accounting and business_february 2012 (china edition)

fun and games

charity day reaps rewards

be prepared challenges ahead for cfos

opinion a decade of sarboxtechnical revenue recognition

Cpdget verifiable cpd units by reading technical articles

fighting spiritregulators poised for battle

eurozone on the brink will asia cash in?

interview scb’s rons fongaudit the bell tolls for self-regulation

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the magazine for business and finance professionals accounting and business china 02/2012

CN_alt_cover.indd 1 13/01/2012 15:28

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ONE YEAR ONAs Japanese business starts to recover from the devastating tsunami last year, we ask what accountants can do to restore confidence.Page 24

WATCHFUL EYESWe talk to the HKICPA about Hong Kong’s moves towards the international practice of independent oversight of the audit profession. Page 42

ACCA CAREERSCheck out thousands of jobs and expert careers advice at www.accacareers.com

VIRTUAL BRIEFING CENTRE

Attend live and on-demand audio and video webinars in the virtual theatre, chat with fellow delegates in the networking centre, and access the digital library.www2.accaglobal.com/ab_vbc

Standard Chartered Bank can’t compete with China’s banking behemoths, yet it has big ambitions that focus on its core strength: an impressive international network. We talk to SCB’s Rons Fong about what lies ahead. Page 12

TOUGH TALK FROM REGULATORS2012 could shape up to be the year in which regulators in the US and China battle it out over who has the final say on the right to access audit documents relating to US-listed Chinese companies.

So far, there has been tough talk from the US Securities and Exchange Commission (SEC), which has repeated its requests for information from international accountancy firms to assist in its investigations of US-listed Chinese companies that have been embroiled in financial controversies. Many of the collapsed companies under investigation are so-called reverse mergers, which are not subject to the stringent conditions imposed by the SEC in a full initial public offering.

The SEC’s Chinese counterpart, the China Securities Regulatory Commission (CSRC), has so far resisted, claiming that handing over information is not permitted under Chinese law.

In the middle of all this are the international accountancy firms, which are only able to cooperate with the SEC to the extent of Chinese law; in other words, they can’t possibly comply with requests to hand over their documents. With firms stuck between a rock and a hard place, the hope is that the regulators can reach an agreement over how to handle the investigations. But how likely is that?

In our feature on page 16, we look at the issues surrounding reverse mergers and consider how the regulators may start dispensing with the legal niceties. For the international firms, there is a very real risk of their Chinese practices being deregistered, which could inflict a devastating blow on their businesses.

Despite the furore over the reported accounting scandals, the firms are committed to growing their practices in China. In a recent Forbes article, PwC said it had no plans to leave the mainland, due to a healthy growth in revenues. It will be interesting to see if that kind of optimism will last if the SEC and CSRC continue to lock horns.

Happy Year of the Dragon!

Colette Steckel, [email protected]

3Editor’s choice

CN_B_Edletter.indd 3 12/01/2012 17:02

Audit period July 2009 to June 2010138,255

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Features12 Positive transactionsStandard Chartered Bank’s Rons Fong describes the bank’s role in supporting Chinese clients globally

16 Battle stations As the regulatory fi ght between China and the US hots up, what does it mean for the Big Four?

20 Euro storm A look at how the euro went from being the next big thing to all washed up

24 Rebuilding Japan Accountants are playing a key role in restoring business confi dence

28 Risky businessTo be effective, risk management must be consistent

32 New orderGlobal power will continue to shift to emerging markets, says IFA board member Japheth Katto

VOLUME 15 ISSUE 2

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AB CHINA EDITIONCONTENTSFEBRUARY 2012

CN_Contents.indd 4 13/01/2012 15:35

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

VIEWPOINT34 Cesar Bacani What’s behind the current trend of companies drawing down cash?

40 Errol Oh Malaysia’s Inland Revenue Board is getting tough

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

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

TECHNICAL46 Update The latest from the standard-setters

48 CPD: IAS 1 A look at the comparability of fi nancial statements across national boundaries

52 Revenue recognition A proposed new model has far-reaching implications

ACCA NEWS56 Flexible learning ACCA offers a wide range of online CPD options

57 Dean Westcott Focusing on the past may not prevent future failures, says the ACCA president

58 Rulebook update Changes in the 2012 edition of the ACCA Rulebook

60 Rallying cry to CFOs Europe’s crisis could benefi t China, delegates at ACCA’s CFO Summit learn

62 All in a good cause ACCA Hong Kong’s annual fun day raises money as well as laughs

64 News Members tour the Legislative Council’s new home; new members celebrated; highlights of the Council meeting on 26 November

Your sector35 CORPORATE35 The view from Deanne Ong of Origin Holdings, plus news in brief

36 No turning back Shared services and outsourcing will drive business performance in the future

38 Opportunity knocks Organisations must be prepared to turn risks into positive results

41 PRACTICE41 The view from Tiffany Wong of KPMG China, plus news in brief

42 Under watchful eyes Regulation of audit fi rms in Hong Kong looks set to become independent

CN_Contents.indd 5 12/01/2012 17:03

01 Craftsmen make dragon lanterns

in Jiangsu province, ready for Chinese Lunar New Year, which heralded in the Year of Dragon

02 Restaurateur Kiyoshi Kimura

(left) bid 56.5 million yen for a giant 269kg tuna at Tokyo’s Tsukiji fish market, smashing the record price for a single bluefin

03 Honda had to destroy 1,055

cars, after Thailand’s worst flooding for 50 years led to the carmaker’s factories in Rojana being swamped for nearly two months

News in pictures6

AP_B_newsinpix.indd 6 12/01/2012 10:41

04 North Korea’s new leader

Kim Jong-un (centre), accompanies the hearse carrying the coffin of his father and late leader Kim Jong-il, during his funeral procession in Pyongyang

05 China is pushing ahead with its

high-speed rail systems, which include the China Railway High-speed train (shown), despite the train crash in July that killed 40 people. It unveiled a prototype bullet train capable of reaching up to 500km an hour in December

06 Aung San Suu Kyi’s National

League for Democracy party will return to mainstream politics for the first time in two decades on 1 April, in the parliamentary by-elections

07 An entire city carved out of

ice and snow is the main attraction at the 28th Harbin International Ice and Snow Festival in Heilongjiang province, North-East China

7

AP_B_newsinpix.indd 7 12/01/2012 10:41

URBAN COST OF LIVING INDEX DANCES TO EXCHANGE RATE TUNEThe fall in value of the Hong Kong dollar has pushed Hong Kong well down the list (from 32nd to 58th) of most expensive cities in the world to live in, according to a survey by ECA International. Singapore, which has moved up 11 places to 31st, is now eighth-most expensive city to live in in Asia.

RANK 10KOBE

RANK 4NAGOYA

RANK 35BEIJING

RANK 6YOKOHAMA

RANK 31SINGAPORE

RANK 1TOKYO

RANK 41SHANGHAI

72%Proportion of Malaysians in their 50s with retirement savings, according to HSBC.

30%Number of companies in Singapore that see labour costs as a key challenge, according to a KPMG forum.

100Number of companies Deloitte expects to list on the Hong Kong stock market in 2012.

20%How far property prices in Hong Kong and Shanghai are tipped to fall in 2012, according to Knight Frank.

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US$2.74TR CHINA

US$504BN MEXICO

US$501BN RUSSIA

US$380BN SAUDI ARABIA

US$350BN MALAYSIA

US$296BN UAE

US$271BN KUWAIT

US$179BN VENEZUELA

US$182BN NIGERIA

1: India 2: Vietnam 3: Turkey 4: Argentina =5: Chile =5: Hong Kong

PACIFIC RIM AND ASIA TURN ON THE TALENT MAGNETDeveloping economies ranked highest in taking on new staff in 2011, according to a survey of 40 countries by Grant Thornton. In India 67% of businesses were hiring, compared with –33% in Greece in last place.

CAPITAL’S ILLICIT EXITA report by Washington-based financial watchdog Global Financial Integrity (GFI), Illicit Financial Flows from Developing Countries over the Decade Ending 2009, has revealed that the illegal flight of capital out of Malaysia has reached a level rarely seen in Asia, with the exodus more than tripling over the course of the decade.

The report found that 157 developing economies lost more than US$900bn in illicit financial outflows in 2009 alone despite the onset of the global financial crisis. The developing world is estimated to have lost US$8.44 trillion in the decade to 2009. The graphic shows the biggest victims of illegal capital flight over the decade.

News in graphics8

AP_B_graphics_08.indd 8 12/01/2012 16:22

CYBERCRIME HEADS TOWARDS FRAUD MAJOR LEAGUEThe threat of cybercrime is growing and it ranks as one of the top four economic crimes, according to PwC’s Global Economic Crime Survey 2011. Of the 3,877 respondents polled in 78 countries, almost half (48%) of those who had experienced economic crime in the last 12 months thought the risk of cybercrime was on the rise, with only 4% believing it was falling.

60%OF ORGANISATIONS DON’T KEEP EYE ON

SOCIAL MEDIA SITES

JAPANUS$210,000MEARTHQUAKE/TSUNAMI

NEW ZEALANDUS$16,000MEARTHQUAKE

US/CARIBBEANUS$15,000MHURRICANE IRENE

2/5OF RESPONDENTS

HAD NO CYBERSECURITY

TRAINING

34%OF RESPONDENTS

EXPERIENCED ECONOMIC CRIME IN

PAST YEAR

56%OF RESPONDENTS BELIEVE MOST SERIOUS FRAUD IS AN ‘INSIDE JOB’

40%

OF RESPONDENTS

MOST FEAR

REPUTATIONAL

DAMAGE

1/10WHO REPORTED

FRAUD LOST MORE

THAN US$5M

51%Proportion of investors deploying strategic planning tools to plan for an uncertain business environment, according to AT Kearney’s index of confidence in foreign direct investment.

€50BNThe extra hit Spanish banks face in further provisions on bad property assets as part of a new round of reforms for Spain’s financial sector, according to the FT.

3,500Number of Royal Bank of Scotland jobs that will go this year as the state-owned UK bank plans to shrink its investment bank.

Mon

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COSTS OF CATASTROPHELast year was the costliest ever in terms of damage caused by natural catastrophes throughout the world, according to research from Munich Re.

THE BIG ONESThe most expensive catastrophes

are usually weather-related, but a series of geophysical events accounted for half the insured

losses in 2011.

THAILANDUS$40,000M

FLOODS/LANDSLIDES

USUS$15,000M

SEVERE STORMS/TORNADOES

Global losses two-thirds higher than former record.

Japan/New Zealand quakes make up two-thirds of total.

Insurance covered less than one-third of total losses.

Of the 820 catastrophes, most were weather-related.

Deaths from disasters (excludes Africa famine).

US$380BN

2/3

US$105BN

90%

27,000

-$-$-$-$-$-$-$-$-$

9

INT_B_Graphics_09.indd 9 12/01/2012 16:24

FOREIGN APPROVALS SPEED UPChinese regulators have accelerated the pace of approvals for foreign institutions to invest in mainland markets, granting nearly US$1bn in quotas under the Qualified Foreign Institutional Investor (QFII) programme since October, Reuters reported. The fast-tracked approvals follow a six-month quota freeze, possibly to counteract the net capital outflows recorded in October and November.

MOON LANDING PLANNEDChina is planning a moon landing sometime after 2020, following the steps of the US astronaut who last walked on the lunar surface in 1972 – part of a stated aim to explore space for peaceful purposes. ‘Chinese people are the same as people around the world. When looking up at the starry sky, we are full of longing and yearning for the vast universe,’

Zhang Wei, an official with China’s National Space Administration, told the Financial Times.

WARM WELCOME FADESChinese companies that obtained listings on US stock exchanges in recent years are increasingly going private. Analysts say that US investors have been rattled by accounting scandals and the slowing of the mainland economy. ‘You have an environment that has become quite inhospitable to Chinese companies, and that causes a lot of them to rethink the desirability of being a public company in the US,’ Joseph Chan, Sidley Austin attorney in Shanghai, was reported as saying in USA Today.

SLOW GROWTH EXPECTEDChina’s industrial output growth is expected to slow to 11% in 2012, down from 13.9% in 2011, Reuters reported. Miao Wei, minister of

industry and information technology, said development in 2012 ‘would not be optimistic’ due to the uncertain global economy. Monthly output growth has fallen in the past six months from a high of 15.1% in June. Beijing’s latest five-year plan targets annual gross domestic product (GDP) growth of 7% over five years, with industrial output growth of 10%.

PATENTLY CLEARChina filed for more patents than any other country in 2011, surpassing the US and Japan, according to a report by Thomson Reuters. This may be seen as an effort to improve China’s record on intellectual property rights, but legal experts point to the generous subsidies for filing patents, regardless of the outcome. ‘One thing is volume, quality is quite another,’ Elliot Papageorgiou, a partner at law firm Rouse Legal, told Reuters. ‘The return, or the percentage of grants, of the patents is still not as high in China as, say, in the US, Japan or some places in Europe.’

SALES STAVE OFF RECESSIONStrong retail sales have helped Hong Kong avoid a technical recession, with retail figures up 23.5% in November from a year earlier. The spending power of Chinese mainland consumers is a major contributing factor: visitor arrivals from China rose 25% in November year on year, boosting consumer spending and helping counter a slowdown in exports.

