policy that is able to respond to economic cycles, as well as the establishment of an effective and resilient environment for monetary and financial markets. The dual listing will reinforce Abu Dhabi’s position as an international financial centre that attracts investment and provides investors with diverse options in the stock and bond markets.”


News & Views

FTSE LAUNCHES SHARIA’H INDEX FTSE GROUP (“FTSE”), the global index provider, has announced the launch of its new FTSE Sharia’h Developed Minimum Variance Index. The index series aims to deliver reduced index volatility through ethical and financial screening. The methodology for the FTSE Sharia’h Developed World Index has been designed to target a balanced index risk profile by overweighting stocks that reduce index volatility and underweighting stocks that increase index volatility. The contemporary Islamic banking and finance industry has grown rapidly over the last 30 years and now comprises over $1 trillion dollars of assets under management (AUM). This growth has been accompanied by a requirement for appropriate asset management tools including benchmark equity indices that are Shariah-compliant. FTSE Shariah equity indices include a business screening, where companies involved in ineligible activities are excluded, and a financial screening. The indices have been created in partnership with Yassar Limited, an independent consultancy and leading authority on Sharia’h, and have been certified as Shariah compliant through the issue of a Fatwa by Yassar’s principals. Kevin Bourne, Managing Director - ESG, FTSE Group said: “We are delighted to be able to launch our new suite of Sharia’hcompliant indices, which reflect the growing demand from investors for best-in-class benchmarking tools.”

DFM ACCREDITS VISION CAPITAL DUBAI FINANCIAL Market (DFM) recently announced that “Vision Capital Brokerage Company” has been accredited to provide Margin Trading, lifting the total number of DFM brokerage firms providing this service to 9 companies, 6 of them have been accredited since the beginning of this year. 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 2 3 4 5 6 7 8 9

EFG-HERMES UAE BROKERAGE Al Ramz Securities Direct Broker For Financial Services NBAD Securities Finance House Securities Company Al Ansari Financial Services ADIB Securities Mena Corp Financial Services Vision Capital Brokerage Company

KPMG HOSTS 'MANAGING FAMILY BUSINESS' MEET

STARTING A family business is easy, however, sustaining it beyond a couple of generations is the hardest part, delegates attending a recent KPMG conference, have heard. Addressing the delegates, Jamal Fakhro KPMG’s MESA Chairman and Managing Partner of the Bahrain and Qatar practice said; “One of the most important tools to support

succession is having mentoring programmes; appointing a nonfamily member mentor for each of the next generation family members joining the business proves very useful.” The conference themed “Family Businesses in the Middle EastCarrying on the Legacy” was a success with over a 100 owners and top executives from family business establishments across the Middle East and South Asian region in attendance. While talking about operating family businesses, Jamal said; “A part of running a successful Family Business is the 3-circle model based on family, ownership and business. The model incorporates key elements such as; succession and the next generation, governance, growth, assurance, exit strategy, philanthropy and wealth preservation.” Fawzi Aburass the Head of Family Groups for KPMG UAE said “KPMG’s initiative to hold their first Regional Middle East and South Asia Family Conference in Dubai was highly appreciated by all those in attendance, as the event focused on succession planning which is a very important element for all family run businesses.” 9


Islamic Finance

GCC ISLAMIC BANKING ASSETS TO HIT $515BN Saudi Arabia biggest market with an estimated $245 billion in assets at end of 2012 financial year.

G

LOBAL ISLAMIC banking assets with commercial banks reached $1.54 trillion in 2012, according to EY's Global Islamic Banking Center. This includes both Islamic banks and Islamic windows of conventional banks. The annual growth of the industry remains at 16% (5year CAGR) which is faster than the growth of conventional banking system assets in each of the core Islamic finance markets.

Ashar Nazim, Partner, Global Islamic Banking Center of Excellence, EY, said: “There are six markets that are systemically important to the future internationalization of the Islamic banking industry. They are Saudi Arabia, Malaysia, the UAE, Qatar, Indonesia and Turkey. Of the top 15 Islamic banks with a capitalisation of $1 billion or more, 13 of them are located in these rapid growth markets. With trade patterns shifting decisively in favour of these rapid growth markets, this is a huge opportunity for Islamic banks.” The industry however has recently experienced a slowdown caused by two major developments. The continuing economic and political setbacks in some of the Islamic finance markets have adversely impacted overall business sentiments, including the financial services sector. In addition, the large scale operational transformation that many of the leading Islamic banks initiated approximately 18 months ago, continue to consume time and investment.

Fundamental repositioning In the GCC, Islamic banking assets reached $452 billion in 2012 and are expected to exceed $515 billion by the end of 2013. Saudi Arabia was the biggest market with an estimated $245 billion in assets in 2012. UAE Islamic banking assets, including windows were estimated at 10 December 2013

more than $80 billion and Qatar’s Islamic banking assets reached $53 billion in 2012. A common theme across leading GCC Islamic banks is the fundamental repositioning of their balance sheets and their business following the global financial crisis in 2008. Going forward, many Islamic banks are looking to expand regionally, where a sizeable amount of their revenues are expected to be generated from outside their local market.

“The progress of the industry is not without challenges. Large scale and technology-enabled transformation around customer centricity remains a critical consideration for Islamic banks which intend to become mainstream in their respective markets,” said Ashar.

“The rapid growth of Islamic banks over the years has also been costly due to increased operational complexity as the banks transform from operating in a single market to becoming multi-jurisdiction businesses. These factors have had an impact on profitability, which although is improving, still remains approximately 18% lower than their conventional banking peers. A significant change is required to sustain and improve performance with regard to organisational capacity and the capabilities of the Islamic banks which intend to expand,” Ashar added. The results of the survey feature in the latest CGMA report titled ‘From Insight to Impact – Unlocking opportunities in big data’.

Ashar Nazim, EY Partner, Global Islamic Banking Center of Excellence

16%

Annual growth of the Islamic Finance industry in core Islamic markets


Movers & Shakers

SETTING

SIGHTS HIGH

Deloitte’s goal is to no longer be part of the Big 4 grouping, but rather to become ‘a category of one’, says Anis Sadek, the Dubai office Managing Partner.

A

FIRM believer in innovation, adaptability, diversity, and the value of learning from one’s mistakes, Anis Sadek is the Managing Partner at the Dubai office of Deloitte.

SHANE PHILLIPS Managing Director, Shane Phillips Consultants

A Chartered Accountant since 1980, he is also a member of the Middle East Members Advisory Board for the Institute of Chartered Accountants in England and Wales (ICAEW). He was recently appointed to the ICAEW’s governing body, the Council, as the Representative for the Middle East. In 2000, after 20 years of working in large international professional firms, Anis took a plunge into start-up entrepreneurship, following the disposal by the then Ernst & Young of its global Consulting practice, including the Middle East EY Consulting practice which Anis had headed. He was soon to realise that entrepreneurship was not for him. It led to recognition that his global-minded nature and extensive experience in channeling global resources towards local and regional businesses had given him a unique value in the market.

12 December 2013

Working as a solo consultant didn’t enable him to use his talents fully without access to the many resources that a large international firm provides. His flexibility and ability to generate innovative solutions which leverage global capabilities have been key assets in becoming the success he is today at Deloitte in Dubai. A Worldly Start Anis was born in Egypt in 1955 the year before the Suez crisis. At that time his Irish mother had to make a critical decision - whether to evacuate from Egypt as other foreigners were doing or stay with her Egyptian husband and become an Egyptian citizen. The choice was to remain in Egypt.

Anis spent his childhood travelling with his father around the world on business trips and vacations. He developed a love for adventure and cultural diversity which has remained throughout his life. Anis was educated in the prestigious Victoria College in Alexandria until he was 14 years old, then Lenana High School (Duke of York) in Nairobi, Kenya before he finally completed his schooling at St Columba’s College in Dublin, Ireland. “My father, who worked for the World Health Organisation, had a PhD in statistics and couldn’t


IFRS Movers & Special Shakers

13


Movers & Shakers

fathom why I was unable to grasp many of the complex mathematical concepts he found so simple. The problem was that he was far too intelligent for me! Thankfully I did end up going to Trinity College, Dublin where I discovered a love of Economics and consequently graduated with an Honours Degree in Economics - much to my father’s delight!”

On his father’s recommendation, Anis moved to London in 1977 and joined Binder Hamlyn (later a part of Arthur Anderson) to train as a Chartered Accountant. It was during that period that Current Cost Accounting became a hot item due to high inflation affecting the markets.

“People felt that accounts based on historic costs no longer truly reflected the results of the business. It was an interesting time in the profession where we were looking at different ways of reporting and measuring profitability,” he recounts. During this time Anis qualified as a Chartered accountant with the ICAEW.

However the wanderlust from his childhood soon led him to seek work further afield. Anis married in 1978 and he moved to Dubai with his new wife to join Ernst & Whinney in Dubai in 1981, partly driven by a desire to revive his Arabic language skills. After seven years in the UAE he was transferred to Riyadh where he became a Senior Manager and subsequently a Partner in 1989. In Riyadh his clients were Saudi British Bank, Saudi American Bank, Saudi Hollandi Bank and Al Rajhi Bank among others.

He developed grass-roots banking industry expertise that would serve him well throughout his career. In 1994 he led - and won - a major consulting proposal to redesign the business infrastructure at Riyad Bank which afforded him the opportunity to become familiar with bank strategy, marketing, products and processes including IT and HR processes - virtually all the important aspects of the banking business. Anis subsequently moved into the Consulting business full-time. Over the next several years, Anis grew his career in consulting, ultimately leading the Consulting practice for Ernst & Young in the region. He stayed with EY until 2000 when the big professional firms began to dispose of their consulting operations. He was given the choice to go back to the audit practice or leave and continue his consulting career elsewhere. 14 December 2013

“I chose the latter,” he says.

“I think about that point in time where I left what was a very large professional services background and I had many staff and partners, a global brand to work with, and resources to pull on, and I decided to go at it alone, both as an individual consultant and a start-up entrepreneur,” he reminisces.

Anis Sadek, Managing Partner at the Dubai office of Deloitte

It was a little like jumping off an aircraft carrier into a sailboat, and Anis soon realised that the entrepreneurship route was not for him. “I discovered fairly quickly it wasn’t for me, and that I really belonged and felt happier in an environment where you have a lot of depth and the support of many very knowledgeable people with capabilities that you can call on when you need to deliver high value to your clients,” he says.

“What you can do with the knowledge, experience and capability of thousands of people who are able to combine together to deliver something of great value to the client is so much better and, to me, ultimately much more satisfying than delivering

By enhancing the Deloitte brand presence, finding good partners and hiring the right people, the firm grew from 2003 to 2008 at a breakneck speed.


Movers & Shakers

only what you are capable of alone,” he adds.

During the year of going at it solo, Anis took up the role of CEO for a startup business funded by a wellknown venture capital firm in Dubai, to establish an internet banking platform that would serve multiple smaller banks.

The idea was to build a ‘white-label’ platform and let other banks pay to use it for their own transactions. That job only lasted six months as it became clear that the project was going to be an enormous challenge, with mounting costs and unsustainable transaction volumes required to make it a success, and also because he was approached by KPMG Consulting (later becoming Bearing Point). He was hired as the COO of their Middle East Consulting business and was tasked with preparing it for sale by consolidating its operations across the region and growing its capabilities. When Atos Origin finally purchased the business three years later, Anis encountered Deloitte for the first time. “It was the best thing that ever happened to me,” he says.

Deloitte was the first to offer ‘Fellowship’ scheme aimed at attracting Emirati recruits… and now many firms have adopted this strategy. sure that we were able to absorb people and train them well while building a culture of high quality service that was sustainable. We needed the new people coming in to be quickly imbued with the same culture and deliver consistent standards of quality while minimising risk levels,” he says.

Anis admits that Deloitte had not historically been the top-paying firm for certain levels in the organisation but after recognising this and based on some research, the firm soon created a desirable, stable place to work and a total rewards strategy which made Deloitte one of the most diverse firms in terms of nationality and gender and earned it the Hewitt Best Employer Award in the Middle East in 2009.

“Our culture is to provide individuals the space to do what they want to do and are best at,” Anis Sadek tells writer Shane Phillips.

During Ramadan, following the sale to Atos Origin, Anis met with Omar Fahoum, the CEO of Deloitte Middle East. Omar told Anis that he didn’t have a consulting role for him, but that he needed an experienced and seasoned practice leader in Dubai. So in 2003 he began with Deloitte, which was at the very time when business in the area was taking off like a rocket ship. “The opportunities were coming in faster than we could field them,” Anis says.

The challenge that faced him in his new job in Dubai became one of both maintaining the company’s long heritage and culture in the region while combining it with the benefits of being recognised as an integral part of the global network, assuring clients of the consistent high quality they expected from Deloitte. By enhancing the Deloitte brand presence, finding good partners and hiring the right people, the firm grew from 2003 to 2008 at a breakneck speed. Anis reflects on delivering quality service while handling the revenue growth: “The most difficult thing was recruiting the best talent and making

15


Movers & Shakers

Another issue facing Deloitte at that time was the shortage of skill and the reliance on the recruitment of expats to work in the region. After Anis was hired he decided to change this and put together a training programme so that the firm could build its own staff. They sourced the top graduates from UAE universities and offered them the opportunity for professional development through a three year training programme that was the equivalent of what Deloitte would offer in the UK or elsewhere, and soon the firm became a leader in providing this type of local training programme – including a special ‘Fellowship’ scheme aimed at attracting Emirati recruits by offering them a clear and attractive career path. His firm was the first in the area to offer such a programme and now many firms have adopted this strategy. However, Anis is proud of the results of a recent study by the Chartered Institute of Management Accountants ( CIMA), where Deloitte was named as the most preferred employer amongst Generation Y respondents in the UAE, earning 10 per cent of the votes, well ahead of its competitors. “It seems we are getting this right,” he proudly says, adding that “No client can be too big to lose.”

Anis remarks on the importance of reducing risk in his business; “We must maintain a high level of ethical standards and independence. Unlike many other businesses, where you have to treat the customers as being always right and always do what they want, we have to - at times - stand up and be prepared to tell our clients where they are wrong. And that’s what differentiates the profession that I’m in from other businesses. You have to be able, in a very nice way of course, to say to a client ‘We think you’re getting it wrong, and you need to fix it so that we can report it in the correct way’.” In order to do that, Anis says that a professional must have a certain level of knowledge, confidence, grace, and “be independent in his or her mindset.”

Reducing the risks from errors, litigation, and undue influence while upholding the highest standards of service to the business community to enable it to rely on reported results are matters that “are always top of mind and paramount to how we do things.” “We’re a partnership, at the end of the day,” he says. 16 December 2013

Anis considers adaptability and flexibility to be his strong traits and urges ambitious professionals to have confidence in themselves, and maintain a good work-life balance. While all of the firm’s many departments have different responsibilities, each partner is a coowner. Anis goes on to describe his job as Dubai office Managing Partner as one that works with a team collectively, maximises the values from individual talents by placing people in the right environments, enabling focused industry and service specialisation to develop and composes a team with a broad range of deep specialist skills.

Anis cites Deloitte’s Financial Advisory Service practice as a good example of this – in 2008, when business in the region was slowing down, Deloitte embarked on an initiative to build new advisory capabilities in the region by relocating some of its top talent from the UK – an initiative that has resulted in Deloitte being recognised today as the pre-eminent financial advisory firm in the region. In response to the rapid rate of change in the world (not just in technology), Anis says Deloitte has appointed a Head of Innovation to create a culture that enables the team to capitalise on new opportunities as they arise. He asks, “Do we believe that as a business Deloitte can continue doing business the same way, and expect to grow at the rate we want to grow at? The answer to that is ‘no’. We have to come up with new ways of doing things that are more efficient and effective and allow us to move with the times.” Deloitte is now in many respects the most successful of the ‘Big Four’ and the challenge it faces is to maintain that position and to continue to grow at a faster rate than its competitors.

