finance challenge

insights from pwc-acca finance effectiveness survey 2012

added valuewhat do directors want from audit?

technical hedge accountingbanking fstep’s lee khee joo

opinion the war for talent

cPdget verifiable cpd units by reading technical articles

beyond these shoressingapore’s companies look for international opportunities

driving force kop group’s unstoppable ceo ong chih ching

euro what happens if greece exits?reorting a guide for the perplexedfraud auditors fight back

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the magazine for business and finance professionals accounting and business singapore 11/2012

SG_cover.indd 1 12/10/2012 16:21

A&B NovDec 2012 (Generic) ol_output.pdf 1 27/9/12 2:35 PM

-Lexis AB Asia adverts1-Nov12.indd 3 08/10/2012 12:35

Have very good friends who will support and help you is the advice Ong Chih Ching, CEO of KOP Group, would give to anyone wishing to emulate her success in real estate. Her legal training has helped as well. See page 12

EXPANDING HORIZONSSingapore companies are expanding their wings regionally. Faced with a small and mature local market, companies seeking to grow their revenues are looking outside. Most of the firms tend to favour doing business in South-East Asia and China due to geographical proximity and cultural similarities, according to International Enterprise (IE) Singapore, the agency spearheading Singapore’s external economy.

This is a sector of the economy policy-makers are keen to explore. Over the years, the authorities have been exhorting local companies to venture abroad, backing up the call with a plethora of grants and schemes to give the enterprises a leg-up. Early this year, IE Singapore launched the Global Company Partnership (GCP) initiative to better understand companies’ business plans and to formulate comprehensive solutions for their international growth through capability building, market access and financing. Last year, over 34,400 companies approached the agency for help in understanding overseas markets, connecting to the right business partners and developing capabilities. It partnered companies on 336 overseas projects, with two thirds taking place in developing regions such as Indonesia, United Arab Emirates and Vietnam. China saw the most interest, accounting for 104 overseas projects.

Our feature on page 16 explores the challenges local companies face in their push to expand. It also looks at companies that have succeeded in building their brands overseas. Singapore companies have cited keen competition, lack of manpower to manage overseas operations and difficulty in finding business partners as the top three challenges. In spite of the complexities, the trend can only increase. The rise of new emerging markets such as Myanmar, Africa and Latin America means huge market potential because of their rapid development, growing population and rising standard of living. Local players are salivating over the overseas prospects, given the pie is getting bigger and the opportunities to grow are only going to get wider.

Sumathi Bala, abeditor@accaglobal.com

BIG AMBITIONS?For your next move, check out www.accacareers.com/singapore

CRIME FIGHTERSThe latest set of revised global recommendations means that accountants have an even greater role in battling fiscal crimePage 40

HEDGE TRIMMINGAn IASB draft is seeking improved links between the rationale for hedging and its impact on financial statementsPage 48

TECHNICALLY BRILLIANT?There are over a hundred technical articles with multiple-choice questions on the ACCA website –

demonstrate your understanding and get verifiable CPDwww.accaglobal.com/cpd

3Editor’s choice

SG_B_Edletter.indd 3 12/10/2012 16:23

Audit period July 2009 to June 2010138,255

Features12 Team player Ong Chih Ching has conquered a diverse range of markets – and taken her friends with her

16 New horizons Singapore’s businesses have much to gain from overseas expansion

20 Exit strategy What are the implications of Greece leaving the eurozone?

23 Dismantling the euroCapital Economics’ Roger Bootle offers some practical suggestions

26 Future vision Sustainability and fi nancial results can go hand in hand, says KPMG’s Yvo de Boer, a former UN climate chief

28 Cloud control Remote technology will revolutionise the boardroom

VOLUME 15 ISSUE 10

Asia editor Colette Steckelcolette.steckel@accaglobal.com +44 (0)20 7059 5896

Editor-in-chief Chris Quickchris.quick@accaglobal.com +44 (0)20 7059 5966

International editor Lesley Boltonlesley.bolton@accaglobal.com +44 (0)20 7059 5965

Singapore editor Sumathi Balaabeditor@accaglobal.com

Sub-editors Dean Gurden, Eva Peaty, Vivienne Riddoch

Design manager Jackie Dollar

Designers Robert Mills, Zack Starkey

Production manager Anthony Kay

Advertising James Fraserjfraser@educate-direct.com +44 (0)20 7902 1210

Head of publishing Adam Williams

Printing Times Printers

Pictures Corbis

ACCAPresident Barry Cooper FCCADeputy president Martin Turner FCCAVice president Anthony Harbinson FCCAChief executive Helen Brand OBE

ACCA Connectmembers@accaglobal.com +44 (0)141 582 2000

ACCA Singapore435 Orchard Road#15-04/05 Wisma AtriaSingapore 238877+65 6734 8110 info@sg.accaglobal.com

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

The Council of ACCA and the publishers do not guarantee the accuracy of statements by contributors or advertisers, or accept responsibility for any statement that they may express in this publication.

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

Accounting and Business is published by Certifi ed Accountant (Publications) Ltd, a subsidiary of the Association of Chartered Certifi ed Accountants.

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AB SINGAPORE EDITIONCONTENTSNOVEMBER/DECEMBER 2012

SG_B_Contents.indd 4 12/10/2012 16:25

TECHNICAL42 Update The latest from the standard-setters

45 Accounting solutions PwC experts answer questions on employee incentive plans and agent versus principal

46 A guide for the perplexed The fi rst of a two-part series examines recent innovations in corporate reporting

48 CPD: hedge accounting A look at the rationale for hedging and its impact on fi nancial statements

51 CPD: strategy How strategy needs to be managed as a living process and how to deal with implementation

BRIEFING06 News in pictures A different view of recent headlines

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

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

VIEWPOINT30 Cesar Bacani ASEAN is set to become a regional driver for growth

31 Errol Oh Audit employees at large fi rms are voicing their concerns

32 Barry Cooper Accounting for the Future was a valuable event for members, says the ACCA president

33 CORPORATE33 The view from Douglas Young of Goods of Desire, plus news in brief

34 A passion for learning FSTEP’s Lee Khee Joo is helping to nurture Malaysia’s future accountants

38 Reporting for duty Our new series looks at how companies can improve their corporate reporting

39 PRACTICE39 The view from Tan Siow Ming of PwC Malaysia, plus news in brief

40 Fraud fi ghters Accountants have an increased role to play in the global crackdown

Regulars

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

Your sector

WorldwideThere are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab

ACCA NEWS54 CPD Annual CPD declarations are now due for submission

58 Compact considerations ACCA has signed up to the UN Global Compact

60 Room for improvement Finance functions have yet to embrace their new role as business partners, a new PwC-ACCA report fi nds

62 Adding value Auditors play a vital role in providing an independent picture of a company, delegates at the launch of a new ACCA report hear

64 Wilson Woo Providing opportunities for those less fortunate will help build the Singapore of the future, says the ACCA Singapore branch president

65 Council ACCA holds its 107th AGM in London

66 News Barry Cooper formally elected as ACCA president

SG_B_Contents.indd 5 12/10/2012 16:29

01 A ceremony in Taipei, Taiwan,

commemorates the anniversary of the birth of Chinese philosopher, Confucius, whose teachings focused on charity, justice, propriety, wisdom and loyalty

02 Zong Qinghou, of drinks company

Wahaha, has topped the Hurun Rich List as China’s richest man, worth US$12.6bn

03 Legoland Malaysia,

constructed using more than 50 million bricks, opens. Models include the Petronas Towers and the Great Wall of China

News in pictures6

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04 Imelda Marcos, pictured

celebrating the birthday of her late husband and president Ferdinand Marcos, is seeking re-election to a second term as congresswoman, continuing her family’s political comeback

05 Singapore has agreed a deal

with Formula One to extend the country’s Grand Prix contract until 2017. Its night race has been a highlight of the Formula One calendar since the event came to Singapore in 2008

06 Malaysian Prime Minister

Najib Razak, pictured at Independence Day celebrations, has announced a voter-friendly 2013 Budget ahead of next April’s general election

07 Two new art museums have

opened on the site of the 2010 Shanghai World Expo. The China Art Museum and the Power Station of Art began trial operations during the National Day holiday

7

AP_newsinpix.indd 7 11/10/2012 11:15

SINGAPORE SOARS ABOVE HONG KONG ON CORPORATE GOVERNANCESingapore came out ahead of Hong Kong again in a corporate governance survey by the Asian Corporate Governance Association and CLSA Asia-Pacific Markets that examined 11 markets and more than 800 listed companies. Singapore ranked 69th (67th in 2010) and Hong Kong came 66th (65th in 2010).

Singapore Hong Kong Thailand Japan Malaysia Taiwan India South Korea China

251The number of Chinese US dollar billionaires in 2012 (2011: 271; 2006: 15), according to the Hurun Report.

78%Uptake of smartphones across South-East Asia over the past year.

92%The number who say China’s slowdown is affecting their business, according to a Retail in Asia poll.

80%The number of staff who plan to stay with their current employer in the next year, according to Deloitte’s Talent 2020 report.

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39India

42Indonesia

63Pakistan

85China

73Vietnam

75Burma

43Malaysia

55

Sri Lanka

34SouthKorea

61Thailand

FREE AS A BIRD?Malaysia has fallen two places since last year in the Washington-based thinktank Freedom House’s latest Freedom on the Net (FOTN) report, which measures internet freedom in 47 countries. This places Malaysia on the 23rd spot, in the same league as Libya and Jordon, and maintains its ‘partly free’ label in the thinktank’s FOTN status. In the region, Malaysia ranks behind the Philippines (7th place) and Indonesia (21st) but is ahead of Thailand (35th), Vietnam (40th) and Burma (41st).

KEYFree (0-30)Partly free (31-60)Not free (61-100)

News in graphics8

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SUSTAINABILITY ATTITUDES IN TRANSITION CFOs are investing more in videoconferencing equipment, datacentre efficiency kit and electric vehicles, according to Deloitte’s 2012 Sustainability and the CFO Study. Some 250 CFOs took part, from companies with more than US$1bn in revenue each.

KEYHong KongSingaporeNew ZealandSwitzerlandAustraliaCanadaMauritiusIrelandUK

KEYHong KongSingaporeNew ZealandSwitzerlandAustraliaCanadaMauritiusIrelandUK

1234558

1212 UKUK1212

UK LAGS IN ECONOMIC FREEDOMThe UK has been overtaken in the latest economic freedom table published by Canadian thinktank the Fraser Institute. The key ingredients of economic freedom are: personal choice; voluntary exchange coordinated by markets; freedom to enter and compete in markets; and protection of persons and their property from aggression by others.

EMERGING MARKETS OFFER TASTY TAX INCENTIVES Emerging markets offer some of the lowest tax costs as well as growth potential, according to KPMG’s Competitive Alternatives 2012: Focus on Tax. Companies in India pay about 50% less in tax costs than their peers in the US.

India Canada China Mexico Russia UK Netherlands US

45

8

3 1

5

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56%

35%

52%

42%

21%

38%

Videoconferencing

Electric vehicles

Datacentre efficiency kit

KEY20112012

9

INT_B_graphics09.indd 9 12/10/2012 17:09

VAT ROLL OUT MOVES UP A GEARChina’s roll out of value-added tax (VAT) for service industries has stepped up, with implementation in Beijing in September, followed by Jiangsu and Anhui last month. Shanghai was the first city to roll out the tax in January. ‘The ultimate scenario is for the VAT system to be implemented nationwide – and across all industries,’ Peter Law, senior manager, tax advisory services at international audit and advisory firm Mazars told China Daily. ‘It is anticipated that this will occur before the end of the 12th Five-year Plan, which is 2015.’ He noted that while in the past, large amounts of tax in China were collected from land sales, the future seems to focus on VAT collection, ‘which promises to be the richest source of revenue in the world once the programme is implemented in all cities’.

MIND THE GAPMid-tier management salaries in Malaysia are about 10% to 30% lower than those of their counterparts in Singapore, Hong Kong and Australia, according to a survey by Kelly Services. Drawing on the findings of Kelly Services Asia Pacific Professional

and Technical Salary Guide 2012, Melissa Norman, Kelly Services managing director in Malaysia, told The Star that while new graduates in Singapore are commanding a starting salary of around S$2,500 (RM6,200), many Malaysian graduates are ‘still hovering between RM1,800 and RM2,000’. She added: ‘You need to go one step further and ask: “Why are [Singaporeans] getting paid a little more, and why are we paid a little less?” This brings you to the quality of the students. The majority of graduates here come out lacking in skills.’

INDUSTRIAL PROFITS FLAGChinese industrial companies’ profits fell for the fifth consecutive month in August, indicating that the economic downturn is set to continue, Bloomberg reported. Quoting the National Bureau of Statistics, it found company profits dropped 6.2%, a decline accelerating since the 5.4% drop in July, and a 1.7% fall in June. The figures, based on a survey of 41 industries, suggest that China is heading towards its weakest annual expansion in 22 years.

RICH GET POORERThe number of super-rich in China has fallen over the past year, with fewer US

dollar-billionaires for the first time in seven years. According to the Hurun Rich List’s latest annual report, there are now 251 Chinese billionaires, down 20 on a year ago, and 37 of the richest 1,000 saw a 50% drop in their wealth. Rupert Hoogewerf, Hurun Report chairman and chief researcher, said that although this year has seen ‘some significant wealth bloodletting, it is worth remembering that these entrepreneurs are still up 40% on two years ago and almost 10 times 10 years ago.’ Solar, textiles and retail have been the hardest hit this year, while entertainment, IT, natural gas and property developers with large landbanks have had a good year.

HUNGRY FOR GROWTHUS food giant Kellogg is tapping China’s growing appetite for Western-style cereals and snacks. The company has announced a joint venture with Singapore-based Wilmar to further the distribution of its Kellogg’s and Pringles brands. Kellogg chief executive John Bryant said that the project positions the company’s China business for growth ‘and fundamentally changes our game in China’. China’s snack-food market is expected to reach an estimated US$12bn by year-end, up 44% from 2008.

ASIA DRIVES LUXURY SALESSales of luxury goods in Asia continue to drive growth for top-end European brands. Italian label Prada has reported a nearly 60% growth in first-half earnings, with Asia-Pacific’s share accounting for nearly 36%. Sales in the region for Miu Miu brand – also owned by Prada – rose 34.7%. Group-wide, revenues from Asia Pacific recorded the highest growth of all markets, up 43.9%. Paris-based luxury house Hermès is also cashing in, reporting a 25% rise in sales in mainland China, Hong Kong and Singapore, compared with 21% globally.

HK AND CHILE SIGN AGREEMENTHong Kong and Chile have signed a historic free trade agreement, the first

STANDARDS STILL IMPROVINGCorporate governance standards are improving in Asia, according to the Asian Corporate Governance Association-CLSA Asia-Pacific Markets’ Corporate Governance Watch 2012. However, the report found that some standards have slipped since the last report in 2010, the scope ranging from ‘relatively minor corporate transgressions to growing concerns about the reliability of financial statements and, at the extreme, outright fraud’. Singapore topped the rankings, followed by Hong Kong and Thailand, all with improved scores. China dropped four percentage points, and Japan and Taiwan by two. Indonesia was placed at the bottom, with The Philippines second from last.

Singapore ranks highest in Asia for corporate governance standards

10 News round-up

AP_newsroundup.indd 10 11/10/2012 11:16

P20

between the special administrative region and a Latin American country. Inked at the Asia-Pacific Economic Cooperation leaders’ summit in Vladivostok, Russia, in September, the agreement will markedly improve the business environment for entities involved in economic activity between the two territories. The resultant liberalised access to services is expected to boost Hong Kong’s financial services industry and may potentially serve as a gateway to the Central and South American markets. Currently, Chile ranks 29th among Hong Kong's worldwide goods trading partners, and 32nd for services.

CFOS CONFIDENT IN ASIACFOs working across Asia Pacific are more confident about market conditions and career opportunities compared with their global counterparts, according to the Michael Page International Global CFO Barometer 2012. When surveyed, 83% of Asia-Pacific respondents believed that economic conditions in their country were either satisfactory or good, compared with 59% globally. And 88% of respondents based in Asia Pacific rated the region as the most attractive for business in 2012. The survey also found that Asia-based CFOs are focused on career opportunities, with 59% looking to broaden the scope of their current role in the next two years. Salary continues to play a key factor in career choice, as indicated by 59% of Asia Pacific and 51% of global respondents.

IPOS ‘ON ICE’Hong Kong is having its worst year for initial public offerings (IPOs) in a decade, the South China Morning Post reported in an article describing the much-hyped market as currently being ‘on ice’. Disappointing outcomes of listings, the eurozone crisis and slowing growth in the mainland have all taken their toll, compounded by the bad experience of investors who lost money in Hong Kong listings in 2011. Peter

Burnett, Asian global capital markets chairman at UBS, was quoted as saying: ‘There is plenty of cash, there is a history of great deals, but investor confidence is thin on the ground at the moment. Once that is restored there will be no shortage of attractive IPOs’ Only 32 IPOs were completed in Hong Kong in the first six months of 2012, according to Deloitte.

Cooperation summit meeting in Vladivostok, Russia, in September.

R&D RAMPS UPEmerging Asia is starting to produce significant amounts of its own innovation after years of playing research and development (R&D) ‘catch-up’, according to Coming of Age: Asia’s Evolving R&D Landscape, a new report

STRESS LEVELS SOARWorkers in Hong Kong and China are becoming more stressed, according to the latest global survey by flexible workspace provider Regus. From Distressed to De-stressed revealed that 75% of workers in China say their stress levels have risen in the past

year – the highest increase among the world’s top 50 economies. In Hong Kong, the figure was lower, at 55%, but still higher than the global average of 48%.

Respondents identified work as the biggest trigger of stress, with half

of Hong Kong respondents and 55% of those in mainland China wanting more flexibility in their jobs. In response, Robin Bishop, chief operating officer at Community Business – which promotes community social responsibility in Asia – said that

companies cannot ignore the impact of poor work-life balance

on their bottom lines.

CONFIDENCE TAKES A KNOCKEconomic disruption, including possible recession in the US, the eurozone crisis and China’s slowing economy have taken a toll on the confidence of CEOs in the Asia Pacific region, according to PwC. Just 36% of executives surveyed by the firm say they are ‘very confident’ of business growth over the next 12 months. Their prospects, however, improve in the longer term, with more than half (54%) expressing a high level of confidence for the next three to five years. Asia Pacific CEOs also believe that the region is on track to achieve greater economic integration, a top priority of the Asia Pacific Economic

from the Economist Intelligence Unit, commissioned by Mercer. For 50 years, Asia’s emerging markets have largely adopted ideas developed elsewhere in the world, but this is now changing, the report found. ‘As Asia and the emerging markets become increasingly important growth engines for the global economy, R&D and innovation in Asia have taken on increasing prominence. Global technology companies investing in R&D in the region do so not only to tap the growth markets but the disruptive innovation coming from the region,’ said Joon Tan, principal consultant, information product solutions, at Mercer.

11AnalysisGOODBYE GREECE?A Greek exit – dubbed ‘Grexit’ – from the eurozone is considered more likely than not by some commentators. With the implications for Greece almost beyond comprehension, could other countries also follow suit?

AP_newsroundup.indd 11 11/10/2012 11:17

Just as a general’s mettle is forged in battle, the mettle of a modern CEO is forged in times of financial crisis. For Ong Chih

Ching, a corporate lawyer and property investor who left her successful law practice in 2008 to become CEO of KOP Group, her battle-hardened experience came with the collapse of Lehman Brothers and the widespread financial crisis that ensued.

In 2006, the then 37-year-old, with two friends, co-founded KOP Capital, a private equity management firm. Within two years, business was expanding so fast Ong decided it was time to dedicate herself full time to the company. ‘Our first investment was to buy the land for our Ritz-Carlton Residences project, which at the time was quite different from the other branded residences around because this one was going to be managed by the actual hotel operators.

‘Then in 2007, we invested in four other projects in Singapore, including what would become Hamilton-Scotts. Leny [Suparman], my business partner, said to me: ‘This is other people’s money; we have to be responsible and you have to concentrate on this full time,’ Ong recalls.