CHINA TOP FOR IPOSGreater China exchanges completed 410 deals in 2011, raising US$79.3bn, a 42% drop in funds raised compared with 2010. The largest initial public offering of the year was the US$10bn listing of Glencore International, followed by Prada SpA (US$2.5bn), both on the Hong Kong Stock Exchange (HKEx). Terence Ho, strategic growth markets leader for Greater China at Ernst & Young, said that Greater China exchanges still lead

ASIA LEADS IN SPENDING POWERAsia-Pacific markets will continue to drive retail and consumer goods growth through to 2015, expanding on average 6%, PwC says in a report produced with the Economist Intelligence Unit. In contrast, North America and Western Europe are expected to grow by only 1% during the same period.

Carrie Yu, PwC’s retail and consumer leader for China and Asia Pacific, said that a fundamental shift in spending patterns in Asia Pacific is shaping the development of the industry worldwide. ‘Industry players are well aware that their growth targets can only be reached in Asia Pacific, and are adjusting their investment strategies accordingly.’

Online retailing, which has taken off ‘at lightning speed’, is expected to swell by an average of 20% annually in Asia in the near term, and up to 40% a year in Japan. China, which remains ‘the powerhouse of Asia’, is expected to drive the overall rapid rate of growth as more shoppers access the internet.

10 News round-up

CN_B_newsroundup.indd 10 10/01/2012 17:54

the world in bringing new companies to market, with the Hong Kong, Shenzhen and Shanghai exchanges among the top five by capital raised.

BANKERS GEARED FOR GROWTHExecutives in Hong Kong’s banking sector are more optimistic than their peers in other business fields about the city’s economic prospects. Respondents told a Deloitte survey that they feared increased pressure from the poor global economy. However, 58% of the bankers interviewed expected their industry would continue to grow. The top three challenges cited were competition in investment and traditional banking products, and integration with the mainland market to expand client bases.

HOPE DOWN, JOBS UPHong Kong businesses worry that global uncertainties will impact their growth in 2012, the latest Grant Thornton International Business Report found. This led to business optimism dropping to just 10% in Q4 of 2011, down from 42% in Q3 – an overall drop of 23 percentage points from 2010. Topping their concerns were rising costs of finance, an orders shortfall, and red tape and regulations. Despite this, employment needs remain strong: 47% of Hong Kong businesses took on staff in 2011, one of the highest rates in the world.

ACCOUNTANTS IN DEMANDChina is one of the bright spots for accountants as employers increase headcount in 2012, according to a global survey by the International Accounting Bulletin. More than half of firms surveyed (58%) expect to hire more full-time accountants this year. The survey noted an air of cautious optimism after a quiet few years following the financial crisis of 2008. Some of the biggest accountancy firms are now reporting a surge in hiring, particularly in advisory services and in fast-growing economies such as Russia, India and China.

ROLLS-ROYCE DRIVES BUSINESSFor the first time in 2011, Rolls-Royce sold more of its iconic motor cars in China than it did in the US. To honour their best customers, the luxury carmaker has produced a limited edition of bespoke Year of the Dragon models featuring hand-embroidered versions of mythical animals on leather headrests. The sticker price: US$1.6m.

HK TOPS FINANCIAL MARKETSHong Kong is the world’s most developed financial market, overtaking the US and the UK for the first time according to a World Economic Forum report. The US slipped to second place amid financial stability concerns. ‘Hong Kong’s ascent to the top of our index

marks a major milestone,’ said Kevin Steinberg of the World Economic Forum. The city’s rise from fourth place was attributed to non-banking services such as initial public offerings and insurance.

BANKS CHALLENGEDBanks across Asia face a tough 2012 amid ongoing concerns about liquidity and the implementation of regulatory reforms, according to a KPMG report. Although Asian banks generally fared well during the financial crisis, most regulators are pushing ahead with reforms agreed at the international level – Basel III in the area of liquidity being a notable challenge. ‘Banks in the region face a daunting task in meeting regulators’ expectations in a bewildering number of areas,’ said Simon Topping at KPMG in Hong Kong.

AnalysisCURRENCY CRISISOnce a contender to become the world’s next reserve currency, the euro is instead descending further into chaos – with no end in sight. What does the crisis mean for Asia, and could the region stand to benefit in the long term?

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GROWTH FORECAST FALLS FOR EMERGING ASIA Fitch Ratings has cut its forecast for growth in emerging Asia to 6.8% for 2012, from 7.4% estimated in June, citing the deteriorating outlook for the world economy and the lagged impact of policy tightening in some countries. Many emerging Asian economies, apart from China and India, are bolstered by scope for a domestic policy response to any deterioration in the global economy, Fitch said in its Asia-Pacific Sovereign Credit Outlook report. Emerging Asia’s sovereign credit-worthiness is supported by strong or improving public and external finances, as well as relatively strong medium-term growth prospects for most countries, Fitch said. The agency cut its 2012 growth forecast for China to 8.2% from 8.5% previously. In India, where the ratings company says inflation and monetary tightening are weighing on investment, it predicts the economy will expand 7.5% in the year ending March 2013.

CN_B_newsroundup.indd 11 10/01/2012 17:54

12 Interview

CN_F_RonsFong.indd 12 12/01/2012 10:44

Standard Chartered Bank, an international bank with an impressive network across emerging markets, is looking

to expand rapidly in China by leveraging its global network.

With around 70 branches, it can hardly hope to compete for business against domestic giants such as Industrial and Commercial Bank of China (ICBC), which has 17,000, or China Construction Bank (CCB), with almost 14,000. Instead, the bank emphasises its network of global offices and focuses on corporate clients to cement and build on its position as one of the leading international banks in the country, says Rons Fong.

As head of origination and client coverage in South China, Fong oversees the bank’s operations in the region, working to expand Standard Chartered’s business, ensuring compliance and running the Shenzhen branch.

Originally from Hong Kong and with a background in human resources, Fong is clear on the practicalities of expanding the bank’s presence in China, where the sector is evolving rapidly. She is responsible for all the bank’s operations in the region, including everything from expanding its client base to dealing with regulators, including tackling the many grey areas in China’s evolving regulatory structure.

This is not easy. Aside from the challenges of growing a large, complicated business in a heavily

regulated sector, the fact remains that China’s banking sector is still developing. China’s approach to this has been to develop overall policies with guiding principles but crafting specific regulations over time. The result is that the fine print is, effectively, written on the fly.

Regulations often state principles rather than details of execution, leaving executives like Fong to interpret them. Decisions are therefore arrived at through regular consultations with the regulators.

‘We need to work very closely with the regulators,’ Fong says. ‘We get our licence from the country we

operate in and we have to try our best to protect it, so compliance is very important. I need to know what is in the regulator’s mind.’

Still, Fong is certain that the best days – for the country and the sector – are still ahead.‘I believe in the growth of China,’ she says. ‘China has grown in the last 30 years; still, a lot of things are untapped.’

The challenge for Fong and Standard Chartered is how best to expand, aware that it would be impossible to compete head to head with the likes of ICBC or CCB for individual customers.

Global advantage‘We can’t compete,’ she concedes. ‘Local banks are huge in terms of capital, in terms of their workforce and in terms of their sales points. Their outlets are everywhere. We have different advantages or competences.’ A key part of this is, explains Fong, the bank’s international network.

This network means that Standard Chartered is well positioned to benefit from a push abroad by Chinese companies, both state-owned and private. The bank is particularly strong in emerging markets – the same markets that Chinese companies typically use as starting

POSITIVE TRANSACTIONSStandard Chartered Bank’s Rons Fong describes how a key strategy of the bank’s expansion in China is its support for Chinese companies in the international arena

‘A LOT OF OUR CORPORATE CLIENTS ARE GOING TOEMERGING MARKETS FIRST. THAT IS EXACTLY HERE OUR FOOTPRINT IS. IT IS KIND OF A WIN-WIN’

operate in and we have to try our best to protect it, so compliance is very important. I need to know what is in the regulator’s mind.’

days – for the country and the sector – are still ahead.‘I believe in the growth of China,’ she says. ‘China has grown in the last 30 years; still, a lot of things are untapped.’

Chartered is how best to expand, aware that it would be impossible to compete head to head with the likes of ICBC or CCB for individual customers.

13


The CVAfter completing university in Hong Kong with a degree in human resource (HR) management, Rons Fong joined an HR firm before moving to Standard Chartered Bank in 1994.

Her first role was in the central HR department, before moving into handling HR specifically for business operations, working with the head of corporate banking.

When an opportunity arose to move to corporate banking as a sort of ‘chief of staff’, she took it. Her next move was to a position as a relationship manager in Hong Kong. Most of her clients had Chinese exposure and she travelled regularly with them. In 2007 she relocated to mainland China as regional head of corporate banking in southern and western China.

She is now head of origination and client coverage in South China, wholesale banking, and was appointed general manager of the Shenzhen Branch in February 2010.

help the bank’s expansion plans. For example, the push towards the internationalisation of the renminbi is helping Standard Chartered expand its client base through the provision of RMB services. Nevertheless, the requirements of most consumer clients are for onshore banking services. Expanding this particular client base takes work and perseverance.

providing, such as access to banking services abroad, local knowledge of foreign markets and local relationships. To some degree, the bank can also provide some advice to its clients on the workings of specific markets and facilitate trade.

Consumer banking is a different animal, as it is typically local. However, here again government policy could

points for international expansion. Necessarily, much of the focus is on corporate clients.

‘A lot of our corporate clients are going to emerging markets first. That is exactly where our footprint is. It is kind of a win-win,’ says Fong.

‘Let’s say they want to go to India or Africa. We have a lot of branches there. Then we can line [them] up with our counterparts.’

Local knowledgeThis means that Standard Chartered can provide a slew of services that the Chinese banks have a harder time

‘IN THE LOCAL MARKET, EDUCATING THE CUSTOMER IS THE WAY TO GO. ENGAGEMENT WITH THE COMMUNITY IS VERY IMPORTANT’

14


The tipsFew things irritate Rons Fong as much as lack of preparation, and that applies to all aspects of the job.

When looking to hire new people, including the many accountants that work in the banking industry and in the departments that she oversees, Fong looks for a combination of potential and experience. Accountancy training is useful – and an ACCA accreditation is a definite plus.

‘There are lots and lots of accountants working in the banking industry,’ she said. ‘They need to understand where the bank is going, where the industry is going.’

Given that most applicants are young and with relatively little experience, the bank allows people to learn on the job while Fong herself maintains an open-door policy.

While receptive to new ideas, however, she expects a significant amount of preparation before those suggestions are brought forward. ‘What I don’t tolerate is people who don’t come prepared,’ she says.

The basicsStandard Chartered is an international banking group with over 150 years of history and a focus on emerging markets. The bank has 1,700 offices in 70 markets with 85,000 staff around the world. It is best known for its network across developing markets in Asia, Africa and the Middle East.

Even as European banks are retreating from Asia, Standard Chartered is cementing its position.

In China, the bank can track its history back to 1858 but a local unit, Standard Chartered Bank (China) was incorporated in April 2007. It was one of the first international banks to register locally.

In China, Standard Chartered has 19 branches and 55 sub-branches as well as a village bank, and around 6,000 staff. The Shenzhen branch that Fong manages includes eight outlets.

In November 2007, Standard Chartered set up a regional call centre in Shenzhen to increase its telephone banking operations.

‘In the local market, educating the customer is the way to go,’ says Fong. ‘Engagement with the community is very important.’

Fong started her banking career at Standard Chartered in 1994 in her native Hong Kong. She has moved steadily upwards since and her current post in Shenzhen is her second in China. Fong is precise in her speech. Her office, high up in an upscale business tower in Shenzhen, is organised, clean and with a minimum of decoration, mostly pictures of corporate functions.

Although not an accountant, Fong works with plenty and has relatively

frequent contact with ACCA. For prospective bankers, training such as the programme necessary for the ACCA Qualification is an important stepping-stone towards a job in the sector and the all-important practical experience that is in much demand, she believes.

Bankers with experience are key to the development of a sector that has come a long way in a relatively short period of time but is still evolving.

‘In the past 10 years there have been huge differences, but it will still take some time to progress to an international level,’ she says. ‘The liberalisation of the market has to be

done gradually – not conservatively, but in a progressive way. We cannot say, ‘tomorrow we liberalise’. It would not work.’

Over the last three decades, China and China’s banking sector have changed a lot. There is much that is possible or even desirable now that wasn’t so, just a little while ago. That means that the best way to tackle challenges, Fong says, is to be forward looking.

‘If you focus on what they don’t have, it will be a challenge,’ she says. ‘If you focus on the future, it will be exciting.’

Alfred Romann, journalist

15


In 2011, at least 40 US-listed Chinese companies admitted to accountancy irregularities. Valuations of most Chinese

companies traded in the US have slumped, with investors losing billions of dollars.

US regulators investigating the scandal are determined to probe the collapsed companies and their

auditors. But the Chinese government is reluctant to cooperate. As a result, auditors have become caught in the crosshairs of a battle between US and Chinese regulators, unable to serve either master.

The worst-case outcome of this regulatory impasse would be for the Big Four, and other auditors with a global footprint, to lose lucrative

Chinese and multinational business if their inability to cooperate with US regulators leads to their Chinese affiliates being deregistered by the Public Company Accounting Oversight Board (PCAOB), the sister regulator of the Securities and Exchange Commission (SEC).