Anis himself has worked for three of the Big Four firms in the Middle East, and he remarks that Deloitte’s goal is to no longer be part of this grouping, but rather to become “a category of one.” His sense, after having worked for the competition, is that Deloitte has the most collegiate and positive


Movers & Shakers

internal culture, which facilitates change and allows the firm to grow.

“Our culture is to provide individuals the space to do what they want to do and are best at, and to be fair and equitable in a way that makes people feel they truly belong to the Deloitte ‘family’.” Instead of instilling a punitive environment, Anis says, “if you don’t make mistakes, you don’t learn,” and adds that Deloitte gives its employees space to create and change.

He acknowledges the paradox of such a statement, the idea of an audit firm that prizes process, discipline and standards but also seeks innovation and creativity.

He asks, “Are we going to be doing audits ten or twenty years from now the same way as we do today; I think not …There’s got to be more clever ways of doing things.” “I’m a strong believer in having a mix of people: a mix of personalities, cultures, nationalities, of gender, everything. I think that good people working together will spark off each other…The joyful thing about Deloitte is that in our culture we allow people to be individuals, and collectively they create something better than they would do if they all thought the same,” Sadek says. He describes how he believes it’s important to motivate people to improve their skills so that they can contribute in meaningful ways.

Anis defines his working style as characterised by accessibility and commitment to his clients and colleagues and his conviction that an auditor should pro-actively offer constructive advice and support of value to his clients, building on the intimate knowledge gained by virtue of the role.

A Chartered Accountant since 1980, Anis Sadek is also a member of the Middle East Members Advisory Board for the Institute of Chartered Accountants in England and Wales (ICAEW). He was recently appointed to the ICAEW’s governing body, the Council, as the Representative for the Middle East.

He considers adaptability and flexibility to be his strong traits and does not let setbacks affect him for long. He urges ambitious professionals to remain positive, have confidence in themselves, and maintain a good work-life balance.

He credits his wife and family for supporting him when times are rough and trying. Finally, he says that one must build on one’s strengths to succeed in the diverse working environment, and cultivate a deep knowledge base so it comes through to your clients and team. 17


Movers & Shakers

I have a story to share about an impressive organisation and the impact of its people. A story that combines a passion for delivering work of the highest quality and improving society. This the Deloitte story.

It’s difficult to do justice to the impact member firm professionals have on so many clients, in so many fields, and on society, so let me just mention a few of the accomplishments that are highlighted in this year’s annual report, Global Impact 2013:

Deloitte led in critically important emerging fields such as cyber, cloud, digital, and analytics, while consolidating leadership in key practices, including innovation, marketing strategy, management consulting, financial advisory, enterprise risk services, and tax and legal, through acquisitions like Monitor.

Anis Sadek, Managing Partner at the Dubai office of Deloitte

18 December 2013

Deloitte spoke with a clear voice on issues like anti-corruption, the future of audit, financial crime, ethical supply chains, environmental sustainability, and youth employment. For example, DTTL, with support from member firms’ financial advisory practices, launched a global Anti-Corruption Academy to add our voice to the debate, provide education on combating corrupt business behaviour, and help find effective solutions;

Deloitte member firm professionals helped key clients manage their time, talent and relations, with over 300 transition labs, globally, for new CFOs;

We began to improve the lives of one million young people through a two-year programme of more than 100 high-impact, local education and skills programmes;

And broke our own record, by committing nearly $180 million in community investments through a combination of skills-based volunteering, pro bono work, and donations, and more than 870,000 volunteer hours;

For the first time, the Deloitte network grew to over 200,000, by hiring more than 51,400 additional professionals around the world. These are just a few of many examples of the depth and breadth of Deloitte’s impact on clients, colleagues, and the communities in which we work. There’s a reason Deloitte has become a leading global professional services organisation—our focus on quality. While being number one is great, striving to be the best is more important—through the right strategy, the most talented people, and the highest quality of work—and how we benefit society is our true measure of success.


Focus on Deloitte

NEW PARTNERS,

STRONGER MISSION

Deloitte says admission of 55 associates, principals and directors to better serve the Middle East markets and clients.

Political landscape The keynote speaker in the event was His Excellency Abdel Karim Kabariti, former Prime Minister of Jordan and Chairman of the Jordan Kuwait Bank who spoke on the political landscape in the Middle East region and its implications on businesses and the economy. He stated: “The challenge facing Arab states is to determine what can be done to ensure a more participatory, inclusionary discourse that ensures group and individual rights and rule of law. The environment is risky, but not without opportunities. I still think there is cause for optimism. We need to turn the challenges of the region into advantages.”

“The private sector in the region played on numerous occasions a positive role in creating resilience in times of conflict and political tensions. It has the potential and resources to become the vanguards in pushing for better governance, and more competitive investment environments. But what is equally, if not more important, is doing more in businesses’ core mandate, that of consolidating the role of the private sector in development. This is to the private sector’s profit and to the countries”, Kabariti added.

Panelists from left to right: Herve Ballantyne – Deloitte KSA , Jeddah Office Leader (standing), and Mutasem DajaniDeloitte UAE Regional Managing Partner, HE Abdel Karim Kabariti Chairman Jordan Kuwait Bank - Omar Fahoum, Deloitte Middle East Chairman and CEO, and David Sproul - Deloitte UK Senior Partner & Deloitte Global Managing Director – Regions.

$32.4bn Deloitte’s global revenues for fiscal year 2013 20 December 2013

G

LOBAL AND regional partners from Deloitte, the largest professional services firm in the world with $32.4 billion in revenues for fiscal year 2013 gathered earlier this month in Dubai for the Deloitte Middle East’s annual partners meeting. The meeting celebrated the exceptional growth that the Deloitte Middle East firm has achieved this year as well as the admission and promotion of over 55 partners, principals and directors to better serve the Middle East markets and clients.

It also reinforced the importance of the Middle East region as a priority market for the Deloitte network by hosting Steve Almond, Deloitte Global Chairman, Manoj Singh, Global Chief Operating Officer, David Sproul, Managing Director Regions and UK Senior Partner, John Levis, Managing Director Americas region and Global Chief Innovation Officer, as well as high ranking officials and CEOs of Deloitte’s network member firms across the world.

Power house economy Steve Almond, Deloitte Global Chairman commented: “The GCC is the power house economy in the Middle East region and a significant source of capital to support the strengthening of the global economy with much needed infrastructure investment. The Middle East is a strategically important market for Deloitte, and we will continue to invest and grow its assurance and advisory capabilities in the region.” Omar Fahoum, chairman and chief executive of Deloitte in the Middle East said, “The Middle East’s role and momentum in the global economy continues to expand, on a macro-economic level. For our firm and our clients, complexity, disruption, and speed of change have become the norm. Our deep understanding of the region and presence since 1926, as well as the expertise we are putting forth to help our clients are the reasons behind the exceptional double-digit growth we are witnessing. This is a testament to our approach in tailoring business strategies to client needs and to the dynamic fastpaced market they operate in.”

“In the Middle East, in fiscal year 2013, we hired over 550 professionals, a large proportion of whom are Arab nationals, young men and women, from all countries in the region,” Omar added.


Focus on Deloitte

CYBERPOWER Kennedy Consulting Research and Advisory names Deloitte a global leader in tech security.

D

ELOITTE TOUCHE Tohmatsu Limited (DTTL) has announced that Kennedy Consulting Research and Advisory, a leading analyst firm, has named it a global leader in cyber security consulting.

Kennedy’s recently released report, entitled ‘Cyber Security Consulting 2013’, addresses clients’ increasing need to seek help from consulting firms to guide them through the complexities of cyber security. As such, the report provides an assessment of cyber security consulting providers in terms of the relative breadth and depth of their cyber security consulting capabilities. Tariq Ajmal, Information and Technology Risk leader, Deloitte Middle East, comments: “This top rating from Kennedy for cyber security services is just the latest in a long list of analyst accolades for Deloitte’s risk services. In recent months, analysts have lauded our governance, risk and compliance services; risk management consulting; security consulting; information security consulting; and more. It’s no boast to state that Deloitte’s eminence for risk services across various domains leads the market.” Strong value proposition The Kennedy report notes, “Deloitte brings a strong value proposition to cyber security consulting by melding its industry expertise, its ‘one approach, one model,’ cyber security-specific investments, and C-suite communication capabilities.” “The Kennedy report clearly shows that, out of all the major players in the cyber security space, Deloitte has the most comprehensive set of capabilities,” noted Ajmal.

“Effective cyber risk management is dependent on an integrated, full-spectrum approach, making Deloitte far and away the top choice for cyber security consulting.” Key report findings: Deloitte named a Kennedy Vanguard Leader based on breadth and depth of capabilities.

Deloitte is identified as the provider with the most comprehensive competency strengths across the cyber spectrum.

“Deloitte continually develops, tests, and launches methodologies that reflect a deep understanding of clients’ cyber security and help the firm stay ahead of the curve and set the bar in terms of addressing cyber security consulting needs.” “Deloitte actively participates and leads sessions to bridge cyber security across the public and private sectors and is able to do so due to its deep industry expertise and forward thinking.”

“Deloitte proves its worthiness of Vanguard status through its dedication to cyber security outside of client partnerships by working with universities to improve curriculum on this subject and help build a more secure future for the world.” “Deloitte is able to speak intelligently to all levels about cyber security consulting, enabling it to meet demand in cyber security consulting from all angles.”

“Deloitte’s depth in industry as well as in cyber security uniquely places the firm to lead initiatives between the public and private sectors to address cyber security issues.”

“Deloitte’s position as a leader among its peer group is boosted by its proven ability as a forward thinker through its work with universities to develop and improve cyber security curriculum.” Fadi Mutlak, cyber-security leader at Deloitte Middle East added, “Deloitte’s top rating from Kennedy for cyber security services is gratifying but not surprising. Cyber ranks among Deloitte’s most important service offerings, and we have made significant investments in people, technology, and acquisitions to bolster cyber security capabilities. This report emphatically validates those investments.” 21


Focus on Deloitte

APP AND AWAY Deloitte’s new issue of the ‘Middle East Point of View’ iPad, print and online magazine provides insights into Gas, Russia and the Middle East; private-public partnerships; risk; cloud computing; human capital trends; and employee engagement, among other imminent topics.

T

HE EFFECTS of growing gas-to-gas competition between Russia and the Middle East and the key role China plays are discussed in the new issue of “A Middle East Point of View”, a magazine and app that aims to share knowledge through independent thought leadership pieces by providing analyses and commentaries by experts at Deloitte in the Middle East and around the globe.

Deloitte’s “Middle East Point of View” app

22 December 2013

In his article “Gas, Russia and the Middle East, who goes there, friend or foe?” Kenneth McKellar, Deloitte Middle East energy and resources leader, points to the difficulties the two energy powers have in forging a strong partnership despite the complementary aspects of their respective gas businesses.

In the article “The Project Finance Compass – East and West”, Ben Hughes, assistant director in Infrastructure and Capital Projects at Deloitte Corporate Finance Limited, Middle East, indicates that across the Gulf Cooperation Council (GCC), private-public partnerships (PPPs) are at a more embryonic stage and that across the region, there has been little PPP activity in historically core PPP sectors such as transport, health and education, particularly since the crash of 2008.

Buzzed about issues One of the most buzzed about issues in Information Technology today, cloud computing, is addressed by Deloitte Middle East’s Chief Information Officer, Basit Saeed, in his article: “The Cloud: a CIO’s survival guide”. With insight as to what to expect when it comes to cloud computing, Saeed provides a ‘guide’ for CIOs to deal with this new technology, emphasising that for CIOs to survive and remain relevant within an organisation, they should embrace the cloud and evolve their value proposition.

Alfred Strolla, regional managing partnerOman, Sudan and Yemen at Deloitte Middle East and Phaninder Peri, tax senior manager at Deloitte Middle East, discuss the Sultanate of Oman’s economic plans, saying: “Oman has been actively pursuing a development plan focusing on diversification, industrialisation and privatisation, with the objective of reducing its reliance on the oil sector’s contribution to GDP and creating more employment opportunities for young Omanis entering the workforce.” Rapid-growth markets As businesses continue to face a challenging economic environment in most developed economies and are looking towards rapid-growth markets with potentially better prospects, they also face the risk of higher levels of bribery and corruption. The rising trend of cross-border regulatory action and the increasing focus of investors on governance are discussed by Ralph Stobwasser and Collin Keeney, directors in Forensic at Deloitte Corporate Finance Limited, Middle East.

On 2013 human capital trends that greatly impact businesses around the world, Ghassan Turqieh, Consulting partner at Deloitte Middle East, shares the results of a recent Deloitte human capital trends survey, the most notable trends which include switching from talent recruitment to talent development, transforming HR to shift focus to business priorities by concentrating on areas such as talent and emerging markets.

Soughit Abdelnour, senior manager, Human Resources at Deloitte Middle East, in a separate article explains that over the last decade, the business world has shown significant interest in the concept of employee engagement, which brings together concepts of work effort, organisational commitment, job satisfaction and optimal experience.


Focus on Deloitte

TACKLING HARD LESSONS Educational reform is an economic and social challenge for GCC governments, Deloitte says.

“The need to diversify employment choices explains why many GCC governments are implementing major reforms, including new curricula, improved teaching standards, increased professional freedom and enhanced use of Information and Communications Technology (ICT) to prepare young people for wider employment opportunities” explains Abdelhamid Suboh, consulting partner and Public Sector leader at Deloitte Middle East. Meeting skills challenge Richard Barrett, director in consulting at Deloitte Middle East said, ‘Helping young people understand the options open to them through effective careers advice and guidance is essential." "Treating teachers as the skilled professionals they are and supporting them to develop more flexible teaching styles and make creative use of technology should continue and increase,’ he added.

“To achieve sustained economic and social growth, governments need to ensure educational systems are equipping students with skills that enable their countries to build successful diversified, knowledgebased economies.”

W

ITH A fast growing population in the GCC countries, and close to 60% below 30 years old, the public sector is unable to sufficiently absorb school and university graduates as it could in the past. This presents an economic, education and social challenge for the region. Deloitte has just released a new whitepaper titled ‘Education – Middle East Public Sector national necessities’ that tackles the challenges that Middle East and GCC governments are facing in education reform.

60% GCC citizens below the age of 30

Educational missions This Deloitte whitepaper clarifies what Middle East governments might do to support national educational missions. It tackles the educational reforms needed to prepare young people to enter private and public sector employment.

The Deloitte whitepaper particularly focuses on GCC countries where expatriates make up the biggest proportion of the private sector workforce in Qatar and Saudi Arabia while Emiratis make up more than half the public sector.

The Deloitte whitepaper provides recommendations on skills based education reform to support the moves underway in GCC countries aiming to develop world-class education to help meet the skills challenge. These are:

1. Raise teaching standards – help teachers manage change.

2. Prepare students for progression: GCC countries should help students understand and be guided on career options. 3. Make greater use of Information Communications Technology (ICT). 4. Increase tertiary education enrolment and promote technical and vocational education.

5. Bring all stakeholders on board from the beginning of reforms and provide strong leadership.

“It is only by having a highly skilled workforce that GCC countries will keep a competitive edge as the war for global talent accelerates. In terms of demand for education services, a growing national population as well as more expatriates attracted to the region mean that the education sector is set for continued strong growth in demand,” says Barrett. 23


ICAI Silver Jubilee

ICAI ABU DHABI MARKS

SILVER JUBILEE

Over 650 high profile delegates join members as Chapter celebrates significant milestone.

P

ROFESSIONAL BODIES need to push for excellence as they endeavour to improve the skills, knowledge and expertise of their respective members, Governor of Central Bank of the UAE H.E. Sultan Bin Nasser Al Suwaidi, has said. Al Suwaidi was addressing delegates during the recent high profile seminar organised by the Abu Dhabi Chapter of the Institute of Chartered Accountants of India (ICAI), to mark its Silver Jubilee. The seminar was attended by over 650 delegates.