As soon as she took over, Ong restructured the company, establishing KOP Group as the main company and creating KOP Properties, a new division that would develop properties, along with the private equity management arm, KOP Capital.

She was soon approached by one of her former clients, Dubai Group – the financial services arm of Dubai Holding

– which took a 51% stake in KOP Group. ‘I knew them well as I’d been their lawyer for over 10 years,’ Ong explains. ‘They were in an expansion mode, and the deal was that we would do any single real estate project they had in Asia. That was very palatable to us. They were well funded, we had great chemistry working together.’

GROUP EFFORTFrom hotels to horology, Ong Chih Ching has used her legal skills to conquer a diverse range of markets – and she’s achieved all this with a little help from her friends

The tips*Have very good friends who will support and help you – ‘not just people who work directly with me, but people whom I can call and ask for help,’ Ong says.

*You need self-discipline and must be focused.

*You have to persevere when you believe it is right, but also be willing to cut your losses.

Flush with new cash, Ong decided that KOP should acquire a 50% stake in Stein Group, a management company of small luxury lifestyle hotels across Europe (today renamed Franklyn Hotels and Resorts).

‘We wanted the expertise of hospitality,’ Ong recalls. ‘We weren’t planning on going into hotels but we felt we were lacking the software to support our residential plans. So we acquired 50% of Stein and the idea was that they would do the management for our real estate.

‘Bite the bullet’However, the Lehman crisis changed the picture. ‘The company was based in Europe with all their properties there. It needed new capital, but they didn’t have the funds, and we couldn’t come to a reasonable agreement, so in the end we had to bite the bullet and take them over,’ Ong explains.

The financial crisis also created tensions between Ong’s vision for KOP Group and that of its main financial partner. ‘In 2009-2010, the Dubai Group team changed drastically. Because of the Lehman crisis, they were in a consolidation mode and we needed to expand so there was a definite mismatch,’ she recalls. Eventually, the partners parted ways, amicably, with Ong engineering a management buy-out with the help of Thai businessman Chanchai Ruayrungruang, chairman of conglomerate Reignwood Group.

Ong believes her training as a lawyer helped her weather the crisis. ‘Lawyers are very quick at identifying the issues

12 CEO interview

SG_F_Ong.indd 12 12/10/2012 17:05

13

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The CV2008

Becomes CEO of KOP Group.

2006Founds KOP Capital with Leny Suparman and Geraldine Ong.

2003Founds watch collectors’ guild Bezel with Leny Suparman.

1998Starts up Lush Cosmetics in Singapore (sold back to principal in 2001).

1996Founds law firm Koh Ong & Partners with one partner.

1994Admitted as advocate and solicitor by the Singapore Law Society.

1990Bachelor of Laws from the University of Buckingham.

and giving a solution. That’s very much up my alley. As a result, I think I probably was less stressed than other CEOs during Lehman. In hindsight, the experience was good. We were on a high between 2006 and 2008, but once you’ve experienced difficulties, it provides you with the experience, the patience and the requisite abilities to walk the longer road,’ Ong reflects.

‘I’ve learned from all this that you must persevere – which I hadn’t done before with other personal business investments – but you must also be ready to cut your losses. You have to be focused and you have to be the one in the driving seat; you can’t rely on someone else,’ she adds.

shui but we had won every single case we’d had for two years and we were feeling pretty invincible,’ she recalls.

The retail venture would, however, be a humbling experience. The company had opened three shops within four months, but it was not successful. ‘As lawyers we were charging S$400 an hour, the soaps were selling for S$4 apiece and it was taking about the same amount of time. The law firm was thriving and so we had to make a choice,’ she says. ‘From this experience we learned that human resources is the most important thing and that if you want to succeed you have to be there. The moment we weren’t there, sales were going down.’

In 2009, KOP took on the exclusive distribution of Princess Yachts in Singapore and China, but decided to disengage after a year and a half. ‘We felt it wasn’t the right thing to do, so we got out of it,’ she says.

Throughout her career, Ong has seized opportunities wherever they lay and even though they have not always been successful, she feels that she has always gained valuable experience. For example, with a friend, Koh Geok Jen, she set up a joint venture with UK company Lush Cosmetics to bring products to Singapore.

‘Back in 1998, our law firm was two years old and we felt that it was on a good track. Maybe it was good feng

‘YOU MUST PERSEVERE BUT YOU MUST ALSO BE READY TO CUT YOUR LOSSES. YOU HAVE TO BE THE ONE IN THE DRIVING SEAT’

14

SG_F_Ong.indd 14 12/10/2012 17:06

In 2003, Ong set up another venture, Bezel, with her friend and CEO of KOP Properties, Leny Suparman. Initially started as a watch club because they felt the world of horology was too cliquish, they saw a retail opportunity and struck a deal for the distribution rights to Italian brand U-Boat Watches in most of Asia. Today, the two women remain investors in Bezel, although the business is run by a partner.

A matter of trustFor her part, Suparman believes they have managed to make their collaborations work because they fully trust and complement each other. ‘Chih Ching looks at the big picture; I look into the details,’ she says. ‘She gets excited about opportunities; I also do, but with more caution.’

Ong believes that a company’s boardroom benefits from diversity. ‘Women are more down to earth and

don’t have so many ego issues, so it’s often easier to talk to them, but I feel they don’t offer each other the support that men will. Men are more cliquish and more supportive of each other.’

Today, the KOP Group’s annual turnover is around S$100m, with several projects on the go. Besides the 58-unit Ritz-Carlton Residences and the 56-unit Hamilton-Scotts, the company has recently opened Montigo Resorts in Batam, Indonesia, and is now working on a major new project, 10 Trinity Square – a mixed-use development with luxury residences and a hotel in the heart of London.

Both Montigo and 10 Trinity Square are bringing Ong back full circle, in different ways. The CEO admits she had always wanted to be an architect, but was not strong enough in maths so chose law instead. With Montigo, she got the opportunity to express her creativity in the design of the villas.

Meanwhile, Trinity Square provides a link with her first real estate investment experiences while studying in London. ‘Even when I was studying I was buying and selling properties there for my mother,’ she recalls. ‘Even after I left London, I was going back once a year and still investing. At the peak I had seven properties there.’

Ong says that while many people assume that the London development is KOP’s most difficult project, Montigo Resorts has actually been the hardest, which is probably why it is the one of which she is the most proud. ‘First of all, the destination itself has its baggage, and then Indonesia wasn’t a place I was familiar with. Finally, the skill set that you can find in Indonesia versus what you find here or in London is very different. So yes, it’s been difficult, but it’s finally completed and nearly sold,’ she says.

Besides real estate, KOP Group also runs LUX Legion, an alliance providing members a platform to showcase their products and services. There is

The basicsKOP GROUP The diversified real estate investment, development and management company has three arms: KOP Capital, a private equity unit investing in real estate; KOP Properties, an investment company that develops properties; and KOP Hotels and Resorts, the hospitality and leisure division that includes Franklyn Hotels and Resorts, Aqua Voyage and Sealine Yachts Asia.

The company started with just one full-time employee, Leny Suparman, and has now grown to about 300 employees worldwide. According to its CEO Ong Chih Ching, KOP has around S$3.1bn in assets under management and the annual turnover is about S$100m.

also Aqua Voyage, a provider of luxury yacht management and private cruise services, and Sealine Yachts Asia, which has the exclusive distribution rights of the UK boat brand in Singapore and China.

For the next five years, Ong’s ambition as a CEO is to refocus the KOP Group on its core business: real estate. ‘I think we’ve had enough expansion, so we need to consolidate and then expand within the scope of businesses we have,’ she says. ‘I’m not planning to cut out some of the businesses, but I will pay less attention to them. These businesses are doing very well; we’ll let them run their course and see where they are going.’

As for listing KOP, Ong says that it’s not on her radar right now. ‘It will happen,’ she says. ‘It’s just a question of when.’

Sonia Kolesnikov-Jessop, journalist

15

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Sushi on conveyor belts from Sakae Sushi, OSIM International’s high-tech massage chairs and

BreadTalk’s prestigious buns. These are among the products gaining cachet overseas as Singapore’s companies extend their footprints beyond the confines of a small local market.

According to government agency International Enterprise (IE) Singapore, companies tend to favour doing business in South-East Asia and China due to geographical proximity and cultural similarities. ‘However, we are constantly on the lookout for new regions for Singapore companies to diversify their investments,’ IE Singapore’s group director of customer services, Tan Li Lin, says.

The agency considers emerging markets such as Myanmar and Latin America, as well as second-tier cities in China and Africa, as potential bright spots against the current economic backdrop. These markets are promising because of their rapid development, growing population and rising standard of living, Tan says.

Singaporean companies can turn to this global network for market

intelligence, including knowledge on new sector opportunities, market players, attractiveness, structure and risks. In May IE Singapore opened its 36th overseas centre, in Istanbul, Turkey, and has set its sights on Yangon in Myanmar and Ghana next.

‘With increasing volatilities and global competition, we recognise the need to engage Singapore companies even more closely and help them grow into globally competitive companies (GCCs),’ Tan says. ‘GCCs are Singapore’s engine for long-term sustainable growth. Besides contributing to Singapore’s economies, they create high-value jobs with regional or global responsibilities for Singaporeans, building a workforce with a global outlook.’

IE Singapore launched the Global Company Partnership (GCP) initiative earlier this year to engage companies more strategically and proactively. ‘By better understanding companies’ business plans, we can formulate comprehensive solutions for their international growth through capability building, market access and financing,’ Tan says.

Singaporean companies have cited keen competition, lack of manpower to manage overseas operations and difficulty in finding business partners as the top three challenges when doing business abroad, based on the findings of IE Singapore’s Internationalisation Survey 2011/2012.

A recent Ernst & Young report –Beyond Asia: Strategies to Support

the Quest for Growth – stated that in internationalising their businesses, there are several areas where Singaporean executives feel less optimistic about their abilities than their Asian counterparts. For example, 52% of Singapore respondents believed that making corporate culture more international is the most critical change needed for their international plans to succeed, compared with 42% for Asia as a whole. Only a quarter thought that their top management has an international outlook in decision making (the survey average was 34%).

Joshua Yim, CEO of local recruitment and employment agency Achieve Group, expressed surprise at the findings. ‘The senior executives whom I have been personally in touch with generally have a strong international outlook,’ he says. But in the case of homegrown multinational corporations (MNCs), he added that ‘some of them may still be shy of a strong international mindset’.

Yim believes that Singaporean companies have a great deal of ambition to grow worldwide and create a regional and global footprint – but they must be prepared. ‘To go global, management will need to broaden their mindset, especially with regards to handling diversity and ambiguity,’ he says. ‘This includes dealing with different cultures.’

Talent scoutOne of the problems that companies face when venturing overseas is finding

ACROSS THE MILESSingapore’s companies are being urged to increase their global competitiveness – and reap the rewards. But they must fi rst gain the confi dence to make the international leap

‘TO GO GLOBAL, MANAGEMENT NEED TO BROADEN THEIR MINDSET, INCLUDING DEALING WITH DIVERSITY’ JOSHUA YIM

‘TO GO GLOBAL, MANAGEMENT NEED TO BROADEN THEIR ‘TO GO GLOBAL, MANAGEMENT NEED TO BROADEN THEIR MINDSET, INCLUDING DEALING WITH DIVERSITY’ MINDSET, INCLUDING DEALING WITH DIVERSITY’ JOSHUA YIM

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available talent; many Singaporeans are averse to overseas postings, being comfortable in their current environment, or they may have family commitments, Yim adds.

Last year, more than 34,400 companies approached IE Singapore for help in understanding overseas markets, connecting to the right business partners and developing capabilities. It partnered companies on 336 overseas projects, with two-thirds taking place in developing regions such as Indonesia, United Arab Emirates and Vietnam, Tan says. China saw the most interest, accounting for 104 overseas projects.

Indeed, companies such as OSIM International and BreadTalk Group, both listed on the Singapore Exchange (SGX), have been making a beeline for the world’s second largest economy. BreadTalk, which has a presence in 16 countries, made its first foray into China in 2003 and plans to double the number of bakery outlets there to more than 500 in the next two years, according to a recent Straits Times report. This is in line with plans to boost its global network of stores to 1,000 by 2014, the report said.

China’s increasing affluence and market size is also a draw for OSIM, which has 267 outlets in 45 cities in the country. In a 2008 survey by international market research firm Synovate, OSIM came up as the top healthy lifestyle products brand across Asia. There are more than 1,000 OSIM outlets in 228 cities across 31 countries, and OSIM’s founder and chief executive Ron Sim is among the 40 richest Singaporeans, according to a ranking by Forbes.

Local optical retail chain Nanyang Optical, which has four stores in

Beijing under a joint venture, also sees potential growth in Asia, especially China, its managing director Bernard Yang says.

While venturing overseas can reap rewards, it is not without its problems, as Yang can attest to; he cites finding the right person to take care of the group’s overseas business as a key challenge. ‘Getting the right partner who has experience in the industry, is reliable, and shares the same vision and objectives for the business makes it smoother,’ he notes.

Positive reputationOn the plus side, ‘being known as a Singapore home-grown brand has given our business added confidence due to Singapore’s positive global reputation,’ Yang says. Nanyang Optical has benefited from grants from Spring Singapore – the governmental agency dedicated to the promotion of Singapore’s economic growth and

‘SINGAPOREANS MUSTHAVE THAT SPIRIT OF ENTERPRISE AND TAKE ANY GOVERNMENT SUPPORT AS A BONUS. DO NOT WAIT FOR SUPPORT TO COME’CHAN CHONG BENG

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productivity – to defray some of its research and development costs for frame design and innovation.

For Goodrich Global Holdings, heading overseas was a given as it sought a bigger market. Its chairman Chan Chong Beng, one of two founders of the interior furnishings company, made the first overseas foray back in 1986, to Malaysia. The company now has about 30 offices across eight countries, including Indonesia, China and United Arab Emirates, with annual sales expected to cross S$100m this year.

Chan’s experience navigating the ups and downs of operating overseas epitomises the challenges of venturing abroad. He first entered the China market in 1994 with a partner but wound up the business there two years later as things did not work out with that party. ‘I realised that handling China from Singapore was too far,’ he recalls. ‘So I started a Hong Kong office, and from there expanded to China.’

Chan, who is also president of the Association of Small and Medium Enterprises (ASME) which has five global centres supporting members overseas, stresses that ‘finding the right partner is very, very important.’ His advice to businesses eyeing overseas markets is to spend as much time as possible in those places in order to understand the local conditions.

There can, he notes, be a multitude of issues. For example, the wallcoverings that Goodrich distributes are fire-rated to British standards that are not recognised in China, where each province applies its own regulation. In addition, the issue of copying led Goodrich to target the high-end market such as five-star hotels.

Chan says that venturing overseas is a matter of survival for the long term. Small and medium-sized enterprises face problems in Singapore such as a labour crunch and high rentals, with many eking out razor-thin profits. This can make expansion overseas more difficult, he says.

Conversely, with the cost of doing business in Singapore set to rise further, companies will come under

When Douglas Foo switched from the garment business to food in the late 1990s, his ambition right from the start was to build a global brand.

‘When we decided to go into food, the dream was big, really big,’ he says. How big? Think the likes of McDonald’s, KFC, Starbucks and Pizza Hut.

Now, Singapore Exchange-listed Sakae Holdings, the company he founded, has more than 80 outlets in Asia, the bulk of them in Singapore and Malaysia and under its flagship Sakae Sushi brand. The group also has a presence in Thailand, Vietnam, Indonesia, the Philippines and China.

Famous for offering sushi via conveyor belts and making the Japanese cuisine affordable for many, Sakae opened the first Sakae Sushi outlet in Singapore in 1997, when the Asian financial crisis was raging. Soon after, Foo, who is Sakae’s chief executive, travelled to Jakarta, Indonesia, during a period of unrest and rioting. The faint-hearted might have found the situation daunting, but not Foo. He saw opportunities instead, viewing the problems in the country then as isolated incidents.

During troubled times, the cost of opening a business is lower, he says. ‘You get more opportunities and access to talent. Not many people would go in and fight with you to hire people,’ he says. With this in mind, Foo went on to open Sakae Sushi’s first overseas outlet in Indonesia.

Foo wants to grow a global brand with a presence in all five continents – just like McDonald’s, Starbucks, Pizza Hut and KFC – and for people to think of Sakae whenever they think of sushi.

The overseas expansion has not been without snags. He opened two outlets in New York before the Lehman crisis broke out and had to stop operations due to high rentals secured prior to the financial crisis. He is in the midst of renegotiating the rentals with the landlord.

Currently, Foo’s focus is more on Asia rather than elsewhere as the regional economy is more robust. But, he emphasises, the overriding factor in any decision to enter a new market would be the availability of the right talent.

According to a recent survey by Ernst & Young – Beyond Asia: Strategies to Support the Quest for Growth – about half of Singapore executives feel that their organisation’s management needs more insight into local cultures and ways of doing business in order to excel in the global marketplace.

Sakae gets round the problem by turning to local hires to manage its overseas outlets instead of posting Singaporeans abroad. Local managers on site will be more familiar with conditions there and can better deal with any challenges that might crop up. Foo says he is building a global team of people with a global outlook who would have the network and resources in the various places Sakae is operating in. ‘That would be the edge that we will have against others,’ he says.

‘If you try and understand the local culture within a short time frame, the learning curve is steep,’ he adds. ‘That’s why our strategy is to hire a person who has grown up in that market.’

*HIRE LOCAL TALENT

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pressure to relocate production overseas and target markets outside Singapore, he says. Goodrich itself is considering shifting its headquarters from Singapore to China, where the market is huge and costs are lower, Chan reveals.

While Chan hails the wide range of government grants and schemes

available to help Singapore firms go global, ‘Singaporeans must have that spirit of enterprise and take any government support as a bonus,’ he says. ‘Do not wait for the support to come before you move. You must find a way to survive first.’

Suki Lor, journalist

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Aspectre is haunting Europe: that of a possible Greek default and exit from the euro. A Grexit, as it has

been called, could have catastrophic repercussions for the economies of Europe – and possibly the world too – or it could provide some kind of solution for the troubled eurozone and the heavily indebted country. Amid the uncertainty, one thing seems certain: nobody really knows what such an event will mean.

‘Nobody has ever gone to hell or to paradise and returned to tell us how it was,’ Harilaos Alamanos, president of Greece’s Institute of Certified Public Accountants (SOEL), told Accounting and Business. ‘Nobody knows how an exit will be achieved. And the experience of entering the euro does not help with how an exit from the currency might go.’

For professional accountants, a Greek euro exit could mean an upgrade of their role, according to Alamanos. ‘We will have to assess the implementation of all the changes that will be imposed on businesses or in the wider public sector companies. But while this may be good for the sector, as it will bring more jobs, it is obviously bad for the country.’

Jonathan Loynes, chief European economist and director at London-

based Capital Economics, the company whose Roger Bootle won the Wolfson Economics Prize on the smoothest process by which a member state could exit the eurozone (see pages 23–24), says that his firm’s view is that ‘a Greek exit is more likely than not’.

Exit ‘80% likely’Unlike most other forecasters, Capital Economics has built such an event into its central economic projections. Loynes says: ‘It’s hard to put an exact number on it, but I would estimate something like an 80% chance that Greece will be out by the end of 2013. There are few signs as yet of policymakers taking the steps we mapped out in the Wolfson entry but that is not surprising as the entry dealt with how to manage a country’s exit, which has not yet commenced.’

Much of how a Greek exit might look depends on whether the country defaults in an orderly or disorderly fashion. Dr Vassilis Monastiriotis, senior lecturer at the London School of Economics and affiliate at the Hellenic Observatory, believes that the catastrophe of a disorderly exit would bring upheaval to the markets.

He says: ‘The immediate effect would be that bank accounts would be frozen so the Greek economy would collapse until a new currency was issued. Hyper-

inflation will intensify problems of poverty in the population, destabilising the situation socially and politically. The country will operate basically on a cash economy and foreign investment will stop.

‘Imports will become hugely expensive as importers would have to pay cash in a very devalued currency. All domestic companies would find it impossible to operate in the international market unless they hold liquidity in foreign reserves, which very few companies do. Not many companies would survive this for long.’