US regulators want auditors to turn over documents related to US-listed

BATTLE OF GIANTSInternational accountancy fi rms are caught in the crosshairs of a geopolitical battle between the US and China over regulation. Could it spell trouble for the Big Four?

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CN_F_USChina.indd 16 12/01/2012 11:54

Chinese companies that are under investigation and open up their China practices to inspection by the PCAOB. The Beijing government has said that, under Chinese law, both US demands are unworkable. Yet the PCAOB, by law, has to deregister audit firms it cannot inspect.

If the Chinese affiliate of an international accountancy firm were deregistered, experts say, it would not be able to work on the audits of any company with a US listing, including multinationals that have significant Chinese operations and securities trading on a North American exchange.

‘For the auditors, the commercial ramifications of this battle of the sovereigns are potentially catastrophic,’ explains Jacob Frenkel, a former senior counsel in the SEC’s enforcement division and currently head of the securities enforcement practice at US law firm Shulman Rogers.

‘What we have here is a remote but potentially damaging possibility that multinational companies now cannot have their China operations audited by any international firm that loses its US registration for reasons of not being able to comply with SEC or PCAOB requests for information.’

Big Four firm suedBack in September, the SEC sued a Big Four firm’s Chinese affiliate in a Washington court, aiming to seize documents from its previous audits of Longtop, a China-based and New York-listed provider of outsourcing software which the regulator is investigating. Deloitte China could not comply with the SEC’s requests for information under Chinese law and the case is ongoing.

‘Deloitte China wishes to cooperate, and has cooperated, with the SEC to the full extent that the law allows in responding to its request for documents concerning Longtop Financial Technologies Limited,’ a spokesman for Deloite China says.

‘We have passed on the SEC’s requests to the regulators in China, as we are required to,’ he continues.

‘This is essentially a matter between regulators in China and the US; Deloitte China is happy to comply with any outcome that is agreed between them.’

Regulatory experts say that if an auditor with a Chinese presence was unable to comply with SEC requests for information, such auditors’ Chinese practices could be deregistered.

‘The PCAOB is supervised by the SEC. The two regulators are absolutely interlinked,’ Frenkel says. ‘Failure to comply with the inspection of the SEC means an international accountancy firm places in jeopardy its PCAOB registration and its ability to audit US companies’ financials.’

Yet as Colleen Brennan, the PCAOB’s chief spokersperson, explains: ‘If an accounting firm registered with the PCAOB becomes deregistered, it may no longer audit any public company that trades on a US exchange.’

Brennan adds that, in relation to the Beijing government resisting PCAOB inspections of China-based audit practices, multinationals and their auditors may be affected if the regulators cannot come to an agreement on inspections or SEC investigations. We remain hopeful to be able to resolve these inspection issues with the Chinese government,’ she says. ‘If not, however, the effect on auditing of multinational companies with operations in China would depend on the circumstances.’

Firms that receive requests for documents pertaining to Chinese clients from the SEC are not allowed to cooperate because of China’s Archives Law. This law would appear to ban American inspections of Chinese accountancy firms because it states that the books and records of Chinese companies cannot be taken out of the country or shown to what the law describes vaguely as ‘foreigners’.

Yet a global firm whose China practice was deregistered by the PCAOB would have to pull its China office off the audit of a multinational with operations in the world’s second biggest economy, accountants and lawyers say. This would undermine the entire proposition of the Big Four, which is to provide a seamless global service to global companies. Multinational clients may also suffer.

Farcical situation ‘If our China offices were deregistered in North America and therefore unable to audit companies with a US listing, you would have a farcical situation where Chinese companies whose secondary listing was in North America would have to delist if they wanted to keep their current auditor,’ explains a Hong Kong-based senior partner at a Big Four accountancy firm.

‘We could be heading into a situation where we basically admit there is no longer any point to being the Big Four, because we potentially cannot audit a global company’s operations in the world’s second largest economy,’ the senior partner continues.

In May 2011, SEC chairman Mary Schapiro wrote in a report to Congress that China’s stockmarket regulator and SEC equivalent, the China Securities Regulatory Commission (CSRC), was treating the US regulator’s attempts to investigate US-listed Chinese firms embroiled in financial controversies as ‘a possible violation of sovereignty and/or national interest’.

The Chinese regulator bristled at those words. Wang Ou, deputy director of the CSRC’s research department, told a conference in Shanghai in June 2011 that US regulators’ attempts to investigate US-listed Chinese companies could be a violation of China’s sovereignty or national interest,

‘WE COULD BE HEADING INTO A SITUATION WHERE WE BASICALLY ADMIT THERE IS NO LONGER ANY POINT TO BEING THE BIG FOUR’

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CN_F_USChina.indd 17 12/01/2012 11:54

in comments reported by the South China Morning Post.

Wang’s comments came a week after a trip by officials from the SEC and PCAOB for talks on crossborder oversight of US-listed Chinese companies and crossborder inspection of Chinese auditors working for US public companies.

A meeting planned for October 2011 between the PCAOB and Chinese regulators was cancelled by the Chinese, possibly because of leadership changes at their regulatory body, PCAOB chairman James Doty announced in November.

Question of manners US regulators should take a much softer stance with their Chinese counterparts, for example by not making disagreements public, says Basil Hwang, managing partner of US law firm Dechert’s Greater China practice. Across most of Asia, openly criticising a business partner or colleague is considered the height of rudeness. And in China, which has a one-party system of government, political negotiations take place quietly and behind closed doors.

‘Not only has the SEC made many public statements alluding to a lack of probity at Chinese companies, the US regulator has also publicly criticised its Chinese counterpart,’ Hwang says. ‘Such moves would be offensive in a Western context and in a Chinese context seem even worse. Cooperating would also involve the Chinese regulators having to familiarise themselves with US requirements and rules which could be a time-consuming and costly process.’

The CSRC would probably have to hire US law firms to guide them through the process in each case and in the early auditor inspections, Hwang says: ‘The initial costs of cooperation might run into several millions of dollars in legal fees.’

A SEC spokesman did not respond to a request for comment.

Naomi Rovnick, journalist

In the first 10 years of this century, 159 Chinese companies listed on US exchanges via so-called reverse mergers. These are deals where a private company buys the listed shell of a dormant public company, injects its assets into the shell and therefore becomes listed without the high costs or regulatory scrutiny of a full initial public offering (IPO). Then a slew of accounting scandals within the sector caused investors to flee.

A Reuters examination of a cross-section of 122 Chinese reverse mergers on US markets found that between each stock’s peak trading price and 10 July 2011, those companies saw a total of US$18bn of their market capitalisation vanish. The Securities and Exchange Commission (SEC) set up a working group to examine Chinese reverse mergers in 2011, and has since moved to delist a clutch of Chinese firms it has investigated.

One of the more colourful recent delistings involved Jiangbo Pharmaceuticals, a Chinese producer of Western and Chinese herbal medicines that was removed from the NASDAQ stock market in October 2011. After the securities watchdog raised questions about Jiangbo’s accounting, two directors who were in charge of an internal inquiry ordered by the regulator resigned.

According to the directors, Jiangbo staff avoided answering their questions, once going so far as to hide in the employee washroom. They also failed to produce requested employee lists, bank statements and shipping records.

Almost three-quarters of accountancy firms that audited Chinese reverse merger firms were based in the US and not China, the Public Company Accounting Oversight Board (PCAOB) reported in March 2011. Nonetheless, the PCAOB has since 2007 been pushing for joint inspection with the Chinese authorities of China-based auditors working for US-listed companies – so far without success.

Some US auditors whose Chinese clients admitted financial irregularities have claimed it was not the geographical distance between their staff and the clients that was to blame. George Qin, a partner at Texas-based firm Malone Bailey, said at a Beijing conference in April 2011 that some unspecified Chinese clients had convinced bank staff to run up false statements. ‘When the bank statements are falsified, because bank employees are providing customers with false statements, there is not much an auditor can do,’ Qin said. He then went on to point out that it is common to see fake invoices on sale at street markets across China.

*REVERSE MERGERS: THE FUR FLIES

CN_F_USChina.indd 18 12/01/2012 11:55

For most of the past decade, the euro was considered one of the best currencies in the world: stronger than the

dollar, more popular than the Swiss franc or the British pound, odds-on favourite to become the world’s next reserve currency.

Now, that’s changed. The European sovereign debt crisis that began a little over two years ago has shaken faith in the common currency of 17 European Union (EU) members. A number of European banks and countries are in fiscal disarray, and some disgruntled Europeans in both the stronger and weaker parts of Europe talk about breaking up the currency union.

By the end of 2011, the 10-year-old currency had fallen from US$1.45 over the summer to US$1.29. Most forecasters now predict US$1.10 –US$1.20 by the end of 2012 – and no one’s talking about it becoming the top reserve currency anymore.

How did the euro go so far wrong? Looking at the euro crisis in

retrospect, it seems to have happened in the same way that a character in Ernest Hemingway’s novel, The Sun Also Rises, says he went bankrupt: ‘Two ways. Gradually, and then suddenly.’ In the case of the euro, it has been the other way round.

Suddenly...The common currency made it impossible for member countries to

set their own interest rates or print their own money, yet did not require specific fiscal performance. Member countries promised not to run deficits of more than 3%, but the agreement had no penalties for those that ran over those limits, and indeed a number of countries have done so repeatedly since the 1992 Maastricht Treaty, with little consequence.

Critics at the time argued that this might eventually lead some poorer countries to take advantage of the strong collective balance sheet, or that harnessing rich and poor countries together would lead to harsh, punishing economic conditions for people in the poorer parts of Europe. Or both.

...and gradually...In the beginning, however, none of this seemed to be a problem.

The 2002 adoption of the new currency went smoothly, and for nearly a decade, the euro was seen as a success. Day to day, the common currency made business easier, and conducting business between countries that a few decades before had fortified borders became much less complicated. Intra-union investment grew. Italians complained a bit about higher prices, but the European economy did become more integrated. After starting out at below the dollar, the currency

continued to appreciate through most of the noughties, becoming in relatively short order one of the world’s leading currencies.

‘As long as it worked, I think everybody benefited from it, but for different reasons,’ says Paul Jorion, a Le Monde columnist and former commodities trader.

But beneath the surface, the monetary union began to have difficulties. Productivity kept rising more quickly in Germany than in the south, made even more competitive by restrictions on raising wages that exacerbated Europe’s economic imbalances.

Harvard economist Martin Feldstein has pointed out that since the euro’s launch, relative labour costs in southern Europe have risen by 30% compared to those of the north, making the southern economies much less competitive than they were 10 years ago.

Poorer countries took advantage of the easier access to low-interest loans that the eurozone gave them. In Spain and Ireland, this easier credit was channelled into a huge but ultimately disastrous building boom.

Relaxed credit made it easier for the poorer countries to delay reforms that EU administrators said were necessary to make their economies more competitive. Debt rose quietly, and even vast bank bailouts made in the aftermath of the 2008 credit

into the maelstromDespite its promising start, the euro is now in a state of chaos – and with no prospect of escape any time soon. How did it come to this?

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crisis, such as Ireland’s move to back its troubled banks, didn’t seem to damage faith in the euro system.

…and suddenly, againAlthough a few eyebrows were raised over Greece’s spending for the Athens 2004 Olympics, it wasn’t until December 2009 that the story about the true size of Greece’s sovereign debt broke.

Revelations that Greek government debt now exceeded €300bn – a vast amount of money for a population of 10.7 million, 113% of gross domestic product (GDP) and almost double the allowed level – shocked the markets.

Initially, however, there was little governmental response. ‘There was a kind of window of opportunity, let’s say in the first six months of 2010, where they could have reacted, but they let that period go. They didn’t do anything,’ says Jorion. As a result, the costs of the bailout skyrocketed, he says, from a few billion to hundreds of billions.

Rounds of discussions and bailouts followed throughout that year – first with Greece, then with Ireland. Later, Spain, Portugal and even Italy also became causes of concern.

Germany did not want an unconditional bailout of Greece and the other broke countries. In a country with an ancestral fear of a repetition of its 1920s hyperinflation, no one wanted to hear about deficit spending – especially to preserve other people’s pensions.

At the same time, the Greeks argued that the country was too poor to pay the debt back. There was some speculation that Greece, or one of the other countries at risk of default, might leave the currency union. But with most of the debt euro-denominated, the devaluation game would not be cost-free, either.

Nor were deep bond haircuts possible. German and French banks and pension funds were major holders of the Greek debt, so cutting the amount owed could lead

to serious domestic troubles further north, particularly for France, which stood in danger of losing its AAA bond rating.

Finally, in December 2011, the eurozone countries agreed in principle to austerity and a programme of fiscal discipline, but many details remain to be worked out. Nor is it clear that the deal will even be adopted. Multiple parliaments will need to approve the plan – and we may even see a few national referendums.

‘The European Council has given us kind of a flavour of where we are going and we are going the German way, and we all know that but implementation risks are huge,’ says Jose Manuel Amor Alameda, a partner at Analistas Financieros Internacionales, a Madrid-based risk analysis agency.