“Professionals and professional bodies have an even more powerful role to play as part of the self-improvement and regulatory landscape,” the Governor said, while applauding the efforts the Abu Dhabi Chapter of ICAI have continued to contribute the development of the Capital’s economy. Code of Ethics He also praised the ICAI Code of Ethics as one of the most comprehensive document on integrity, “which needs to be complied by all members.” Chartered Accountant (CA) Padmanabha Acharya, Chairman of the Chapter, in his address, mentioned that the Abu Dhabi Chapter has come a long way since its humble beginnings in 1984.

“The pursuit of excellence in its activities has been the core strength of the Chapter, and the theme of ‘Excellence – the Path to Success’ selected for the Silver Jubilee seminar is highly relevant in today’s context,” he added. 24 December 2013

Acharya quoted the famous Confucious in his address, saying “the will to win, the desire to succeed and the urge to reach your full potential... are the keys that will unlock the door to personal excellence.”

The ICAI motto Similarly, while addressing the delegates, CA Subodh Kumar Agrawal, ICAI’s President, (parent body of Abu Dhabi Chapter), mentioned that the Abu Dhabi Chapter is the second biggest overseas chapter amongst 22 overseas chapters. He reaffirmed that independence, integrity and excellence are inherent parts of ICAI’s motto. The President reminded the attendees on key ICAI initiatives and challenges ahead in the path, stressing on the importance of the ‘3 Vs’ (Value, Virtue and Vision) as qualities of a successful leader. The seminar brought together a galaxy of experts and leaders who tackled various in seven power packed sessions including two panel discussions and covering various relevant topics.

Dr Karim El-Solh, Co-Founder and CEO of Gulf Capital, focused on the Gulf as a viable private equity investment destination. He mentioned that GCC countries are doing a great job at diversifying their economies with a consistent track record of growing at a faster rate than the global economy and most emerging markets.

Quality of a good leader Another key note speaker, Adel Abdullah Ali the Group CEO of Air Arabia, provided a glimpse of his career journey and how he overcame the hurdles along the path. With a start of 2000 passengers, Air Arabia today carries 6 million passengers


ICAI Silver Jubilee

Dignitaries unveiling the new brochure during the Silver Jubilee conference organised by the Abu Dhabi Chapter of the Institute of Chartered Accountants of India (ICAI). From left, CA Rajiv Shah - Vice Chairman (ICAI Abu Dhabi Chapter), CA K Raghu – Vice President (ICAI), CA Subodh Kumar Agrawal - President (ICAI), CA Padmanabha Acharya - Chairman (ICAI Abu Dhabi Chapter), H.E. Sultan Bin Nasser Al Suwaidi (Governor of Central Bank of the UAE), Anas Ahmed Al Qubaisi (Senior Vice President – National Drilling Company), General J. J. Singh (Former Chief of Army Staff, India), Mohan Jashanmal (Regional Manager of Jashanmal National Company) and CA Suresh Panwar – Secretary (ICAI Abu Dhabi Chapter).

annually. He mentioned that the main quality of a good leader is “when the people work with him, not for him.”

On the second day of the seminar, CA J Rajasekhar Reddy, the first 100% visually impaired Chartered Accountant in India, shared his success story elaborating how his parents, mentors, friends and teachers helped him in accomplishing great strides in his career. He said that ‘Inspiration, Aspiration, Perspiration and Desperation were the four key words that nudged him on, adding that “physically challenged people need opportunity, not sympathy.” Decorated author who is also India’s former Chief of Army Staff, General J. J. Singh presented his views on national concerns and leadership, saying that “whether you lead five men or five million men, the essentials of leadership are

the same.” He also quoted that “if a man does not know what port he is steering to, no wind is favourable.”

Women in business In another session, Vice President CA K Raghu elaborated key ICAI initiatives in the fields of Corporate Governance, XBRL, IFRS, CPE, Technology and ICAI Regulatory rules. He stated that in today’s era, “specialisation is the new mantra for success.”

“Professionals and professional bodies have an even more powerful role to play as part of the self-improvement and regulatory landscape.” 25


ICAI Silver Jubilee

Meera Sanyal, the Chairperson India Services and Foundation, Royal Bank of Scotland, Seema Shetty, MD and Founder of BiteRite and Zari Zardozi and Rana Salhab, Deloitte’s Partner, Regional Talent & Communications, participated on a panel discussion on the role and success of women in business and society. The panelists mentioned that today, “women need equal employment opportunities, not reservation of seats.” The discussion was moderated by CA Rajiv Shah, CEO, Gulf Investment Consultants and Vice Chairman of the Chapter. The event was followed by a gala dinner and live entertainment performance by prominent Bollywood singer, Shaan which was attended by over 3,500 people. He enthralled the audience with a non-stop electrifying performance. Recognising excellence During the evening event, the Chapter also presented the “Business Super Achiever” award for 2013 to Mohan Jashanmal, Chairman of the Indian Business Professional Group, Regional Manager of Jashanmal National Company (Abu Dhabi, UAE) and Shareholder of Jashanmal Group of Companies, and Nilesh Ved, Chairman 26 December 2013

and Founder of the retail conglomerate Apparel Group.

Jashanmal was also past Chairman of Indian Social Center and Abu Dhabi Indian School. He also received Pravasi Bharatiya Samman Award for the year 2010 and was awarded the Rising Entrepreneur of the Year Award for his outstanding contribution to the Industry & India Rising as Chairman of Indian Business/ Professional Group.

Nilesh Ved is a renowned name in the retail fashion industry. In a journey of just over 14 years, his Apparel Group has grown from one store to over 900 stores, representing about fifty recognised brands in the world like Tommy Hilfiger, Aldo, Kenneth Cole, Tim Hortons, Cold Stone Creamery, Charles & Keith, Dune, Nine West, Aeropostale, Sketchers to name just a few.

Another award for “Excellence in Finance” for 2013 was received by CA T. K. Raman, Group Chief Financial Officer, Finance House PJSC. CA Raman is a well-respected leader who practices the “discipline of getting things done” within time and cost budgets.

Governor of Central Bank of the UAE, H.E. Sultan Bin Nasser Al Suwaidi addresses the delegates during the conference.


Career Development

CANADIAN VARSITY

SIGNS DEAL WITH CIMA Agreement to help students get a career advantage with management accounting qualification.

T

HE CHARTERED Institute of Management Accountants (CIMA) has announced it has signed a memorandum of understanding (MoU) with the Canadian University of Dubai (CUD), in a deal that will allow students to develop proficiency in business and finance and gain global accreditations. This agreement also offers CUD students pursuing their BBA and MBA degrees to pursue CIMA’s global qualification simultaneously and be double qualified. Not only do CUD graduates receive a solid grounding in the fundamentals of business and accounting but it also gives them an advantage to be professionally qualified and fast track their careers as soon as they graduate.

Leadership roles Commenting on the MoU, Prof Karim Chelli, President, The Canadian University of Dubai said, “Our agreement with CIMA is a step forward in helping our students succeed in the business world. The CUD degree combined with the knowledge gained from CIMA’s certification in finance and business will prepare them for leadership roles.” CIMA offers the most relevant globally recognised business and finance qualification. The qualification focuses on business performance, management and finance, giving students an advantage to be placed across any business.

By the time the students graduate, they are not only financially qualified but also professionally trained in business management, capable of advising on business strategy and risk management. Qualified professionals Geetu Ahuja, Head of GCC, CIMA said, “We are

seeing a growing interest from students in the UAE who are keen on building a career in business and finance. From an employer’s perspective, there is a strong emphasis on recruiting qualified professionals to fill a number of key management positions in the region. For them a qualification such as that from CIMA is the most relevant as it prepares students to lead and drive business forward on a strategic level.”

Geetu Ahuja (left), Head of GCC, CIMA signs the MOU with Professor Karim Chelli, President of the Canadian University of Dubai.

CIMA is the largest professional body in the world focused exclusively on management accounting and currently has 203,000 members and students operating at the heart of businesses in 173 countries.

There is a growing interest from students in the UAE who are keen on building a career in business and finance.

27


Student Accountant

WHATEVER YOUR

DREAM IS,

GO FOR IT!

Uzair Khan is not your average young accountant. With remarkable ICAEW and ACCA credentials and a ‘Big 4’ job to boot, his affable, soft spoken demeanour hides an ambitious 27-year old go-getter lad with an impressive résumé that would make many envious.

30 December 2013


IFRS Student Special Accountant

A

David Thomasson Founder and MD - Phoenix Financial Training

S THE UAE retur ns to strong economic growth with businesses and employees moving forward with confidence, it is important to remember that in good times and bad, hard work and a single minded dedication and focus can sometimes take young people toward what may, in their early professional lives, seem to be the opportunities they might only dream of. I want to share some thoughts about a young man who I have found to be extraordinarily inspiring, hoping that his story will motivate other young trainee accountants out there in the region. I have watched Uzair Khan, one of my students at Phoenix Financial Training, grow in confidence, professional stature and achievement over the last five years.

During the time he spent studying at Phoenix under KPMG’s sponsorship, he has achieved both his ACCA (the Association of Chartered Certified Accountants) and now full ICAEW (Institute of Chartered Accountants in England and Wales) qualification without once failing a paper at any level. His work ethic and determination are an inspiration to us all and he is hugely respected and liked by all in the Phoenix team. He recently scored what I believe to be the highest mark recorded in the region in his ICAEW Advanced Case Study exam.

When I heard that he had received the opportunity to move, with KPMG, to the UK and knowing that he would be able to then join his wife there and develop their lives together, I felt obligated to share the story of this dedicated and very humble young man with you. Uzair, tell us about your early childhood upbringing?

I was born in Pakistan but I was brought up and did my schooling here in the UAE. My early schooling was at Pakistan Education Academy, then afterwards I gained my Secondary School Certification (SSC)

in 2001 and Higher Secondary School Certification (HSSC) from there in 2003. Though in the UAE, the syllabus of education was Pakistani-based. Why did you choose to follow a career in accountancy?

Accountancy was never my inspiration as I had studied pre-engineering in my high school. Traditionally, students tend to choose engineering or medical as a specialisation in Pakistan. I was inspired to pursue accountancy when I first attended a seminar in 2005 in Peshawar, Pakistan, where I accompanied my friend who wanted to join. In addition, my brother-in-law is a Chartered Accountant an also played a huge role in encouraging me to adopt accountancy as my career. Is accountancy a family tradition?

No, accountancy is not a family tradition but it had always been my parents’ desire for me to have a prestigious qualification like ICAEW and ACCA. My father is a graduate whereas my mother is a housewife. Their effort in my upbringing and helping to develop a serious attitude towards my studies was always their first priority. Was KPMG your first employer?

Yes, KPMG Lower Gulf was my first employer since 2008 when I joined under the graduate trainee scheme. I joined the Technology, Media and Telecommunications assurance services department and till my secondment to KPMG UK, worked as a Senior Associate. How did you go about bagging a position with the ‘Big 4’?

Well, every candidate of accountancy wishes to start their career with a Big 4 firm mainly because they provide a diversified career growth and significant opportunities. At the time of my joining KPMG, it was the first firm to which I had applied to – I was lucky to get interviewed and ultimately I joined in 2008. Why did you undertake ACCA initially… then ICAEW?

31


Student Accountant

I started ACCA, with its pre-course known as Certified Accounting Technician (CAT) in 2006, as the qualification was, and still is, widely known and more accessible to students in Pakistan compared to ICAEW. Later when I joined KPMG UAE, I continued with the ACCA and completed it in 2010. Why did you feel it was necessary to top-up with an ICAEW qualification?

Nowadays, the competition is very intense and the industry prefers to have professionals who have multiple qualifications. ICAEW is a well renowned international qualification and this has certainly widened my horizons.

KPMG Lower Gulf has a policy of providing second study contracts to students who do well on their first trainee contract studies while taking into account their overall performance at work. I met the criteria and I wanted to study more and gain a chartered qualification like ICAEW, thus I applied and was successfully granted a place. Was the potential to move to the UK a surprise or has this always been your goal?

My secondment move to KPMG UK resulted more from personal reasons, as my spouse was granted a scholarship to pursue PhD studies in Applied Linguistics from the University of Southampton. I thank KPMG for providing me with this overseas transfer opportunity, and understanding both my personal and career reasons. Do you think having ICAEW helped you to secure this transfer?

Yes, indeed. In fact it was the day I qualified ICAEW that I got my formal approval of secondment from KPMG UK. This qualification on my résumé certainly added weight to this opportunity, as all the ‘Big 4’ firms and clients in UK prefer to have ICAEW qualified professionals. Do you think being both ACCA and ICAEW qualified will help you progress in the UK?

Certainly, I believe both ACCA and ICAEW qualifications will bring more growth and ample career opportunities for me in UK. This is because they are both UK qualifications and the knowledge gained from these qualifications is relevant to the practice that I am currently in. Where does your strong work ethic come from

32 December 2012

– parents/siblings/yourself? My work ethic originally came from my parents and this has grown further within my work environment.

PROUD INSTRUCTOR: Uzair Khan with his tutor David Thomasson (right), the Founder and Managing Director of Phoenix Financial Training.

Did you enjoy your studies and your time at Phoenix? My journey with Phoenix Financial Training (PFT) right from 2008 till 2013 has been blessed with the right guidance and support. The institute provided the conducive platform which led me to achieve both my ACCA and ACA qualifications and growth in my career.

PFT also provided me with experienced tutors from UK, who all supported me well in passing my exams in the first attempt. Besides the favourable studentinstitute relationship, PFT provides the necessary guidance in terms of appropriate selection of papers

Accountancy is not a family tradition but it had always been my parents’ desire for me to have a prestigious qualification like ICAEW and ACCA.”


Student Accountant

and flexible payment plans to those students who, if they are self-financing, are not able to pay their fees in one shot. What work/career advice what you wish to pass on to aspiring young people?

“KPMG Lower Gulf has a policy of providing second study contracts to students who do well on their first trainee contract.”

Planning… and subsequent implementation of it is very important. This comes only from motivation, and I would suggest seeking advice and guidance from mentors, and senior work colleagues who have done well in exams. What about advice with regard to their studies?

I did manage to pass my papers by planning those six months in advance for the term that followed, and doing my revision on weekends or regular days for about three hours. For students who both work and study, it is vital that they devote a few hours of their weekend days towards studies.

Coaching classes from the training institute are also very vital and, I would suggest not missing a single tuition class even in the times when the subjects are a bit boring!

MAN ON THE MOVE: “KPMG Lower Gulf was my first employer when I joined the graduate trainee scheme in 2008. I climbed the ladder and worked as a Senior Associate till my recent secondment to KPMG UK.”

33


Smart Business

KPMG CAPITAL FORMED

New investment fund will support partnerships and acquisitions, to help firms’ clients unlock tangible value of their data.

K

PMG INTERNATIONAL has announced the formation of KPMG Capital a new investment fund created to accelerate innovation in data and analytics (D&A) that will help clients of member firms unlock tangible value of their ‘big data’.

Michael Andrew, Chairman of KPMG International: “KPMG Capital will enable a nexus for the world’s best thinking in data and analytics.”

KPMG Capital will support technology partnerships, strategic alliances and the recruitment of top talent to create new D&A solutions. With these capabilities, KPMG member firms will help clients solve critical business challenges in such areas as new revenue streams, risk management and cost optimisation. The use of D&A has become a critical business priority as companies try to derive value from the vast amounts of data now available to them.

Current growth plans A new KPMG survey of business leaders from many of the world’s leading companies found that while 69 per cent see D&A as strategically important to their current growth plans, an overwhelming 96 per cent believe their company is not currently using D&A effectively.

96%

Percentage of businesses not managing data effectively, according to KPMG survey 34 December 2013

Addressing business challenges KPMG Capital’s Toon believes the most successful companies will be those not merely collecting the data, but those that can distill data and translate it to insightful business guidance.

“Too many companies still see big data principally as a technology issue, when it really is a business issue across all industries,” he said, adding, “We’re helping companies look at their data differently and turn it into value.”

Investment will be made in a number of critical business areas including enhancing business flexibility; finance; regulation and compliance; improving workforce productivity; and customer and revenue growth. KPMG Capital will work to develop solutions that will focus on growth sectors such as healthcare, financial services, energy and telecommunications.