This, however, is a scenario that most analysts, including Monastiriotis, consider unlikely. What is expected is an orderly exit where the eurozone

GREXITGRIEFWhat would be the effects of a Greek exit from the eurozone for accountants and Greece’s trading partners?

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partners agree with Greece a procedure to phase the country out of the eurozone. Monastiriotis says he expects the European Central Bank (ECB) to guarantee liquidity in the Greek banking system during a transition period.

‘There will be a combination of measures that control capital movements with a number of guarantees to ease the pressures arising from that,’ he says. ‘Liquidity will be provided to the banking system,

and, I imagine, there would also be measures to provide liquidity directly to large companies through loan guarantees or short-term lending.’

Who gets the reserves?Greece’s foreign reserves would be put in the spotlight. ‘If a country is to exit the eurozone, do they get their initial allocation of foreign reserves? Is the ECB going to keep them as collateral against the Greek debt held by the ECB or other member states? These

are issues that cannot be resolved overnight,’ says Monastiriotis.

Constitutional issues may also arise for the EU about the extent to which a euro exit could be accommodated without breaching the rules that underpin the European single market.

Monastiriotis explains: ‘Legally there are ways to allow for a temporary deviation and non-implementation of specific regulations and we have had examples of that in the EU context before. But of course these may be challenged in court by different companies or individuals that may be affected, and it may not be an easy situation for Greece or the EU.’

Foreign exchange markets are already assessing the possibility of a

‘LIQUIDITY WILL BE PROVIDED TO THE BANKING SYSTEM, AND TO LARGE COMPANIES THROUGH LOAN GUARANTEES OR SHORT-TERM LENDING’

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‘SPAIN, ITALY AND PORTUGAL COULD EASILY FOLLOW THE GREEK PATH. BUT THE REAL QUESTION IS: WHEN WILL IT STOP? WILL FRANCE BE THE NEXT?’

Greek exit and how that would affect the euro and a new Greek currency. In June, Bloomberg shocked foreign exchange dealers by testing on its live exchange rates system a post-euro Greek drachma code (XGD) as part of ‘contingency planning exercises in the normal course of business’.

Igor Drobnjak, director of markets at foreign exchange specialist Tempus UK, part of the Monex Group, says: ‘In some ways the markets have already included the potential Greek default in the price of the euro. Only in 2012 we saw the euro drop against a basketful of currencies. Although this depreciation of the euro makes European goods more competitive on international markets, it is making eurozone debt less attractive. This means that most of the major investors and the banks, especially in the US, are carrying their positions on a Greek debt, which brings additional volatility.

‘Eurozone debt is mainly traded within peripheral countries. You don’t have so much exposure of Greek, Italian or Spanish debt in the global markets. It became more localised and in a way that is a natural hedge for these countries because they can devalue on their own the bonds they have issued. However, European banks – especially those that have the majority of exposure to that debt – will have to take the loss and put it on their balance sheet.’

And the kitchen sink too…A Greek exit would also raise issues of liquidity in other European countries. All the responsibility for providing liquidity in eurozone countries hit by a Greek exit ‘will be held by the ECB, which will likely need to resume bond buying, move rates to 0%, and apply any other non-conventional tool, if not all of them’, says Valeria Bednarik, chief analyst at Barcelona-based independent forex portal Fxstreet.com.

As for the fallout in exchange rates, Bednarik says that ‘among currencies, [US] dollar and yen will be the first beneficiaries probably followed by commodity currencies, Australian and Canadian dollars – the new market safe

havens. The pound, on the other hand, will likely feel the weight of a European crisis and be pressured lower. The most benefited will be the Swiss franc, as the SNB [Swiss National Bank] will regain some air after the recent struggle to control the Swiss strength and establishing the EUR/CHF peg.’

Credit insurance costs have also been affected. A spokesperson for UK Export Finance, Britain’s official export credit agency, says that as market risk

appetite varies for different countries, businesses interested in exporting to Greece have been asked to get in touch for a case-by-case assessment, unlike what happens with other advanced markets. UK Export Finance now accepts ‘applications for short-term cover for export contracts between UK exporters and buyers in Greece’ after the European Commission lifted for Greece a restriction on providing trade credit insurance cover for exports to buyers in the EU where the risk horizon is under two years.

Meanwhile, trade-related insurance provider Euler Hermes says it will stick to a May statement that anticipated Greece remaining in the eurozone. It has, however, reduced its export cover on Greece as continued economic uncertainties make exporting to Greece substantially more risky. The company says it ‘is currently not covering new shipments to Greece, although shipments scheduled for delivery before the end of July remain insured’.

Drobnjak says: ‘The major question now is to see whether the Greek scenario is a separate case or if it endangers [other eurozone] states. A Greek exit could create a vicious spiral endangering the core of the single region; in that case the only countries that could stay in the eurozone would be Germany, the Netherlands, France and Finland – not the best-case scenario for the euro per se.’

Noemí Jansana, head of content at Fxstreet, says the big problem for Spain is that a Greek exit ‘would set a precedent that could favour the exit of other European peripheral countries and Spain, Italy and Portugal could easily follow the Greek path. But the real question is: when is it going to stop? Will France be the next? And then what?’ She believes that European leaders will do whatever it takes to preserve the euro’s integrity.

Monastiriotis says: ‘The transactional cost, the cost in political capital, the reputational cost that will be suffered by the EU, let alone the consequences for Greece itself, will all be huge. This is why all players will try to avoid a Greek exit.’

More power for troika The Greek government, Monastiriotis says, ‘will either find somehow the capacity to implement some of the measures to take forward the remaining reforms, in which case the measures may be softened, or we will move eventually into stricter forms of monitoring, so the troika of lenders [the EU, the ECB and the IMF] will be more involved in decision-making, controlling the government finances to resolve the deadlock’.

Meanwhile Greece is the country feeling the burden the most. Alamanos says: ‘The businesses that are closing are usually the healthy ones, which pay their taxes, salaries, contributions to pension funds, etc. The rogue ones just don’t bother. They pay nothing and they are an unfair competition to the healthy ones.’

Whatever the outcome, an outcome should be reached soon as the euro and Greece itself are paying a heavy price for uncertainty.

Michael Kosmides, journalist based in Athens

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BREAKING UP IS HARD TO DO……but not impossible. Roger Bootle, winner of the Wolfson Economics Prize to create a blueprint for dismantling the euro, has written a meticulous instruction manual

One of the cardinal rules of firefighting is always identify your exit before entering a blaze. Several

eurozone nations must wish they had followed this advice when joining the continent’s bold experiment in currency union. Since the euro was intended to be a club that none could leave, no emergency escape plans were ever made.

Lord Wolfson, a eurosceptic, wants to change that. He issued a challenge to economists to draw up a blueprint on how best to dismantle the currency. The £250,000 prize attracted 400 entries and was won by veteran commentator Roger Bootle, founder of the consultancy Capital Economics

and former chief economic adviser to Deloitte. His winning submission is a meticulous instruction manual on how failing states can extract themselves from the zone in an orderly manner.

Whitewash-freeThe first merit of Bootle’s 156-page handbook is that it doesn’t sugarcoat the risks. Any nation wishing to exit the crumbling structure will confront a huge range of dangers. For a start, all hell would break loose if news of an imminent departure were to leak to the press. Citizens would make a beeline for the bank and immediately withdraw their savings, provoking an instant financial crisis. The replacement currency would plunge on the foreign

exchange markets – in the case of Greece possibly by up to 50%.

Of course, currency devaluation is the ultimate goal of leaving the zone as it would eventually boost exports and promote economic growth. In the short term, however, it would raise the risk of hyperinflation. Rampant price rises would undo any gains in competitiveness and leave the hapless state back where it started.

Then there are the practical issues of printing a new currency. A country could be left without cash in circulation for up to six months.

One ironic effect of leaving the zone would also be to boost the real value of the nation’s foreign debts. So far from solving a debt crisis, leaving the euro

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‘CASH MACHINES WOULD NEED TO SHUT DOWN.OTHERWISE RESIDENTS WOULD TRY TO WITHDRAWAS MANY EUROS AS POSSIBLE FROM ACCOUNTS’

would actually make matters worse – at least in the short term.

‘Our goal in the euro paper was to find a way around some of these perils,’ says Jonathan Loynes, chief European analyst at Capital Economics and one of the co-authors of the plan. ‘We looked to the history of currency break-ups – such as the collapse of the Soviet Union and Czechoslovakia – for clues about how this adjustment could be made with the least possible trauma.’

Keep it under your hatThe first challenge is to keep secession plans secret for as long as possible. Ideally, a momentous decision like leaving the euro should be democratic, taking the pulse of all political parties as well as the public.

Sadly, such an inclusive approach is not practical, Bootle warns. Advanced notice of such plans could precipitate ‘large capital outflows as international investors and domestic residents withdraw their funds’. Bond yields would surge and banks quickly run out of cash. So Bootle’s first tip is to keep the exit plan hush-hush until the last possible moment.

The Czech government, for example, decided to break up its currency union with Slovakia on 19 January 1993, following the dissolution of Czechoslovakia in 1992. It concealed this decision from citizens until 2 February, just six days before the two new states adopted separate national currencies.

In his plan Bootle says the key to making a success of the clandestine approach ‘would be to keep the number of people who knew as small as possible and the delay between the decision and implementation fairly short’. Printing a whole new currency ahead of time is probably out of the question, given the lengthy period that such an operation would require.

Closing the hole in the wallOnce the cat is out of the bag, capital and banking controls would be needed to prevent money fleeing the country. ‘Cash machines… would need to be shut down,’ advises Bootle’s plan. ‘Otherwise, realising that the euro would become more valuable than the drachma, most Greek residents [for example] would attempt to withdraw as many euros as possible from their bank accounts.’

Currency controls could be supplemented by forbidding residents from buying foreign assets overseas or setting up bank accounts outside the country. Foreign businesses in the country might also be barred from repatriating profits back to the home office. Capital Economics argues that such radical steps could be avoided if plans are kept hidden – especially if the transition takes place over a weekend when banks are closed.

The most obvious practical issue in leaving the euro is that of minting new notes and coins. Since this might take months, the departing country would be left in limbo. One stopgap solution would be to stamp existing euro notes with a drachma symbol. This is not an option favoured by Bootle. Instead, the Capital Economics plan argues that a country like Greece could largely do without cash for a while.

A recent survey by the European Central Bank showed that cash

accounted for just 5% of total transactions for the majority of businesses. For the small amounts of cash that are needed, the euro could continue to be used until a new currency was ready, Bootle argues.

Another question is the potentially inflationary threats posed by a new currency. Retailers might take advantage of the changeover to raise prices. Many shoppers suspected this happened when the British shifted to a decimal system in 1971. To avoid such covert hikes, Bootle recommends introducing the new currency at parity to the euro, so an item that used to sell for 1.5 euros would sell for 1.5 drachma, although the new currency’s real value could soon fall sharply.

Most crucially, however, the public would have to be quickly convinced that price rises were not going to get out of hand. A new inflation target would need to be set, to kick in after an initial adjustment phase. The nation could also consider issuing indexed bonds, whose interest payments would rise along with prices. This would reduce a government’s incentive to let inflation rip, Bootle says, and so reassure investors and the public.

Return to growthPoliticians could offer another guarantee of good behaviour by setting up an independent auditor to monitor public borrowing. A departing sovereign should also organise an orderly default on foreign debt, writing down debts to a sustainable level so the nation could resume economic growth.

The Wolfson Economics Prize ended up underlining many of the dangers of a euro split. But thanks to the Tory peer, discussing the practicalities of a breakup is no longer a taboo.

Christopher Alkan, journalist

would actually make matters worse – at

Bootle: euro exit masterplan

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Rather than attempting to survive risks resulting from global megaforces, business leaders can do much more. Indeed, with foresight and planning, and by undertaking pioneering actions to prepare for an uncertain future, they can thrive by turning risks into new opportunities. Companies need to develop resilience and flexibility for an

unpredictable future and build capacity to anticipate and adapt.

Understand the risksFirst and foremost, businesses need to fully assess and understand future sustainability risks, for example by integrating them into an enterprise risk management tool, defining their responses to deal with them, and analysing opportunities for efficiency, substitution or adaptation.

Integrated strategic planning and strategy development are needed as well; this requires business management to make sustainability central to their corporate strategy and incorporate it at all levels. Put simply, businesses must manage risks and capitalise on opportunities by turning strategic plans and strategies into ambitious targets and actions. One can think of energy and resource efficiency improvements, sustainable supply chain management, and investment into innovation on sustainable products and services, as well as gaining access to new markets for greener products, services and technologies. It is also imperative to explore tax incentives tailored to alternative energy, energy efficiency and other areas related to sustainability.

Another much discussed but less implemented tool for success in this area is measuring performance and

A CLARITYOF VISIONCompanies are starting to see the link between sustainability and fi nancial results, says KPMG special adviser and former UN climate chief Yvo de Boer

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reporting on sustainability, as well as the related benefits. The growing trend of integrated reporting is an example of how companies are building frameworks for sustainability reporting processes, stronger information systems and appropriate governance and control mechanisms on a par with those currently used in financial reporting.

Time to talkOrganisations cannot do this alone. Collaboration with partners on sustainability issues is vital to enhance leverage and improve the cost-benefit ratio of action. Business leaders should seek opportunities for genuine dialogue with governments and demonstrate new and innovative approaches to public-private partnerships. Improved dialogue could focus on economic instruments and market barriers that could be reduced to make sustainable business operation easier. Good management used to be about preparing for the expected; now it is just as much about preparing for the unexpected. Without action and strategic planning, risks will multiply and opportunities will be lost.

KPMG’s clients and business all over the world are seeing the link between sustainability and financial results becoming increasingly clear. Companies that recognise the external influences on their organisations and leverage them as opportunities are realising a competitive advantage. To that end, the exercise of measuring and reporting sustainability activities to stakeholders with clear, accurate data is increasingly relevant and quickly becoming a priority.

Competitive advantage can be carved out of emerging risk. It is clearly no longer in question that we must transcend to a more sustainable economy. The question is the pace in which we are able, and especially willing, to achieve it.

To thrive, or even just to survive, businesses need to understand the root causes of what affects their operations, not just the symptoms. The bold, the visionary and the innovative recognise that what is good for people and the planet will also be good for the long-term bottom line and shareholder value. This is how we can make our common economy futureproof.

Yvo de Boer is KPMG’s special global adviser on climate change and sustainability, responsible for driving the development of the firm’s Sustainability Service. He is former executive secretary to the UN Framework Convention on Climate Change (UNFCCC), and currently chairs the World Economic Forum’s Global Agenda Council on Climate Change. De Boer helped to prepare the position of the European Union in the lead-up to negotiations on the Kyoto Protocol; assisted in the design of the EU’s internal burden sharing; and has led delegations to UNFCCC negotiations.

MEASURING AND REPORTING SUSTAINABILITYACTIVITIES TO STAKEHOLDERS WITH CLEAR,ACCURATE DATA IS QUICKLY BECOMING A PRIORITY

*YVO DE BOER

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SILVER LININGFOR THE BOARD

The cloud is all about computing as a service rather than a product. It supports the sharing of resources – both

hardware and software – through a web browser over the internet. This makes it ideal for companies of all shapes and sizes. By treating IT as a commodity, they can get what they need, when they need it, without heavy investment.

Years ago, the largest part of the IT investment by far was the hardware. This is no longer the case. Software, along with licences, maintenance, upgrades, staff training and technical support, is a significant consideration. But cloud computing and, in particular, software-as-a-service (SaaS) can also take the sting out of the software budget.

The advantages of SaaS range from low cost of entry to global accessibility, but also include ‘softer’ features such as easy administration and collaboration. The choice of applications is growing too, and includes sales tracking, accounting, customer relationship management, enterprise resource planning, invoicing, human resources and more.

Board portalsOne excellent example of cloud-based SaaS is the board portal. This technology, which is increasingly finding favour inside and outside the boardroom, is actually a secure website, which addresses some of the major challenges facing corporate boards: timely compilation, review,

dissection, analysis and approval of corporate information.

Company directors have long been awash with paper, primarily in the form of the board books that are required reading before every full board and many committee meetings, and although some may pigeonhole them as a group of Dickensian technophobes, this stereotype couldn’t be further from the truth.

Today’s directors are not only tech-savvy and fully aware of the efficiencies that notebooks, smartphones and tablets can offer, they are already using these tools in the office, on the road and at home. The idea that technology can streamline board preparation is far from alien.

An organisation’s board materials can run into hundreds of thousands of

Cloud computing is revolutionising business and one particular development is allowing board members to dispense with cumbersome books, explains Eslinda Hamzah

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pages per meeting. Quite apart from the environmental impact of book production, the entire painstaking, time-consuming process is fraught with inefficiency – to say nothing of the stress of a looming deadline by which every director must receive his or her book, wherever in the world they happen to be.

A board portal can be used securely on tablets, such as the iPad, on notebooks or on desktop computers. This enables board members to simply log on to the internet when they want to review and make annotations to board materials.

Because the board portal is a central, single and current repository of the board book, there is no duplication of materials and no opportunity for individual versions to become out of step with each other. Even last-minute revisions can be made in real time, ensuring that books are always up to date.

It’s easy to see why board portals, already considered a boardroom standard by many US and European companies, are finding favour in Asia. Epic Bio, a Singapore-based joint venture formed by Emergent BioSolutions and Temasek Life Sciences Ventures, is a case in point. Although the company is headquartered in Singapore, the directors are located on three continents.

‘Epic Bio decided to streamline the workflow associated with building, approving and publishing board-related material by moving the entire process to a secure, digital, web-based platform,’ says Stephen Lockhart, director of Epic Bio and senior vice president of vaccine development at Emergent BioSolutions.

‘Our directors have busy and demanding travel schedules. Wherever they are they have the correct version of materials, so they can focus on

the business issues rather than the logistics of the board meetings.’

Security and governanceQuite rightly, security and good corporate governance are serious considerations when applications reside in the cloud, and this is usually top of the agenda when companies are considering a board portal.

Collecting and compiling sensitive material and dispatching it to all points of the compass can be fraught with danger – from board books compiled incorrectly, to materials left behind in hotel rooms, in the back of taxis, in

airport lounges or on planes.Directors also know they are being

scrutinised more closely than ever. The Sarbanes-Oxley Act of 2002 reinforced their legal and financial responsibilities and there is heightened pressure to perform their fiduciary duties to shareholders. This has led to an increase in both the number of meetings being held and the amount of information for review. It also requires more frequent communications between meetings.

To be trusted to host sensitive board materials, a board-portal provider must demonstrate that it operates to the very highest security standards at all times and in all locations. Ideally the solution will have been designed to meet the stringent security requirements of, say, the banking, defence and healthcare industries. To avoid any doubt, the service provider should be able to provide a copy of a recent SAS 70 audit.

A recognised auditing standard developed by the American Institute of Certified Public Accountants (AICPA), the SAS 70 audit is a service auditor’s examination performed in accordance with the Statement on Auditing Standards (SAS) No 70, Service Organizations. It signifies that

the application’s security infrastructure has been through an in-depth audit of its control objectives and activities, including those relating to information technology and related processes, and compliance with the requirements of Section 404 of Sarbanes-Oxley. The requirements of Section 404 make SAS 70 audit reports even more important to the process of reporting on the effectiveness of internal control over financial reporting.

At an operational level, a good, web-based portal should be hosted in a totally secure, fail-safe environment that continues to operate, even at a reduced level, rather than failing completely. It will provide a single, centralised view within a standard web browser, and all documents will be encrypted so that only the ‘right’ pair of eyes can read them, and access is restricted to an agreed user group.

While the ultimate purpose of a board portal is to securely support board communications and board workflows, the very fact that it lives in a digital world opens up enormous opportunities to enhance the work of the board in general.

Some portals include calendars, contact information, resource materials and the ability to execute written consents or resolutions. Others have unique areas for committees, and can even be used for gathering and organising documents for the auditors. They can include a resource centre, providing directors with easy access to information and enabling them to add even more value to an organisation.

The goal for many companies is to make the portal the go-to location for directors to access all the material they need to better perform their fiduciary duties.