What next?But even as heads of state continue to talk about responsibility and financial discipline, what seems to be happening is the opposite: devaluation. As the European Central Bank (ECB) extends more loans and prints more money, investors are losing some of their faith in the euro.

PRODUCTIVITY KEPT RISING MORE QUICKLY IN GERMANY THAN IN THE SOUTH, MADE EVEN MORE COMPETITIVE BY RESTRICTIONS ON RAISING WAGES

21


In most respects, that’s a good thing for Europe. While governments typically like to talk about a strong currency, a weak one actually has a lot of advantages, at least in the beginning.

As the euro declines, imports will become more competitive, boosting demand everywhere in the union from Greece to Germany. With prices at a discount, outsiders – everyone from tourists to investors – will find the world’s largest economy now suddenly on sale.

More exports should make things a bit better for European youth, too. Almost 49% of young people in Spain are unemployed, with nearly the same rate among young Greeks. With the odds that long against getting a job, ‘revolutionary’ tends to be high on the list of occupational choices.

Overall, ECB figures quoted in a recent Morgan Stanley forecast estimated that a weakening of the euro by 10% in 2012 would add 0.7% to EU GDP in the first year and 1.2% in the second. Plus, the debt itself is devalued with respect to foreign bondholders, reducing the risk of crisis.

Grim outlookOver the long run, however, the outlook is still grim. Spanish analyst Amor believes that the German plan will be implemented, despite the many ways it could flounder: at the moment, there is no alternative. ‘In Spain, the government will get a page with all the things they have to do and they’ll sign it,’ he says. ‘They have no other choice.’

However, Amor doesn’t believe that austerity will be enough to end the crisis. ‘You want a more robust union in terms of fiscal discipline, supervision, sanctions, etc?

‘That’s [all] very well, but at the end of the day, the economies are going to be bleeding. So how long is this going to last until the constituencies start saying, we’ve had enough? And that’s the moment of truth. But that’s probably two or three years down the road.’

Bennett Voyles, journalist

Any devaluation has winners and losers. In this case, one of the losers seems likely to be Asia.

Higher prices in euro terms will squeeze Asian export margins. A weaker euro will also tend to focus more investment inward, further lowering European foreign direct investment (FDI), which already fell 62% in 2010, the latest year for which figures are available from the European Union (EU). Total global investment has already fallen from €281bn in 2009 to €107bn in 2010, according to EU statistics – only 20% of the €550.5bn where it stood in pre-crisis 2007.

However, aside from the drag on exports and FDI, devaluation does have one positive quality for Asian companies: it makes European companies a bargain. ‘Asian strategy will shift from export to investment in Europe,’ predicts Jagdish Sheth, a professor of marketing at Emory University and author of Chindia Rising (2008).

Peter Williamson, a professor of international management at Cambridge University’s Judge Business School, agrees. ‘The Chinese are always looking for a good deal and they’re under quite a lot of pressure from the Chinese authorities not to be seen to be overpaying,’ he says.

For fast-growing Asian firms, the prospect of entry into the world’s largest economy and the chance to acquire a smart, technically excellent company will prove attractive – particularly if Sheth is right that Chinese buyers now feel the US is a risky place to make an acquisition. The country has, he believes, become somewhat xenophobic since the 11 September attacks and memories of prior merger rejections linger.

But their buys in Europe won’t be indiscriminate. Williamson expects that the Chinese will focus not on access to the market but companies that could be useful in their fast-growing markets back home, such as major energy companies or small technology businesses. Often, he says, targets will be companies that they have worked with for some time.

*WILL ASIA CASH IN ON EUROPE’S BARGAINS?

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Welcome Accounting & Business readers enquiries

ASIA ADS.indd 6 10/10/2011 11:13

Message of hope: although much needs to be done, support from businesses around the world, as well as practical help from key professions including the accountancy sector, have played a vital role in enabling Japan’s recovery, both in the short term and to ensure its future financial stability

The powerful earthquake of March 2011 changed the physical landscape of Japan forever and, in combination

with the tsunami that it triggered, will be remembered as the most destructive natural disaster in living memory in the country.

Nearly a year on, business is almost back to normal in areas outside the hardest-hit prefectures of Fukushima, Iwate and Miyagi, but it will take decades for the people, and the small firms that accounted for by far the largest proportion of business in the region, to return to normality. Indeed, many may never reach that goal.

Farmers whose land lies within the 30km mandatory exclusion zone around the crippled Fukushima Daiichi nuclear plant will not be able to earn a living from the fields for generations, partly due to the contamination of the soil but also because consumers are refusing to buy their produce. Meanwhile, the fishermen who trawled the Pacific to the east of the plant are not allowed to sell the fish they land.

The small businesses that operated in towns such as Ishinomaki,

Rikuzentakata and Minami Sanriku will be effectively starting from scratch after their premises were washed away, the tsunami destroying data stored in computers and the more frequent paper files that they relied on to do business.

But out of the initial chaos, Japan has rallied. Companies and organisations in other parts of the country, as well as from abroad, have come to the country’s assistance. The government has acted with admirable swiftness, while individuals around the world have responded with the kind of generosity that is seen only in times of crisis.

The accountancy profession has also reacted with decisiveness and alacrity – and it needed to, given that the earthquake struck just weeks before the start of Japan’s new fiscal year.

‘Great efforts were made to get through the March year-ends and to try to keep as close to business as usual,’ says Nicola Sawaki, a partner on the IFRS desk at Ernst & Young ShinNihon in Tokyo.

The Japanese Institute of Certified Public Accountants (JICPA) quickly

produced guidelines designed to assist companies, Sawaki says, drawing heavily on their experiences in the aftermath of the 1995 earthquake that struck Kobe. Issued on 30 March, the audit guidance for companies affected by the disaster addressed the

LIFE AFTER THE STORMAccountants in Japan have played a vital role in rebuilding business following last year’s earthquake and tsunami

THE ACCOUNTANCY PROFESSION HAS REACTED WITH DECISIVENESS AND ALACRITY – IT NEEDEDTO, GIVEN THAT THE EARTHQUAKE STRUCK WEEKSBEFORE THE START OF JAPAN’S NEW FISCAL YEAR

24

AP_F_Japantsunami.indd 24 10/01/2012 12:54

Residents of metropolitan Tokyo.Probability of a major earthquake in Tokyo in the next 30 years.Buildings in Tokyo destroyed in a magnitude 7.3 tremor.Buildings destroyed by fire.Buildings collapsing due to liquefaction of the soil.Number of people injured in the disaster.Number of people seriously injured.People stranded due to failure of transportation systems.Year of the last major tremor, the Great Kanto Earthquake.Estimated number of victims of the 1923 disaster.Average time between major earthquakes in Tokyo.Period since last ‘Big One’.

8.88M70%25%

365,000125,000145,00022,0003.46M1923

105,38570 YEARS89 YEARS

most immediate issues of impairment losses on fixed assets and inventories; inspection and evacuation costs; the cost of the recovery of assets; and expenditure to avoid further impairment of damaged assets, as well as economic support for employees and their relatives.

Missing data, new paperworkThe institute detailed the tax treatment of disaster losses and donations, while companies were granted extensions for filing their tax returns.

‘Some of the largest issues are lost records and destroyed paperwork,’

In the wake of the earthquake, authorities in Tokyo have re-examined their preparations for the long-overdue ‘Big One’, expected to strike Tokyo in the next 30 years. Here are some statistics from Mitsubishi Estate Co to consider:

*TOKYO STORM WARNING

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The disaster has also served to further hamper discussions over Japan’s adoption of International Financial Reporting Standards (IFRS).

Adoption was originally scheduled to be decided on this year, with application taking place a further three years later, but Shozaburo Jimi, minister for financial services, expressed his views on the timing of IFRS in late June.

‘Discussions on IFRS application will be started from June 2011, at the plenary meeting of the Business Accounting Council (BAC), after the joining of new members with different backgrounds,’ Jimi said in a statement. ‘Mandatory application should not take place from the fiscal year ending March 2015, at the very least.

‘A sufficient preparation period of five to seven years should be required if and after mandatory application is decided,’ he added. ‘The provision to terminate the use of US GAAP [generally accepted accounting principles] for FSA [Financial Services Agency] filing purposes after the fiscal year ending 31 March 2016, will be removed and the entities which are currently allowed can continuously use US GAAP.’

Tomo Sekiguchi, technical manager at the Accounting Standards Board of Japan, says that the outcome of the discussions are unclear. ‘The BAC has started its deliberations on whether and how to apply IFRS in Japan, beyond the voluntary one that is in place at present, and the council will discuss around 10 topics and consider the situations in other countries,’ he says.

‘But it seems that a number of council members are not totally convinced that IFRS fits Japanese companies, especially manufacturing firms, in a number of technical respects, with recycling one of the very important areas,’ he adds. ‘There are also worries about sovereignty.’

Yet others believe that IFRS will continually be delayed as long as Jimi remains the minister in charge of implementing the new system.

‘Jimi’s declaration that he will postpone the decision on the adoption of IFRS means he will not adopt it,’ argues Toshifumi Takada, a professor at the Accounting School of Tohoku University. ‘Jimi is out to make a show during his term.’

The professor claims that even though the FSA has agreed to adopt IFRS, Jimi’s appointment to the FSA of Yukihiro Sato, an adviser to Mitsubishi Electric and author of a book vehemently opposing the adoption of IFRS, means the process will be stalled.

*IFRS PUSHED FURTHER BACK

says Koichiro Kimura, assurance leader at PwC Japan. ‘Some of the records can be recreated, but in many instances where management are not able to recreate them, they will need to estimate or provide evidence using alternative data sources.

‘We are now working with management to ensure that the methodology selected and assumptions used are appropriate, and that any estimates provided are reasonable,’ he adds.

Accountancy firms have also assisted in the preparation of financial statements and tax returns, particularly in the area of completing the numerous forms for exemptions and refunds, as well as the unfamiliar paperwork required to apply for claims for emergency government grants.

‘Over the longer term, companies may need the assistance of consultants in ensuring that their future business plans create a sustainable business, and their business continuity plans are appropriately designed,’ Kimura

Light in spite of disaster: some 2,500 candles were arranged in the shape of a large smiling face at a park in the Roppongi district of Tokyo. The Smile for Japan campaign aimed to boost the spirits of everyone affected by the earthquake and tsunami

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A PWC REPORT ON THE GLOBAL COMMUNITY’S PERSPECTIVE OF THE SITUATION OVER THECOMING MONTHS SUGGESTED THAT CEO’SCONFIDENCE IN JAPAN REMAINS UNCHANGED

says. ‘Additionally, for a number of industries, consultants are helping to establish structures for public-private partnerships in order to source funds and ensure that they are fit for purpose.’

PwC has been assisting Sendai City local authority in developing its economic recovery strategy. The largest city in the affected region sustained serious damage and its all-important container port will be operating on a reduced scale for at least another 12 months.

Just as important – at least to

the people who felt the full impact of the disasters – were the millions of small gestures made by people around the world, from donations of clothing to household items, offers of accommodation and simply messages of support.

Elsewhere, Ernst & Young collected donations from staff to assist the victims and extended support to colleagues in the affected areas, as did organisations such as Keidanren (the Japanese Business Federation), JICPA and the Accounting Standards Board of Japan.

Clearing misconceptionsTsz Ling Chau, a senior manager for PwC in Tokyo, was in Hong Kong at the time of the disaster and was shocked at the media coverage, creating the perception that the whole of Japan was a virtual wasteland in the wake of the earthquake, tsunami and nuclear accident. When she returned in April, she quickly realised that the impact had been grossly overstated and

that something needed to be done to reverse the perception. Along with 15 colleagues, Chau has helped write a book to get the message across – to people in China, in particular – that nearly all of Japan is perfectly safe to visit. Proceeds from the book are being donated to the victims of the disaster.

Global concernsA PwC report on the global community’s perspective of the situation over the coming months, released in July 2011, suggested that

CEOs’ confidence in Japan remains largely unchanged – perhaps a surprise given the combination of the natural disasters, long-term economic stagnation and the unyielding strength of the yen. Some 82% of CEOs doing business in Japan replied that they were either very confident or somewhat confident about growth over the next 12 months, while that figure rose to 89% when asked about revenue growth over the next three years.

However, firms also identified two key action items that they have learned require attention – short-term demand forecasts and scenario planning – but they were also explicit in identifying Japan’s needs if it wants to rebuild business confidence.

Top of the list was improved economic policies and management of the national deficit, which is presently running at more than 200% of gross domestic product (GDP). That requirement was followed closely by a clear energy policy that supports energy security, and more timely and

accurate government communication. Nearly as important, the CEOs indicated, is leadership and political stability – not always easy in a nation that has had five national leaders in as many years.

Other issues that were cited in the study included improved regulatory oversight of risk management and governance systems, policies to address the impact of an aging and shrinking workforce, and tax reforms and incentives.

On top of this, the cost of the work to rebuild the disaster-affected region remains astronomical. On 1 December, the government announced that it would push through a fourth extra budget for the fiscal year worth JPY2.5 trillion (US$32.18bn), largely to finance relief programmes for companies and individuals affected by the March disasters.

The proposal is the first time since 1947 that Japan has drawn up four extra budgets in one year and comes on top of trillions of yen already earmarked for relief efforts in the north-east of the country.