KPMG Capital’s aim is to invest in, partner with and acquire organisations that specialise in data and analytics tools and assets.

“Our new research shows that business leaders recognise the tremendous importance of D&A to business growth but feel they need more support to develop effective solutions,” said Mark Toon, CEO of KPMG Capital and global lead for KPMG’s D&A practice.

Unlock new thinking Combining that expertise with the KPMG network’s global reach, existing D&A capabilities and deep insights, KPMG Capital will work to unlock new thinking to address the most pressing business challenges and deliver new solutions to market more quickly.

“With more data produced and stored in the last two years than in the rest of human history, many businesses are looking for strategic and practical solutions to manage the volume, velocity and variety of this data revolution. KPMG Capital will lead the way in addressing the challenge of the three ‘v’s,” Toon added.

“D&A is part of our heritage, but with the fast pace of technology and globalisation, clients want deeper insight more quickly. KPMG Capital’s structure will allow us the flexibility to commercialise solutions which our global network of professionals can use to help business leaders harness the right data, analyse it and translate it into value. This is a transformative step for the future of KPMG’s member firms as well as for clients’ businesses,” Michael added.

“KPMG Capital will enable us to develop or acquire opportunities in D&A quickly. Through partnerships with technology and service providers, strategic partners and other third parties, we aim to accelerate innovation in D&A to bring potential solutions to clients – and to the market - faster.”

“KPMG Capital will enable a nexus for the world’s best thinking in data and analytics,” said Michael Andrew, Chairman of KPMG International.


Business IFRS Special Insights

INDIA PREPARES

FOR GROWTH AND CHANGE

Despite a significant slowdown, the Indian economy continues to grow and the accountancy profession is growing with it. With important legislative change in the pipeline, Jonathan Minter talks to industry insiders.

The demand for Chartered Accountants in India is rapidly growing on account of fastchanging requirements of corporate changes in regulations and listing requirements and the need for better corporate governance.

5.7%

IMF’s growth estimate of India’s GDP in 2013

36 December 2013

T

HE INDIAN economy was once viewed as a safe haven against the economic crisis that gripped most of the world for much of the past few years, but, in 2013 it began to struggle. The International Monetary Fund estimates GDP growth in India will be about 5.7% in 2013, half of the 11.2% growth recorded in 2010, while the rupee has suffered arguably its worst crisis in 20 years. However, the impact on the profession has been less than it might have been.

According to president of the Institute of Chartered Accountants of India (ICAI) Subodh Kumar Agrawal: “The demand for chartered accountants is rapidly growing on account

of fast-changing requirements of corporate changes in regulations and listing requirements, the need for better corporate governance, and so on.” “The Companies Act 2013, convergence with IFRS, implementation of the Goods and Services Tax (GST), direct tax codes and corporate laws have all necessitated the assistance of chartered accountants in various sectors of the industry.”

Mandatory audit rotation President of the Institute of Cost Accountants of India (ICMAI) Suresh Chandra Mohanty says: “The key issue for the accounting profession in India to watch out for in the coming year will be the impact of the provisions of the new Companies Act 2013 as regards accounts and audit, and its regulation.”


IFRS Business Special Insights

“The Companies Act 2013, convergence with IFRS, implementation of the Goods and Services Tax (GST), direct tax codes and corporate laws have all necessitated the assistance of chartered accountants in various sectors of the industry.” The Companies Act will introduce mandatory audit rotation, mandatory corporate social responsibility (CSR) spending, create the National Financial Reporting Authority (NFRA) and a host of other features.

After years in legislative limbo, the Act finally passed through India’s Parliament in August, and now looks set to become law. Although not every item in the Act is viewed with unanimous enthusiasm, the vast majority of accountants The Accountant spoke to say they are generally positive about it, and are glad that it looks like it will finally pass. When talking about the Act, Mohanty says: “There are several new challenges for all professionals. And again, there is a lot of opportunity because the provisions have been simplified to make it more complianceorientated.” The Companies Act Agrawal says that, though the ICAI "welcomes the Companies Act 2013 which will replace the nearly six-decade-old regulations", there are some key issues in the Act affecting the accountancy profession that the ICAI will systematically rake up with the competent authorities.

Some of the concerns the ICAI has brought up include the expansion of liability of fraud to auditors and the prohibition of certain services by auditors and the “voluntary revision of accounts by the board under Section 131”.

One aspect of the Act especially relevant to the ICAI is the creation of the NFRA. Agrawal complains that the rules of the NFRA are not

yet fully formed, and there is a general lack of clarity among professionals about the NFRA overall.

Despite this, in industry, there is broad support for its creation, and managing partner of Grant Thornton India, Vishesh Chandiock describes it as a “step in the right direction”. However, he also expresses a fear that it may be underfunded and not receive enough support.

When contacted by The Accountant, the Indian Government’s Ministry of Corporate Affairs (MCA) was unwilling to provide a comment on issues such as funding, the reasoning behind its creation, and how it is intended to operate alongside the ICAI.

NFRA powers Under the Act, the NFRA will have the power to monitor and enforce accounting and auditing standards and make recommendations to central government on new policies and standards for auditors. It will have the power to investigate both firms and bodies, and where professional or other misconduct is proved will have the power to impose fines against both individuals and firms.

The NFRA will also have the power to debar individuals and firms from the ICAI for between six months and 10 years, meaning the NFRA will have a role both as a standard-setter and be able to punish firms - two roles that the ICAI currently performs. According to Agrawal, this may mean that the ICAI will have to stop its investigating process, despite possessing a disciplinary mechanism and process that is “time-tested and tried”. What’s more, he said: “If under the new law the NFRA notifies auditing standards, it would be an overlap and encroachment on the domain of the CA profession.” “Also, many other boards of the ICAI like the peer review board, quality review board, financial reporting review board, and others will get diluted and there would be duplicity of work.”

One of the key parts of the Act is CSR spending. Companies with a net worth of INR500 crore or more, a turnover of INR1,000 crore or more, 37


Business Insights

For his part, Mohanty says it “will bring about more objectivity in the audit process, and the relationship between auditor and auditee, and also enhance corporate governance”. Agrawal adds that “ICAI will also bring out guidance notes for smooth implementation of the provisions of the Act”.

Comprehensive outlook The Companies Act is only passing after several years of existence, and slow legislative process is something of a theme for Indian surveys. However this year there seems to be less dissatisfaction in this regard. For example, KPMG director for accounting advisory service practices in India Nirav Patel says that though Acts can sometimes take time to pass, this is the result of going about things in a consultative and democratic way.

Subodh Kumar Agrawal, President of the Institute of Chartered Accountants of India: “The growing number of female members and students, and their better performance over the years in the recent past, is evidence of women-friendly policies and endeavours of the ICAI.”

or a net profit of INR5 crore or more during a financial year will be required to create a CSR committee of the board, consisting of at least three directors, including at least one independent director. Companies in this category are to spend at least 2% of their average profit over the past three years on CSR projects, such as the promotion of education and gender equality, and the CSR committee will be responsible for ensuring and monitoring this.

Underprivileged students For the mandatory CSR, the ICMAI is actually exceeding the provision by spending 4% on educating underprivileged students who would otherwise not be able to pursue a professional career. Mohanty says uptake has been extremely high, adding: “Students will get the practical knowledge and computer training necessary to serve in any sector of the economy and will also have the opportunity to come to our main course.”

The Companies Act also introduces mandatory audit rotation which, as has been the case around the world, has proved controversial. Accountants from the majority of the mid-tier are for it; a few of them, along with Grant Thornton and the Big Four, are against it. 38 December 2013

According to Mohanty: “We are hopeful all the new legislation and taxation on corporate law and other related legislations are in place in India, which will be helpful.” He adds that the Indian economy is a lot more open that it was and, as a result, Indian companies are increasingly competing on an international scale.

To compete, he says, companies are changing what they expect from accountants and auditors, and as a result are looking for more advisorybased services, as opposed to compliance services. And Indian accountants are becoming increasingly agile in a business sense, able to offer an increasingly comprehensive outlook rather than just basic accounting. In the face of this increasingly international environment, the country has attempted to converge with IFRS standards for several years now. According to Patel, this will bring a number of advantages: "It always helps when you are raising capital, when you're planning to acquire overseas or you are a target of acquisition. It always helps to have a single set of converged standards."

In August, there was a meeting between regulators and stakeholders on the topic, in which the benefits and challenges of convergence were discussed, and it seems little progress was made.


Business Insights

As a result, IFRS convergence is yet to be implemented, and won't be for some time, despite an original deadline of April 2011.

Accounting standards While the MCA has been considering its IFRS convergence road map, the ICAI has been formulating and amending existing Indian accounting standards corresponding to most of the IFRSs issued by the International Accounting Standards Board.

It’s worth noting the reason for the difference between the ICMAI’s acronym and its name. Up until February 2012, it was known as the Institute of Cost and Works Accountants of India (ICWAI), however at that point it was renamed the Institute of Cost Accountants. The institute has for some time been attempting to become the Institute of Cost and Management Accountants, and Mohanty seems reasonably confident that the situation will resolve itself in the future, as the institute continues to press the Government and policy-makers on the issue. Currently ICAI has 224,388 members, 12% above 2012’s numbers. This is only 1% less than the 13% growth in numbers the ICAI reported last year, despite the hardening economic climate.

RSM Astute Consulting founder Suresh Surana says the ICAI “has been very proactive in

Under the Act, the NFRA will have the power to monitor and enforce accounting and auditing standards and make recommendations to central government on new policies and standards for auditors. creating new opportunities for professionals and has moderated very well”, in terms of influencing total numbers.

Fellows versus Associates ICMAI figures, in contrast, fell sharply, to 20,267, from 46,360 in 2012. When asked about this fall, a spokesperson for the ICMAI told The Accountant it was for a number of reasons, including non-payment of fees.

Of these members, 17.5% are classed as ‘fellows’ and the remainder are classed as ‘associates’. Fellowship requires five years’ membership.

Mohanty, by included partner members, increased the number to 64,000 and said that overall the institute was growing. The number of students studying at the ICAI has also increased, to 1,152,364, 14% up from 1,014,081 last year, and ICMAI student numbers also grew, although the institute didn’t reveal specific numbers. 39


Business Insights

Mohanty says that the ICMAI has put an increasing emphasis on the quality of education at the institute, and has learned from the UK Chartered Institute of Management Accountants (CIMA) education model by increasing the focus of education on case studies to roughly 50% of the course. This gives the education students receive a more practical application for when they qualify and enter the working world.

Updated course syllabus At the ICAI, Agrawal says that CAs in India are being utilised in an increasing number of areas, such as insurance and public finance, and the course syllabus is regularly updated and revised to “weed out obsolete contents and introduce the latest materials”. The role of women also seems to be progressing. Anecdotally, interviews by The Accountant reveal a general increase in the number of women entering accountancy as a profession.

The number of qualified female members at the ICAI stood at 46,592, a 23% increase on the year before, almost double the percentage growth in overall membership. Overall, women now make up 20.8% of the institute, up from 19% last year. There are 400,372 women students in the ICIA, 16% up on 2011, marginally outpacing the overall growth in ICAI student membership. Women now make up 34.7% of the Institute’s total student population. The ICMAI’s 1,976 qualified women mean that 9.7% of its qualified membership are female, a slight improvement on the 9.5% recorded in 2012.

Overall, women made up 19.9% of the membership of both Institutes, up from 17.2% in 2012, so there was at least some improvement. Agrawal says “the growing number of female members and students, and their better performance over the years in the recent past, is evidence of women-friendly policies and endeavours of the ICAI.”

The past year has seen the general profession become more international in outlook. The bigger firms are getting increasing revenue from outsourced projects from both the West 40 December 2013

and the developing world, and the Institutes are also looking abroad.

Mutual agreement The ICMAI is a member of a number of international bodies, and has also signed a Memorandum of Understanding (MoU) with the US Institute of Management Accountants (IMA) that means any member of IMA can gain membership of the ICMAI, and vice versa. In January, the ICMAI re-signed a MoU with CIMA UK; however this does not mutually recognise members. There are talks planned for this in 2013, and Mohanty says he will fly to London for discussions later this year.

The ICAI has signed a MoU or a mutual recognition agreement with seven Institutes, including the Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Australia, and expects to sign further MoUs with the Accounting and Auditing Standards Board of Bhutan and the Saudi Organisation for Certified Public Accountants in the near future.

Suresh Chandra Mohanty, President of the Institute of Cost Accountants of India: “The key issue for the accounting profession in India to watch out for in the coming year will be the impact of the provisions of the new Companies Act 2013 as regards accounts and audit.”

It is also in talks for MoUs with the South African, Japanese and Mexican chartered accountancy institutes, and have begun a dialogue of technical cooperation with a number of others. Looking ahead, the leaders of both institutes are broadly positive. Mohanty says the economy had not affected the Institute too much, despite the fall in numbers, and that he hoped the economy would begin to improve by December.

For Agrawal, “it may take a little more time for the economy and industry to bounce back. However India is being perceived as a robust market in a democratic environment”.

- The Accountant, UK

The Companies Act finally passed through India’s Parliament in August, and now looks set to become law. Although not every item in the Act is viewed with unanimous enthusiasm, the vast majority of accountants say they are generally positive about it.


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Tax Matters

TAX 101:

BEWARE THE

FINE PRINT

Nilesh Ashar, Tax Partner at KPMG Lower Gulf provides insight into the complex key current international tax issues that could impact Middle East based companies and government owned entities with international operations.

T

AX DIRECTORS around the world are shouldering the impact of fundamental changes in attitudes and approaches to tax.

Whether it is corporate social responsibility, tax governance, enhanced transparency with tax authorities and investors, or society holding individuals and businesses accountable for paying a fair amount of tax, these issues are subject to increasingly heated debates. The sentiment around the issues described above have resulted in a number of legislative changes and proposals both at an international level - the OECD BEPS action plan, automatic information sharing agreements between countries, increased focus on transfer pricing; to individual countries

42 December 2013

adopting unilateral measures – such as FATCA, GAAR, black list of countries etc.

Tax is no longer only another finance function, but has crept into the boardroom as a key agenda item, particularly around the tax strategy of the company and the tax governance framework within which a company operates. Transparency and governance Transparency of international groups’ tax affairs has increasingly been in the spotlight with the likes of Starbucks, Google and Amazon having their tax affairs heavily scrutinised and publicised in the media.

The forenamed groups have faced accusations of tax avoidance in the House of Commons Public


IFRS Tax Special Matters

Accounts Committee in the UK. Although the Chair of the Committee stated that the accusations are not of illegality but of immorality, this raises some interesting questions: a) Do tax payers have a moral obligation to pay tax in jurisdictions where they have operations?

b) Or should stakeholders and board of directors expect their companies to structure and plan their tax affairs appropriately to minimise their tax bill (whilst remaining within the boundaries of the law of course!)?

One thing is for sure, there has been a global shift in attitude towards tax. It appears that the rest of

the world has jumped on this band wagon with the Organisation for Economic Co-operation and Development (OECD) stating that the fairness and integrity of tax systems are undermined by companies who avoid taxation in their home countries by pushing activities abroad to low or no tax jurisdictions. At the request of G20 Finance Ministers, in July 2013, the OECD launched an Action Plan on Base Erosion and Profit Sharing (BEPS). The BEPS report identified 15 specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes. BEPS will undoubtedly dominate the minds of all involved in the tax world in the coming year as the OECD are scheduled to

Nilesh Ashar, Tax Partner at KPMG Lower Gulf: “The UK and India have introduced General Anti Avoidance Rules (GAAR) to tackle tax avoidance.�

43


Tax Matters

complete a number of their identified action points in 2014 and mid-2015.

Shift in attitude There have been other developments internationally which further supports this shift in attitude towards tax transparency and governance. The UK and India have introduced General Anti Avoidance Rules (GAAR) to tackle tax avoidance. The rules, which apply to most taxes, are intended to tackle abusive tax arrangements where obtaining a tax advantage is the main purpose or one of the main purposes. There is also more focus on internal tax systems and controls with company management expected to understand existing tax systems and controls and to regularly review them to ensure that they are adequate such that the company’s tax liability is calculated accurately. In the UK, Senior Accounting Officers are required to sign a certificate stating that this is the case. Penalties are levied for non-compliance.