Whether you are looking to streamline your board, reduce hardware and operations costs, or simply provide productivity applications for your staff, look into the cloud – you should find there’s a silver lining.

Eslinda Hamzah is managing director of Diligent APAC Board Services. www.boardbooks.com

‘OUR DIRECTORS HAVE BUSY AND DEMANDINGTRAVEL SCHEDULES. WHEREVER THEY ARE THEYHAVE THE CORRECT VERSION OF MATERIALS’

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Comment

I always enjoy listening to my friend Rajiv Biswas, who is chief Asia-Pacific economist at IHS Global Insight. As usual, he was in fine form at the CFO Innovation Hong Kong Forum in September, where he presented his economic forecasts.

The eurozone crisis and the US ‘fiscal cliff’ – the damaging failure to extend tax concessions due to expire at year-end – took centre stage, along with slowing gross domestic product (GDP) growth in China and India. But unlike other analysts, Biswas also focused on the 10-member Association of Southeast Asian Nations (ASEAN), whose members include Indonesia, Malaysia, Singapore, Thailand and my native Philippines.

Biswas’s thesis is that ASEAN is becoming Emerging Asia’s third growth engine after China and India. ASEAN’s combined GDP is already significantly larger than that of India, he pointed out. By 2028, the South-East Asian bloc’s combined GDP will surpass that of Japan, Rajiv believes.

CFOs everywhere should take note. ASEAN is becoming ‘an increasingly important market for international businesses across a wide spectrum of industries,’ says Biswas, particularly fast-moving consumer goods and luxury products as well as financial services, education, healthcare and tourism services. Significant market opportunities will also be created in infrastructure and the environmental sector.

He’s not talking of just individual markets, either. By 2015, ASEAN will transform itself

Beyond the usual suspects[With ASEAN set to become a major regional driver for growth, CFOs should take note of the signifi cant

market opportunities that countries such as Indonesia and Myanmar may have to offer, says Cesar Bacani

into the ASEAN Economic Community, which will focus initially on integrating trade in services, facilitating investment flows and allowing free movement of certain types of skilled labour –including finance professionals – across 10 markets with a combined population of 600 million increasingly affluent consumers.

First among equals is Indonesia, says

Biswas, because of its strong natural resources base and 250-million predominantly young population. The country won an investment-grade credit rating last year on the back of its solid finances and economic and political reforms; GDP is forecast to exceed US$1 trillion next year and double to US$2 trillion by 2021.

Biswas also expects Malaysia, Thailand and the Philippines to become ‘increasingly important domestic markets for intra-ASEAN trade and investment’. Tiny Singapore

has a role to play, too, as a sophisticated financial, logistics

and knowledge hub.The frontier

economies of Vietnam, Laos and Cambodia

will grow rapidly on the back of ASEAN

economic and trade initiatives as well as resumed economic growth

in China. Biswas also sees bluer skies for Myanmar, the fifth most

populous member, as it embarks on political and economic reform after decades of isolation and dictatorship.

‘The unleashing of the Myanmar economy could create a significant boost to ASEAN regional growth as well as intra-ASEAN trade and investment flows,’ says Biswas, who projects GDP growth there of around 6% a year until 2020.

No one can fully foretell the future, of course. But CFOs must help steer company strategy on a three-to-five-year view, if not longer. Given ASEAN’s momentum, its emergence as a

regional driver of growth seems a safe bet even in today’s volatile economic environment.

Cesar Bacani is editor-in-chief of CFO Innovation Asia

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Comment

In Malaysia in the late 1980s, when I was a tax assistant fresh out of school, the larger accountancy firms did not seem to have a problem attracting the best and the brightest. This was despite the almost clichéd perception that employees in these firms are often overworked and underpaid. Few things light up a CV more effectively than some years of varied experience at a top-notch accountancy firm.

Things have changed. Not even accountancy firms, including the Big Four, are shielded from the war for talent. The firms have to work harder to position themselves as employers of choice. Visit the careers section of the website of any major firm and you will see that they put in considerable thought and effort so as to become appealing to potential recruits. It is light years away from the take-it-or-leave-it mindset of the past.

But are things so different inside firms today? Not if you go by the findings of Talent Attraction and Retention in Larger Accounting Firms – a recent survey commissioned by Singapore’s Accounting and Corporate Regulatory Authority (ACRA) and conducted by ACCA.

What is fascinating is that employees are still complaining about being overworked and underpaid. Or as the report politely puts it: ‘From the survey results, an obvious source of discontentment was remuneration and benefits, particularly when measured in relation to work efforts.’

The report offers insights into what

When push comes to shove[As a new ACCA/ACRA report highlights the level of discontent among audit employees at larger

fi rms, steps must be taken to prevent unhappy staff from voting with their feet, says Errol Oh

respondents feel about strong push factors. ‘Given that a first-year auditor has to work for about 250 hours a month…the take-home pay is only a mere S$10 an hour. I believe this is perhaps one of the strongest deterrent factors in getting talents to take up an audit career,’ says one audit employee.

Another employee relies on calculations as well to make his point: ‘If we divide our monthly salary by the number of hours we work, the amount may be lower than what our public

bus drivers/taxi drivers are earning.’

And here is a comment from a third

audit staff member: ‘Exponential increase in workload together with an incongruent increase in salary.’

Are these merely the grumblings of the spoilt and demanding Generation Y? Actually, that does not matter. The fact is, these voices of discontent belong to those who perform the bulk of the audit work. If they feel that their work conditions will not improve, they are more than likely to vote with their feet and quit.

The report makes a distinction between audit firm employees who move on to the next phase of their careers after accumulating sufficient experience, and those who walk out

because the firms are not doing enough to retain them.

‘Concerns arise when turnover becomes too fast to the extent that audit engagements become inadequately staffed at each level. The engagement teams may then find themselves not delivering at their optimal level and, as

a result, audit quality suffers,’ it points out.The report is not just

a collection of gripes. It provides the respondents’ thoughts on what needs to change, and a summary of key actionable points for the

firms that have been derived from the survey findings. That ought to be compulsory reading for the

firms’ management.

Errol Oh is executive editor of The Star

For more on the report: http://tinyurl.com/singtalent

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Stepping towards sustainability

[ACCA president Barry Cooper refl ects on the Accounting for the Future event and why accountants are key to a strong economy

As someone whose day job is to help prepare future generations of finance professionals, a constant challenge for me is to frequently scan the economic horizon. What will accountants need to know in 10 and 20 years’ time – what will the profession look like? How do we prepare students?

Alongside that is the obligation to ensure that today’s professionals help not only the accountants of the future, but everyone in generations to come, have the opportunities to enjoy career and life opportunities in an ever-changing environment.

This is why I was delighted to see that more than 10,000 ACCA members have participated in the Accounting for the Future online event.

The event, comprising live and pre-recorded webcasts, presentations and workshops, which went live in early October and which is available on demand until the end of this year, explores the role that finance professionals will play in building a stronger and sustainable global economy.

The subjects covered included: the emerging issues related to risk management; the issue of valuation and how trends and developments in social and environmental accounting may lead to changes in the methods used by accountants to evaluate assets and liabilities; global trends and developments in corporate disclosure; the importance of investor engagement; the influence which investors can have on corporations and organisations; and lastly the green economy. Thus this online event covered some contentious and challenging issues.

Having such a large number of participants from around the world not only demonstrates our global strength, but enabled delegates to share experiences and highlight the issues they are facing in meeting the sustainability challenge. Importantly, those views will help ACCA develop member initiatives well into the future. I want to thank everyone who took part in what I am sure will prove to be an extremely influential milestone in our thinking on sustainability issues.

Visit the event at www.accaglobal.com/accountingforthefuture

Professor Barry J Cooper is head of the School of Accounting, Economics and Finance at Deakin University, Australia

Comment32

AP_INT_COM_pres.indd 32 12/10/2012 10:44

33 Corporate The view from Douglas Young of Goods of Desire plus news in brief; Malaysia’s next generation of fi nance professionals are being nurtured; how companies can improve their corporate reporting

39 Practice Tan Siow Ming of PwC Malaysia plus news in brief; getting tough on fi nancial crime

HEINEKEN WINS APBDutch brewer Heineken has gained approval in a S$5.6bn (US$4.5bn) deal to take full control of the maker of Tiger beer, Asia Pacific Breweries (APB). Shareholders of the Singapore conglomerate Fraser and Neave voted to sell the company’s holdings in the beer business to Heineken in late September after Heineken battled with Thai billionaire Charoen Sirivadhanabhakdi for the key Asian brewing asset. The battle for control was prompted in July when companies linked to Sirivadhanabhakdi bid for stakes in Fraser and Neave, as well as APB. In what had been an 81-year joint venture between the two companies, Heineken already had a 55.6% stake in APB while Fraser and Neave held about 40%. APB brews some of the most popular beers in South-East Asia, including Bintang, Anchor and Tiger.

BAKRIE TO REPAY DEBTPT Bakrie & Brothers, the investment arm of Indonesian Bakrie Group, and affiliate Long Haul Holdings have agreed with creditors to a plan to repay US$437m in debts. The company did not say how it would repay the debt, which was arranged by Credit Suisse and has the group’s 23.8% stake in the London-listed coal miner Bumi held as collateral. The Bakrie Group has previously sought new loans to refinance debt. In April, a group of lenders led by Credit Suisse asked Bakrie Group to top up the loan with about US$100m in cash due to a sharp decline in the family’s shares in Bumi.

The view from: Hong Kong: Douglas Young, founder and CEO, Goods of Desire

Q What is Goods of Desire’s business strategy?A We are building the first contemporary brand of Hong Kong that is proud to show its origins.

Q Do you think there is a lot of potential for development for the Hong Kong market?A Yes, there is certainly a lot of

potential, considering the increased tourism into Hong Kong from mainland China. But we are also looking at expanding overseas at the moment. Our new shops will be opening in Singapore and China this year.

Q What are your marketing and business developing strategies for the coming months?A Our unique position is that we are immediately associated as a brand that gives Hong Kong culture a funky spin. Therefore, our current strategy involves collaborating with other brands that also want to share this value with their customers.

Q What do you most enjoy about your work?A I enjoy seeing my concepts come to life.

Q What lessons have you learnt in the past years? Do you have a personal motto?A I have learnt to stay true to my philosophy. My personal motto is: that which doesn’t kill you makes you stronger.

FAST FACTSLocation of headquarters: Hong KongNumber of employees: 120Favourite book: The Art of Travel by Alain de BottonCompany background: Founded in 1996, the retailer Goods of Desire has eight shops in Hong Kong as well as branches in Singapore and China. The company – which offers fashion, gifts, homeware and furniture – strives to preserve Hong Kong’s unique cultural legacy, and it is also involved with the Hong Kong Street Culture Museum.

33Corporate

AP_YCORP_Intro.indd 33 11/10/2012 14:10

The CVCareer banker and FCCA Lee Khee Joo was seconded as head of the Financial Sector Talent Enrichment Programme (FSTEP) by Bank Negara Malaysia (BNM), effective 9 July 2008.

Lee holds an economics degree and a post-graduate accountancy diploma from the University of Malaya and an MBA from the University of Queensland, Australia. He has more than 38 years of experience in the banking and finance industry.

Starting out as a bank auditor, Lee was attached to BNM for 23 years, holding various posi-tions in bank examination and finance and culminating in the post of chief internal auditor. He subsequently held various senior positions in the former Pacific Bank, Malayan Banking and Hong Leong Bank, among others.

In appointing a leader to champion talent development, it’s crucial to choose an individual with a passion for learning. With this in mind, Malaysia’s central bank tapped career banker Lee Khee Joo, whose experience spans 38 years in banking and finance, to run the Financial Sector Talent Enrichment Programme (FSTEP), which seeks to nurture entry-level professionals for the financial services industry.

Lee is definitely an advocate of lifelong learning, with an array of qualifications under his belt, including an economics degree, a post-graduate accountancy diploma, an MBA and a professional accountancy qualification.

Yet, the current head of FSTEP downplays the fruits of his paper chase. ‘My diverse qualifications in economics, accounting and business administration are nothing magical or extraordinary,’ he says. ‘Looking back, I must say that the lifelong learning philosophy is the main contributing factor in achieving most, if not all, of these qualifications.’

Lee is proud that he is a home-grown and pioneering accountant from the 1970s. ‘When I graduated from the University of Malaya with an economics degree in 1974, I joined the Central Bank of Malaysia (Bank Negara Malaysia) as a young bank examiner (loosely termed by bankers as Bank Negara auditors). At that time, there was no accountancy degree offered in any of the Malaysian universities. At best, what I had was an economics degree majoring in accounting.’

Nevertheless, the demands of his job in audit and assurance inspired Lee to strive to become a qualified accountant. Lee says that he owes a great deal to his then boss, Tan Sri Mohamed Basir Ahmad, who encouraged him to return to the University of Malaya to pursue a part-time post-graduate diploma in

accountancy. ‘Upon the completion of the programme, I qualified as a “home-grown” accountant,’ he says. Subsequently, Lee says he was blessed with ‘full pay plus scholarship’ by Bank

Negara Malaysia (BNM) to pursue an MBA degree at the University of Queensland, Australia, in 1981.

But Lee wasn’t done. His vision was to pursue a global accountancy qualification and ‘ACCA was a natural choice’. Lee believes that ACCA was instrumental to his banking career, both in the regulatory and private sectors. ‘I sat the ACCA examinations on a part-time basis while being promoted to various levels of bank supervision at the central bank,’ he recalls. ‘The acquired knowledge from sitting the ACCA examinations helped tremendously in my career progression at Bank Negara Malaysia.

‘By sheer hard work and perseverance, I passed as an ACCA graduate in 1993. I can safely say that by achieving this, I was promoted to become the deputy manager in the Finance Department of Bank Negara Malaysia. After a few years, BNM identified me as the CEO to oversee the management of a problematic merchant bank in Kuala Lumpur. Years later, I moved from the Central Bank to the private sector, working with the former Pacific Bank, Malayan Banking and Hong Leong Bank to gain more commercial banking experience.’

Although Lee is no longer directly involved in the management of financial institutions, he still plays a critical part in the industry. Eager to share his knowledge and backed by a passion for lifelong learning, he’s helping to nurture the nation’s young banking prospects through the Financial Sector Talent Enrichment Programme (FSTEP).

Blue-ocean thinkingEstablished in 2007, FSTEP is an initiative under the auspices of the Institute of Bankers Malaysia (IBBM) to develop and nurture entry-level

Stepping to the foreHaving a strong belief in the need to keep pushing oneself, Lee Khee Joo is well placed to spearhead a programme aimed at nurturing the nation’s next generation of bankers

34 Corporate

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The tips*Lee believes that the ACCA Qualification was pivotal to his career progression as a central bank auditor and, later on, a commercial banker. He passed his ACCA at 43 on a part-time basis, when many younger candidates struggle even on a full-time basis. ‘Without any doubt, the ACCA examination is difficult, but the attainment of the qualification is useful and essential to move up the corporate ladder.’

*Take failures in your stride, leverage your strengths and navigate according to your vision to achieve your desired results, advises Lee. ‘Learn from failures but keep focused on results-driven goals to achieve significance in life.’

*He advocates generous sharing of knowledge and is the author of two books: So You Want to be an Accountant? and Credit Facilities for Small and Medium Industries.

‘I SEE THERE ARE AMPLE OPPORTUNITIES FOR ACCA GRADUATES TO JOIN THE FINANCIAL SERVICES INDUSTRY THROUGH FSTEP’

professionals for banks, and insurance and takaful (Islamic insurance) companies – collectively termed as the financial services industry – in Malaysia.

IBBM is the professional and educational body for the banking and financial services industry in Malaysia. FSTEP is the brainchild of Tan Sri Dr Zeti Akhtar Aziz, the governor of BNM. It recruits diverse talents from multiple disciplines.

‘Apart from accountants, FSTEP uses “blue-ocean thinking” to tap into the non-traditional pool of talents from various disciplines. Graduates and those with not more than three years of working experience who are keen to pursue a career in the financial industry are encouraged to apply,’ explains Lee.

Thanks to this non-traditional strategy, Lee reckons that ‘to date, FSTEP has trained more than 1,000 graduates from different disciplines, including engineers, architects, accountants, mathematicians, biotech scientists, actuaries, lawyers, psychologists and even a doctor!’

But getting a place in FSTEP is hardly easy; competition is stiff. Lee estimates that FSTEP receives more than 1,000 applications per intake for 100-120 places, and there are two intakes every year. Candidates must not be over 30; must achieve a minimum CGPA of 3.25 or its equivalent; must possess a fluent command of English; and must pass an interview by the sponsoring institution. All the selected participants must also secure a sponsor; FSTEP does assist candidates to find sponsors, says Lee.

Since the idea is to produce work-ready graduates, FSTEP’s one-year intensive training programme complements the initial six-month classroom training with a structured six-month internship under a mentor-mentee arrangement with the sponsoring financial institutions.

The comprehensive classroom training includes the transfer of technical knowledge using simulations, workshops and case studies. Since English is extensively used in global banking circles, the six-month classroom training includes an

intensive one-month English-language course which is facilitated by trainers from the British Council. And to develop well-rounded individuals, all participants undergo personal development courses, industrial visits, e-learning and outward-bound school experiences at Lumut, Perak, as well as community service projects.

Given that FSTEP is a fairly nascent programme, the long-term

performance of its graduates is yet to be assessed. However, this industry-led programme enjoys overwhelming support from the Malaysian financial services industry, says Lee. Of course, in the long run, it’s up to the individual to make the most of FSTEP training, he adds. ‘The success of the entire programme will depend on the commitment of the participants.’

ACCA and FSTEPIn future, ACCA graduates are poised to benefit from a recent memorandum of understanding (MoU) signed between ACCA Malaysia and FSTEP. Lee describes the MoU as a ‘win-win which will expand the talent pool for the banking sector while providing ACCA graduates with a unique route to joining the Malaysian financial services industry via FSTEP’.

The MoU also enables ACCA to recognise FSTEP’s credentials as a stepping stone to achieving professional accountancy qualifications. ‘All FSTEP graduates or participants will be given the chance to pursue a global qualification [to improve themselves]. As part of our effort in talent enhancement, ACCA can

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The basics: FSTEPEstablished in 2007, FSTEP is an initiative to expand the talent pool for the financial industry. The FSTEP training programme syllabus comprises four core streams: conventional banking, Islamic banking, investment banking and insurance and takaful.

Besides providing technical training in banking and insurance, the syllabus is oriented towards the practical and operational aspects of banks and insurance companies. FSTEP training also includes simulations, workshops, case studies and on-the-job-training through structured internships with financial institutions.

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conventional banking, Islamic banking, investment banking and insurance and takaful.

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training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the the syllabus is oriented towards the training in banking and insurance, training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the training in banking and insurance, the syllabus is oriented towards the practical and operational aspects of practical and operational aspects of practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of practical and operational aspects of banks and insurance companies.

the syllabus is oriented towards the practical and operational aspects of banks and insurance companies. banks and insurance companies. banks and insurance companies. banks and insurance companies. banks and insurance companies. banks and insurance companies. FSTEP training also includes banks and insurance companies. banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes banks and insurance companies. FSTEP training also includes FSTEP training also includes

studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training

FSTEP training also includes simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training

FSTEP training also includes simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training

FSTEP training also includes simulations, workshops, case studies and on-the-job-training studies and on-the-job-training simulations, workshops, case simulations, workshops, case studies and on-the-job-training studies and on-the-job-training simulations, workshops, case studies and on-the-job-training

FSTEP training also includes simulations, workshops, case studies and on-the-job-training simulations, workshops, case simulations, workshops, case studies and on-the-job-training studies and on-the-job-training simulations, workshops, case studies and on-the-job-training

FSTEP training also includes simulations, workshops, case studies and on-the-job-training studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training

FSTEP training also includes simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training

FSTEP training also includes simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training simulations, workshops, case studies and on-the-job-training through structured internships with through structured internships with through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with through structured internships with studies and on-the-job-training studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with studies and on-the-job-training through structured internships with financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.financial institutions.

be a roadmap for professional growth and development for all our graduates in career advancement,’ says Lee.