The day before the government’s announcement, the Japanese parliament approved a bill to secure funding for reconstruction efforts through changes to the nation’s taxation system, which includes the Special Reconstruction Corporation Tax, which will be imposed at a rate of 10% on domestic and foreign companies for three years from 1 April 2012, and a similar Special Reconstruction Income Tax, at 2.1% for both individuals and corporations for 25 years from 2013.

Paying for the reconstruction will be a burden on the nation for many years. But Japan can count on a public that has a long and honourable tradition of rebuilding itself from the ashes of disaster.

Julian Ryall, journalist

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The day-to-day activities of financial controllers and other accountants on the business shop floor have a vital role to

play in successful risk management and the finance professionals in the business stand ready to do more.

This is one of the main findings of new ACCA research looking at the role of accountants in risk management.

Based on a survey of more than 2,000 members from all over the world, the research reveals a statistical relationship between the use of good practices by accountants – such as properly executed forecasting and budgeting – and a lower incidence of ‘dysfunctional behaviour’.

Poor accounting practices include a general lack of risk awareness when making decisions, playing down risk to get approval for proposals, overstating benefits and underestimating costs.

Accountants in the survey reported a high level of dysfunctional behaviour around risk management. Almost every respondent reported the ‘gaming’ of forecasts. Others mentioned treating forecasts as targets, providing optimistic forecasts to avoid criticism and pessimistic ones to reduce expectations. The survey also found that such behaviour was commonplace – fewer than 1% said none of them happened at their organisation.

Paul Moxey, ACCA’s head of risk management and corporate governance, says the findings highlight the important and positive role for organisations of integrated risk

management – the idea that risks should be identified and managed as part of a core management process rather than left to a compartmentalised team or individual.

‘Risk happens at all levels of business and for all types of business functions,’ he points out. ‘It doesn’t sit in neat silos. Risk management needs to be something everyone in an organisation does.

‘Our survey showed that accountants, particularly at the shop-floor levels of a business, have an

excellent grasp of the risks faced by their organisation and the steps needed to negate those risks. Businesses need to make sure they use the abundant risk awareness and risk management skills of their qualified accountants, and not miss an opportunity to effectively integrate risk management.’

As accountants provide decision support, such an approach puts them in an important position – after all, most ‘risky’ business decisions contain a financial element. And in most organisations the accountants outnumber the formally designated risk managers.

As one respondent to the survey put it: ‘Although not always appreciated, the contribution of the finance section

to risk management is huge and necessary in any organisation.’

The survey comes at a critical time for risk management. The financial crisis highlighted the disastrous consequences of senior management ignoring risk management, and led to the climb of the practice up the corporate agenda, although its new apparent importance has not always been matched by increases in budgets or actual actions.

Moxey fears that once the current crisis has passed, the risk function may

again decline in status, with potentially dangerous consequences.

Another finding of the research is that those in mid-level roles such as financial controllers and management accountants are much more aware of both risks and dysfunctional behaviour than are their board-level colleagues – including non-executives.

Most non-executive board members said overly optimistic forecasts to avoid criticism were never made in their own organisation, but only 20% of financial controllers or accountants agreed. Non-executives also seem less aware than everybody else of problems with persistent quality issues.

There are several possible explanations. Those at more senior

ALL IN IT TOGETHER

‘ACCOUNTANTS HAVE AN EXCELLENT GRASP OF THE RISKS FACED BY THEIR ORGANISATION AND THE STEPS NEEDED TO NEGATE THEM’

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levels are less involved in the day-to-day running of an organisation, and so are less aware of detail, taking a broader overview of a business. It could be that the information they are presented with by their teams is sanitised in some way. Additionally, as the financial crisis showed, there are often plenty of incentives for not asking challenging questions or rocking the boat.

One respondent, a financial controller in Ireland, said: ‘Decision analysis is sometimes hijacked by higher-level political motivations, leading to poor decision-making and adverse impacts.’

The study shows clear support among accountants for ‘challenging senior people’ as part of an ideal business culture. A questioning approach can help avoid the kind of cultural bias or ‘groupthink’ that leads

to risks being missed.As another financial controller said:

‘There will always be uncertainty around decisions to enter new markets or to try new ideas, but the accountant should be able to highlight the potential risks and rewards of various actions, and to seek ways to mitigate the impact of any risks.’

A CFO respondent said: ‘Accountants need to be business partners. They need to be involved in decision-making and help other functions see the possible implications of decisions they are about to make or have made.’

The study found that input from accountants in the decision-making process had a number of beneficial effects. Some 95% of respondents said that input always made people more aware of the uncertainties involved.

Effective risk management starts on the fi nance ‘shop fl oor’ and should embrace the whole organisation, according to the fi ndings of a new ACCA study

Private equity investor ABCI Investment Management takes risk very seriously. The Hong Kong-based company has put risk management at the centre of its commercial operations, both before and after acquisitions are made.

A subsidiary of Agricultural Bank of China, ABCI has a portfolio fund valued at HK$5bn. Its management team consists of some 20 professionals, including specialists in risk management, finance, compliance and law.

This team works together to identify and evaluate suitable acquisition targets, and to monitor each investment until it is realised.

Its private equity managing director Bernard Wu, who is also chairman of ACCA Hong Kong, says: ‘Risk exists in every corner of a business, and it’s our job to identify and evaluate every risk in a target company’s history, operations and forecasts.’

Accountants work in compliance as well as finance as part of an integrated risk management team. The most important elements in evaluating a prospective investment are checking management integrity and evaluating performance trends against ABCI’s exit target.

ABCI researches the sources of the company’s financing. For start-up operations, it assesses the attractiveness of the projected business performance and margins versus the records of the owners and management. The Companies Registry and the Tax Bureau are also valuable information sources – tax history is a very important indicator.

If the finance team is happy with the initial evaluation results, ABCI then performs a detailed risk assessment on the target company, analysing its current and projected growth rates compared with its peer group, to determine whether the forecasted performance is reasonable.

*CASE STUDY: ABCI INVESTMENT MANAGEMENT

The fall-out from the crisis: Occupy Wall Street protesters in New York (far left)

Shock and awe: photocall for Margin Call, a film starring Kevin Spacey (centre), that portrays the events that destroyed Lehman Brothers. and shook the US financial system (middle)

Disasters can be natural as well as human-inspired: restaurant in Bangkok, Thailand, as a river in spate dumped vast quantities of floodwater in the city (right)

GET THE RULES FOR RISK MANAGEMENT REPORT AT: www.accaglobal.com/researchandinsights

29


A similar number said it helped people think more widely about the possible consequences of a decision, and only marginally fewer said it encouraged decisions that reflected the interests of all relevant stakeholders. In times of global economic uncertainty, such input can make the difference between success and failure.

‘Instability is the new stability,’ said the FD of a leading investment and insurance business. ‘The banking crisis has morphed into the sovereign debt crisis, and now we are confronted by the real risk of a double-dip recession.’ According to this FD, an integrated approach is key to a finance team’s successful risk management.

However, there is some way to go before risk management – and the role of accountants in its implementation – is fully integrated. According to KPMG’s global Risk Management Survey 2011, 42% of C-level executives were dissatisfied with the quality of risk management integration into strategic planning, project assessment, capital allocation and budgeting – all areas where accountants should be making a valuable input.

But the key message from the survey, devised and analysed by Matthew Leitch of Internal Controls Design, and detailed in the resulting report, Rules for Risk Management: Culture, Behaviour and the Role of Accountants, is that accountants are aware of the issues and keen to get involved. Businesses should not waste this opportunity.

Chris Quick, editor-in-chief and Philip Smith, journalist

*IDEAL INPUT

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

US snowstorms can be so violent as to force the declaration of a state of emergency; good risk management means being aware of – and ready for – the worst

*RISK HEALTHCHECKACCA has developed an online tool allowing businesses to compare themselves to practices and experiences from businesses in the survey, and identify areas for improvement. You can find it at: www.accaglobal.com/researchandinsights

Questioning proposals even when they are by senior people

Recognising uncertainties and being willing to seek and use relevant data

Divorcing decision-makers’ personal interests from decision-making

Choosing actions that are ethical

Choosing actions that are legal

Thinking carefully about decisions, and using calculations/models if possible

Requiring compelling business cases for new ideas

Achieving consensus

Unquestioning compliance with instructions from senior people

ACCA’s study asked how accountants could influence the decision-making process

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Company secretary-advert 5 ACCA Perspective.pdf 2/1/2010 1:45:02 PM

Asia Ads.indd 2 03/01/2012 11:38

NEW ORDERInternational Federation of Accountants board member Japheth Katto takes an accountant’s-eye look at the future of the Asia Pacifi c economies

Japheth Katto

As an African accountant, I view the rise of Asia Pacific as hugely significant. Africa’s links

with the region are deepening and expanding. For instance, Australia’s trade with Africa is growing at an average of 6.1% a year and China ended 2010 as Africa’s biggest trading partner. As I pointed out at the Confederation of Asian and Pacific Accountants (CAPA) Conference in Brisbane, Australia, last year, where I was a speaker, Africa’s great potential in energy, minerals and commodities will make the continent the next frontier for the Asia Pacific economies.

From Australia to Vietnam, Asia Pacific’s population is growing as strongly as its economy and many of its markets have emerged as robust global players over recent years. Of course, beyond the glowing gross domestic product (GDP) figures, markets in the region face some big risks.

For example, while China and India now have economies that compete with the US and Japan, their low-cost production bases are forcing middle-income countries in Asia Pacific to find new ways of remaining competitive. Then there is the fear of recessionary contagion from the West, not to mention the risk of

failures in corporate governance and risk management that have been so painfully felt in the West.

Financial markets and economies are experiencing increasing and rapid change. The biggest of all is the tilt from Western economies to the BRICS (Brazil, Russia, India, China and South Africa).

And it’s not just the BRICS. Following close behind are the emerging economies known as the Next 11 or N-11 (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam), many of which also lie in Asia Pacific.

Yet the current state of markets and economies is a cause for real concern. ACCA’s latest quarterly surveys of the world’s accountants – people who have their fingers on the pulse of the economies in which they work because they deal with the real and tangible needs of businesses – make for grim reading. In the second quarter of 2011, confidence in the economy among global respondents plummeted because of the Western world’s continuing economic malaise. Even in Asia Pacific, until then so immune, accountants reported the first-ever net loss of confidence since the survey began, a trend confirmed in the third and fourth quarter reports.

Sovereign debt also remains a clear and present risk. According to the most recent edition of The Economist’s World Debt Guide, which shows overall debt as a percentage of GDP, Europe is far more highly leveraged than the BRICS. The figure for Britain is 495%, Spain 370% and Italy 316%, compared with 195%, 129% and 71% for China, India and Russia respectively. Not all of Asia Pacific looks so healthy, though: the figure is 492% for Japan and 306% for South Korea.

But the skills and competencies of the accountancy profession all over the world also represent an opportunity for development. In its report, Competent and Versatile: How Professional Accountants in Business Drive Organizational Sustainable Success, the International Federation of Accountants (IFAC) identified eight interlinked drivers of that success: a customer and stakeholder focus; effective leadership and strategy; integrated governance, risk and control; innovative and adaptive capability; financial management; people and talent management; operational excellence; and effective and transparent communications.

As creators, enablers, preservers and reporters of sustainable value,

32

INT_F_Katto.indd 32 12/01/2012 15:00

The shape of the future: the Tri-Bowl exhibition centre is part of the US$40bn Songdo new city being built from scratch near Seoul, South Korea, to service the three booming north-east Asian markets of economic giants China, Japan and South Korea

GLOBAL POWER WILL SHIFT FURTHER TO EMERGING MARKETS. THE DRIVING FORCE OF GLOBALISATION WILL NO LONGER BE WESTERN MULTINATIONALS BUT INTERNATIONAL COMPANIES BASED IN EMERGING MARKETS

accountants are central players in many of these themes. In preparing reports they must enhance transparency and communication so that the reports resonate with stakeholders, who may not be based in the region. Brevity, relevance and flexibility are the gold standard here.

The drive towards global accounting standards is both a challenge and an opportunity for accountants. In Asia Pacific, the timing and degree of convergence on International Financial Reporting Standards (IFRS) in various jurisdictions both vary. Australia, Malaysia and Singapore, for example, have almost fully aligned with IFRS; some countries such as Taiwan have set a timeline for convergence, while others have not yet committed to specific plans. There is, however, an increasingly clear recognition that convergence with IFRS is inevitable.

The influx of money into Asia Pacific economies means that a great many questions are being asked about how companies can effectively manage the legal and reputational risks. Ethical issues are as pertinent in Asia Pacific as in the rest of the world, and businesses must operate with a clear sense of values. Ethical leadership from the top is a necessity.

Governments in Asia Pacific have been proactive in tackling bribery and corruption. As early as 1999, the region’s leaders recognised the challenge and along with the Asian Development Bank and the OECD established the Anti-Corruption Initiative for Asia-Pacific. The World Economic Forum’s Partnering Against Corruption Initiative (PACI) has also been doing good work to tackle the issue. It is challenging the belief held by some that bribery and corruption oil the wheels of business – its research shows that corruption actually increases the cost of doing business globally by up to 10% on average. We accountants have a huge role in fighting corruption, and must abide by standards of conduct set by the International Ethics Standards Board for Accountants.