Without a doubt, our Middle Eastern clients with an international presence will need to prepare themselves for the increased focus on tax transparency and governance.

Tax in the Boardroom In recent years, tax has slowly crept up the agenda in Boardroom meetings. Companies are increasingly recognising the importance that tax plays in their multi-national businesses. With Tax attracting front page headlines, perhaps companies are recognising the consequences of not being on top of their tax affairs! Either way, it is crucial that tax remains on the agenda at Board level. Boards and audit committees are increasingly discussing tax strategies, and requiring tax and finance functions to report on tax governance and risks impacting their business. For companies operating in the Middle East, in particular, this issue has been gaining importance in Board meetings.

Companies are also encouraged to adopt a more proactive approach to their tax affairs. On numerous occasions, we see companies carrying out transactions where tax is an after-thought. Had tax been on the agenda at the planning stage, the transaction would have been structured in a far more tax-efficient manner. 44 December 2013

Transparency of international groups’ tax affairs has increasingly been in the spotlight with the likes of Starbucks, Google and Amazon facing accusations of tax avoidance and having their tax affairs heavily scrutinised in media. With this in mind, we spend time with some of our clients’ “deal teams”, educating them on key tax issues that arise on transactions. Our clients see great benefit in this as this allows for tax issues to be identified at an early stage and for appropriate advice and action to be taken, so that a tax “sign-off” is obtained before the deal reaches the Board / investment committee for approval.

It is imperative that company directors take a more proactive and hands-on approach to their companies’ tax affairs. A big part of this is ensuring that directors have a better understanding of taxation and how it fits into their businesses. This of course leads to greater tax governance and a lower tax risk profile for the company, while ensuring that decisions around tax are made taking into account reputational risks and not simply whether the company has complied with the tax laws in various jurisdictions. Transfer Pricing Transfer Pricing (pricing for transactions between two related companies) is probably the most common tax issue for international groups with intra-group transactions, and which carries significant risk as a tax avoidance tool.

Due to the scale of transactions that companies carry out in order to operate in global markets, and with various countries looking at making their tax systems attractive for foreign investment, transfer pricing has become one of the most significant and challenging tax issues facing multinationals and tax authorities. Many tax authorities across the globe have identified a gap in tax revenue resulting from transfer pricing in relation to cross border transactions. In particular, related companies entering into cross-border trade, artificially distorting the price at which the trade is recorded, to minimise the overall tax bill.


Tax Matters

This might, for example, help it record as much of its profit as possible in a tax haven with low or zero taxes. Tax authorities have publicly stated that this is an area of focus in order to increase tax revenue. This is not a surprise. It is estimated that 60 to 70 per cent of international trade happens within multinationals, that is, across national boundaries but within the same corporate group. The amount of tax revenue that governments lose as a result of incorrect transfer pricing is difficult to accurately quantify but it has been estimated to be up to several hundreds of billion dollars annually!

Getting the price right Transfer pricing brings with it many challenges. Firstly, getting the price right. This is not always straight forward, as for certain non-standard transactions; there are not comparatives in the market to bench mark what an “arm’s length” price would be (that is, that which would be charged between two unconnected parties). Methodology has been developed to carry out this benchmarking but this will never be an exact science and there will always be a level of subjectivity. The second challenge is documentation. In nearly all tax jurisdictions, it is a requirement to have documentation to evidence that the transfer pricing is arm’s length. This is an area where we see our clients requiring the most assistance. With tax authorities increasingly opening transfer pricing enquiries, developing and documenting robust group transfer pricing policies is key to withstand the challenge from the tax authorities. Given that companies operating in the UAE pay no corporate income tax, it is no surprise that we are seeing tax authorities enquire into transfer pricing in relation to transactions which UAE based companies enter into with related companies that are tax resident in countries with a higher corporate income tax rate. Groups with a presence in the Middle East will always be targeted by foreign tax authorities due to the risk of excessive profits being allegedly shifted to the Middle East through mispricing.

Even companies with regional presence in the middle east need to consider the impact of transfer pricing, as many middle east countries have basic transfer pricing provisions in their domestic legislations and rely on OECD

In July 2013, the OECD launched an Action Plan on Base Erosion and Profit Sharing (BEPS). The BEPS report identified 15 specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes. approaches to transfer pricing methodologies and documentation. We are seeing a number of UAE and Middle East based businesses actively carrying out transfer pricing studies and getting their transfer pricing documentation in place, in order to prepare for enquiries.

Should SWFs care? Global investments have picked up dramatically recently and who is better to lead this trend than Sovereign Wealth Funds (SWFs), the investing arm of the governments. SWFs are increasingly investing across geographies and asset classes, and are seen as a significant source of capital.

SWFs generally (and SWFs in the Middle East in particular) enjoy special tax exemptions in their home countries, but if the gains are being taxed in foreign countries with no corresponding tax credits available in home countries, returns can get eroded in comparison to other investment companies / private equity funds. Sovereign immunity is essentially an international judicial doctrine under which one country is

Nilesh Ashar is Tax Partner with KPMG

Lower Gulf, and his role involves leading the Firm’s international and Mergers & Acquisitions tax advisory services. He is a member of the Institute of Chartered Accountants in India and was previously working as a Director for another ‘Big 4’ firm in the UK. Nilesh has over 17 years of experience working in tax and has led several tax structuring assignments for private equity and sovereign wealth fund clients on their acquisitions in the UK and Europe. He has a degree in Chartered Accountancy from the Institute of Chartered Accountants of India and also a Bachelor of Commerce from Mumbai University. 45


Tax Matters

immune from suit in another country. This concept has extended to include the exemption of taxation on foreign governments on their noncommercial activities. These exemptions range from exempting certain type of incomes (capital gains, dividends etc) to granting exemption from certain taxes (federal taxes, direct taxes etc). Spotlight on US and UK In the US, for example, Sovereign Immunity provisions exempt qualifying income such as current income, and capital gains from investments in US stocks, bonds, securities and financial instruments from federal taxation.

In the UK, all income and gains that are derived from direct beneficial ownership by the head of the state or the government of a non-UK sovereign state are generally exempt from direct taxes under sovereign immunity rules. Even as corporate taxes are steadily reducing globally, withholding taxes and taxes on operations and gains can vary between 5% -35% and with no formal mechanism of obtaining tax credit for these foreign taxes, incentives such as sovereign immunity are a welcome relief. This being said, not all countries recognise sovereign immunity, and those that do, have specific criteria that needs to be met and maintained in order to be considered as sovereign immune from tax in another country. These criteria range from full immunity from direct taxes for trading and investment income, excluding income from commercial activities or commercially controlled entities, to denying sovereign immunity to SWFs owned directly by the foreign government. Domestic tax rules Therefore, it is imperative that SWFs consider the specific domestic tax rules to evaluate whether their income from investments or activities in the relevant country will be eligible to sovereign immunity.

So is considering sovereign immunity worth the effort? Sovereign Immunity may not be a concern for some countries, as double tax treaties (DTT) may act as an alternative in mitigating taxes in the investee jurisdictions, however sovereign immunity should not be taken lightly especially by the Middle Eastern SWFs, who are making significant investments in the key investment markets such as the US and UK but do not necessarily have access to tax treaties or the tax 46 December 2013

There have been other developments internationally which support the shift in attitude towards tax transparency and governance. The UK and India have introduced General Anti Avoidance Rules (GAAR) to tackle tax avoidance. treaty provisions are not applicable due to the tax exempt status of the SWF in the home country.

In summary, sovereign immunity from tax does make a difference as they can grant relief from taxes where double tax treaties cannot. It may even allow SWFs to bid for assets with more attractive pricing, given the comparative benefit of more attractive post tax returns, as compared to a private equity or non-sovereign investor. But in order take benefit, SWF’s must be diligent in complying with the requirements of investee jurisdictions for meeting the sovereign immunity criteria.

FATCA The Foreign Account Tax Compliance Act or FATCA is the brain child of the US Government who is using FATCA as one of the tools in its battle against tax non- compliance and tax abuses by US persons. Under US tax law, US taxpayers are subject to tax on their worldwide income, and if everyone were reporting their foreign income and offshore accounts diligently, then there would be no need for FATCA. But the US government has seen the reality and FATCA is their response.

Enacted into law in 2010, FATCA targets noncompliance by US taxpayers using foreign accounts, by requiring financial institutions worldwide to inform the Internal Revenue Service (IRS, the US tax collection and enforcement agency) about accounts held by US tax payers or foreign entities in which US taxpayers hold substantial ownership. In other words, FATCA shifts the onus of tax reporting and compliance onto any company holding or trading U.S assets on behalf of others. The ground is slowly shrinking for tax evaders, as FATCA regulations require foreign financial institutions (FFIs) such as banks, mutual funds,


Tax Matters

But are local laws preventing you from complying with FATCA? The US has thought of that as well by entering into intergovernmental agreements (IGA’s) with the governments, through which the FFI’s would report the information to their governments who will then share the information with the IRS under the IGA. The US is already in talks with more than 80 countries, UAE being one of them. The Central Bank of the UAE has recently issued a Notice, confirming their intention of signing the FATCA IGA Model 1 Agreement with the US Government, and has directed all banks and other financial institutions to begin implementations. The Central Bank has contracted with a legal firm, to provide legal support and conduct workshops designed to assist with the meeting the FATCA compliance requirements. FATCA readiness surveys will be conducted.

“One thing is for sure, there has been a global shift in attitude towards tax. Our Middle Eastern clients with an international presence will need to prepare themselves for the increased focus on tax transparency and governance.”

etc to register themselves with the IRS and disclose information about their US accounts, including accounts of certain foreign entities with substantial US owners. The FFIs may also be required to withhold 30% on payments to those who refuse to declare their obligations to pay US tax. Penalties levy To “motivate” compliance with FATCA, the US is levying heavy penalties by requiring withholding agents (any individual or entity that has control, receipt, custody, disposal or makes payment of any witholdable payment) to withhold 30% withholding on all US source income flowing to the FFIs and their customers, and a 30% withholding tax on the gross proceeds of the sale of US securities by the FFIs and their customers. Even the withholding agents are not spared as failure to comply would result in them being liable for 100% of the amount not withheld as well as related interest and penalties.

Rules and regulations A quick reading of the FATCA rules would indicate that they are directed at financial institutions which are defined broadly, however upon closer look, one would realise that FATCA has widespread implications and is very much applicable to nonforeign financial entities (NFFEs) as well. Such entities should be diligent about the type of income they are receiving as it may be subject may be subject to 30% FATCA withholding if they fail to timely and properly identify themselves to their withholding agents. The FATCA regulations are not entirely coldhearted and allow for certain exceptions and exemptions, but the fact of the matter is that they have caused a severe dilemma for everyone. On one hand, complying with FATCA, may prevent reputational risk and severe penalties, but on the other hand will result in burdensome and costly implementation, and may also conflict with the local laws.

The FATCA regulations were set to come into effect on January 1, 2014, however an additional 6-month reprieve has been provided for many of the provisions including the start of FATCA withholding, account documentation, and due diligence requirements. The regulations are now expected to be enforced on July 1, 2014, and FFIs, withholding agents and NFFEs should use this time to assess the implication FATCA may have on their operations and implement a strategy that will address them. 47


IPO Report

IPO ACTIVITIES IGNITE MARKET

DFM and NASDAQ Dubai discuss the role of listings in diversifying investment opportunities and achieving sustainable growth.

T

HE IPO sector in the UAE is on the verge of a new era of thriving activities and rekindled investor interest, finance managers have been told. The executives were attending an IPO forum organised recently by the Dubai Financial Market (DFM) and NASDAQ Dubai, dubbed, 'Going Public: Readiness, Timing and Attractiveness'. The event brought together 80 senior officials from 53 companies including chairmen, board members and CEOs of UAE listed companies and private and family businesses as well as numerous experts from IPO advisory companies.

In an online survey conducted by DFM through its website in November 2013, 76% of the surveyed investors said they are ready to participate in IPOs within the next 12 months and the majority of them are mainly interested in IPOs of government companies and private and family businesses.

Key traditional sectors The survey sample comprised 1,033 retail and institutional investors. Hotel and Tourism and Retail came at the forefront of sectors investors would like to see represented in the market through IPOs, in addition to the key traditional sectors including Real Estate and Construction and Banking.

The IPO Forum provided a unique opportunity to listen to invaluable ideas from speakers and panelists on various IPO-related topics including: market dynamics and the regulatory environment; UAE regulatory changes creating opportunities for companies; investor sentiment; capital market experts’ roadmap to listing successful IPOs; and key learnings shared by listed companies. 48 December 2013

The DFM IPO investor sentiment survey revealed that the top three factors investors pay attention to when taking the decision to participate in an IPO are: company financials, founders and management, and brand awareness. Retail investors put more emphasis on the media presence of the company while institutional investors ranked expert advice more highly.

During the forum some of the listed companies on DFM and NASDAQ Dubai, including Air Arabia and DP World, shed light on their successful experience in going public, in addition to discussing the latest regulatory developments with the participation of experts from the Securities and Commodities Authority (SCA) and Dubai Financial Services Authority (DFSA).

Playing a pivotal role Essa Kazim, Chairman, Dubai Financial Market (PJSC) said: “Dubai Financial Market is working unstintingly to encourage private and family businesses to list on DFM and NASDAQ Dubai, leading to diversifying investment opportunities and enabling investors to gain from the high growth of various sectors of the national economy.”

“The organisation of this forum stems from DFM’s firm commitment to instigating and enriching the discussions amongst market participants on various issues and demonstrating the role of capital markets in supporting businesses to achieve sustainable growth. We believe that the current environment is truly excellent and favourable to seeing an IPO backlog of recent years flooding on to the market," Kazim added.

Essa Kazim, Chairman, Dubai Financial Market: “The favourable market environment is likely to see IPO backlog of recent years flooding on to the market.”

76%

proportion of surveyed investors who said they are ready to participate in IPOs within the next 12 months


Grant Thornton Index

BUSINESS OPTIMISM UP Global survey finds UAE leaders optimistic on growth prospects as confidence levels for hiring and profitability moving into 2014 go up.

T

HE LATEST research from the Grant Thornton International Business Repor t (IBR) finds businesses in the UAE in a highly optimistic mood about growth prospects for the year ahead, leading global confidence levels for hiring and profitability moving into 2014. Of the 45 economies surveyed, only businesses in the Philippines (96%) are more confident in the local economic outlook. Net 84% of UAE business leaders express optimism for the year ahead. This confidence extends into local business expectations for revenues, profits and hiring over the next 12 months.

Robust economic data The UAE led all countries surveyed in Q3 for planned hiring over the next 12 months (net 66%) – ahead of Georgia (60%) and Turkey (56%), with the global average at 25% – and for profitability expectations (68%), well above the global average (38%). The UAE (84%) trails only India (86%) in terms of revenue expectations over the next 12 months.

Hisham Farouk, Managing Partner of Grant Thornton UAE commented: “The strength of business growth prospects reflects robust economic data. The UAE is expected to expand by around 4.4% forecast in both 2013 and 2014 and construction across the Gulf is booming Hisham Farouk, Managing Partner of Grant Thornton UAE: “The strength of business growth prospects reflects robust economic data. The UAE is expected to expand by around 4.4% forecast in both 2013 and 2014.”

with oil prices still well above $100 per barrel. Clearly the openness of the UAE economy means is it susceptible to fluctuations in global trade patterns, but recent uncertainty in the US and some emerging economies does not seem to have dampened business confidence.” “Importantly, non-oil exports continue to grow as the economy diversifies, becoming a world-class hub for trade, transport and tourism. The emirates has invested heavily in recent years to boost trade, building manufacturing industries and economic zones. Port infrastructure and other transport links within the region, and to Asia and Africa are also improving, as well as further building trading opportunities for business in the UAE. These investments are vital to increasing the long-term growth potential of the economy.” Businesses in emerging economies The economic picture globally is also improving. UK business optimism shot up from net 34% in Q2 this year to 76% in Q3, the highest figure ever recorded for the UK in 22 years of IBR research. Business optimism in the US remains high too, at 52% in Q3 although marginally down from 55% in Q2.