Currently, the numbers of ACCA graduates enrolling in FSTEP remain negligible, although employment prospects are excellent. Lee estimates that ‘there are not more than 10 ACCA graduates joining the FSTEP training programme. Upon completion of training, all of them were subsequently employed by financial institutions in Malaysia. On the demand side, I see there are ample opportunities for ACCA graduates to join the financial services industry through FSTEP.’

In terms of skillsets, ‘I think all ACCA accountants possess the basic skillsets to work in the finance sector. What accountants require is to supplement their knowledge,” says Lee. To gain the requisite entry-level knowledge to work in banking and finance, the FSTEP training programme incorporates the core and technical competencies required of financial services practitioners in line with the Banking and Finance Industry Competency Framework Model, which is benchmarked against international standards, he adds.

ACCA graduates can expect enormous opportunities once they complete FSTEP training, Lee enthuses. Treasury operations, risk management, product development and wealth management are challenging areas that will always require strong financial and banking skills, says Lee.

‘In addition, there are new development and growth areas in Islamic banking, investment banking as well as insurance and takaful companies waiting to be explored. The potential markets of Islamic banking and takaful remain largely under-tapped compared to conventional markets,’ he adds.

Islamic bondsIn particular, Lee sees enormous potential in sukuk (Islamic bonds) and takaful as Malaysia jockeys for leadership in the Islamic finance race. Currently, Malaysia’s sukuk market is the world’s largest, and Malaysia continues to dominate the global sukuk market. Malaysia remains a top investment destination for Islamic funds, with sukuk issued in Malaysia accounting for 73.2% of global sukuk

issuances in 2011 compared to 72.5% in 2010.

Takaful also has lots of room to grow, according to Lee. According to Bank Negara figures, as at end-2011, total assets of takaful funds increased by 15.8% to RM17bn, while total takaful contribution accounted for just 13% of total premiums and contributions in the insurance and takaful industry.

Bearing these prospects in mind, young ACCA graduates might want to think out of the box and consider a non-traditional career in the relatively blue ocean of Islamic finance and takaful.

Nazatul Izma Abdullah, journalist

37

AP_YCORP_Lee.indd 37 12/10/2012 16:59

How can you improve your communications with the capital markets through your corporate reporting? Our 12 practical reporting tips – based on what investors tell us they would like to see in reporting – are a great place to start.

Have a backboneUse your objectives and strategy to underpin your reporting and provide the context for your activities and performance. Strategic statements set in isolation from the rest of your reporting can appear hollow.

Back to basicsExplain your key capabilities and the key resources and relationships you depend on to create and sustain value. Consider both your key inputs/outputs as well as your own activities, and demonstrate how your business model interacts with other reporting elements. The big picturePut your results in the context of market trends. Provide management’s perspective on the competitive landscape and macro environment to allow the reader to evaluate your strategic choices and actions.

Tell the whole tax storyProvide clear information for stakeholders on the sustainability of current tax rates and how tax impacts your business, looking more broadly at tax strategy, risk management and the wider impact of tax as well as detailed tax performance in the tax note.. Cash is still kingExplain how you make money, generate cash and are funded. Competition for capital is fiercer than ever before, so consider including detailed disclosure about your operating cashflow strategy and performance and consolidating

your debt disclosure. Provide details of your debt maturity schedule and reconciliation of free cashflow to movements in net debt.

Survival of the fittestDemonstrate an understanding of the material sustainability risks and opportunities relevant to you and your key stakeholders and how they’re integrated into your core corporate strategy. Consider the impact of your business across your entire value chain when considering materiality.

Bottom up!Challenge whether the segment analysis is not just compliant but also makes visible the dynamics inherent within the business. Consider including a few additional line items such as working capital, operating cashflow and capital employed for each segment.

Flash in the pan?Explain what is driving financial performance – is growth sustainable? Consider using bridge charts to help investors understand what is driving revenue profit and growth. Ensure non-GAAP measures to support your messaging are clearly identifiable, consistently defined and reconciled to your GAAP numbers.

Not the kitchen sinkHighlight principal risks, not all risks. How might they derail your strategy? How are they managed? How has the risk profile changed during the year and what is the sensitivity of underlying performance to changes in these risks?

What gets measured gets doneIdentify key financial and operational KPIs used to assess progress against strategic priorities. Explain clearly how management are incentivised, highlighting the link between strategy, KPIs and the remuneration package.

Crack the codeGo beyond compliance and bring governance reporting to life by demonstrating the activities of the board, the skills and experiences each board member brings to the table and how they interact.

Join the dotsAvoid silos and present a clear, coherent and integrated picture of how your strategy, governance, performance and prospects lead to long-term value creation.

Alison Thomas is a corporate reporting specialist at PwC. For further details on the tips, go to www.pwc.co.uk/corporatereporting

Top tips for this reporting seasonAs reporting season fast approaches, PwC director Alison Thomas gives us her top tips for making your annual report more effective in communicating with the capital markets

Corporate38

AP_INT_YCORP_PwC.indd 38 11/10/2012 10:52

Suria KLCC retail complex, Kuala Lumpur, Malaysia

Q What is in your inbox at the moment? A Requests for meetings to discuss regional collaboration, talent management and client proposals.

Q Your practice covers five countries: Malaysia, Thailand, Vietnam, Cambodia and Laos. Which currently requires most of your time?A Malaysia. We are seeing lots of opportunities with the government’s Economic Transformation Programme (ETP) and continuing mergers and acquisitions activity, with some private equity interest. The Thai economy is humming along; we see a trend for the larger Thai businesses to explore cross-border deals and investments.

Q While Malaysia’s economic growth has slowed this year, which of the industries you advise has been affected the most?A The plantation sector is a significant component of the Malaysian economy. I would say the downstream business of oil palm refinery is facing a tough time on margins.

Q What challenges do you foresee in the year ahead?A We have grown rapidly in our advisory business over the last four years but we have to avoid being complacent. Our priorities in the year ahead are three-fold. One, build a more client-centric business model to complement our growth from developing value-added solutions. Two, bring the best out of our people. Three, invest in innovation and industry expertise.

FAST FACTSFirm structure: partnershipStaff numbers (at 31 August 2012): 1,968 Favourite book: A Long Obedience in the Same Direction by Eugene H Peterson

CALL TO BROADEN TAX BASEPwC Taxation Services has called for Malaysia to broaden its tax base in order to gain from having a lower fiscal deficit ratio to gross domestic product (GDP) by 2015. With a broader tax base, the accountancy firm believes the Malaysian fiscal deficit of 4.7% of GDP this year can be reduced to 3% in three years.

Jagdev Singh, a PwC senior executive director, says that one way to broaden the tax base is to introduce a goods and services tax as this would capture additional population and help the government increase its revenue in order to manage the country’s deficit level. Less than 10% of the population pays taxes under the country’s current regime, Singh says.

US OBSERVERS TO VISIT CHINAChinese and US authorities have reached a tentative agreement to send US auditor inspectors to China as observers. The plan will be a ‘trust-building exercise’ that could lead to more cooperation, said Lewis Ferguson, a board member of the US Public Company Accounting Oversight Board (PCAOB). Inspectors from the PCAOB, the US audit-industry regulator, will be allowed to observe Chinese authorities examining the work of Chinese accountancy firms. This will be a step towards the potential joint inspections of Chinese firms by both US and Chinese inspectors that the board hopes will begin next year, Ferguson said.

The view from: Kuala Lumpur: Tan Siow Ming, senior executive director and advisory leader, PwC Malaysia

39 Practice Tan Siow Ming of PwC Malaysia plus news in brief; getting tough on fi nancial crime

33 Corporate The view from Douglas Young of Goods of Desire plus news in brief; Malaysia’s next

generation of fi nance professionals

are being nurtured; how companies can improve their corporate reporting

39Practice

AP_YPRAC_Intro.indd 39 11/10/2012 13:10

One of the very tangible ways in which practising accountants serve the public interest is as gatekeepers in relation to financial crime. Many accountants have by now come to accept that the regulatory obligations they have in this area are not only unavoidable but even helpful; first because they reinforce the status of accountants within society as responsible and trusted intermediaries, and second because the obligations act as an active deterrent to clients or prospective clients who might otherwise try to involve their professional advisers in their own criminal activities.

The world at the moment is a dangerous and unstable place on many fronts. The international community still faces serious threats from terrorism and the spread of weapons of mass destruction. The depressed state of the global economy is also imposing highly competitive pressures

on individuals and businesses alike, and very often the pressures on both are liable to interact.

KPMG’s latest UK fraud survey suggests that recorded fraud in 2011 exceeded £3.5bn in total, with fraud by company management up by 74%. Even in Australia, which has escaped the economic downturn affecting Europe and North America, KPMG found a steady rise in the incidence of fraud and concluded that 80% of business fraud is committed by employees and managers, often taking advantage of weak controls and defective processes of detection.

Bribery and corruption is another area of crime thought to be exacerbated by a harsh economic climate. Despite the well-publicised case of Siemens, which was forced to pay a record $1.34bn in fines by courts in Germany and the US for a series of bribery offences, a survey published in May 2012 by Ernst & Young found that a staggering 54% of UK executives would not rule out engaging in unscrupulous or illegal behaviour, such as misstating financial statements or providing personal gifts or cash to secure business; the number of respondents prepared to offer bribes had almost doubled in two years. This is despite the introduction in the UK of legislation that exposes companies to criminal penalties if any of their employees, subsidiaries or intermediaries offer or pay bribes.

This developing context has now been reflected in the latest version of the authoritative recommendations

issued by the Financial Action Task Force (FATF), the global body charged with monitoring trends in financial crime and with developing anti-money laundering and counter-terrorism financing (AML/CTF) measures.

The latest set of recommendations, only the third revision since they first appeared, in 1990, imposes significant new expectations on governments to address emerging macro factors, including countering the proliferation of weapons of mass destruction and carrying out national risk assessment procedures to lay the foundation for focused remedial measures.

The revised recommendations incorporate a number of changes which stand to have a direct effect on practitioners and their work, as follows.

Client due diligenceThere is only a minor change made to what for most practitioners is the key area of client due diligence (CDD) – namely, the standard range of circumstances in which CDD procedures must be performed and the steps that need to be carried out in those circumstances. Formerly, parties were required by FATF only to obtain information on the purpose and intended nature of a business relationship. The new wording commits regulated parties expressly to understand its purpose and intended nature.

The revised wording makes it more explicit that the point of the exercise is not solely to ask for information about the client’s intentions but also to understand those intentions; it also implies that the amount of information to be asked for should be in proportion to what the nature and purpose of the relationship is understood to be.

Politically exposed persons The recommendations already cover politically exposed persons (PEPs) to the extent that they come from a different jurisdiction than the one in which the practitioner operates. So, for example, a senior politician or military figure from a foreign country (who is a prospective customer or a beneficial owner) should be regarded as a PEP and so subject to ‘enhanced’ due diligence (EDD).

The revised recommendations strengthen the PEP provisions with a new reference to domestic PEPs. Practitioners must now take

Accountants in crime-fi ght frontlineRevised global recommendations give practitioners an increased role in the crackdown on money laundering, terrorism fi nancing and tax evasion, says ACCA’s John Davies

WHENEVER A PRACTITIONER SUSPECTS THAT A PARTY HAS CONSCIOUSLY COMMITTED A TAX CRIME, THAT WILL BECOME A REPORTABLE MATTER

Practice40

AP_YPRAC_fraud.indd 40 08/10/2012 10:53

‘reasonable measures’ to determine whether a prospective domestic customer or beneficial owner is a domestic PEP (or a person entrusted with a prominent function by an international organisation). Where the prospective relationship is considered higher risk, practitioners are required to apply the EDD measures.

Revised recommendation 12 provides that the measures to be taken for both foreign and domestic PEPs should be extended to family members and close associates of the PEP concerned. This includes gaining senior management approval for dealing with them, carrying out reasonable inquiries to establish the source of their wealth, and undertaking enhanced ongoing monitoring of the relationship.

GroupsNetworks of professional firms are covered by a new recommendation to implement group-wide programmes against money laundering and terrorist financing. These should include policies and procedures for sharing information within the group for AML/CFT purposes.

Group-wide arrangements could prove particularly advantageous in

War on two fronts: the soldier at this checkpoint in Sana’a, Yemen, provides a very visible anti-terrorist measure, but accountants will also play an important role as gatekeepers of FATF’s system to create a hostile environment for terrorist financing

terms of placing reliance on CDD information acquired by third parties. Where a group as a whole adopts policies which follow the FATF recommendations, and where compliance with them is supervised at the group level by a competent authority, group companies should be allowed to rely on information provided by other group companies. Where such arrangements are put in place, national authorities may also decide that no special weight should be placed on the risk associated with the country in which the provider of information is based (another new element of the revised recommendations).

Extension of scope of the recommendations Some countries, such as the UK, already apply AML/CTF controls to tax offences but this has not until now been required under the FATF recommendations. The revised recommendations require individual countries to extend the scope of their AML/CTF measures to cover tax offences in respect of both direct and indirect taxes.

It will be up to each country to decide whether to apply a threshold of

materiality to this but, essentially, it means that whenever a practitioner suspects that a party has consciously committed a tax crime, then that will become, prima facie, a reportable matter. In those countries where tax offences do not currently form part of the national AML/CTF regime, this change is likely to have a significant impact on accountants.

The FATF recommendations do not have regulatory force automatically, but need to be adopted formally by national authorities and regulatory bodies. The process of doing this is already well under way. In Europe a fourth directive on money laundering is currently being drafted as a priority measure, so members in public practice should be prepared for changes to their gate-keeping responsibilities in the near future.

John Davies, head of technical, ACCA

41

AP_YPRAC_fraud.indd 41 08/10/2012 10:53

A monthly round-up of the latest developments in fi nancial reporting, audit, tax and law

HONG KONG

COMPANIES ORDINANCEThe Companies Bill was passed by the Legislative Council on 12 July. The main changes include:

* A mandatory system of no-par for all companies with a share capital.

* Private companies must have at least one director who is a natural person.

* The standard for company directors’ duty of care, skill and diligence is clarified with a mixed objective and subjective test.

* More effective rules to deal with directors’ conflicts of interest.

* The ‘headcount test’ for privatisations and specified schemes of arrangement is replaced by a ‘not more than 10% disinterested voting’ requirement.

* New rules for proposing and passing a written resolution.

* Public companies, larger private companies and guarantee companies must prepare a more comprehensive directors’ report that includes an analytical and forward-looking ‘business review’.

* Companies that meet specified size criteria can prepare simplified financial statements and directors’ reports.

* Strengthening of the enforcement regime in relation to the liabilities of officers of companies that contravene the Ordinance provisions.

* Auditors are empowered

to require information or explanation from a wide range of persons that they reasonably need to perform their duties.

* A new offence in relation to inaccurate auditors’ reports. This is where an auditor knowingly or recklessly caused two important statements to be omitted from the auditors’ report.

* Companies can dispense with annual general meetings by unanimous shareholders’ consent.

* An alternative court-free procedure for reducing capital based on a solvency test.

* All types of companies can purchase their own shares out of capital, subject to a solvency test.

* All types of companies can provide financial assistance to another party for the purpose of acquiring the company’s own shares or the shares of its holding company, subject to a solvency test.

For more information see www.cr.gov.hk.

BOARD DIVERSITYHong Kong Exchanges and Clearing has released a consultation paper on proposed changes to the Corporate Governance Code and Corporate Governance Report (Code) regarding board diversity. It proposes that board composition should reflect diversity of perspectives in addition to a balance of skills, experience and independence. The deadline for comment is 9 November.

The consultation paper can be downloaded from www.hkex.com.hk

Sonia Khao, head of technical services, ACCA Hong Kong

SINGAPORE

MORE TIME FOR STANDARDSThe Accounting Standards Council (ASC) will allow stakeholders more time to implement FRS 110, Consolidated Financial Statements, FRS 111, Joint Arrangements, FRS 112, Disclosure of Interests in Other Entities, FRS 27, Separate Financial Statements, and FRS 28, Investments in Associates and Joint Ventures. The mandatory effective date is deferred for a year to annual periods beginning on or after 1 January 2014. Earlier application is permitted. For more details see http://www.asc.gov.sg

ACRA: QUALITY CONTROL The Accounting and Corporate Regulatory Authority (ACRA) has issued Part 2 of its series of Audit Practice Bulletins on Singapore Standard on Quality Control (SSQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.The bulletin can be downloaded from www.acra.gov.sg

TRAINING FOR DIRECTORS ACRA’s new training programme for company directors was held in September. The Directors

Proficiency Programme (DPP) saw company directors from small and medium enterprises being taught essential statutory requirements under the Companies Act and given e-filing guidance.The DPP is part of ACRA’s on-going efforts to promote a high level of corporate compliance in Singapore. More information is available at www.acra.gov.sg

INSURANCE ACT CHANGESThe last major amendment to the Insurance Act (Cap 142) was in 2004. In this consultation paper, the Monetary Authority of Singapore (MAS) proposes amendments to the Act to take into account regulatory and market developments since then and to align, where appropriate, the regulatory framework for insurance with that of other financial activities regulated by MAS. For more, see www.mas.gov.sg

VIETNAM TAX PROTOCOL The existing Singapore-Vietnam Avoidance of Double Taxation Agreement was amended in September with a Second Protocol.

The amendments include revisions to the permanent establishment, dividends, interest and capital gains articles. It will enter into force after ratification by both countries.The full text of the Protocol is available at www.iras.gov.sg

Joseph Alfred, policy and technical adviser, ACCA Singapore

*MALAYSIA

42 Technical update

AP_T_update.indd 42 12/10/2012 16:20

*MALAYSIARULES TO FACILITATE EXCHANGE TRADED BONDS AND SUKUKSOn 26 September, Bursa Malaysia introduced the Rules to Facilitate Exchange Traded Bonds and Sukuks (ETBS) to be listed and traded on Bursa Securities. ETBS is aimed at offering greater choice to investors seeking products that yield stable returns with capital protection.

The relevant rule changes to the Listing Requirements, Rules of Bursa Securities and the Rules of Bursa Depository can be accessed at www.bursamalaysia.com

CLARIFICATION ON THE EXECUTION OF FORM 48A FOR E-LODGEMENTOn 5 September, the Companies Commission of Malaysia issued Practice Note No. 14, Clarification on the Execution of Form 48A for the Purposes of E-lodgement.

For more information, go to www.ssm.com.my/en/public-practice-notes

TECHNICAL GUIDELINE ISSUED BY THE INLAND REVENUE BOARD (IRB)On 9 August, IRB issued a guideline in relation to the clarification on the non-application paragraph in the following Income Tax (Accelerated Capital Allowances) Rules:

* Income Tax (Accelerated Capital Allowance) (Plant and Machinery) Rules 2008 (P.U. (A) 357/2008)

* Income Tax (Accelerated Capital Allowance) (Information and Communication Technology Equipment) Rules 2008 (P.U. (A) 358/2008)

* Income Tax (Accelerated Capital Allowance) (Plant and Machinery) Rules 2009 (P.U. (A) 111/2009)

For more information, go to www.hasil.org.my under ‘Technical Gudelines’

ANTI-MONEY LAUNDERING AND ANTI-TERRORISM FINANCING ACT (AMLATFA) 2001On 29 August, the Inland Revenue Board informed taxpayers who commit any of the following three specified tax offences under the AMLATFA 2001 will be subject to a fine up to RM5m, jail for up to five years or both:

* failure to furnish income tax returns or give notice of chargeability (section 112 of the Income Tax Act 1967);

* submitting incorrect income tax returns (section 113 of the Income Tax Act 1967); and

* wilful evasion of tax (section 114 of the Income Tax Act 1967)For further details, refer to the IRB’s press statement at: http://tinyurl.

com/9qbu2bs

FRSIC CONSENSUS 18 ISSUEDOn 26 September, The Malaysian Institute of Accountants approved the release of FRSIC Consensus 18, Monies Held in Trust by Participating Organisations of Bursa Malaysia Securities Berhad. FRSIC Consensus 18 provides guidance on the accounting of monies held in trust by a participating organisation of Bursa Malaysia Securities Berhad pursuant to the provisions of Capital Markets Services Act 2007 and the Bursa Securities Rules.