The economic, political and environmental climate has exposed shortcomings in financial regulation, financial reporting, corporate transparency, climate change and assurance provision. It is in addressing these shortcomings that the accountancy profession can help markets in the Asia Pacific region – and indeed around the world – cope with the challenges of the future.

In ACCA’s report Where Next for the Global Economy: A View of the World

in 2030, an expert panel (of which I was privileged to be a member) hypothesised, among other things, that global power will shift further to emerging markets. The driving force of globalisation will no longer be Western multinationals but international companies based in emerging markets.

This levelling of the global playing field will stimulate competition among countries for access to finance. More volatile global markets will become the norm. Regulation will be applied at a global level, reflecting the ability of business, capital and people to cross borders. A multipolar world of super-specialised regions will develop, spurred by information technology. Education will be increasingly seen as a growth enabler and those countries that value education and invest in it should reap the rewards.

It’s a vision of a brave new future: a world economy with parity between markets and a much wider range of key players, sharing power and influence in a new order that will bring greater global prosperity.

*This article is based on a presentation given to the CAPA Conference 2010

Japheth Katto FCCA, CPA (U) is CEO of the Capital Markets Authority in Uganda and an IFAC board member

33

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Comment

The remarkable consistency with which the region’s companies squirrel away cash and cash equivalents continues to amaze me.

Since the start of the CFO Innovation Asia Business Outlook Survey in September 2009, during what then looked like the tail-end of the global financial crisis, the proportion of respondents who said that their company would decrease cash on the balance sheet never went beyond 23%.

However, in the fourth quarter 2011 survey, 29% of the region’s CFOs said they would draw down cash, at the same time saying they would focus on expanding into new consumer segments and geographical markets.

This new trend is holding up three months later. In our survey for the first quarter of 2012, fieldwork for which was done from 6 to 20 December 2011, 30% of CFOs surveyed indicated their company would reduce cash levels in the next 12 months.

What’s going on? At this time of great uncertainty, when the euro may not survive the eurozone’s fiscal and economic problems, you might think it’s best to build cash as protection against a financial crisis.

This is, in fact, the case with the majority of Asia’s CFOs, who say they will increase cash on the balance sheet (36%) or keep the level unchanged (34%). But the significant rise in the proportion of those that will draw down cash indicates that some companies have decided to take a calculated risk and use internal resources to fund expansion.

This is what India’s Titan

Spending amid the ruins[As the eurozone’s problems threaten to engulf the global economy, Cesar Bacani asks why some Asian

companies are changing tack and drawing down cash to invest in ambitious growth strategies

Industries is doing. The US$1.2bn-in-sales maker of jewellery and watches is acquiring Swiss watchmaker Favre-Leuba and expanding its domestic retail network using part of its US$201m cash pile.

‘All our expansion will be funded from internal resources,’ Titan CFO Subbu Subramaniam told CFO Innovation Asia. ‘There will always be temporary slowdowns, but our view is that in the

long term the India growth story is very much intact.’

China Zhongwang Holdings, the world’s second-largest maker of extruded aluminium products, has the same idea. It is tapping its cash reserves to help finance expansion into high-end aluminium flat-rolled products.

‘The group has over RMB19bn [US$3bn] of cash on its balance sheet,’ says executive director and vice president Lu Changqing. ‘We therefore have ample financial resources ready for the purchase of equipment for

the flat-rolled business and funds needed for business

development.’These ambitious spending plans are not without risk. In the

same survey, for example, 43% of

respondents were worried that their company’s receivables were

at risk of not being paid, a sharp increase from 33% three months ago

and just 20% in June 2011. So if the business environment is

murkier, does it make sense to draw down cash in order to expand? The answer depends on each company’s unique circumstances and its view of the long-term prospects of its business – and the markets where it operates.

Time will tell whether Titan’s faith in India’s growth story is justified and whether Zhongwang is right to bet on the business cycle turning up again in 2014, when its flat-rolled aluminium facilities are due to reach full capacity. But by investing now they may be

ensuring that they are ahead of their more cautious competitors when the good times return.

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

34

AP_COM_Cesar.indd 34 10/01/2012 11:11

Q What plans do you have for this year?A We will be rolling out a new computer system that will change the way we work. Our line of work, pest control, has always been largely labour-reliant, with our service technicians as frontline staff. The new system will let our service

technicians report back to the office more quickly and accurately, and provide our clients with more real-time information.

Q What is your outlook for 2012?A We are cautiously optimistic. In 2011, we invested in developing our executive team and we are now better prepared for the future. We are also rebuilding our [parent and subsidiary] companies’ infrastructure and looking at differentiating ourselves from the competition. Finally, we usually see attrition within our industry during a recession and this means increased [acquisition] opportunities. Our goal is to grow in Singapore by 20% in the coming year.

Q What do you think is the main factor in getting companies to be environmentally friendly?A As long as there is a good business case for companies to engage in environmentally friendly practices, more companies can and will do so.

Q What was the company’s biggest corporate social responsibility contribution last year?A We were involved in the Stop Pest Community Project at Kreta Ayer, a multi-stakeholder CSR project to help residents [of an apartment block] get rid of a bedbug problem.

Q How do you keep yourself motivated?A Being motivated is just part and parcel of what I do with my team.

FAST FACTSAnnual turnover: S$2.9mNumber of employees: 59Favourite hobby: Golf

AIRLINES FIGHT EU SCHEMEChina’s airlines could be barred from joining the European Union’s emissions trading scheme, which came into effect on 1 January. The Civil Aviation Administration of China (CAAC), is considering measures to fight the emissions scheme, including trade sanctions and prohibiting mainland carriers from joining. Under the scheme, all airlines flying to and from Europe face levies on their carbon emissions, which will be based on the length of the flight. Airlines that refuse to pay risk losing their landing rights at European airports. The Chinese government is currently forming retaliatory measures, said Cai Haibo, deputy secretary-general of the China Air Transport Association, which represents Air China, China Eastern Airlines, China Southern Airlines and Hainan Airlines. One option may be to stop buying aircraft from European manufacturer Airbus.

NOKIA MOVES HQ TO CHINANokia, the world’s largest mobile phone maker by volume, is moving its Asia Pacific headquarters to Beijing from Singapore, as part of its plans to raise business efficiencies and meet savings targets. While it is disappointing news for the city-state, the move makes sense as the Finnish phone maker’s plan is to target China’s fast-growing market to drive much of its future growth. Central to the plan is its partnership with Microsoft to offer Windows-based phones in China this year. A Nokia spokesman reportedly said the company will continue operations in its Singapore office.

The view from: Singapore: Deanne Ong, business development director, Origin Holdings

35 Corporate The view from Deanne Ong of Origin Holdings; transforming the fi nance function through shared services and outsourcing; a look at Ernst & Young’s risks and opportunities report

41 Practice The view from Tiffany Wong of KPMG China; Hong Kong’s moves towards independent regulation of the audit profession

35Corporate

AP_YCORP_intro.indd 35 12/01/2012 15:34

A big priority for CFOs in today’s global economy is how they shape the finance function to drive business performance. There are three big priorities: reducing the cost of running the finance function in the first place, improving the efficiency of finance processes, and making finance a more effective and able partner for the business.

The key tools in the toolbox that finance leaders have turned to to drive these initiatives have been shared services and outsourcing. ACCA has just published its first report on how leading organisations are transforming the finance function. Finance Transformation: Expert Insights on Shared Services and Outsourcing presents insights from experts at 20 of the world’s leading companies on the success of transformation through shared services and outsourcing. In the report the likes of Coca-Cola, Shell, Unilever, AstraZeneca, PwC, Ernst & Young, KPMG and Deloitte share their perspectives on the current issues, challenges and opportunities in the shared services and outsourcing space.

Shared services started in the 1980s in the US and by the 1990s had migrated to Europe. Today shared services are a global phenomenon, with leading companies and finance leaders seeking to explore the benefits they can bring to finance operations. It’s not hard to see why. Shared services and outsourcing operations have been an overwhelming success for the businesses that have adopted them.

Cost no-brainer The obvious draw is reduced cost, as consolidation of finance activities into specific locations has driven significant scale benefits, and most importantly tapped into significant labour arbitrage between different geographies. Put

simply, it replaces relatively expensive management accountants in mature economies with their equivalents in cheaper locations.

But to sell the benefits of shared services and outsourcing on cost alone would significantly underplay the other benefits of ‘remote delivery’. Labour arbitrage may not in the future be as compelling as it once was, but the other benefits from remote delivery continue to shine through.

So what are these benefits? First, there is standardisation. Remote

delivery takes finance processes that seek the same outcomes across different geographies and turns them into one, ensuring consistency and understanding of how these processes work, rather than variations on a theme, and leveraging technology to deliver them.

Second, remote delivery brings transparency. The transfer of finance activities into remote delivery centres gives the business and the finance function greater visibility on how finance operations work and how they can best

No turning backIt is clear that shared services and outsourcing are here to stay and will increasingly help fi nance functions to drive business performance

LABOUR ARBITRAGE MAY NOT IN FUTURE BE AS COMPELLING AS IT ONCE WAS, BUT OTHER REMOTE DELIVERY BENEFITS CONTINUE TO SHINE THROUGH

36 Corporate

INT_YCORP_outsource.indd 2 10/01/2012 14:52

support business aims, which helps drive accountability and ownership.

Third, remote delivery offers control. The use of shared services and outsourcing for finance helps drive better financial control across the organisation and makes the auditing process more effective and efficient, with controls typically located in one or a few locations rather than dispersed across the business.

Fourth comes quality. Better finance processes drive qualitative outcomes that are better first time round. They also start to drive greater insight into the business metrics and outcomes that matter, and the understanding of how processes may affect these.

These four benefits are often cited as the key advantages of shared services and outsourcing, but there are others. Businesses often say that shared services and outsourcing help reduce finance operating risk (linked to transparency). In particular, businesses that choose to keep remote delivery units in-house through captive shared service centres say this lets them drive and retain specialised capabilities that may be important to the organisation – for example, regulatory skills.

Freeing up financeThis, in turn, raises the broader issue of talent development. By consolidating and centralising finance operations, the business gains visibility over the skills it needs and the talent at its disposal. This is not just about visibility in the remote delivery centre: similar benefits should accrue to the retained function as staff are freed up to develop skills in necessary areas.

Caroline Curtis FCCA, senior director of controllership accounting and reporting, EMEA, Yahoo, says: ‘Our shared service centres bring many benefits – speed of execution, reduced operational risk, specialised capability when it may be needed (for example, with regulatory issues), operational flexibility and an ability to control talent development effectively.’

Shared services and outsourcing have been an overwhelming success and are now recognised as key components of a best practice finance function. Remote delivery is an idea whose time has come and any organisation with multiple back-office finance functions is likely to benefit from a shared service structure – whether run as a captive or outsourced. The labour arbitrage that has driven nearshoring and offshoring over the past 10 years will decrease. But even if there is little cost arbitrage to be gained from a low-cost location, there are many other benefits, such as the adoption of a single best practice and more productive process, better spans of control, and standardised and enhanced data and reporting. Such benefits will ensure that consolidated transaction processing and even higher value activities will continue to make good business sense. There is no turning back.

FOR MORE INFORMATION ON ACCA’S FINANCE TRANSFORMATION PROGRAMME PLEASE VISIT www.accaglobal.com/transformation

FOR MORE INFORMATION ON ACCA’S FINANCE TRANSFORMATION PROGRAMME PLEASE VISIT www.accaglobal.com/transformation www.accaglobal.com/transformation www.accaglobal.com/transformation www.accaglobal.com/transformation www.accaglobal.com/transformation

Given these benefits, it should come as no surprise that ACCA’s report shows that there will be no turning back from shared services and outsourcing. Businesses have already stripped out significant costs in their finance operations, and other benefits have started to accrue. It seems that shared services and outsourcing for finance are here to stay.

While ACCA’s report concludes that shared services and outsourcing have been a success, there is much more that can still be done. In particular, the priority of many businesses is not finance transformation per se: an efficient and cost-effective finance function is beneficial, but increasingly business leaders want to understand how the finance model can improve business outcomes and profitability, and the role of shared services and outsourcing in this. They seek to drive the finance model that best meets the needs of the business and which is fully integrated with the business.

Anoop Sagoo, senior executive for business process outsourcing at Accenture, says in the report: ‘The CFOs that I work with see finance

transformation as a vehicle and tool to drive change. What they are most interested in now is performance.’

Jamie Lyon, ACCA head of employer services

* Next month, we will be looking at the challenges involved in outsourcing

* If you are a CFO or FD interested in finance transformation, shared services or outsourcing and want to contribute to ACCA’s programme, please contact [email protected], +44 (0)20 7059 5513

Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and Shared services and outsourcing have been an overwhelming success and

Anoop Sagoo Caroline Curtis

*VIEW FROM DELOITTE: PETER MOLLER, PARTNER

37

INT_YCORP_outsource.indd 3 10/01/2012 14:53

Many economies and markets are feeling the effects of fiscal consolidation, tighter credit policies, weaker consumer demand and real inflation. Other economies – Germany, Sweden, India and Russia, to name just a few – offer businesses attractive growth opportunities.