By comparison, businesses in emerging economies are markedly less confident. Brazilian optimism fell from 43% to 31% in the last quarter, a record low, while across Latin America as a whole optimism fell from 48% to 38% - its lowest since 2009. Elsewhere, Russia slid from 28% to 19%; Turkey (6%) dropped to its lowest since the financial crisis; and South Africa hit an all-time low of 18%. Again though China seems to be one step ahead of the other major emerging nations: having fallen to record low of 4% in Q2, business optimism picked back up to 31% in Q3.

49


Crisis Management

PREPARING FOR

CORPORATE CRISIS BDO’s senior manager Francisco Basdekis highlights the steps to be taken in disaster management.

50 December 2013


Crisis Management

R

ECENT CORPORATE failures to properly manage crisis situations have stressed the need for Boards to increase more efforts towards planning for and responding to crises.

Francisco Basdekis Senior Manager, Advisory Services, BDO Qatar

Granted, in any business, there are some risks that are impossible to eliminate no matter how much care is taken. However once realised, these risks can be devastating if a company is unprepared. A crisis is a situation where a risk materialises, resulting in significant operational, financial and reputational consequences. Crisis management is the process by which companies prepare for crises before they occur and manage them when they do occur. Disaster management plan As with risk management, boards are responsible for ensuring that the companies they oversee have established a disaster management plan for each risk, based on its industry and operations.

While a board needs not ensure that a company’s crisis plan addresses issues described below, asking management about whether it has addressed such elements (or why it has chosen not to implement such elements) can help directors satisfy their fiduciary duties. Business experience and practicing of enterprise risk management (ERM) as well as the establishment of its framework has shown that the following outline of five steps, along with an effective board culture, can

Companies with adequate resources may also consider having people in place to monitor the talk about the company on social media websites so that they can engage right away and send the best message the first time.

help ensure management is well positioned to respond when a crisis occurs. These steps are:

i) Step 1: Evaluate internal controls, risk management and corporate governance - The first step involves a periodic examination of internal controls, risk management processes and corporate governance practices. Together, these three components create a strong foundation for crisis management. One way of evaluating this foundation is through reviewing corporate policies and controls to ensure that they address the types of behaviours that could lead to significant risks.

ii) Step 2: Identify common causes of corporate crisis - The nature of a crisis involves uncertainty and the likelihood of a particular crisis occurring varies by company-specific factors. With these factors taken into account, it is necessary for the Board and Management to be familiar with the most common causes of corporate crisis for their organisation. Some of these causes may include: product failures/ recall, a data or security breach that handles significant amounts of sensitive data, loss or the compromise of sensitive intellectual property, systemic ethical issues, the loss of a key executive, and allegations of fraud. iii) Step 3: Appoint an internal and external crisis response team - Both an internal and external crisis response team should be formed that include individuals with a range of expertise to quickly determine a plan of action in real time.

Internal response teams should be comprised of: senior executive officers, representatives from the appropriate key operational departments, and heads of compliance, internal audit, human resources, corporate communications and public relations (PR), and sales and marketing. This composition should be adjusted based on the team’s needs and the full Board may need to become involved.

For an external team, it is advantageous to have established relationships with outside providers of legal, forensic, PR and communications 51


Crisis Management

As with risk management, boards are responsible for ensuring that the companies they oversee have established a disaster management plan for each risk, based on its industry and operations. advice. Having these experts get to know the company and its key members in advance will help when a quick response is needed. iv) Step 4: Implement a communications plan A communications plan includes Management recognising the Board wants to be warned early about a possible crisis. This means that a workable and well-understood crisis communications plan should be developed. The primary focus should be making sure the appropriate people can be called together promptly and ensure the company maintains confidentiality until it has decided to speak on the matter. Other specifics related to the communications plan include:

Call for early communications to the Board and crisis response team. Identify a spokesperson for internal and external communications. Include monitoring of social media and develop strategies to use this media effectively. Consider whether it would be beneficial to have an attorney involved in coordinating the efforts of other advisors. Companies with operations and markets in non-US jurisdictions should make sure that their efforts are sensitive to how different cultures may react so they can be appropriately managed.

v) Step 5: Develop a crisis response - This step includes procedures to assess, investigate and mitigate the crisis. Once the crisis response team has made an initial assessment of the situation, they will determine who should lead in the company’s response. The CEO and key members of senior management are usually best positioned to lead. However, if the issue relates to senior management’s integrity the independent directors may need to oversee the crisis response or a special Board Committee 52 December 2013

may be needed to investigate allegations of wrongful conduct. In addition, the level of Board involvement depends on the nature and scope of the problem.

Effective Board culture The ideal Board culture is usually able to achieve consensus, respects independent viewpoints and protects confidentiality. Some notable ‘strategies’ for encouraging an effective Board culture are: Agree on the role of the Board and management, including expectations on information the Board needs and the Board’s involvement in decision-making. Emphasise the value and the limits of ‘constructive tension’ in the Board/ Management relationship. Agree on valued behaviours. Remind directors of confidentiality obligations. Periodically evaluate board culture. Role of Social Media The crisis management plan must be attuned to the role of social media — (that is, blogs, Facebook, Twitter, Google+, YouTube among others). A far-flung incident can easily spark a global media conflagration.

Social media communications are instant. They are simultaneously global and grassroots. They can range from spontaneous reactions from customers almost on a point of sale basis to mass distribution of prepositioned messaging from advocacy groups. A company should be prepared to deal with social media fallout in crisis. For example, a crisis management plan may include having a predesigned website and prewritten blog posts, press releases, and FAQs to deal with the aftermath of a crisis.

Companies with adequate resources may also consider having people in place to monitor the talk about the company on social media websites so that they can engage right away and send the best message the first time. Taking steps to consider the risks a company is facing, addressing such risks through a combination of corporate structures, policies and procedures, and developing crisis management plans for the most significant and the most predictable of these risks, is critical to preparing a company for these risks when they are realised.


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Special Report

LEASE ACCOUNTING DEBATE

RUMBLES ON

International standard-setters’ proposal to bring leases on-balance sheet faces fierce criticism from industry players. Will efforts to reform lease accounting be withdrawn again? asks Jonathan Minter.

54 December 2013


IFRS Special Special Report

F

INANCE AND Leasing Association (FLA) head of finance Julian Rose has revealed to The Accountant he is optimistic the International Accounting Standards Board (IASB) is planning to listen to concerns over the lease accounting exposure draft (ED) due to the volume of responses received. He also states “in our meetings with the IASB, during the consultation period, we received some strong and positive signals from them that they would now look to further simplify the proposals.”

The draft in question is the result of a convergence project between the IASB and the US Financial Accounting Standards Board (FASB), and was released in May 2013, with a comment deadline of 13 September 2013, which aimed to bring more leases onto balance sheets. The draft followed a discussion paper in 2009 and an initial exposure draft in 2010, which received 800 mostly negative responses.

According to Grant Thornton Partner John Hepp, discussions about problems in lease accounting go back at least as far as the mid-1990s, when he was a project manager for FASB.

Large-scale abuses These discussions were boosted in the following decade by some of the largescale abuses that occurred in corporate America, such as the Enron scandal, Hepp says, and in 2005 the US Securities and Exchange Commission (SEC) issued a report which said there was about $1.5 trillion in operating lease obligations off-balance sheet. US Equipment Leasing and Finance Association (ELFA) chief operating officer Ralph Petta says although the report was aimed at the US market, it had international ramifications.

He adds that a lot of the pressure on the FASB to bring all off-balance sheet transactions onto balance sheets “had nothing to do with equipment leasing or equipment financing. But there was this widespread belief that investors were being ill-served by not having financial information reported in a way at least the SEC thought was understandable and transparent.” In a speech in Berlin in September 2013, IASB chairman Hans Hoogervorst explained why this could be a problem: “For many companies, such as airlines and railway companies, the off-balance sheet financing numbers can be quite substantial. It has been estimated that the hidden leverage leads to an underestimation of long-term debt by some 20%.”

According to the Association of Chartered Certified Accountants (ACCA) corporate reporting manager Paul Cooper, not only were there complaints about leased assets, but also “analysts were having to do their own calculations to bring leases onto the balance sheet in order to reflect the financing elements, and one analyst might do it differently from another, quite validly, because there's no standard in how they should do it.” 55


Special Report

Converging standards As a result of these complaints, in 2006 the FASB and IASB began what would turn out to be a very long-winded, labourious project to converge lease accounting standards, to replace FAS 13 and IAS 17 respectively.

The initial ED proposed a general single model based around the right of use of leased assets, with a few exceptions, such as leases of one year or less, and was widely criticised for a number of reasons, but especially for the additional complexity it brought to lease accounting. Accountants and leasing experts tell The Accountant that the second exposure draft is a definite improvement over the 2010 offering.

According to ELFS’s Petta: “They made some improvements regarding lease terms, how contingent rents would be recognised, and it really made significant improvements in the way some of those things would operate for equipment leases as well as commercial real estate transactions.”

Rose at the FLA adds that, compared to the previous draft, the number of different times one has to reconsider or reassess the lease has been reduced, however “just when they reduce the burden in one area, they throw in some other things that added steps in other areas.” The ACCA’s Cooper says the bodies listened to plenty of evidence and they responded to concerns about the first ED. He mentions, for example, streamlining a requirement to have some probability type calculations which lessors and lessees would perform when it came to options in leases.

Even though it ultimately rejected the 2013 draft, Cooper is keen to point out certain elements of the draft were well received by the ACCA, such as the guidance surrounding what constitutes a lease and what constitutes a service contract, and also some of the transitional arrangements the IASB put in place. He says “one thing which we particularly liked was that they left it for the lessor or the lessee entity to decide on how they aggregate disclosures for common types of leases.” Grant Thornton’s Hepp says the 2010 draft took leases from executory contracts - whereby the expense isn’t recorded until it is incurred - to 56 December 2012

Hans Hoogervorst, IASB chairman

being a straight financing, with the debt and assets recognised on the balance sheet. As a result, the expense recognition pattern would tend to be front loaded, due to the higher amount of interest allocated to earlier years based on the remaining ‘debt’ outstanding at that point, leading to particularly strong push back from the US real estate section.

Division of leases To address this issue, the IASB and FASB have divided leases into Type A and Type B, with the criteria for determining which type of lease you held depending on whether the asset being leased was property or equipment. Additionally, says Hepp: “The front loading issue was addressed by creating a new model of amortisation of the leased asset,” meaning “you would still have the front loading of interest expense, but that would be offset by having reduced amortisation in the early years that would increase over time.” According to Hepp, this hasn’t entirely solved the issue. Although he is willing to admit there are cases where the new model will fit, he compares the situation to “the old adage about a stopped clock being right twice a day.”

Lease expense For Petta at ELFA, although he said he was “pleased that they moved away from a one lease model,” he


Special Report

adds “the way they made the classification in terms of recognising lease expense, we think, makes no sense.”

He continues; “They somehow treat two different transactions or leases differently and focus on the underlying asset as opposed to the nature of the transaction. And we think that focusing on the underlying asset, on whether it’s a real estate deal or an equipment deal, doesn’t make sense.” “What they ought to be looking at more is the nature of the transaction and not specifically focus on what kind of assets the transaction is based on.” According to Rose, the Type A, Type B leasing system undermines the new standard on a conceptual level, “given the whole objective of this was to move away from a situation where there's a need to separate out two different types of leases”.

Cooper also says the Type A, Type B split is evidence of a larger conceptual problem with the IASB and FASB’s approach - the right of use model - and although he describes the split as evidence of simplification, he says: “It will be difficult for them to go much further away from the right of use model without fundamentally almost abandoning it.”

Under the current model, leases are accounted for differently depending on whether they are classed as an operating lease or a finance lease. Only under a finance lease is the asset and associated liability recognised on the balance sheet. Under the proposed right of use model, all leases would be recognised on the balance sheet provided the lessee has a right to use the asset. According to Cooper, the IASB still needs to make some clarifications about the nature of the right of use asset: “Is it a tangible, like a motor car, or is it an intangible, like a patent?” Cooper continues: “It does matter, of course, to certain companies in actually setting out how much they have in tangible assets and how much they have in intangible. For their finances that is very interesting and important information.” Overall, Cooper says: “The right of use model, fundamentally, brings too much complexity, doesn’t reflect economic reality for a number of assets, and therefore I’m not sure how it could be watered down any further, except by treating certain lease assets as not lease assets.”

Ralph Petta, chief operating officer at US Equipment Leasing and Finance Association

In 2006 the FASB and IASB began what would turn out to be a very long-winded, labourious project to converge lease accounting standards, to replace FAS 13 and IAS 17 respectively.

But the overwhelming criticism from those The Accountant has spoken to is that the new draft will make things overly complicated, and in many cases won’t present end-users with more useful information. This is despite the number of simplifications from the first draft. As Rose puts it: “Just when they reduce the burden in one area, they throw in some other things that added steps in other areas and overall, unfortunately, it’s still nowhere close to something that is implementable.”

Flow diagram In its response, the FLA included a flow diagram which shows how a lease would be accounted for by the lessee which has about 120 steps stretching over five pages, and Rose says: “Obviously not every step would apply to every lease, but many or most of them would at least need to be considered every 57


Special Report

time a lease is accounted for. And that’s just getting to the point where it can't be practical for a lessee to do all that.”

Petta argues along a similar line, saying the move away from the current risk-reward framework to the new asset-liability framework is too complex. Additionally, he says: “It’s extremely burdensome to comply with the provisions in the second exposure draft.”

“An asset which is leased would still be kept off the balance sheet, but at the same time more would be brought on than under the current system, and there would be more information for users of the financial statements.”

He also points out that, according to Leaseurope, there are 100 additional steps that a lessee would have to take in order to comply with the new rules. Rose points out there is an imperative here to make sure that, for the lessee, they’re not inundated with new regulation that makes leasing a less attractive product.

Although the complaints about the ED’s complexity are particularly vocal from the leasing bodies, the same complaints also come from accounting bodies. Again, this is partly thanks to the right of use model.

Hepp explains: “The right of use model requires you, first, to distinguish if the contract as a whole is a lease or not, then whether certain elements within the contracts are a lease or not, and then only the lease elements would get recorded and put on a balance sheet as a right of use asset. And only the payments associated with those elements would get recorded on the balance sheet. Needless to say, that’s going to be quite complex and quite a bit of work.” According to Cooper, the ACCA’s two core concerns are “the additional complexity that the right of use model will bring, and the fact it will be applied to assets which possibly don’t merit it, in an economic reality sense.”

Overall, however, the general consensus appears to be that the added complication won’t result in better information, says Rose, as he comments on the feedback he has seen. And yet, while complexity is one of the overwhelming criticisms, there are also complaints that the rules are vague and open to interpretation. As Cooper puts it: “The actual model itself is too complex, but some of the rules within the model 58 December 2012

John Hepp, Grant Thornton Partner, US

are a bit vague. That might seem a bit contradictory but it's not because the IASB is continuing with the right of use model, which we think is complex, and it’s tried to soften things a bit. But in doing so it’s given some vague terms.” As an example, Cooper says the ED “uses things like ‘significant incentive’ to extend the lease term. Although the IASB is trying not to be too prescriptive, nonetheless, having terms like ‘significant’ or ‘not significant’ doesn’t help when you’ve got an organisation trying to transition between IAS 17 to a right of use model, with a huge number of assets that it needs to decide whether each one is Type A or Type B.” Constructive criticism It’s important to note that everyone The Accountant speaks to is keen to stress they wish to be constructive in their feedback.

The FLA has also had meetings with the IASB during the feedback period, and Rose says the investment world would probably be quite supportive of


Special Report

putting leases on balance sheets if the IASB was able to achieve this in a proportionate way. Hepp says: “We really do wish them luck in this, by the way. We’ve been very negative in our comments, but we always try to preface that we support the project because we do.”