For more information, go to http://tinyurl.com/9r2acj6

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

AP_T_update.indd 43 12/10/2012 16:20

A monthly round-up of the latest developments in fi nancial reporting, audit, tax and law

INTERNATIONAL

FINANCIAL INSTRUMENTSThe International Accounting Standards Board (IASB) has produced a series of webcasts on financial instruments. The updates last one hour and require registration.

For more information visit www.ifrs.org

HEDGE ACCOUNTINGChanges to IFRS 9, Financial Instruments, have been published by the IASB. The amendments and accompanying guidance relate to changes to general hedge accounting.

The draft and guidance are available until early December, then the IASB will finalise the draft and issue the revised standard.

The guidance contains useful examples, questions and answers on implementation and details of amendments to other IFRSs.The amendments can be found at http://tinyurl.com/8gwklt7

IFRS FOR SMES

International changes and updates on IFRS for SMEs, including guidance for different-sized entities, information on country adoption and resources for small and medium-sized enterprises are available at www.ifrs.org/IFRS-for-SMEs

ILLEGAL ACTSThe International Ethics Standards Board for Accountants (IESBA) has issued an exposure draft,

Responding to a Suspected Illegal Act.

The draft is open for comment until 15 December and IESBA intends to revise the ethical standards code in light of the comments it receives in the second half of 2013.

The proposed changes highlighted in the draft are where professional accountants in practice or business override, or have a right to override, the fundamental principle of confidentiality and to disclose a suspected illegal act to an external authority.

Go to www.ifac.org/publications-resources

ISAES AT A GLANCETwo at-a-glance updates that will be useful when considering engagements over the next 12 months are:

* International Standard on Assurance Engagements (ISAE) 3410, Assurance Engagements on Greenhouse Gas Statements. The standard applies to assurance reports covering periods ending on or after 30 September 2013.

* ISAE 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus. The standard applies for assurance reports dated on or after 31 March 2013.

The guides provide links to further information provided by the IAASB (International Auditing and Assurance Standards Board).

For more information visit

www.ifac.org/publications-resources

ISAS AND SMALLER AUDITSThe IAASB is finalising its survey on ISAs and how they have been applied to smaller audits and is collating feedback.

Its current work indicates that there are some benefits in terms of audit quality and the cost impact has been relatively small.

Views differ as to whether changes need to be made to the standards to make them more suitable for smaller audits.

The IAASB will be aggregating the UK results with those of other countries in the next few months.

The findings from the SME survey will be combined with the input that is expected to be received on ISA implementation from firms, regulators, standard-setters and others and will be discussed by the IAASB in June 2013.

REVIEW ENGAGEMENTSThe IAASB has issued International Standard on Review Engagements 2400 (Revised), Engagements to Review Historical Financial Statements.

The revised standard applies for periods ending on or after 31 December 2013.

The standard deals with the practitioner’s responsibilities when engaged to perform a review of historical financial statements, when the practitioner is not the auditor of the entity’s

financial statements, and the form and content of the practitioner’s report on the financial statements.

The standard contains useful illustrative information within the appendices including an illustrative engagement letter for an engagement to review historical financial statements and illustrative practitioners’ review reports.

When applying the standard, practitioners will need to consider International Standard on Quality Control 1 (ISQC1). The standard states:

* Relationship with ISQC 1. Quality control systems, policies and procedures are the responsibility of the firm. ISQC 1 applies to firms of professional accountants in respect of a firm’s engagements to review financial statements. The provisions of this ISRE regarding quality control at the level of individual review engagements are premised on the basis that the firm is subject to ISQC 1 or requirements that are at least as demanding.

The revised standard can be found at http://tinyurl.com/8tqf7xg

FIND THE STANDARDSYou can find direct links to international accounting and auditing standards at: http://tinyurl.com/9ahv6fd and http://tinyurl.com/8ptwg2l

Glenn Collins, head of technical advisory, ACCA UK

44 Technical update

AP_T_update.indd 44 12/10/2012 16:20

45Technical

Accounting solutionsIn this month’s column, PwC authors answer technical questions on share purchase agreements, and on accounting for insurance policies

QEntity A purchased 80% of entity B in 20x0. Under the share purchase agreement, entity A also has an option to

acquire the residual 20% shareholding in 20x2 at fair value of entity B. How should entity A account for the option in 20x0 and the subsequent acquisition of the non-controlling interest?

AEntity A has a call option over the remaining 20% at the date of acquisition; it should therefore assess whether the risks and

rewards in relation to this non-controlling interest in entity B have, in substance, also transferred to the group. If that is the case, entity A should account for the entire 100% as an acquisition.

Options priced at fair value usually result in transfer of risks and rewards to the holder at the point of exercise only. There are no other relevant circumstances to consider in this case. As a result, the risks and rewards associated with the non-controlling shareholding are not deemed to be transferred to the group on acquisition of entity B, and entity A should account for the 20% as a non-controlling interest in its consolidated financial statements.

The call option does not meet the definition of a financial liability under IAS 32, Financial Instruments: Presentation, as it is within the control of the entity A. Although there is minimal initial investment and the contract will be settled at a future date, the value of the option does not change in response to an underlying financial variable; it does not therefore qualify as a derivative under IAS 39, Financial Instruments: Recognition and Measurement, para 9.

In 20x2, if the option exercised, any difference between the consideration – that is, the fair value of the shares paid – and the carrying amount of the non-

of the insurance policy is greater than the present value of the defined benefit obligation it will reimburse. The policy does not meet the definition of a qualifying insurance policy and therefore cannot be treated as a plan asset. However, the criteria for recognising the reimbursement right as an asset have been satisfied. How should the cost of the insurance policy and the difference in value from the related obligation be accounted for?

A As a reimbursement right, the insurance policy is recognised as a separate asset, rather than being deducted from the

pension obligation to which it relates. In all other respects, this asset and any related income should be accounted for in the same way as plan assets (in accordance with IAS 19, Employee Benefits, para 104C and D). However, because the right to reimbursement exactly matches payments of a portion of the defined benefit obligation, the fair value of the reimbursement right is deemed to be the present value of that portion of the defined benefit obligation. Any difference between the cost of the insurance policy and the present value of the defined benefit obligation it is designed to reimburse should therefore be treated as an actuarial loss. This is independent of whether the insurance policy is purchased by the pension fund or by XYZ Ltd itself, because the policy meets the definition of a reimbursement right.

This month’s solutions were compiled by Imre Guba, Michelle Millar and Iain Selfridge of PwC’s Accounting Consulting Services

controlling interest is adjusted to entity A’s equity under IAS 27, Consolidated and Separate Financial Statements, para 31. The resulting cash outflow should be classified as a financing activity, as it represents a transaction with equity owners under IAS 7, Statement of Cashflows, para 42B.

QXYZ Ltd buys an insurance policy to reimburse payments of a portion of its defined benefit pension obligation.

Reimbursement under the insurance policy will exactly match the amount and timing of the benefits payable under the plan. The cost to the company

*IFRS AND US GAAPIFRS and US GAAP: Similarities and differences includes insight on recent and proposed guidance; detailed analysis of differences including an assessment of the impact; and a report on the US GAAP codification project. Visit www.pwc.com/usifrs

INT_T_AccSolutions.indd 45 15/10/2012 14:42

A guide for the perplexedIn the fi rst of two articles, ACCA’s Roger Adams looks at recent innovations in the relentlessly expanding fi eld of corporate reporting

The corporate reporting space has grown immensely more complex in recent years. Not only has the volume and complexity of financial reporting standards increased, but the way in which large organisations are reporting has itself changed and expanded. Corporate social responsibility (CSR) or sustainability reporting, narrative reporting and integrated reporting are just three of the new forms that accountants (and users of accounts) have to contend with and make sense of.

Bigger and biggerOver the past 20 or so years the scope and content of the legally required annual corporate reporting package has mushroomed. A listed company’s annual report and accounts package will now contain most, if not all, of the following elements:

* performance highlights (key performance indicators)

* chairman and CEO’s reports or statements

* a description of the company’s business model together with an explanation as to how it creates value

* a management commentary (or business review, management discussion and analysis or operating and financial review)

* an executive remuneration report

* corporate governance and risk disclosures

* the audited financials including the directors’ report (often merged into the management commentary or business review), the income statement, balance sheet, cashflow statement and notes to the accounts

* the auditors’ report.

Many annual reports also contain a separate section dealing with corporate responsibility or sustainability.

A new era?As one might expect, the mandatory annual report and account package has traditionally been targeted at an investor or shareholder audience, and by and large this continues to be the case. Integrated reporting, which is discussed in more detail in the second part of this feature (to appear next month), continues to prioritise the investor as the key audience for the annual report and accounts.

However, a feature of large company reporting since 1990 has been greater standalone voluntary non-financial reporting to a wider stakeholder circle. Pressure for companies to become more transparent about their relationships with their employees, the communities where they operate and their impact on the natural environment and society at large has come from a variety of sources:

* Regulation. Increasing levels of regulation cover aspects of the sustainability universe such as carbon emissions, health and safety performance and employee welfare. Regulation, however, tends to prompt specific disclosure rather than wide spectrum disclosure.

* Reputation and competition. Guarding against reputational risk is now recognised as a core issue in supporting brand value. Non-governmental organisations, consumers and the media have been instrumental in turning the publicity spotlight on poor practices in areas as diverse as human rights, supply chain labour practices, environmental damage, lack of

workforce diversity and, most recently, business ethics.

* Operational efficiency and cost savings. The regular publication of targets for improvement – in workforce relations and in resource use, for example – can act as a stimulant to continuous improvement. The benefits of cost reduction and improved operational efficiency programmes are often easier to capture with non-financial measures (such as eco-efficiency ratios) than in purely financial terms.

* Values and ethics. An increasing number of organisations seek to link their corporate value set to their long-term corporate strategy and business model.

* Macro trends. Governments, regulators, economists and environmentalists alike are concerned about the negative effects of ‘short termism’. The focus is increasingly on creating sustainable value for the future. Both business models and report content are changing to reflect this shift.

CSR and sustainability reportingFrom a zero base in 1990, the related practices of environmental, social and sustainability reporting – also known as CSR reporting or corporate responsibility reporting – have now established a firm foothold as mainstream reporting tools.

According to KPMG’s International Survey of Corporate Responsibility Reporting 2011, reputational considerations continue to drive corporate responsibility reporting. Additionally, the benefits that can be

46 Technical

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derived from innovation and learning are rapidly gaining appreciation. Not only do 95% of the Global 250 now issue corporate responsibility reports (up from 83% in 2008 and 64% in 2005), but almost half report gaining financial value from their corporate responsibility programmes. A third of national top 100 companies report the same benefits.

As the perceived importance of sustainability issues (such as climate change, water usage, diversity and so on) has grown, so too has the range of stakeholders to whom companies now feel obliged to report. And as the number of interested stakeholders increases, so too does the scope of non-financial corporate reporting (see table). As the bigger of the two tables on this page demonstrates, even non-financial reporting has its own subdivisions.

The KPMG report declares: ‘Clearly, corporate responsibility reporting is now an essential requirement for any company hoping to be seen as a responsible corporate citizen. Innovation and learning, in particular, has consistently ranked highly as a driver for corporate responsibility

reporting over the past decade. This is indicative of the large number of companies that see corporate responsibility as a means to drive greater innovation through their businesses and products in order to create a discernible competitive advantage in the market.’

And a 2010 Accenture study, A New Era of Sustainability, found:

* 72% of CEOs cite ‘brand, trust and reputation’ as one of the top three factors pushing them on sustainability. Revenue growth and cost reduction is second with 44%.

* 86% of CEOs see ‘accurate valuation by investors of sustainability in long-term

investments’ as important in reaching a tipping point in sustainability.

The second of these two findings is particularly important in ensuring that the investment community buys into the need to move to a longer time horizon for gauging the performance of their investments.

Roger Adams is ACCA’s director of special assignments

Next month: how to identify best practice in the new corporate reporting and whether the future of reporting lies in more fragmentation or some form of integration

Annual report and accounts

Environmental

Social/societal

Sustainability, CSR

Integrated reporting

Social and environmental performance highlights

Full CSR/sustainability report

People reporting

Climate change disclosures including greenhouse gas emissions statement

Water footprint statement

Annual report and accounts

Yes – along with financial highlights

Yes – highly truncated version of the CSR/sustainability report

No

Yes – highlights from CSR/sustainability report

Yes

Yes – in time

Separate standalone report

Yes

Yes

Yes – with detailed performance data

Possibly

Yes – in time

Since mid-1800s

Since 1990

Since mid-1990s

Since 2000

Since 2010

The growing scope of reporting The subdivisions within non-financial reporting

47

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Hedge accounting: draft alertThe IASB wants better links between an entity’s risk management activities, the rationale for hedging and the impact of hedging on the fi nancial statements, says Graham Holt

IAS 39, Financial Instruments: Recognition and Measurement, sets out the requirements for recognising and measuring financial assets, and financial liabilities. Many users of financial statements felt that the requirements in IAS 39 were difficult to understand, apply and interpret. Thus, the International Accounting Standards Board (IASB) is developing a new standard for the financial reporting of financial instruments that is principle-based and less complex. The three main phases of the IASB’s project to replace IAS 39 are: A Phase 1: Classification and

measurement of financial assets and financial liabilities. In November 2009, the IASB issued the chapters of IFRS 9, Financial Instruments, relating to the classification and measurement of financial assets followed by the requirements related to the classification and measurement of financial liabilities in October 2010.

B Phase 2: Impairment methodology. The IASB is redeliberating the proposals issued in an exposure draft and the supplement to that draft to address the comments received from respondents.

C Phase 3: Hedge accounting. On 7 September 2012, the IASB issued a draft of the general hedge accounting requirements that will be added to IFRS 9.

In addition to the three phases above, in June 2010 the IASB decided to retain

the existing requirements in IAS 39 for the derecognition of financial assets and financial liabilities but to finalise improved disclosure requirements, which were issued in October 2010 as an amendment to IFRS 7, Disclosures.

The current rules on hedge accounting in IAS 39 have frustrated many preparers, as the requirements are not really linked to common risk management practices. The detailed rules have at times made achieving hedge accounting impossible or very costly, even when the hedge was an economically rational risk management strategy. The IASB wishes to provide better links between an entity’s risk management activities, the rationale for hedging and the impact of hedging on the financial statements.

Principle-based approachThe requirements also establish a more principle-based approach to hedge accounting and address inconsistencies and weaknesses in the hedge accounting model in IAS 39. However, the IASB has made some significant changes to certain aspects of the proposals contained in the draft that was issued in December 2010. The proposals do not fundamentally change the current types of hedging relationships, or the current requirement to measure and recognise ineffectiveness; however, the proposals mean that more hedging strategies used for risk management would qualify for hedge accounting.

The draft relaxes the requirements for hedge effectiveness assessment and consequently the eligibility for hedge accounting. Under IAS 39, a hedge must be expected to be highly effective both at inception and on an ongoing basis. Subsequently, the entity must demonstrate that the hedge has been highly effective. ‘Highly effective’ is defined as a quantitative test of 80% to 125% under IAS 39. Under the draft, more judgment is needed to assess the effectiveness of the hedging relationship. A hedging relationship would need to be effective at inception and on an ongoing basis, and would be subject to a qualitative or quantitative, forward-looking effectiveness assessment.

The following requirements need to be met:1 an economic relationship must exist

between the hedging instrument and the hedged item

2 the effect of credit risk must not dominate the value changes that result from that economic relationship

3 a hedge ratio must reflect the relationship between the quantities of the hedged item and hedging instrument used by the entity for its risk management purposes

4 an entity cannot intentionally weight the hedging instrument or hedged item to achieve an accounting outcome inconsistent with the purpose of hedge accounting.

The first requirement means that the

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48 Technical

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hedging instrument and the hedged item must be expected to move in opposite directions because of a change in the hedged risk such that there is causality and not just correlation between the items. Perfect correlation between the hedged item and the hedging instrument is not required and is not sufficient, as there must be an economic relationship. For example, there are different prices quoted for oil. These include the prices of West Texas Intermediate (WTI) crude oil and Brent crude. The former reflects the price at Cushing, Oklahoma, and nexus for the delivery of American and Canadian crudes and the latter reflects the price of North Sea oil. Therefore, it would be possible to hedge a Brent crude exposure with a WTI derivative.

The second requirement means that the impact of changes in credit risk should not be of a magnitude such that it dominates the value changes, even if there is an economic relationship between the hedged item and hedging derivative, and the third requirement indicates that the actual hedge ratio used for accounting should be the same as that used for risk management purposes, unless the ratio is inconsistent with the purpose of hedge accounting. The IASB appears to be specifically concerned with deliberate under-hedging, which either minimises the recognition of ineffectiveness in cashflow hedges or creates additional fair value

adjustments to the hedged item in fair value hedges.

The draft includes a number of changes to the definition of a hedged item. Risk components of non-financial items can be designated as a hedged item provided the risk component is separately identifiable and reliably measurable. The draft retains the principle for financial and non-financial risk components to be separately identifiable and reliably measurable and this must be assessed within the context of the particular ‘market structure’.

However, ‘market structure’ is not defined. It does not follow that, if there is a derivative instrument on aluminium and aluminium components are used in manufacturing cars, that aluminium is an eligible risk component in a hedge of car component purchases. There is probably a need to see how aluminium car components are priced in the market and how this relates to the price of aluminium.

The draft now includes a rebuttable presumption that non-contractually specified inflation risk will not usually be an eligible component of a financial instrument. Two scenarios are set out in the draft, one of which indicates that an inflation risk component is eligible for hedge accounting and another in which it is not.

Entities can hedge non-financial items for a price risk, for example, a commodity price risk that is only a

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AP_INT_T_HoltCPD.indd 49 12/10/2012 17:02

CPDunits on the web

THE DRAFT HAS RETAINED THE REQUIREMENT FORREBALANCING TO BE UNDERTAKEN IF THE RISKMANAGEMENT OBJECTIVE REMAINS THE SAME

component of the overall price risk of the item. This is currently prohibited under IAS 39.

The draft also makes the hedging of certain groups of items more flexible. A group of items, including a group of items that constitute a net position, may be a hedged item under the proposals if:1 it consists of items that are eligible

hedged items 2 the items in the group are managed

together on a group basis for risk management purposes.

The draft makes the hedging of groups of items more flexible, although it does not cover macro hedging which will be the subject of a separate document. Entities commonly group similar risk exposures and hedge only the net position, which could be the net of forecast purchases and sales of foreign currency. Under IAS 39, a net position cannot be designated as the hedged item. The draft permits such hedging strategies if the entity hedges on a net basis for risk management purposes. However, if the hedged net position consists of forecasted transactions in a cashflow hedge, hedge accounting on a net basis is only available for foreign currency hedges.

An entity is not allowed to voluntarily terminate a hedging relationship that continues to meet its risk management objective and all other qualifying criteria. However, the draft has retained the requirement for rebalancing to be undertaken if the risk management objective remains the same, but the hedge effectiveness requirements are no longer met.

Normally, accounting rebalancing will only be undertaken when adjustments

are made to the actual quantities used for risk management purposes unless deliberate and inappropriate action is undertaken to achieve an accounting result that is inconsistent with the purpose of hedge accounting.

The proposals on discontinuation have not changed but further guidance is given on how to distinguish between an entity’s risk management strategy and its risk management objective. Risk management strategy is established at the highest level and could include some flexibility to react to changes in circumstances without requiring a new strategy. The risk management objective is applied at the particular hedge relationship level.

The draft retains the current IAS 39 requirements for fair value hedge

accounting. However, the fair value option in IFRS 9 is extended to contracts that can be settled net in cash and meet the exception whereby applying fair value accounting eliminates or significantly reduces an accounting mismatch.

Additionally, the draft would permit certain credit exposures to be designated at fair value through profit or loss if a credit derivative that is measured at fair value through profit or loss is used to manage the credit risk of all, or a part of, the exposure on a fair value basis.