But even within these growth economies, important regulatory changes in some industries may represent a real challenge to those companies that are ill prepared or slow to change. In ‘no growth’ economies, too, clear opportunities to outperform competitors exist for those businesses nimble enough to avoid looming risks, refocus on higher growth segments, get ahead of the competitive cost curve, find and keep more of the best people, and execute faster.

This is one of the main findings from recent Ernst & Young research, which charts the global top 10 business risks and opportunities. We gathered opinions from leading industry-based and academic commentators across seven global sector groups. And we conducted a large-sample survey of companies and governments in 15 countries to rank the risks and opportunities, to obtain forecasts on whether these challenges

would be more or less important in 2013, and to discover how leading organisations in each of the seven sectors are responding to these challenges.

Over the next three years, global businesses see their greatest opportunities coming from improving operational agility and ‘optimising’ cost competitiveness, according to the research report, Turn Risks and Opportunities into Results. While the past couple of years have been characterised by intense cost-cutting, we’re now seeing companies responding to competition by improving execution of their strategies and by investing to boost operational agility and competitiveness.

To present a snapshot of the 10 top risks in the seven sectors covered, we created a ‘risk radar’ (see diagram opposite). The radar screen is divided into four quadrants that categorise the type of risk:

* compliance (originating in politics, law, regulation, governance),

* financial (stemming from volatility in the market and real economy),

* strategic (related to customers, competitors and investors), and

* operations (affecting the processes,

systems, people and overall value chain of a business).

Those risks that the 700-plus executives we interviewed thought posed the biggest challenges in the years ahead are placed nearest the radar screen’s crosshair intersection, with an arrow to indicate whether respondents thought the risk would rise or fall in importance by 2013.

According to our research, regulation/compliance continues to pose the biggest overall risk to global businesses irrespective of market. Regulation and compliance risks are of greatest concern to banking and life sciences businesses, and of least concern to retail, but in every sector, regulation/compliance ranks among the top four risks.

Looking ahead to 2013, both banking and life sciences – the sectors that currently rank this risk highest – see risk in this area continuing to rise in the years ahead. Companies in most rapid growth markets, including China, India, Russia and the Middle East/North Africa (MENA), report that the impact of regulation and compliance risks is expected to diminish by 2013. To manage this risk, 59% of organisations are looking to strengthen their risk management functions.

Turning risks into resultsIn every sector, the future will favour the fast and lean in the fight for market share. Ernst & Young’s Andy Embury examines the firm’s risks and opportunities report

38 Corporate

AP_YCORP_EYrisk.indd 38 10/01/2012 14:55

After two years as the sixth ranked risk, the challenges associated with cost control have surged to second place. Even though our survey respondents assess the impact of this risk as high, measures to respond are still just a work in progress in many of their organisations.

Government sector respondents, grappling with national austerity measures, have assigned this risk the highest average rating of any risk across all the sectors. In contrast, banking executives gave lower priority to challenges relating to cost-cutting than any other sector.

Respondents in most sectors expect cost-cutting challenges to decline in importance as 2013 approaches. These expectations are at odds with forecasts from the panellists we interviewed that challenges associated with both public debt and healthcare

costs will continue to grow.Risks associated with the war for

talent continue to rise. Talent management ranks among the top four challenges for almost all sectors and is expected to escalate in importance as 2013 approaches. Many of the geographies where this risk is of particular concern are in the emerging markets. Respondents are evenly divided in citing internal problems, such as weakness in HR processes, and external pressures, such as rising competition for talent, as responsible for pushing this risk up the league table.

Going upWe also produced an opportunity ladder based on our research, divided into four sections. These represent the four drivers of competitive success (represented by businesses in the top quartile in both revenue and EBITA growth) identified in

our Competing for Growth research:

* customer reach

* operational agility

* cost competitiveness, and

* stakeholder confidence.The top four global business

opportunities focus on investing in areas such as, processes, tools, training, IT, innovation, and strategic execution. Improving execution of strategy across business functions is ranked number one overall, with organisations seeking to improve how they communicate the business vision, goals and strategy, involving all business functions in the strategic planning process, including budgeting and forecasting.

Traditionally, businesses have sought market opportunities at a much earlier stage, but today we are seeing businesses focusing on making sure they have the capability and innovative strengths to make a real impact in their chosen markets.

The research shows a high degree of consistency across both countries and industries, with a common focus on operational agility and cost competitiveness. This consistency applies across markets, although there are signs that organisations in emerging markets are sensitive to the need to adopt more mature operating models, structures, processes and business controls, as well as respond to competitive threats.

Surprisingly, emerging market demand growth is ranked only as the fifth top opportunity. Indeed, one in five organisations reported they had limited their Asia focus, following setbacks there, in favour of their home market. Nevertheless, the emerging market demand growth opportunity is predicted to rise by 2013. Every organisation has its own unique set of risks and opportunities, but this research provides some insight into how other organisations are thinking and how that thinking is evolving. As we know, fortune also favours the prepared mind…

Andy Embury is Ernst & Young’s EMEIA Advisory Services leader

To download the report, go to www2.accaglobal.com/top_10_risks

*RISK RADAR: TOP 10 RISKS

Fina

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Compliance

StrategicOpe

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ns

Access to credit

Regulationand compliance

Cost cutting

Risk to rise by 2013 No change expected Risk to fall by 2013

Emergingtechnologies

Market risks

Expansion of government’s role

Pricingpressures

Market risksMarket risksSlow recovery/

double-dip recession

Managing talent

Compliance

Social acceptance risk and corporate social responsibility

Risks thought to be the biggest challenges are nearest the crosshair intersection

39

AP_YCORP_EYrisk.indd 39 10/01/2012 14:55

Comment

Every year, as part of the Budget formulation process, the Treasury prepares a memorandum that explains the Malaysian government’s revenue estimates for the year ahead and the revised estimates for the current year. Naturally, the document is chock-full of numbers, and the accompanying narrative is terse. However, the information sometimes hints at interesting developments.

For instance, the memoranda issued in the past three years have all partly attributed the increased collection of individual income tax to audit activities and more stringent investigations. Previously, the Treasury usually linked the ups and downs in tax collection solely to the country’s economic performance. This suggests that the Inland Revenue Board (IRB) has taken a more aggressive approach to getting individuals to pay tax.

This mindset switch is perhaps also reflected in some recent proposed amendments to the Income Tax Act that were sought by the board.

One change that the IRB wanted was the power to direct a taxpayer to make advance payments if it believed that the taxpayer had not submitted his returns correctly. Another amendment was designed to allow the board to disregard any information or particulars produced by a taxpayer after a deadline set by the board. Furthermore, the taxpayer would not have been able

IRB toughens up its act[ With just 1.7 milllion active taxpayers in Malaysia, the Inland Revenue Board has a number of plans up its

sleeve to ensure more direct tax is collected from individuals and companies, says Errol Oh

to rely on that information to dispute a tax assessment before the Special Commissioners of Income Tax.

Had a third proposed change become law, the IRB would have had the right to gain access to data stored on computer.

However, the amendments drew vigorous opposition from various parties, who were concerned that such moves would lead to an unreasonable expansion of the IRB’s powers and might scare away investors. The relevant clauses were subsequently

deleted before the bill was passed.

While it is clear that the board has

stepped up its collection of individual income tax in recent years, what about companies? After all, company income tax accounts for about 46% of the government’s direct tax revenue.

There are indications that the IRB is gearing up on this front as well. For example, last August, the IRB advertised for assessment executives on a contract basis.

What stood out was that it was looking for people with at least three years’ experience in corporate audit or accounting, and the job required them to plan and conduct tax audits, and to handle resulting taxpayer appeals. The board signed up 100 people, 97

for the corporate tax department.

There is indeed a lot of scope and impetus for increasing income tax revenue from individuals and companies. In September last year, IRB CEO Datuk Dr Mohd Shukor Mahfar said about five million people in Malaysia were

eligible to pay taxes but for various reasons,

only 1.7 million were active taxpayers. In addition, a key priority is to narrow the federal government deficit, which was 5.4% in 2011.

But the other side of the coin, of course, is for the

government to demonstrate that while it is putting more effort into collecting

tax, it is also working hard to ensure that every sen of taxpayers’ money is well spent.

Errol Oh is executive editor of The Star

40

AP_COM_Errol.indd 40 10/01/2012 11:12

Q What’s your top priority at the moment? A Restructuring is a very specialised business and there are not a lot of people in the market who know exactly we do, other than acting as liquidators. My priority is to raise the awareness of restructuring services, including how we add value to businesses and clients, within our firm and other professional advisers such as lawyers.

Q With another global economic slowdown predicted in 2012, what impact are you expecting it will have on Hong Kong’s insolvency and restructuring market? A The economy is in a very fragile state. When market liquidity is drying up even more, we expect to see more collapses and distress situations in 2012. While listed companies have the option of raising capital in the market, smaller private businesses need to manage their liquidity carefully.

Q What work gives you the most satisfaction? A Being able to turnaround failing businesses so that jobs are saved and creditors and shareholders can recoup at least part of their losses.

Q In Hong Kong, there are limited avenues to turn distressed companies around. Is this a major issue in your work? A Definitely. There is no automatic stay of proceedings provision in the Hong Kong legislation until provisional liquidators are appointed over a company. This means a company in distress does not have the breathing space that it needs from creditors in difficult times.

FIRM FACTSNumber of partners and staff: About 9,000Specialisations: Insolvency, formal and consensual restructuring, deceased estate administration and family dispute resolutionHobbies: Having meals or drinks with family and friends Favourite piece of music: Canon in D by Johann Pachelbel

AUDITORS BANNED FOR LIFE Two Indian auditors were banned for life in December from practising as accountants for their role in the US$1bn Satyam Computer Services scandal. The Institute of Chartered Accountants of India (ICAI) barred Pulavarthi Siva Prasad and Chintapatla Ravindranath after finding them culpable of ‘serious gross negligence’ for Satyam’s audits between 2001 and 2008. Inflated profits and unrealistic share values were central to the Satyam fraud. Both accountants worked for the Kolkata-based firm Lovelock & Lewes under an agreement with Price Waterhouse in Bangalore, Satyam’s home city. At the time of going to press, disciplinary hearings against four other chartered accountants – PwC auditors Talluri Srinivas and Subramani Gopalakrishnan, Satyam’s ex-CFO Vadlamani Srinivas and former Satyam internal audit chief VS Prabhakara Gupta – were delayed due to legal proceedings.

ASC APPOINTS NEW CHAIRMANMichael Lim Choo San has been announced as the new chairman of Singapore’s Accounting Standards Council (ASC). The city-state’s Ministry of Finance, which announced the appointment, said in December his term is for two years. Lim is also the chairman of the Land Transport Authority and chairman of Nomura Singapore and the Pro-Tem Singapore Accountancy Council. Lim was previously executive chairman of PwC Singapore. He takes over from Euleen Goh, who led the ASC since it was established in 2007 to develop and promote financial reporting standards.

The view from: Hong Kong: Tiffany Wong, partner, KPMG China

41 Practice The view from Tiffany Wong of KPMG China; Hong Kong’s moves towards independent regulation of the audit profession

35 Corporate The view from Deanne Ong of Origin Holdings; transforming the fi nance function through shared services and outsourcing; a look at Ernst & Young’s risks and opportunities report

41Practice

AP_YPRAC_intro.indd 41 12/01/2012 15:08

‘WE MUST BE PERCEIVED AS WORKING TO PROTECT THE PUBLIC INTEREST, WHICH WOULD INCREASE PUBLIC CONFIDENCE IN OUR PROFESSION’

Despite the disgruntlement of some auditors in Hong Kong about being forced to surrender their professional scrutiny of accounts to independent regulators, a proposed move away from self-regulation is set to align the city with global trends.

Speaking about the research carried out by the Hong Kong Institute of Certified Public Accountants (HKICPA) into alternative systems that would see Hong Kong meet international regulatory criteria with regards to the audits of locally listed companies, HKICPA executive director Chris Joy says that a full report is yet to be made to the Hong Kong government.

‘We’ve come to some general conclusions, had some discussions with the government and we can see the way forward,’ he says. ‘Clearly, there will need to be both a member and a public consultation, given that it’s a matter of public interest.’

Auditor regulation comes under the powers given to the HKICPA as the profession’s regulator by the Professional Accountants Ordinance (PAO); in other words, regulation is entirely vested within the institute. Logic says that something has to change to bring Hong Kong into line with the rest of the world.

Citing the direct responsibility for regulating auditors of listed companies of the Public Company Accounting Oversight Board (PCAOB) in the US and the Professional Oversight Board under the Financial Reporting Council (FRC) in the UK, Joy points out that the lack of independent oversight of the audit protection regime in Hong Kong could become problematic. ‘Hong Kong is not recognised by the International Forum of Independent Audit Regulators (IFIAR), nor is it recognised as an equivalent regime by the European Union (EU).

‘We haven’t got to the stage where overseas regulators are clamouring to come and review our firms. But potentially that could happen. Our goal is to gain the recognition as an equivalent regime because we are confident we are of the same standard. We also want to protect our Hong Kong audit firms from being reviewed by every regulator under the sun,’ Joy says.