Despite this willingness to work with the IASB and the FASB, the negative reaction towards the 2013 draft is hard to argue with. Petta says: “If they did nothing we’d be very happy. We basically think that FAS 13 and IAS 17 work. There are four tests in the US for distinguishing an operating lease from a capital lease. We think that they are widely understood.”

To this he adds the second ED doesn’t offer any improvement over the current rules “but we understand that the SEC, for reasons that have nothing to do with our industry and nothing to do with the utilisation of leases by businesses, wants to change the rules and bring, at least from a perception standpoint, transactions onto balance sheets.” The ACCA would also be happy if IAS 17 were to remain instead of the new draft, albeit ‘beefing it up’ by increasing the disclosure around operating leases and lowering the bar between whether something is a finance lease or an operating lease.

In doing so, claims Cooper: “An asset which is leased would still be kept off the balance sheet, but at the same time more would be brought on than under the current system, and there would be more information for users of the financial statements. The practical consequence of that is that a lot of the complex calculation for leasing wouldn't be necessary.” Control model Hepp says the ACCA is not alone in wanting to retain IAS 17 in some guise, but comments: “We would update it from a risks and rewards model to a control model.” Rose mirrors these thoughts, saying the new standard would not present any more useful information, but would be more complicated. When asked to comment, the IASB said it had received 600 responses to the ED, and: “The boards expect to discuss a summary of that feedback at

Julian Rose, head of finance at Finance and Leasing Association

the forthcoming joint board meeting, with board re-deliberations of the proposals expected to begin in December.” A FASB spokespersWWon tells The Accountant: “The primary purpose of the leasing project is to enable users of financial statements to more easily understand leasing arrangements that today are reported off-balance sheet.”

The spokesperson also says that FASB is currently analysing the feedback received, and that it hopes to discuss this feedback on the ED in a public meeting by the end of 2013.

While the FASB and IASB are yet to decide exactly how to react to the vast amounts of feedback they have received, there’s clearly still a lot of work to go in before the two are able to able to satisfy both the original aim of project and their numerous constituents. - The Accountant, UK

While the FASB and IASB are yet to decide exactly how to react to the vast amounts of feedback they have received, there’s clearly still a lot of work to go in before the two are able to able to satisfy both the original aim of project and their numerous constituents.

59


Islamic Pension

ISLAMIC PENSION FUNDS IN RECORD GROWTH

Fast growth emerging markets like Malaysia, Saudi Arabia and UAE seeing strong demand for retirement plans that are Shari’a compliant.

A

CCORDING TO estimates by EY’s Global Islamic Banking Centre, the pent up global demand for Islamic pension funds is currently between $160 billion and $190 billion. At present, most of these funds are parked under conventional sovereign pension funds due to lack of investing options. Ashar Nazim, Partner, Global Islamic Banking at EY: “We believe that the emerging demand for Shari’a compliant retirement plans offers significant opportunities for financial institutions to diversify their products and strengthen fee income.”

Ashar Nazim, Partner, Global Islamic Banking at EY said: “Several fast-growth emerging markets including Malaysia, Saudi Arabia and UAE are seeing strong demand for retirement plans that are Shari’a compliant.

With the maturity of the Sukuk market and Shari’a compliant equity indices, as well as technology available to screen conventional indices to carve-out Islamic sub-indices, there appears to be sufficient assets available for many of the pension funds to take the first step towards Shari’a compliant propositions.” Tax implications According to the EY Global Islamic Banking Centre, greenfield operations would take too long to satiate market demand.

$160bn$190bn value of pent up global demand for Islamic pension funds 60 December 2013

“Speaking to several of our clients, it appears that a more practical approach is the partial transformation of existing pension funds to carve out Shari’a compliant tranches. However, this carving out further involves the valuation of pension funds’ assets as of the date of transformation, which in turn may have legal, financial and tax implications,” Nazim added.

The transformation will need to be carefully planned to choose the right business model and operational framework. The choice of business model will determine the governance structure, the complexity of financial reporting, tax implications, and go-to-market timeframes.

“There is a clear preference by individuals in these markets to manage their financial affairs in a Shari’a compliant manner. This segment represents anywhere between 10 and 70% of the overall market, which is sizeable. Traditionally, the focus had been on switching their banking relationship from conventional to Islamic. Only now we are beginning to see a greater awareness regarding wealth management and retirement planning, which in turn is encouraging public pension funds to consider offering Shari’a compliant alternatives,” said Nazim.

Rapid growth markets A key decision is whether to allow members of the fund to transfer their existing account balance to the Shari’a compliant fund, or if only the future contributions should be segregated as conventional or Islamic. Additionally, timing for the desired transfer is important. The fund would model the expected outcomes based on scenarios built around the number of members, their selection, and product restrictions.

“We believe that the emerging demand for Shari’a compliant retirement plans offers significant opportunities for financial institutions to diversify their products and strengthen fee income. This in turn will help improve profitability which is clearly under stress for many Islamic banks,” added Nazim. Indonesia and Turkey are two other rapid growth markets with strong prospects for Shari’a compliant pension programmes. The development, however, is likely to be a gradual evolution due to the relatively smaller size of the Shari’a compliant asset management industry. “Regulatory impetus will be critical for successful roll-out. Countries that are able to move swiftly are likely to strengthen their global leadership in Islamic finance,” said Nazim.


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Special Report

F&B DRIVES

NEW BUSINESS APPETITE Companies set to gain as export prospects in emerging markets present fresh opportunities, GT report shows.

D

RIVEN BY rising optimism and new export opportunities in emerging markets, three quarters of food and beverage companies are poised to increase investment in the growth of their companies over the next couple of years. According to a report from Grant Thornton, the new found optimism from companies in the sector is leading 90% to expect revenues to increase, with a third predicting sales growth of over 10%. However, Grant Thornton cautions that the growth is unlikely to generate an upsurge in jobs across the sector.

The new report, ‘Hunger for growth: food and beverage looks to the future’, points to a fresh direction for the global food and beverage sector amid an improved global economic outlook.

90%

proportion of F&B companies that expect revenues to rise over the next couple of years

62 December 2013

Period of growth Companies are focused on generating growth whilst maintaining and enhancing profits. Over half of business leaders in the sector anticipate an increase in profitability of over 6%. A quarter think growth of over 10% is likely.

Hisham Farouk, Managing Partner of Grant Thornton UAE, said: “Food and beverage companies are fired up. After a tough few years of trading, business leaders are anticipating a period of growth and want to increase investment.” “The focus for investment is on efficiency gains to ensure that profitability keeps pace with growth

Many food and beverage companies are seeing significant growth opportunities overseas, according to a study by Grant Thornton.

and new product development in order to cater for tastes at home and, increasingly, overseas where companies are seeing significant growth opportunities.”

As companies look to meet margin pressure with innovation, they will keep full time hiring in check. Although a huge majority of companies anticipate growth, only half of business leaders are looking to hire more workers as part of these plans.

Hisham Farouk said: “Food and beverage business leaders are being spurred by a sense of opportunity and expectation on exports. On average (median) over the next two years producers are expecting exports to double as a proportion of their sales, as they look to diversify revenues across regions. South East Asia and China are the top target markets for these new exports. This opens opportunities.” Driving efficiency Although the outlook for exports vary by region, the overall trajectory is upwards. Food and beverage businesses in Australasia currently export a median average of 15% of goods and expect this to rise to 25% in two years. In Europe the expectation is to increase from 7% to 10% and in North America from 4% to 8%.


IFRS Special Special Report

in new product development the outlook is relatively even between Europe (81%) and Australasia (79%), with North America (86%) showing the greatest enthusiasm.

Shutterstock/ChameleonsEye

Funding and strategic partnerships The report shows that few food and beverage companies are planning to fund investment through cash reserves and instead will tap sources of credit such as banks or form partnerships.

Food and beverage business leaders are being spurred by a sense of opportunity and expectation on exports. On average (median) over the next two years producers are expecting exports to double as a proportion of their sales, as they look to diversify revenues across regions.

Approximately half (52%) will require additional funding, although the sources will vary according to the local environment for credit. Nearly half (48%) of food and beverage executives are considering merger and acquisition opportunities as a way to strengthen their market position over the next 12 months.

Hisham Farouk commented: “Those companies who can’t finance expansion plans through their cash reserves will need to be resourceful in finding funding and look at a range of options from bank lending through to private equity investment.” “We’re also likely to see companies being more strategic and looking for opportunities to partner or acquire other producers. This will enable them to get greater leverage in market prices and generate economies of scale on the production side of their businesses,” he added.

Equipment, new product development and IT top the list for investment priorities, as companies drive efficiency, work to improve logistical planning and develop new foods and drinks for target markets.

Twenty six per cent of companies intend to increase investment in equipment by 10% or more and 20% plan the same increase in new product development. Regionally the greatest appetite to invest in equipment is being shown by business leaders in North America (86%) and Australasia (85%), followed by Europe (77%). However, for investment

Hisham Farouk, Managing Partner of Grant Thornton UAE: “After a tough few years of trading, business leaders in the F&B sector are anticipating a period of growth and want to increase investment.”

63


Audit Report

ARE RISKS OUTPACING

IT AUDIT? D Based on the Protiviti study, it’s apparent that there is a tremendous gap between where most companies are and where they should be in terms of managing IT risk and strengthening governance and controls.

New Protiviti survey results find companies are increasingly being challenged by variety of technology issues, including security, governance and social media.

ESPITE ONGOING efforts to address information technology issues, companies continue to come up short in their IT audit functions, according to a new survey from global consulting firm Protiviti. The study reveals that a large percentage of organisations are not planning and instituting the IT audit coverage necessary to assure critical IT operations, evaluate risk and provide a secure, available IT environment.

Now in its third edition, Protiviti’s latest IT audit benchmarking study, titled From Cybersecurity to IT Governance – Preparing Your 2014 Audit Plan, analyses the primary technology-related challenges companies face from the internal audit perspective, and identifies trends in the ways organisations evaluate their approach to IT audit functions and capabilities. Facing greater challenges The survey report can serve as a helpful guide to internal audit functions, audit committees and boards of directors as they build their annual audit plans. 64 December 2013

“In today’s organisations, virtually every function is technology-dependent, which means companies face a greater number of challenges to ensure an efficient, secure IT environment,” said Brian Christensen, Protiviti executive vice president of global internal audit.

“Based on the study, it’s apparent that there is a tremendous gap between where most companies are and where they should be in terms of managing IT risk and strengthening governance and controls. As audit plans are developed, these technology challenges should also be top-of-mind for internal audit.” Top technology challenges According to the 469 respondents who participated in Protiviti’s 2014 IT Audit Benchmarking Survey, including chief audit executives, IT audit directors, IT audit managers, and other auditing professionals, the top technology-related challenges facing organisations are:

IT security (including data security, cyber security, and mobile security; this result was the number one challenge for the second consecutive year)


Audit Report

IT governance Lack of ERP implementations, development, and knowledge Social media Vendor management Cloud computing Emerging technology and infrastructure changes Big data and analytics PCI compliance

relationship is relatively low, allowing the IT department to audit itself is a potential recipe for disaster because independence and objectivity of assessments are lost.

In a report titled Engage Audit Professionals for Better Security Assessment Outcomes (June 26, 2013), Forrester Research, Inc writes about the benefits of audit and security working together to address security compliance: “There are simple ways for security and audit professionals to coordinate more closely in ways that will help both sides achieve their goals… When done correctly, the audit function becomes a powerful advocate for the security team, helping highlight the strength of the programme when appropriate and helping justify more investments when there are gaps to fill.”

“We have seen an uptick in the number of companies that are evaluating IT governance as part of their audit process.”

The recurring challenge of IT security points to the need for security teams to tap their organisation’s internal audit team’s expertise to develop more efficient, sustainable compliance programmes.

Analysis of Protiviti’s survey results also provides important insights into how effectively organiations are improving their IT audit programmes and practices, and some notable findings suggest there is a need for dramatic improvement. These include:

i) A large number of companies fail to devote adequate resources to IT audit and, as a result, are not able to fully assess potential risks. Also, 42 per cent of organisations reported that they rely on outside resources to augment their IT audit departments because they lack the appropriate internal resources. ii) Many internal audit functions are not performing IT audit risk assessments regularly, and even many of the companies that do perform these assessments need to do so more frequently. Of concern, one-third of companies with less than $100 million in revenue do not conduct any type of IT audit risk assessment, which presents countless potential hazards for their respective businesses.

iii) Also a cause for concern is the increase from 2012 to 2013 in the number of IT audit directors who report to the CIO. Even though the overall number of organisations with this reporting

“Although there are areas that clearly need attention, it’s a good sign that more companies are working to implement IT governance policies and procedures,” said David Brand, a Protiviti managing director and leader of the firm’s IT Audit practice.

About the survey results The survey report From Cybersecurity to IT Governance – Preparing Your 2014 Audit Plan is available for download at www.protiviti.com/ ITauditsurvey, along with a short video about the survey results. Additionally, David Brand has recorded a podcast discussing the survey findings, which is available at www.protiviti.com/podcasts.

Brian Christensen, Protiviti executive vice president of global internal audit: “Today’s organisations face a greater number of challenges to ensure an efficient, secure IT environment.”

The 2014 IT Audit Benchmarking Survey was conducted in the second and third quarters of 2013. Eighty-four per cent of the responses were from companies in North America, with the rest spread among Europe, Asia-Pacific, the Middle East and Africa. Sixty-two per cent of the participants’ companies had annual revenues of $1billion or greater. The types of organisations participating in the survey were:

Public – 50% Private – 26% Not-for-profit – 12% Government – 11% Other – 1%

The recurring challenge of IT security points to the need for security teams to tap their organisation’s internal audit team’s expertise to develop more efficient, sustainable compliance programmes. 65


ACCA Survey

‘ADAPT TO

THRIVE’

Finance professionals in the Gulf States ready for the impact of 'Big Data' on business, new ACCA report shows.

T

HE GLOBAL accountancy profession will be impacted significantly by 10 technology trends, claims a new in-depth report from ACCA’s Accountancy Futures Academy (the Association of Chartered Certified Accountant) and IMA (Institute of Management Accountants) titled; “Digital Darwinism: thriving in the face of technology change”.

that technology will totally transform the way business is done in the next 10 years, compared to only 11 per cent in Malaysia, the lowest percentage score in the world.

The top 10 technologies with the potential to reshape the accountancy profession and business landscape considerably are mobile; big data; artificial intelligence and robotics; cyber security; educational; cloud; payment systems; virtual and augmented reality; digital service delivery and social.

Only 52 per cent of those in the UK say this will be the case. Over three quarters of Gulf States respondents also say that big data will demand new skills – 77 per cent say skills will be needed to support data modelling and analysis, and 74 per cent confirm knowledge will be necessary to extract and mine business intelligence.

Informed by interviews with global academics and experts in accountancy and technology, alongside a survey of over 2,100 ACCA and IMA members around the world, the report asked respondents to what extent they expect developments in technology to transform the way accountants and the finance function do business over the next 10 years. Impact of Big Data Looking to the Gulf States, 24 per cent say 66 December 2013

When asked about the impact of big data on business, 76 per cent of Gulf States respondents say this would be influential, compared with 91 per cent in Australia, the highest percentage score.

Cyber security concerns Addressing specific technologies, 67 per cent of respondents in the Gulf States consider that mobile technology will have a large impact on their business in the years ahead, compared to 82 per cent in Africa and 95 per cent in Australia – the highest score – again – in the world.

Respondents in the Gulf States are also less concerned than other regions and countries about the risks associated with cyber security,

Stuart Dunlop, Regional Director MENASA for ACCA


ACCA Survey

24%

Gulf States respondents who say that technology will totally transform the way business is done in the next 10 years

with 51 per cent saying this was a concern, compared to 74 per cent of African respondents, the most concerned. The least worried is Ireland, at only 35 per cent.

Chris Gentle, Partner and head of research at Deloitte, and member of ACCA’s Accountancy Futures Academy says: “Accountants and finance professionals must be open to the changes created by big data, cloud, mobile and social platforms, and face up to the demands of cybercrime, digital service delivery and artificial intelligence. The future will not be like the past and we will all need to adapt.”