Some industries, such as banking and insurance, may see the proposals as of less importance than the IASB’s forthcoming macro-hedging paper, but sectors with substantial commodity-related risk such as airlines and manufacturers will welcome the opportunities provided. The new proposals are likely to benefit non-financial services entities which can hedge clearly defined individual risk items. However, the guidance remains complex in some areas and to comply companies may need to apply a greater degree of judgment. A principle-based approach requires additional disclosures to users of how a company is managing risk.

Graham Holt is an examiner for ACCA, and associate dean and head of the accounting, finance and economics department at Manchester Metropolitan University Business School

CPDunits on the web

50 Technical

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CPDunits on the web

Managing strategyIn the fourth article in our strategy series, Dr Tony Grundy shows how strategy needs to be managed as a living process and how to deal with implementation

In this fourth article we look at how strategy is a living process and not just an organisational routine. But first to recap:

* In the first article, we looked at what strategy really is and how its processes and language need to be kept simple and clear. Some key terms were explained and differentiated, such as strategy, options, objectives, mission and vision, and in the second article we also defined competitive advantage too. We also explained that strategic thinking was a much more fluid and creative process than more operational thinking.

* We also defined strategy in three ways. First, analytical: moving from the current position to future goals; second, creative: the ‘cunning plan’; and third, aspirational and visionary: ‘what we really, really want’. All definitions add value.

* In the second article we explained how important the external

environment was – particularly how important the competitive forces were for impacting on margins and returns. We also explained how competitive advantage had an equally important impact too. These competitive variables all change over time, resulting in a need to adapt the strategy, as we saw in the Bikram yoga case.

* In the third article we looked at how we could be more creative and indeed cunning in our generation and evaluation of options, with the Octopus and the Option Grid –techniques used to develop successful strategies at major corporations like Diageo and Tesco.

We now look at how this can be applied as a process and particularly how to deal with implementation.

Strategy needs to be managed as a staged process – see table, below. Here we see that the first stage is one of diagnosing the current position – quite

separate from that of option generation. This separation is crucial, as otherwise managers will be trying to do too many disparate things –analytical and creative – all at the same time; the result being a mess.

We then select from those options a small number of options – maybe as little as three – that are true ‘strategic breakthroughs’ to implement in this period, or ‘strategic decisions that will have a major impact on competitive position or capability or both, and on financial performance’.

If these breakthroughs are too numerous, then there will be a lack critical mass of resources, effort and attention. We might thus have to say ‘no’ to options even with good scores. Saying ‘no’ is good. Strategy is about concentration.

Implementation is a separate cycle of strategic thinking (stage four) where we are scoping strategic projects, doing detailed planning, business cases, the financials, planning change,

Currentposition

* SWOT

* PEST

* Five forces

* Vision and objectives

* Competitive bench-marking

* Cunning plan/checklists

* GAP analysis

* Strategic option grid

* Value and cost drivers

* Difficulty over time

Futureoptions

Strategicbreakthroughs

Controland learning

Implementation

Strategic planning process

51Technical

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gaining support and mobilising. This is still the land of strategic thinking.

The final stage, control and learning, is not just about monitoring the operational and financial metrics, but also progress against strategic milestones. The accountant should play a very big part in this to ensure that it doesn’t get too tactical. This is also a learning process too, so we are reflecting on what is/isn’t working in implementation and why, and adjusting it, and also continuing to learn about our changing environment. This is a very organic, living process and this may not work well if there is too much emphasis on metrics and control.

The first stage tools were addressed

in the first and second articles. Turning to the third, implementation, be warned that this is often the graveyard of strategy. Here: performance = quality of strategy x quality of implementation x timing. This explains why if we mess up implementation, the result can be so poor.

Timing is also very important too, as the external and internal timings need to be right, so some strategies might get accelerated and some delayed.

To get implementation right requires the following:

* project managing of strategic breakthroughs

* robust business cases

* change management issues thought through and managed

* appropriate strategic milestones and metrics frameworks in place

* strategy implementation techniques used well.

Strategic breakthroughs, like entering a new market or a new distribution channel, are complex and may impact different parts of the organisation. They must, therefore, be project managed and this may mean that instead of relying on busy operational managers to do it, that some managers are full-time project managers instead. Project managing business projects, especially those involving a lot of change, is a different thing to managing technical projects, and demands a more fluid approach.

There is a lot more work on business cases and on the broader long-term financial projections of revenues and costs. This involves looking at the value and cost drivers of each of these, the key assumptions, and evaluating these qualitatively and quantitatively, and producing influential and resilient business cases and incremental cash flows by strategic project. This is interesting work for the accountant.

Change management can be addressed by taking the key shifts between the present and the future and doing an extended ‘gap analysis’ of these, or ‘from-to’ analysis.

Here we split out the key shifts of ‘from-to’s’ and score how far from the old to the new we are, perhaps on a

1-to-10 scale. We can use a cut-down ‘seven S’ model, or by analysing the key shifts as:

* strategy

* systems

* skills

* structure

* style.All the usual softer issues also need

to be thought through in terms of buy-in, culture change, structure change, team building/rebuilding, etc. It is well known that in a major change some individuals and teams will move through the transition phases of change at different speeds and, in the course of this, performance can dip (the ‘transition curve’). This effect is magnified if done badly – for example if an acquisition is integrated badly.

Where the change is severe due to the difficulties of the business – a ‘strategic turnaround’ – then this puts more pressure on the strategy development and implementation process. Leadership needs then to be both commercially and strategically astute, and also charismatic. Where there is inappropriate leadership, strategy will get bogged down no matter how good the process is.

In terms of controls, it is important that besides the conventional financials and efficiency metrics (and customer satisfaction ones) that we find in a ‘balanced score card’, that we also include more outward-looking, dynamic and less tactical ones too, such as:

* relative market share

* customer ratings compared with those of key competitors

* strategic breakthrough milestones achieved

* long-term economic value actually generated (‘economic value added’

52 TechnicalGET VERIFIABLE CPD UNITSAnswer questions about this article onlineStudying this article and answering the questions can count towards your verifi able CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

STRATEGIC BREAKTHROUGHS, LIKE ENTERING ANEW MARKET, ARE COMPLEX AND MAY IMPACTDIFFERENT PARTS OF THE ORGANISATION

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is the net present value of net cashflow in the business).

Finally a number of strategy implementation tools can be deployed, including:

* the option grid (see third article) to evaluate and prioritise different ways of implementing a strategy, and also individual strategic projects, both before and after

* the extended ‘gap analysis’ in the form of ‘from-to’ analysis, as we saw earlier, perhaps with the cut-down seven Ss

* value and cost driver analysis, see last article

* the ‘difficulty over time curve’, see below.

When evaluating implementation difficulty – both to go behind the box in the strategic option grid and also within the detailed planning of the breakthroughs – there are a number of tools. One of these, ‘force field’ analysis, which splits out and evaluates the key enablers and constraints, is very good and is worth a look.

Here one does a vector picture to evaluate how impactful the positive and negative forces are likely to be – on the basis of your most cunning implementation plan. Then you look at the overall picture of vector arrows up and down: if they are mainly down it tells you that you will have a very rough ride.

A simpler and far more dynamic tool is just to attempt to picture how difficult you envisage the implementation to be over time, given your most cunning implementation plan. Ideally you would also do a force field to support that.

Moving on we now have some very useful tips to make the process living

and easier.We mentioned project management

and this should kick in at the start. The first stage of the process should be to do a ‘plan for the plan’. This is an area where you the accountant should be very much be involved. A ‘plan for the plan’ is defined as ‘a detailed document of the optimal stage-by-stage process which deals specifically with the strategic issues faced in a creative, incisive and robust way, and that produces appropriate insights and outputs of maximum value’.

A plan for the plan typically contains:

* a list of the key strategic issues

* a very high-level view of the likely gap analysis to get an idea of the stretch

* some separate first-stage planning activities (‘planning modules’), such as market analysis, customer value analysis, technology change, competitor analysis, process development, organisation development, cost management

* second-stage activities, such as strategic options workshop, board integration workshop, change management, communication, controls and metrics

* timings and time absorbed.

Each one of these might have as a one-pager:

* outputs

* process and tools

* inputs (data, etc)

* interdependencies with other modules

* people, timings and facilities.The accountant can play a big role

in planning this.A second area of input for the

accountant is in writing ‘strategic position papers’ or ‘documents which diagnose the current position and explore options for a particular area or more generally without reaching definitive conclusions’.

The aims of these are to generate a rich debate of the issues before making resource and other decisions, to provide input to the final strategic plan, to build commitment and to influence key stakeholders. A spin-off is that the eventual plan is often very much like the position paper material – the latter is certainly much quicker to write.

In conclusion, we are now in good shape for the final article on ‘strategy and the finance function’.

Dr Tony Grundy is an independent consultant and trainer and lectures at Henley Business School in the UK, www.tonygrundy.com

53 TO GET THE QUESTIONS GO TO www.accaglobal.com/cpd/strategy

TO GET THE QUESTIONS GO TO

LAST MONTHCREATING ANDEVALUATING STRATEGICOPTIONS FOR BUSINESS

LAST MONTHCREATING AND

AP_T_strategy4.indd 53 11/10/2012 11:20

Your annual CPD declaration for 2012 is due for submission to ACCA by 1 January 2013. Submit it online now or at any point until the end of the year by logging into myACCA.

As a professional body, our members define who we are – you represent ACCA to the world. We’re proud to have you among us and that you carry the ACCA designatory letters. It is these letters that distinguish you and show your commitment to professional development and ethics to your peers and employers.

Calling all membersTo maintain this high value of ACCA membership, each year we ask all members to declare their commitment to professional development, regardless of their particular development route. The declaration process is very simple and takes no more than five minutes to complete.

How to declare?The easiest way to declare is online by logging into myACCA via the ACCA website at www.accaglobal.com – 77% of members are already using this method.

Last-minute learning?There are still plenty of learning opportunities available if you need to complete your CPD requirement for 2012.

My Development is a dedicated CPD area of the ACCA website where you can source relevant learning for your CPD. My Development provides a one-stop shop for articles, e-learning,

podcasts, online seminars, research and qualifications from our partners.

More CPD than you thinkYou might think you haven’t completed enough CPD for the year, but each year we find that members are doing

more CPD than they realise. Think about what you have learned this year that is relevant to your role – did you undergo training on a new software or research a topic area specifically for a new client? There are many ways to learn and as long as what you’ve

learned is relevant to your career and you can explain how you have applied the learning, you can claim it as verifiable CPD.

For further information and to check the requirements of each route go to: www.accaglobal.com/cpd

Do I need to prove it?You do not need to send in supporting evidence with your annual CPD declaration – this process is just to confirm that you have maintained your professional development. However, you should keep your CPD evidence for three years in case you are selected for a CPD review.

What if I haven’t done any learning?The annual CPD declaration has two options: select Option A to show that you have completed your CPD or Option B if you have not. CPD is a membership requirement, so if you indicate that you have not met the requirements we will contact you with further advice on how to do so.

For further informationWe have published detailed instructions on our CPD

policy at www.accaglobal.com/cpd If you are facing difficulties with CPD

please contact ACCA as soon as possible, as you may have completed the requirement – or be eligible for a different route or a waiver – without realising it.

Submit your CPD declarationBy submitting your CPD declaration as part of your membership, you are demonstrating your commitment to professional development to your peers and employers

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55

YOUR ANNUAL SUBSCRIPTION NOTICE AND CPD DECLARATION HAVE BEEN POSTED TO YOU...

But you don’t have to wait to receive them. The quickest and simplest way to pay fees and submit a CPD declaration is through your online account at myACCA. Remember annual subscription fees and CPD declarations must be received by ACCA on or before 1 January 2013.

ACCA – the global body for professional accountants

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Your professional development is important to us.To help you maintain your competitive edge we are proud to introduce ACCA’s new learning hub – My Development. It is designed to be the central access point for all your learning and help you meet your CPD requirement as well as progress in your career. You can find local face-to-face events, technical articles, e-learning and lots more.

Visit My Development today at www.accaglobal.com/cpd

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Compact considerationsACCA recently signed up to the UN Global Compact. ACCA’s Roger Adams and Gordon Hewitt explain why, and look at whether it could be right for your organisation

In July 2012, following the Rio+20 United Nations Conference on Sustainable Development, ACCA announced that it has become a member of the United Nations Global Compact (UNGC).

What is the Global Compact and what are its objectives?The UNGC was launched in July 2000 with the aim of promoting the development, implementation and disclosure of responsible and sustainable corporate policies and practices. It is defined as ‘a strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labour, environment and anti-corruption’.

The 10 principles are summarised in the box opposite. Signatories make a commitment to incorporate the 10 principles into their operations. Business participants are required to communicate the steps taken to do this via an annual Communication on Progress (COP), a public disclosure to stakeholders (eg investors, consumers, civil society and governments).

As a non-business participant, ACCA is not required to issue a COP but is encouraged to do so by UNGC as the requirement serves a number of important purposes, including advancing transparency and accountability; driving continuous performance improvement; safeguarding the integrity of the UNGC and the UN; and helping to build a growing repository of corporate practices to promote dialogue and learning.

Who are the other members?Currently there is a formidable array of more than 8,700 corporate

participants and other stakeholders from more than 130 countries, making it the largest voluntary corporate responsibility initiative in the world. Participants include leading international companies, service providers, partnerships and professional bodies, including many key ACCA partners.

Why has ACCA decided to become a member?By signing up, ACCA is demonstrating an active commitment to upholding its core values, as well as underlining our longstanding support for sustainable business. It brings ACCA into line with many leading companies and organisations, and increases the opportunities for more partnerships with both private and public sector organisations.

Membership fits well with our historical support for initiatives such as the Global Reporting Initiative, the UNCTAD/UNGC Sustainable Stock Exchanges programmes and the agenda of the International Integrated Reporting Council.

ACCA chief executive Helen Brand says: ‘Becoming a member of the UN Global Compact is a logical step for ACCA. The objectives of the Global Compact closely match our own corporate values. Our commitment to ethics and professionalism, married to our long-term support for the wider sustainability agenda and our numerous partnerships in the corporate responsibility arena, together demonstrate our willingness to both serve the public interest and contribute

to the continuous improvement of the way in which business is conducted in all sectors of the global economy.’

What does membership mean for ACCA in terms of governance, monitoring and reporting?In terms of a corporate commitment, ACCA will be expected to:1 make the Global Compact and its

principles an integral part of business strategy, day-to-day operations and organisational culture

2 incorporate the Global Compact and its principles into the decision-making processes of the highest-level governance body (ie Council and the executive team)

3 contribute to broad development objectives (including the Millennium Development Goals) through partnerships and

4 advance the Global Compact and the case for responsible business practices through advocacy and active outreach to peers, partners, clients, consumers and the public.

Why should other organisations consider joining?Private sector organisations and public sector bodies will have different motivations for subscribing to the objectives of the Global Compact. These will include:

* direct association with the UN from a pure brand perspective

* demonstration of a corporate responsibility leadership position at the sector/national level

* accessing a UN-driven enabler of closer relationships with

‘THE OBJECTIVES OF THE GLOBAL COMPACT CLOSELY MATCH OUR OWN CORPORATE VALUES’HELEN BRAND, ACCA CHIEF EXECUTIVE

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governments and non-governmental organisations

* enhanced feed-through to users of sustainability/integrated reporting exercises

* evidencing a strong commitment to corporate governance – reassurance for the growing body of environmental, social and governance (ESG)-driven investors.

The benefits also include:

* adopting an established and globally recognised policy framework for the development, implementation and disclosure of ESG policies and practices

* sharing best and emerging practices to advance practical solutions and strategies to common challenges

* advancing sustainability solutions in partnership with a range of stakeholders, including UN agencies, governments, civil society, labour and other non-business interests

* linking business units and subsidiaries across the value chain with the Global Compact’s Local Networks around the world – many in developing and emerging markets

* accessing the UN’s extensive knowledge of and experience with sustainability and development issues

* utilising UNGC management tools and resources, and the opportunity to engage in specialised workstreams in the ESG realms.

What impact has the compact had and where is it heading next?NGC membership hit 8,700 in 2012 and executive director George Kell has ambitions to reach 20,000 by 2020. Impressive as these numbers seem, it is worth bearing in mind the conclusions of the UNGC Corporate Sustainability Forum, held in Rio directly before the Rio+20 conference, that ‘despite progress, corporate

Human rights1 Businesses should support and respect the protection of internationally

proclaimed human rights and2 make sure that they are not complicit in human rights abuses Labour3 Businesses should uphold the freedom of association and the effective

recognition of the right to collective bargaining,4 the elimination of all forms of forced and compulsory labour,5 the effective abolition of child labour and6 the elimination of discrimination in respect of employment and occupation Environment7 Businesses should support a precautionary approach to environmental

challenges,8 undertake initiatives to promote greater environmental responsibility and9 encourage the development and diffusion of environmentally friendly

technologies Anti-corruption10 Businesses should work against corruption in all its forms, including

extortion and bribery

*GLOBAL COMPACT: THE 10 PRINCIPLES

sustainability has not penetrated the majority of companies around the world, nor have we seen the depth of action needed to address the most pressing challenges. To reach scale, economic incentive structures must be realigned so that sustainability is valued and profitable.’

ACCA believes that, via the embedding of our corporate values, through our investment in a wide-ranging corporate social responsibility programme and through our programmes designed to allow

employees and others to ‘speak up’, we are well placed to play our part in taking the UNGC agenda forward.

ACCA believes that the basic premise of the UNGC is sound and looks forward to playing a full role in

assisting in the achievement of its core objectives. At the same time we also hope to benefit from the shared learning and development resources and possibilities which lie at the heart of the UNGC process.

Roger Adams is director – special assignments and Gordon Hewitt is sustainability adviser, ACCA

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‘IF THE FINANCE FUNCTION IS NOT ABLE TO COMEUP WITH REPORTS ON A TIMELY BASIS, THERE IS A SIGNIFICANT RISK THAT THE CFO AND HIS TEAMMAY LOSE THE CONFIDENCE OF MANAGEMENT’

Finance functions have yet to embrace their new role as value-adding business partners and need to raise their productivity if they are to fulfil that role, a recent survey has concluded.

The PwC-ACCA Finance Effectiveness Survey 2012 found that the scope for productivity improvements in all roles of local finance functions remains high. Of the survey participants, 58% indicated their finance colleagues in business partner roles spend just 20% or less of their time on value-adding analysis and planning work.

And 56% said their finance staff spent more than 20% of their time doing data-gathering work, which tends not to be very productive.

The survey, conducted by PwC Singapore and ACCA Singapore, aimed to gather insights on the current state of finance and accounting function effectiveness and productivity in Singapore, and identify key trends and areas for improvement.

‘Finance has to be a value-adding business partner by providing timely and better insight into the business,’ PwC Singapore partner R Raghunathan said at the recent launch of the survey’s findings. Apart from business insight, the other roles of finance functions are to improve efficiency and productivity and to be proactive about risk management and controls, he said.

While 63% of respondents have more than 25 employees in the finance function, 48% of respondents have fewer than five finance staff engaged in business partner roles.

‘Clearly, business partnering is an area of evolution for finance functions,’ the report said, ‘as more organisations need to understand the value of a finance person working with the business as one team to interpret numbers to operational people and help them with forward planning.

‘The business-partner roles also require different skills and mindsets and, given the small number of

individuals in such roles, there is significant opportunity for finance professionals to equip themselves to perform higher-value work.’

The report further noted that in Asia, the business-partnering role has been typically limited to participating in meetings to provide financial results and producing management reports and analysis, but there has been good improvement in the past 10 years.

There remains much scope for finance functions to transform into a

more efficient delivery model, with 59% of respondents chalking up total finance running costs exceeding the global benchmark of 1% of turnover. At least 48% of businesses have not moved on to more efficient and contractually defined delivery mechanisms for routine transaction processing, the survey report added.

Raghunathan suggested this could be because Singapore-based corporations may lack sufficient scale to consider using shared service centres (SSCs) or outsourcing arrangements, or that they may prefer to keep the finance function close by.

The majority of respondents who operate SSCs or use outsourced arrangements had kept their costs as a percentage of total accounting and finance costs at below 20%. ‘This is quite telling and could be a prompter for companies that have not considered alternative delivery mechanisms to think about it,’ Raghunathan said.

The report also revealed about 42% of respondents still find it challenging to report financial and management information in a timely manner despite implementing Enterprise Resource Planning and Performance Management

solutions. These organisations take seven days or more to perform their month-end close before the reporting process can begin.

‘This process should be a focus area for finance-function productivity as the availability of timely results is essential for management,’ said the report. ‘Further, this process, at the end of every month, is typically characterised by frenzied activity in the finance function, where staff need to work late to complete the various activities.’

‘Streamlining this process can free up staff time for more value-adding work as well as contribute to a better work-life balance,’ it added.

The survey found 54% of respondents take seven days or more to report their monthly results to management. The inefficiency also pervades the budget process, the report said. It called on management and CFOs to make their budget process more efficient and relevant to their businesses.

‘If the finance function is not able to come up with reports on a timely basis, there is a significant risk that the CFO and his team may lose the confidence of management,’ Raghunathan said.

The lengthy reporting and budgeting process could be due to the widespread use of spreadsheets, with more than half of finance functions saying they used them to manipulate system data for management reporting, according to a news release by PwC and ACCA Singapore. The figure shoots up to 81% when it comes to spreadsheets used in the budgeting and forecasting process.

“The extensive use of spreadsheets in the finance function leads to more time spent on non-value-adding work and a higher risk of errors and/or

ENHANCING FINANCE FUNCTIONS

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fraud,” the release said. A simple solution is to have strong

and fully automated interfaces between a company’s finance systems which can help efficiency and reduce the risk of errors and fraud, they said. ‘More could be done in this area as only 29% of the companies surveyed have fully automated interfaces between their finance systems,’ the release said.

Speaking to Accounting and Business after the launch, Raghunathan said spreadsheets are a necessary evil in the way finance functions are organised today. “The idea is to think strategically and see how we can minimise their use, how we can do things better and faster and more efficiently, so that we have much more time to focus on what matters for the business,” he said.

The report also calls on companies

to consider proactively managing risk and controls by automating their control frameworks. About 56% of survey participants admitted there is room for improvement in this area.

Finally, the report revealed that 35% of respondents are still unaware of government productivity incentives; of those using incentives, the Productivity and Innovation credit extended by the Inland Revenue Authority of Singapore is the most popular. PwC Singapore itself has obtained government grants over the past two years to improve its finance function, with the amount running ‘upwards of seven figures’, its executive chairman Gautam Banerjee said as he urged more companies to take advantage of such grants.

Suki Lor, journalist

61

1 Finance functions are still coming to terms with their new role in operating as a value-adding business partner.

2 There is a lot of scope for finance functions to transform into a more efficient delivery model. Only 41% of respondents indicated that their overall finance function running cost was within global benchmarks of less than 1% of turnover.

3 Many finance functions appear to be facing difficulties in providing timely information to management for decision-making.

4 Better use of technology can enable finance functions to increase efficiency and reduce the risk of error.

5 Companies should look towards proactively managing risk and controls in the business through automating their control framework.

6 Some companies are still unaware of the productivity incentives offered by the government, with 35% of survey respondents falling into this category.

*KEY SURVEY POINTS

THE REPORT CAN BE DOWNLOADED AT www.accaglobal.com/transformation

THE REPORT CAN BE DOWNLOADED AT

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AUDITS SHOULD ADD VALUE

The directors view auditors not only as financial professionals, but also as specialists in other related areas. In this context, some of the them raised concerns about EU internal market commissioner Michel Barnier’s proposal to split the Big Four audit firms into ‘pure audit’ and ‘non-audit’ outfits, arguing that such narrow-based firms may lack the multitude of skillsets necessary to fully understand and address the issues associated with complex businesses today and conduct audits in a comprehensive manner.

It was also felt that mandatory rotation of auditors, which has been deliberated in the US and in Europe as a way to reinforce auditor independence, would be costly and, most importantly, have questionable effectiveness in Singapore. Most directors saw the current practice of rotating audit partners for public entities as sufficient.

*EU PROPOSALS

The recent revisions to the Singapore Exchange listing rules and the Singapore Code of Corporate Governance have brought directors’ responsibilities into sharp focus, particularly regarding the effectiveness of their companies’ internal control systems. In addition, their enhanced responsibilities for risk management means they are increasingly demanding more innovative support from their auditors.

While external auditors can help to reinforce directors’ evaluation of internal controls and risks, directors need to manage auditors’ involvement in light of their own understanding of the key operating and financial risks.

Improved communication between auditors and directors was at the centre of two high-level roundtable discussions earlier this year, organised by the Singapore Institute of Directors (SID) and ACCA. The roundtables sought to gauge the views of board directors from companies in various industries on the attributes, competencies and deliverables they expect from their external auditors.

A key point that emerged from these discussions is that directors would like

their auditors to provide more ‘informative value’, specifically subjective statements that include their assessments of the overall control environment and management culture, according to Chiew Chun Wee, ACCA head of policy for Asia Pacific.

Speaking at the launch of the report, Enhancing the Value of Audit – Board Directors’ Perspective, in early August, Chiew noted that auditors get useful insights into a company by virtue of their work. ‘And while directors also have their own views, I think they would appreciate this independent person giving their side of the story, in the context of what they see in the industry,’ he said.

Chiew added: ‘From the roundtable discussions, we can see that directors are seeking more subjective statements

from their auditors, including informal assessments of the finance team’s competency – not something that auditors usually include; the different risks that their organisation is facing; observations relating to the business model; and the tone at the top.’

Adrian Chan, director of information provider AEM Holdings, was among those who believe

auditors should move away from ‘boiler-plate statements’.

‘Otherwise, all the audit reports look the same,’ he said. ‘Speaking as a user of the report, we would like to see more subjective evaluations from auditors. I’m thinking not so much about the quality of the personnel, because that’s very hard to judge, but more about the quality of processes, controls and systems in place. I think there is room for more critical judgment, and even for auditors to make suggestions to the company itself. I just want to encourage auditors to move beyond a template.’

The roundtable discussions also revealed that directors sense that auditors may not be communicating freely. Chiew suggested this was ‘perhaps due to liability concerns’.

At the report launch, Kaka Singh, chairman of RSM Chio Lim and immediate past president of ACCA Singapore, said that there was no restriction on what directors could ask auditors, but noted that the issue lay in whether a director wanted these more subjective comments provided in writing or orally. And while auditors can speak frankly with directors, putting issues into writing could be troublesome, he said.

SID chairman John Lim added that while issues of judgment do come up in discussions between auditors and company audit committees, usually when no management is present,

Chiew Chun Wee, ACCA head of policy, Asia Pacific (pictured centre), with board directors at the event

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Singapore board directors at the event

‘not enough directors are asking enough questions’.

He said: ‘If you ask auditors to put these judgments in writing, it could create tension between management and the auditors. It’s probably incumbent upon the directors to ask these sorts of questions.’

Besides discussing the expansion of auditors’ roles and communication with them, the directors deliberated on the need to review the auditors’ liability regime. On this point, views diverged more widely, according to the report.

Some directors questioned the desirability of capping liability because they perceive it will have an adverse impact on the level of care that auditors will put into their work. Other directors supported the idea of capping liability or removing the joint and several liability regime for auditors, such that the auditors’ liability exposures are more aligned to their responsibilities.

But cases of fraud, where the auditor has colluded with management, would be specifically excluded from such liability protection.

The roundtables also addressed the subject of communication between auditors and shareholders, although no clear consensus was reached on how such communications should evolve.

Some directors suggested that there could be more use of the ‘emphasis of matter’ paragraph in the audit report. The intent is this should now be included only in limited situations, but its use could be widened to help readers focus on the key areas in a

complex set of financial statements, Chiew explained.

Other directors felt the auditors’ letter to the audit committee summarising the key risks could be shown to shareholders, although there was concern that without proper context some shareholders might overreact. ‘The bottom line is that any extension in communication will need to be implemented with corresponding education of users to prevent information from being taken out of the proper context,’ Chiew said.

Invitation to commentThe International Auditing and Assurance Standards Board (IAASB) recently issued an ‘invitation to comment’ on auditor reporting as part of its year-long consultation with stakeholders. The most ground-breaking recommendation, noted Chiew, is one that suggests inclusion of an auditor commentary in the audit report, which ‘highlight(s) matters that are, in the auditor’s judgment, likely to be most important to users’ understanding of the audited financial statements, or the audit’.

‘Hopefully, with this, auditors will provide more tailor-made communication that will be truly relevant to users,’ Chiew said.

Yet, auditors should not adopt a wait-and-see attitude, the report warned. The audit profession should initiate change from within, and push for innovation and enhanced value.

Auditors could take more initiative to find out what is of interest to the

board, especially the independent directors, and agree on the information that can be communicated, as well as the structure and timing of that communication.

Lim noted that external auditors ‘will continue to be one of the key outside professionals that directors rely on in discharging their fiduciary duties’.

‘This is not just in the area of statutory audit, but also in many other specialised services that accounting firms can provide. Given their many areas of expertise, there is much more that auditors can contribute to stakeholders. One such area is in communicating to them other useful information that the auditors have acquired during the course of the statutory audit,’ he pointed out.

Wilson Woo, president of ACCA Singapore, says lines of communication between external auditors and the board should be kept open and transparent.

‘Both parties need to work closely together to ensure that information that is communicated to stakeholders is fully understood. Where there are areas for improvements, these should not be viewed as negative or alarming, but seen as necessary recommendations that could improve business practices and productivity,’ he concluded.

Sonia Kolesnikov-Jessop, journalist

To download the report, go to www.accaglobal.com/en/research-insights/audit-society.html

63

SG_A_valueofaudit.indd 63 11/10/2012 12:18

It was a night of glitz and glamour. Well-coiffed ladies adorned in jewellery draped the ballroom in iridescent shades with their elaborate saris and evening gowns. As for the gentlemen, their smart black-and-white attire was relieved by brightly coloured Indian scarves – de rigueur for the Bollywood Gala Nite, a charity gala dinner I attended recently to raise funds for the less fortunate.

Looking around the ballroom, it was evident that many have benefited significantly from Singapore’s economic boom. However, for every person in that room, there are dozens more who have not prospered from our country’s development. Like the destitute elderly who are reduced to eking out a miserable existence, having been abandoned by their children, or who have no kin to care for them in the first place. Or the unfortunate kids from broken families, raised either by a single parent or, in some cases, their grandparents as their parents are in remand or their whereabouts unknown. Despite their lamentable circumstances, some of these kids, beneficiaries of the Bollywood Gala Nite, were proud to be the ‘stars’ of the evening; everyone was captivated by their unwavering enthusiasm and indomitable spirit as they danced their hearts out.

The event was a success, raising over S$300,000. It was very heart-warming to know that numerous philanthropic corporations and individuals can be found here in pragmatic Singapore. The money raised will go a long way to helping the impoverished elderly pay their utility bills and apartment rentals. As for the children, the money will give them a leg-up in education by providing them with much-needed bursaries as well as tuition.

I recalled a speech made by Lee Kuan Yew, Singapore’s first prime minister. He said that the only way to spring these kids out of the poverty trap is to provide them with a good education; only then can the less fortunate build better lives for themselves. Incidentally, in his recent National Day speech, Prime Minister Lee Hsien Loong called for Singaporeans to help write the next chapter of Singapore’s story. He highlighted the ‘three Hs’ – home, hope and heart – and stressed that we should build a home that has hope and heart. He emphasised how Singaporeans should carry the hope to build a future that is better than what we have now for the next generation. In this regard, having more universities and making education even more accessible to every young Singaporean is a way of making this hope come true. On the issue of heart, Lee said that Singaporeans must show generosity of spirit to one another.

As we enjoy success and prosperity while Singapore progresses from third world to first, let us not forget the less fortunate in our society. Just a couple of months back, ACCA had its very own charity event, ACCA Gives Back, here in Singapore. The funds raised were used to provide food to needy families. Many of our members contributed generously, either in the form of cash or helping out with the food distribution. So, on behalf of ACCA and those families who have benefited, I thank you once again for your contributions and look forward to more future collaborations to make Singapore our home, hope and heart.

Wilson Woo is president of the ACCA Singapore branch

Home, hope, heart[By providing opportunities for those less fortunate, we are

helping to build the Singapore of the future, says Wilson Woo

ACCA64

SG_A_pres.indd 64 08/10/2012 16:16

ACCA 65

1 NOTICE AND AUDITOR’S REPORTThe notice of meeting and the auditor’s report on the accounts for the period 1 April 2011 to 31 March 2012 were taken as read.2 THE MINUTESThe minutes of the AGM held on 15 September 2011 and published in the November 2011 issue of Accounting and Business were taken as read, and signed as correct. 3 RESOLUTION 1Adoption of the report of the Council and the accounts for the period 1 April 2011 to 31 March 2012.

Chairman Dean Westcott (ACCA president) gave his presidential address and asked chief executive Helen Brand to give a presentation. He then invited questions and comments on the Report and Accounts. He drew members’ attention to the statement which had been circulated and which showed that valid proxy votes had been cast in respect of Resolution 1 as follows: for 3,411, against 44. The president then put the resolution to the meeting and,

COUNCIL HIGHLIGHTSCouncil held a meeting on the morning of 20 September at which it considered some important issues.

* It received the regular report from the chief executive on ACCA strategic developments, organisational performance, key market developments and research and insights and technical developments.

* It considered a paper providing feedback on the Council meeting in Nairobi and noted that the event was successful in reinforcing ACCA’s position as a key supporter of the profession in Kenya and in Africa as a whole. Council agreed to reaffirm its policy of holding an international Council meeting every two years. It also agreed in principle that the international meeting in 2014 should be held in Dubai with associated regional visits to Bangladesh, Oman,

Pakistan and Sri Lanka.

* Council agreed to appoint Frances Walker and Rosalind Wright as lay members of the ACCA Regulatory Board with effect from September 2012 and to appoint David Thomas as a lay member in September 2013. The Regulatory Board comprises a majority of lay members and is chaired by a qualified lawyer.

Council then held its Annual Meeting on the afternoon of Thursday 20 September, following ACCA’s 107th AGM. Members voting at the AGM gave overwhelming support to the various resolutions before the meeting. The minutes are shown above.

At the Annual Council Meeting, Council chose ACCA’s officers for the coming year. ACCA’s new president is Barry Cooper and he will be supported by Martin Turner (deputy president) and Anthony Harbinson (vice president).

Council also welcomed one new member whose election was declared at the AGM – Orla Collins, who is based in Ireland. There are 16 different nationalities represented on ACCA’s 36-member Council, over one-third of whom are female, thus continuing to reflect the increasing diversity of the organisation as a whole.

Council took a number of other decisions at its Annual Meeting:

* It approved Council standing orders for 2012–13, in accordance with the bye-laws.

* It chose three Council members to serve on Nominating Committee in 2012–13, along with the officers.

* It agreed a Council work plan and a set of objectives for the Council year 2012–13.

The next meeting of Council is on 24 November, immediately after the 2012 meeting of the International Assembly.

107th AGM: 20 September 2012The AGM was held at 29 Lincoln’s Inn Fields, London, W2, and 48 members were present

on a show of hands, declared it carried, the votes being cast as follows: for 36, against 0.4 RESULT OF THE BALLOT FOR

THE ELECTION OF MEMBERS TO COUNCIL

The scrutineer’s report and the number of votes received by each candidate in the ballot for the election of members of Council were reported, as follows: Orla Collins 3,394; Dean Westcott 3,280; Brian McEnery 3,045; Julie Holderness 2,893; Robert Stenhouse 2,875; Jenny Gu 2,678; Leo Lee 2,592; James Lee 2,525; Gustaw Duda 2,423; Belinda Young 2,377; Raphael Joseph 2,375;

Andi Lonnen 2,145; Ronan Carrig 1,763; Frankie Ho 1,368; Azza Raslan 1,168; Shamreen Ashraf 1,084; Kwame Antwi-Boasiako 1,042; Aamer Allauddin 975; Billy Kang 924; Mubashir Dagia 891; Saad Maniar 815; Faisal Siddiqui 813; Jacques Fakhoury 786; Sham Mathura 725.The president, therefore, declared the

following members elected or re-elected to Council: Orla Collins, Gustaw Duda, Jenny Gu, Julie Holderness, Raphael Joseph, James Lee, Leo Lee, Brian McEnery, Robert Stenhouse, Dean Westcott and Belinda Young.5 RESOLUTION 3Appointment of auditorThe president reported that Council recommended that BDO LLP, chartered accountant and registered auditor, be reappointed as the association’s auditor. He then invited questions on Resolution 3.

He drew members’ attention to the statement which had been circulated and which showed that valid proxy votes had been cast in respect of Resolution 3 as follows: for 3,281, against 175. He then put the resolution to the meeting and, on a show of hands, declared it carried, the votes being cast as follows: for 33, against 1.

The president thanked members for their attendance and declared the meeting closed at 2.15pm.

INT_A_AGM.indd 65 12/10/2012 10:48

From left: Martin Turner, Barry Cooper and Anthony Harbinson

65 Council ACCA holds its 107th AGM

64 Wilson Woo Supporting those less fortunate will help build Singapore, says the ACCA Singapore branch president

62 Adding value A new ACCA report is launched on the vital role of auditors

60 Room for improvement Finance must embrace the business partner role, a PwC-ACCA report fi nds

58 Compact considerations ACCA has signed up to the UN Global Compact

54 CPD Annual CPD declarations are due

Inside ACCA

Leading accountancy academic Professor Barry J Cooper from Australia was formally elected ACCA president in September.

Professor Cooper is head of the School of Accounting, Economics and Finance at Deakin University in Melbourne. Previously, he was head of accounting schools at the Hong Kong Polytechnic and RMIT University, Melbourne, and played a key role in establishing the ACCA Qualification in China. In his spare time he is an organic olive oil grower and processor.

During his term on ACCA’s Council, Professor Cooper has chaired a number of ACCA committees. He wrote his inaugural president’s column in Accounting and Business last month.

He said: ‘I look forward to playing my part in ensuring that ACCA continues to work closely with employers, and that we meet their needs in an increasingly global economy.’

ACCA’s Council also elected management consultant Martin Turner as deputy president; he has been chief executive of Hywel Dda Health Board and chief executive of the Central Northern Adelaide Health Service, and a Council member since 2004. Vice president for 2012/13 is Anthony Harbinson, who is director of justice delivery at the Department of Justice in Northern Ireland.

PUBLIC SECTOR LEADERSHIP PROJECTACCA has commissioned Nottingham Business School to research the roles, features and personal attributes which public sector financial managers should aim to display, highlighting good practices. To find out more or contribute contact Professor Malcolm Prowle at Malcolm.prowle@ntu.ac.uk.

New presidentBarry Cooper takes the helm as ACCA president for 2012/13

ACCA HOSTS NEW YORK EVENTArnold Schilder (pictured), International Auditing and Assurance Standards Board (IAASB) chairman, was among leading figures in the auditing world who attended a New York cocktail reception hosted by ACCA USA. Guests included other senior IAASB representatives, staff of the International Federation of Accountants (IFAC) and ACCA New York chapter members. ACCA was also represented by technical director Sue Almond and ACCA USA head Warner Johnston.

SALARY SURVEY PUBLISHEDACCA students and affiliates frequently earn salaries that exceed national averages across other professions, according to ACCA’s latest Students and affiliates salary and career survey 2012. The report’s findings capture information on the salaries, bonuses and benefits, including students studying for the foundation level qualifications, as well as recording working hours, career plans and priorities.

Of the 22,379 responses, 63% received a pay rise on the previous year, with 65% gaining an increase of at least 6%. Of those receiving a bonus, 53% were awarded a larger bonus than in the previous year. In addition, 84% aim to gain a more senior position in their current area and 75% want to lead a finance team. www.accaglobal.com/salary

VIDEO EXPLORES PUBLIC VALUEDelivering value to business and society is a critical role for ACCA. A short video has been produced exploring what is meant by public value in the context of accountancy, and how ACCA as a professional body delivers that. Visit http://youtu.be/2U97GUWXE0k

ACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENTACCA HOSTS NEW YORK EVENT

66 ACCA news

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