Challenges ahead Stuart Dunlop, Regional Director MENASA for ACCA said “Accountants and finance professionals in the Gulf States are influential agents of change – they’re adept at using technology to advance their careers, their client’s prospects and those of their own organisation too. This influence works both within and without organisations – 76 per cent of accountants said they influence the use of technologies externally with their clients, and 85 per cent said this was the case internally. Their knowledge and advice is clearly valuable.”

As with risk management, boards are responsible for ensuring that the companies they oversee have established a disaster management plan for each risk, based on its industry and operations.

Looking to the future, the report says there are challenges ahead for the profession. “The profession needs to shape their technological future rather than be shaped by it. The profession needs to be proactive; the changes ahead are an opportunity to redefine roles and the extent to which the profession is involved in short and long-term technology related decisions. They need to adapt to survive,” Stuart said. 67


Protiviti Survey

SETTING PRIORITIES RIGHT

Protiviti benchmarking tool gives finance executives the opportunity to compare their company’s key primacies to survey results.

C

FOs AND financial executives are concerned about their organisations’ ability to efficiently and effectively manage cash flow and working capital due to the growing need to address economic volatility with greater precision, speed and flexibility. These and other survey findings are in the latest Finance Priorities Report released by global consulting firm Protiviti.

“Organisations are facing tremendous change and new cost pressures, and they struggle to know whether or not they are prepared to adjust and manage sufficiently the impact of various upcoming changes,” said Jim Pajakowski, executive vice president of global services for Protiviti.

Benchmarking tool Protiviti’s 2014 Finance Priorities Report is based on a survey of more than 220 finance professionals – consisting of CFOs, vice presidents and directors of finance, and controllers.

Jim Pajakowski, executive vice president of global services for Protiviti: “Finance leaders are seeing globalisation largely driven by the potential impact on supply chain management processes and costs as an area of concern.”

68 December 2013

Companies can also use Protiviti’s complimentary online benchmarking tool to compare their organisations’ priorities to other finance executives who have taken the survey, and see the comparative data in a downloadable report, available at www. protiviti.com/financesurvey. The survey included more than 100 questions about primary concerns and priorities in five categories: Process Capabilities for Financial Transactions; Process Capabilities for Financial Analysis; Emerging Issues; Technical Capabilities; and Organisational Capabilities.

Achieve greater efficiency The top survey results in the Process Capabilities for Financial Transactions category demonstrate the respondents’ continued focus on streamlining the financial close from improving account reconciliation and financial consolidation processes to the period-end close, finance functions want to achieve greater efficiency in:

i) Cash forecasting ii) Period-end close iii) Account reconciliations iv) Working capital management v) Banking relationships

“Given so much uncertainty, organisations are seeking to manage and understand as clearly as possible all aspects of their cash flows,” said Ryan Senter, managing director in Protiviti’s Business Process Improvement practice.

“Bridging the gaps in knowledge by strengthening relationships with banks is another approach that many finance departments are re-emphasising.” Profitability analysis and reporting – specifically related to products and segments – along with performance management and business intelligence rank among the top priorities in the survey category of Process Capabilities for Financial Analysis: Strategic planning Periodic forecasting Budgeting Performance management/executive dashboards/ balanced scorecards Profitability analysis (product, customer, channel)

“Without question, more and more companies are looking to harness business intelligence and big data for strategic planning, forecasting, budgeting and profitability analysis,” said Jay Thompson, also a Protiviti managing director with the Business Process Improvement practice. “They also want to analyse their data to gain an indepth understanding of their customers, products and other business areas in order to identify the best opportunities for profitability.”

Protiviti’s Finance Priorities Report, conducted during the second and third quarters of 2013, includes insights from finance executives at companies with annual revenues ranging from greater than $20 billion to less than $100 million.


SUBSCRIBE NOW TO THE REGION'S FIRST MIDDLE EASTERN FOCUSED ACCOUNTANCY MAGAZINE. Complimentary subscription for any accountants currently working or studying in the UAE. Every month we will bring you the latest news, expert opinion, interviews with regional influencers and policy makers, as well as CPD advice, job opportunities and moves. Accountant ME will also feature regular articles and reports on auditing, legislation, management advisory services, ethics, professional development and practice management.

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Corporate IFRS Special Treasury

Treasurers have led the drive for finance professionalism in the Middle East and many of their organisations are now seeing the benefits of centralised treasury functions.

LEADING T

HE MIDDLE East remains a region of opportunity but presents numerous challenges for professional treasurers.

FROM THE

FRONT Peter Matza explains how treasurers contribute toward the successful health and growth of their organisations.

70 December 2013

Many entities have exceptionally wellrun and well-resourced treasuries, although some companies and government-owned or government-related entities can be bureaucratic, slow moving and weighed down by cumbersome organisational structures.

Treasury is both an operational and strategic discipline that needs managing in an integrated fashion. At a strategic level, treasury is about offering options for executive decision taking. With a broad perspective of the organisation and the environment in which it operates, the treasurer is ideally positioned to facilitate the integrated thinking that will help an organisation achieve sustainable value creation.


IFRS Corporate Special Treasury

Leading the drive The questions that treasurers should be addressing are relatively simple: what do we invest in, how do we raise funding for that investment and how do we control the risks associated with funding and investing cycles? Treasurers need to be clear and concise when discussing appropriate choices, execution practicalities and likely outcomes.

Treasurers have led the drive for finance professionalism in the Middle East and many of their organisations are seeing the benefits of centralised treasury functions with state-of-theart systems, in-house banks, payment factories and greater appreciation of risk management – both financial and in a wider strategic business context. This benefits not just their organisations but also the younger treasury professionals coming through the ACT’s examinations process. Over the past couple of years there have been several instances of treasurers undertaking farreaching treasury transformation programmes, overhauling processes and integrating new treasury management systems with other IT infrastructure within their organisations. What lessons can we learn?

Transformation programmes Throughout 2011 and into 2012, the treasury team at international marine terminal operator DP World delivered four large and complex financing deals over a 12-month period from June 2011, raising in excess of $3 billion and achieving competitive pricing with innovative structures when markets were at their most resistant. According to the senior vice president, treasury at the time, Stephen Bishop, “We’re always exchanging ideas and thoughts, and we talk as often as we can with the CFO contributing to his thought processes. We have good working relationships with all the other departments that use our services at corporate level, for example, the business development team and we work on most of the decisions that need to be made regarding corporate finance and funding in the group.” Over 2012 and into 2013, Dubai Aluminium (DUBAL)’s treasury team has worked through as wide a range of business-as-usual activities as any for the company’s global operations.

Treasury plays a key role in determining an organisation’s financial strategy, working out how to finance business policy and how to manage the ensuing risks. These included financing; cash and liquidity risk management; FX, interest rate, commodity and credit risk management; and bank relationship management. So, a heavy workload for a worldclass treasury function!

Apart from strategic direction, crucially DUBAL invests in its people and in addition to ACT qualifications, DUBAL has trained its treasury staff in areas such as financial markets and commodity hedging. Flexibility is important The theme of professional growth development is core to good practice treasury management. The treasury of Kuwait-based Alghanim Industries has been through a similar if less expansive period of change over recent years.

As Group Treasurer Rob Farrow says; “When people get ingrained in the job, they don’t get the knowledge of different roles,” he explains. “Flexibility is important so people can cover for each other and carry out different roles. Each member of the team can now comfortably handle all our core operational activities.” He believes that supporting individuals’ career development is key to building a successful team.

“Some leaders want to keep people and hold on to them and don’t let them develop,” he says.

“We encourage good people to join the team and let them go and move up in other areas of the organisation.” Farrow is adamant that work needs to be satisfying.

“The way to get the best out of people is to give them work they enjoy, variety and opportunity. If people are given those things, they perform for you.” 71


Corporate Treasury

Role of technology Invariably technology plays a crucial role when companies are re-engineering their treasury operations.

The Al Fahim group in Abu Dhabi, with a presence in the automotive, oil and gas services, hospitality and property industries spent a large part of 2010 being proactive in finding a cash management solution to streamline their large payments flow to suppliers, and securing resources and cost savings.

Treasurers have led the drive for finance professionalism in the Middle East and many of their organisations are seeing the benefits of centralised treasury functions. Group Treasurer Ahmad Nassar says; “We were able to focus on how to achieve our short-term and long-term objectives, which are all about implementing the best treasury professional practices. One of the key achievements was the implementation of a state-of-the-art treasury management system which will further contribute towards our strategy and professional development.” One obvious measure of the development of the treasurer’s role is his or her relationship with the board. Treasury plays a key role in determining an organisation’s financial strategy, working out how to finance business policy and how to manage the ensuing risks. Boards are interested in key financial metrics: will the proposal contribute to shareholder value? How is it being measured? Will the projected return exceed the cost of capital? They are also concerned with risk (what are the risks? What is the evidence?) and with corporate governance, legal and compliance issues. Corporate governance In strategic terms, the fundamental role of the treasurer with regard to corporate governance is to reduce risk. Risk is not only protecting against bad events that might happen but also protecting against the chance that positive events, such as winning a tender for a contract, do not happen. Risk may arise from factors such as rapidly rising or falling commodity prices including oil, gold, iron and copper and basic food stuffs or deteriorating

72 December 2013


Corporate Treasury

economic conditions in the aftermath of the credit crisis and recession. Treasurers need to use all the information available to understand the impact and likelihood for future business prospects. Operationally, treasurers need to manage daily flows of information and ensure that there is clear communication within treasury, and between treasury and other parts of the business.

Matthew Hurn, ACT Middle East Chair: “Treasury should be embedded in the business decisionmaking process to help the company meet its strategic objectives.”

The right balance ACT Middle East Chair, Matthew Hurn, executive director, treasury, Mubadala Development Company, says; “When building teams it is important to get the right balance between development and delivery. I would recommend investing a lot of time and effort into your business units to ensure treasury is embedded in the business decision-making process to help the business meet its strategic objectives.” Corporate governance frameworks require a system of internal control to be established that is operational and effective. The precise nature of what is required differs from nation to nation. Generally, however, the internal control system can be characterised as a process that includes:

i) Policies, such as the remit of the audit

committee or the fixed/floating interest rate profile of the debt structure;

ii) IT systems, such as treasury management systems;

iii) Tasks, such as cash management; and

iv) Culture, which should facilitate communication and transparency.

The internal control system includes the whole system of controls, financial and otherwise, to ensure adherence to management policies, safeguard assets and secure the completeness and accuracy of corporate records. The systems of control must be embedded in the operations of the company and form part of its culture. Corporate treasury is a profession built on the foundation of a number of financial disciplines, all of which are not only vital in their own right but also support and complement each other.

Hopefully the examples talked about in this article have added some depth to the understanding of how treasurers contribute successfully to the health and growth of their organisations. Peter Matza is the Engagement Director for the ACT

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Save these dates in your diary for 2014:

• Cash management: practices and processes 16-17 March 2014 | 12-13 October 2014, Dubai Gain a practical understanding of what cash and liquidity management entails, its importance to your business and how you can apply these principles to optimise your working capital. • Auditing the treasury function 22-23 April 2014, Dubai Understand the fundamentals necessary to the control treasury activities and risks; from setting overall strategy and policy to the day to day management, dealing and reporting cycles.

• Effective treasury management 17-18 June 2014, Dubai Critically review your approach to treasury management and find out how to add value to your business by effectively managing cash and debt. Book early to save 40% off the course fee with our early bird rates. To find out more contact Samantha Baglioni, Training Development Manager, ACT t: +44 (0)20 7847 2559 e: sbaglioni@treasurers.org treasurers.org/training

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

Asif Khokhar has joined as a Senior Tax Manager at KPMG Lower Gulf, based in Abu Dhabi. Asif has over 9 years of experience working on international tax projects including large UAE investors. Asif specialises in providing M&A and international tax structuring advice. Prior to joining the UAE tax practice, Asif was with KPMG in the UK, working in the Real Estate and Infrastructure tax department focusing on both corporate tax advisory and compliance services. The International Auditing and Assurance Standards Board (IAASB) has reappointed Linda de Beer (top) as chair of the Consultative Advisory Group (CAG) until 31 March 2015. De Beer is a visiting professor in audit and accounting at the University of the Witwatersrand in Johannesburg, and a member of the King Committee on Corporate Governance. The CAG’s mission is to provide strategic and technical advice in the public interest to the IAASB and is formed by 32 stakeholders with an interest in international auditing and assurance. Karin French (below), a managing partner of international standards at Grant Thornton US, has also been appointed to the IAASB for a threeyear term effective 1 January 2014. French is a member of the American Institute of Certified Public Accountants and previously served as the national managing partner and the assistant national

74 December 2013

managing partner of Grant Thornton’s Professional Standards Group. A senior female oil industry finance professional based in Qatar has been elected to serve on the Council of ACCA (the Association of Chartered Certified Accountants.) Lorraine Holleway who is Head of Financial Reporting with Qatar Shell in Doha, was one of seven new members to join ACCA’s global ruling Council following its AGM in September. Lorraine, who is a Fellow of ACCA and who holds an MBA, has spent most of her career in the oil and gas sector. Since 2011 she has been chair of the Corporate Reporting Global Forum and in that role she leads ACCA’s policy work on financial and narrative reporting, which encompasses the technical representations that ACCA makes on IFRS and domestic accounting standards. Ajman Bank’s Board of Directors has announced the appointment of Mohamed Amiri as the bank’s new Chief Executive Officer with immediate effect. A UAE National, Amiri has served Ajman Bank in various capacities from October 2010 to April 2013, first as Deputy CEO before being promoted to Acting CEO. He now joins back as CEO with a strong mandate from the Board of Directors. In his distinguished and successful career in financial services, Amiri has been associated with leading organisations such as Dubai Bank, Dubai Islamic Bank and HSBC Bank Middle East Limited in

senior management positions. Ajman Bank began its operations in 2008 and is the first Shariah compliant Islamic bank incorporated and headquartered in the Emirate of Ajman. It now operates 11 branches spread across the UAE. RSM Dahman, the independent UAE member firm of RSM International, one of the world’s leading audit, tax and advisory networks, has further strengthened its UAE based senior team with the appointment of Baasab B. Deyb as a new partner. Baasab B. Deyb, a fellow member of the Institute of Chartered Accountants of India, joins RSM Dahman UAE as Partner, after tenure of 18 years with a leading Big 4 professional firm in Dubai. Baasab carries extensive experience in Assurance, Risk Management with a special focus towards Hospitality & Leisure and Financial Services - Insurance. He has advised clients across the different Emirates as well as those registered with the Dubai International Financial Centre (DIFC). Barwa Bank, Qatar’s fastest growing Shari’ah compliant banking service provider has announced the appointment of Arsalaan Ahmed as its Head of Capital Financing. Ahmed will be focused on managing the growth of the bank’s sukuk, syndicated finance, project finance and structured finance product offering. Ahmed is an ex-HSBC Group International Executive specialising in Islamic finance and has held multiple roles for the Group across Europe, Asia and the Middle East.


ACCOUNTING FOR EXCELLENCE THE MIDDLE EAST ACCOUNTANCY AND FINANCE EXCELLENCE AWARDS WEDNESDAY 11 DECEMBER 2013 AT THE RITZ CARLTON, ABU DHABI once again, the very best talent in the world of accountancy and finance will be celebrated by icAew at a stellar awards ceremony. icAew is a professional membership organisation supporting over 140,000 chartered accountants around the world. And, on wednesday 11 december 2013, at the ritz carlton in Abu dhabi, we’ll be recognising excellence in twelve categories featuring: cfo of the year, corporate finance deal of the year and the internal Audit excellence Award with an impressive line up of speakers, special guests and entertainment, it all adds up to a truly memorable evening. to submit a nomination or for more information, visit icaew.ae/awards nominations close on 1 november 2013

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Accountant Middle East - December 2013  

Accountant Middle East - December 2013

Accountant Middle East - December 2013  

Accountant Middle East - December 2013

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