Membership of IFIAR requires ‘responsibility for and oversight of the inspection of listed company auditors to be with an independent body’. Hong Kong currently lacks this. Additional requirements from

the EU mean that the Hong Kong auditor of a Hong Kong-listed company that is also listed on a European exchange must be registered with and be subject to oversight by the European regulator.This becomes an issue if the latter is of the view that Hong Kong is not equivalent in terms of audit regulation to European standards.

‘If we can meet the EU equivalence requirements then that should mean that we won’t get EU regulators wanting to come to Hong Kong to review audit work; they would rely instead on the inspection work done in Hong Kong,’ Joy says.

These are the key drivers pushing the Hong Kong government and the HKICPA to cement overseas perceptions of the city’s regulatory regime for auditors of listed companies, while also bolstering its status as an international financial centre.

State of independenceIn essence then, the proposal to overhaul self-regulation is about one very fundamental issue in Hong Kong: its lack of independent oversight of auditor regulation.

Specific details of the proposals that the institute will submit to the government are not yet publicly available. But it seems likely that direct oversight of the auditors of Hong Kong-listed companies will be placed in the hands of Hong Kong’s own FRC, set up in 2006 by the government under the Financial Reporting Council Ordinance. The FRC has investigatory power only, being entrusted with statutory

responsibilities to investigate financial reporting irregularities by locally listed companies and to enquire into possible non-compliance with financial reporting requirements.

Additional responsibility on this front would simply focus its core responsibilities on listed companies but would transfer the practice review function for listed companies from the HKICPA to the FRC. The HKICPA would retain the power to carry out practice reviews on all firms that handle non-public interest companies along with its responsibilities for accountants’ accreditation, accounting standards promulgation and disciplinary action.

Albert Au, chairman and chief executive of BDO Hong Kong, points out that the proposal isn’t unique; rather, it is part of the global trend towards greater regulation, not just of accountants but also of banks and

Under watchful eyesHong Kong is looking to move towards international practice of independent regulation of the audit profession. So how and when will the proposed changes come into effect?

42 Practice

AP_YPRAC_HKreg.indd 42 12/01/2012 13:05

other financial institutions, by independent bodies, primarily driven by governments in the wake of the Enron scandal and, more recently, the 2008 global financial crisis.

‘The PCAOB took away self-regulation from the accounting profession in the US, then the same thing happened via the FRC in the UK,’ Au says.

‘In Hong Kong we also made some changes through our FRC but it’s time we took this to the next level.’

Au is deputy chairman of the HKICPA’s audit profession reform committee, formed in June 2010. Chaired by Hong Kong Stock Exchange (HKEx) chief executive Charles Li, the committee has two working groups on regulatory and professional liability reform. The regulatory reform group is

reviewing the role of the institute concerning self-regulation.

The preliminary proposal to transfer some of the institute’s regulatory powers to the FRC came out of the regulatory reform working group. ‘We felt that if we were going to move the practice review function we would simply move that which related to firms that audit publicly listed companies,’ Au says.

In effect, this move would change the regulatory role of the HKICPA significantly, because practice review is an important regulatory function. It would give the FRC the ability to enter a firm and review how it is conducting its audit work, examine how it is organised to deal with audit quality and allow it to drill down and review the working papers of those listed

companies being audited. As Au notes, this is a very large area of regulation.

Duplication danger?Not surprisingly, firms that operate globally won’t be threatened with any further regulatory requirement because they are already subject to regulation oversight by overseas regulators for listed clients that operate in multiple markets. For Hong Kong firms auditing private companies, nothing changes because the practice review function will continue to be overseen by the HKICPA.

For local independent firms working on listed companies, though, there is concern that the transfer of powers to the FRC may lead to duplication of effort, with both the latter and the institute carrying out practice review

43


functions. It’s not unfeasible that both regulators could be carrying out a practice review on listed and private clients simultaneously in one firm that handles both types of clients.

Nevertheless, the proposal is being touted by the regulators as leading to a better regulated profession and more confidence in Hong Kong. As Au sums up: ‘The challenge of self-regulation is that we are perceived as protecting our own. From this point of view alone, the public perception of the accounting and audit profession in Hong Kong has to change. We must be perceived as working to protect the public interest, which would increase public confidence in our profession.

‘Just as importantly, to have Hong Kong perceived to be self-regulating when it is such an important stakeholder in the global financial market does not do Hong Kong any good,’ Au continues.

‘Look around you; all the major financial centres are moving away from the self-regulation of accountants. I think our move to do the same means that we would be more internationally recognised and accepted by the global financial community. It is a move in the right direction.’

Countering this gung-ho attitude is the not entirely welcome prospect of

having to comply with yet more regulation in the management of listed companies in Hong Kong, and the inevitable issue of related costs. As the institute’s Chris Joy admits: ‘The reality

is that to set up a new system there will be cost implications but there are benefits in addition to costs.’

Kate Watson, journalist

For all the talk of proposals and public consultations, there is a major stumbling block to the expediting of the plans by the Hong Kong Institute of Certified Public Accountants (HKICPA) to lessen the profession’s reliance on self-regulation: legislation. According to Chris Joy, HKICPA executive director, legislative change to facilitate the proposal is not imminent.

‘We’re talking about a system that is largely founded on legislation so there’s going to need to be legislation changes, which take time’ Joy says.

Part of the problem is that 2012 is a politically focused year in Hong Kong. With the central government’s selection of a new chief executive for the Special Administrative Region, and elections for the legislative council – Hong Kong’s parliament – in September, efforts are being focused elsewhere.

To achieve the necessary changes, amendments will likely have to be made to the Professional Accountants Ordinance, the law that regulates accountants in Hong Kong, and the Financial Reporting Council Ordinance, which enables the FRC to investigate accountants. It’s questionable whether this process may make it onto the 2012 legislative calendar.

‘I would stress that this is very much an ongoing process,’ Joy says. ‘We are engaged with government in talking about where we go from here. There is a lot more work to be done in terms of consultation with members and the public, and in working out exactly what the changes need to be and how they’re going to happen. There will have to be legislation changes to accommodate this. Hong Kong has been a bit of an outlier from the usual arrangements in the rest of the world with respect to audit oversight of listed companies. That said, as we’ve done our research into other regulatory practices, it hasn’t appeared to us that other jurisdictions have found the perfect solution yet.’

*A LEGISLATIVE LONG HAUL

44 Practice


45

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_(right).indd 45 12/01/2012 18:13

A monthly round-up of the latest from the standard-setters

INTERNATIONAL

IFRS CHANGESAt the end of 2011, the International Accounting Standards Board (IASB) announced that the mandatory effective date of IFRS 9, Financial Instruments, would be deferred from 1 January 2013 to 1 January 2015. The IASB has also amended IFRS 9 to provide relief from the requirement to restate comparative information, but transitional disclosures will be required.

In December 2011 the IASB issued an amendment to IFRS 7, Financial Instruments: Disclosures, aimed at improving the information presented in financial statements about the effect or potential effect of offsetting arrangements. The balance sheet offsetting of financial instruments was the subject of a joint project between the IASB and the US Financial Accounting Standards Board and, while a joint exposure draft was issued in January 2011, the respective boards have decided to retain their existing models but jointly issue new disclosure requirements. These will apply for periods beginning on or after 1 January 2013.

An amendment to IAS 32, Financial Instruments: Presentation, was also issued clarifying the requirements for offsetting financial instruments. The amendment, Offsetting Financial Assets and Financial Liabilities, will apply for periods beginning on or after 1 January 2014 and

is retrospective. The revised standard clarifies:

* The meaning of ‘currently has a legally enforceable right of set-off’.

* That some gross settlement systems may be considered equivalent to net settlement.

IFRS 10, Consolidated Financial Statements, was issued in May 2011 and some concerns have been raised about the transitional provisions addressing when the standard needs to be applied retrospectively. As a consequence, the IASB has issued an exposure draft suggesting amendments to clarify the requirements. The proposed changes are:

* An explanation that the ‘date of initial application’ means the beginning of the accounting period in which IFRS 10 is applied for the first time.

* Clarification that relief from retrospective application would apply where an interest in an investee was disposed of in the comparative period such that consolidation would not occur at the date of initial application.

* Clarification as to how the comparative period(s) should be adjusted when required by the standard.

The SME Implementation Group (SMEIG) of the IFRS Foundation has added a further module to its training material in relation to the IFRS for SMEs addressing related party disclosures. The material is

available at www.ifrs.org at no charge.

The SMEIG has also published two questions and answers addressing:

* Entities that typically have public accountability.

* Interpretation of ‘traded in a public market’.

Yvonne Lang, director, Smith & Williamson

MALAYSIA

BASEL III IMPLEMENTATIONOn 19 November 2011, Bank Negara Malaysia (BNM) issued a notification of the implementation of Basel III. BNM supports implementation and will strengthen the existing capital and liquidity standards for banking institutions in Malaysia, bringing them in line with Basel III. BNM plans to implement the reform package in accordance with the globally agreed timeline which provides for a gradual phase-in from 2013 to 2019.More information at www.bnm.gov.my

NEW CURRENCY SERIES On 21 December 2011, BNM announced the introduction of Malaysia’s new currency series. Launched by prime minister Najib Razak, the banknotes are in the denominations RM1, RM5, RM10, RM20 and RM100 and will be available for circulation in the second half of 2012. The coins, with denominations 5 sen, 10 sen, 20 sen and 50 sen, were launched

earlier on 25 July 2011 and introduced into circulation in January 2012.

GRATUITY PUBLIC RULINGOn 5 December 2011, the Inland Revenue Board (IRB) issued Public Ruling (PR) No 10/2011: Gratuity. This PR, which is effective from year of assessment 2011 and subsequent years of assessment, provides an explanation on the method used to characterise lump sum payments received by employees on the termination of their employment as gratuity and the relevant tax treatment.

It can be downloaded at www.hasil.org.my/pdf/pdfam/PR10_2011.pdf

MASB DISCUSSION PAPERSOn 16 December 2011, the Malaysian Accounting Standards Board (MASB) issued three discussion papers (DPs) for comment:

* MASB DP i-1 Takaful.

* MASB DP i-2 Sukuk.

* MASB DP i-3 Shariah Compliant Profit-sharing Contracts.

In view of Malaysia’s convergence with International Financial Reporting Standards (IFRS) on 1 January 2012, these DPs have been issued to discuss the application of IFRS to takaful, sukuk and sharia-compliant profit-sharing contracts. Comments can be submitted online by 16 March 2012 via www.masb.org.my

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

46 Technical update

AP_T_update.indd 46 12/01/2012 10:55

SINGAPORE

MRA DISCUSSEDOn 1 November 2011 a roundtable in Kuala Lumpur discussed the implementation of the accountancy mutual recognition agreement (MRA). Members of the ASEAN Federation of Accountants (AFA), together with regulators and the ASEAN (Association of Southeast Asian Nations) secretariat, discussed the milestones, issues and challenges faced. More details can be found at www.icpas.org.sg

NEW PRACTICE BULLETINACRA (Accounting and Corporate Regulatory Authority) has issued Audit Practice Bulletin No 2 of 2011: Audit Considerations in an Uncertain Economic Environment. It should be read together with Audit Practice Bulletin No 1 of 2009: Audit Considerations in the Current Economic Environment, which continues to be relevant.

In light of the current environment, ACRA reminds public accountants to exercise vigilance, professional scepticism and judgment when performing the coming year-end audits.

The bulletin is available at www.acra.gov.sg

ACRA REVISES FEESThere has been a fee adjustment for the information products and subscription services provided by ACRA. ACRA has avoided increasing the fees

for information products and services since 1984, despite the various rounds of adjustments to the goods and services tax (GST).

More details can be found at www.acra.gov.sg

MORE ACAP FUNDINGGST-registered companies that undertake the Assisted Compliance Assurance Programme (ACAP) from 1 April 2012 can look forward to a second tranche of co-funding by the Inland Revenue Authority of Singapore (IRAS).

Companies that undertake ACAP within the five-year period from 5 April 2011 to 4 April 2016 and attain ACAP status will be offered 50% co-funding of ACAP fees capped at S$50,000, and a one-time waiver of penalties for voluntary disclosures of past GST errors.

The ACAP status allows businesses to enjoy benefits such as three to five years of exemption from GST audits, faster refunds and resolution of issues, and automatic renewal of schemes.

More information at www.iras.gov.sg

Joseph Alfred, policy and technical adviser, ACCA Singapore

HONG KONG

CONSULTATION ON GUIDEThe Hong Kong stock exchange (HKEx) has released a consultation paper on the proposed Environmental, Social and Governance Reporting Guide.

The proposed guide is a first step towards Hong Kong-listed issuers adopting best practices and covers four areas – workplace quality, environmental protection, operating practices and community involvement – where general disclosure recommendations and key performance indicators are provided.

The consultation proposes that the disclosures be recommended best practices. HKEx may consider raising the level of obligation to ‘comply or explain’, which is similar to the Corporate Governance Code, in the future.

Comments are invited by 9 April 2012.

QUALIFYING CRITERIAUnder section 141D of the Companies Ordinance, a private company may prepare simplified accounts and simplified directors’ reports in respect of one financial year at a time.

According to the Small and Medium-sized Entity Financial Reporting Framework (SME-FRF) issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), a Hong Kong company qualifies for reporting based on the SME-Financial Reporting Standard (SME-FRS) if it satisfies the requirement under section 141D.

It was proposed that two types of private companies will automatically qualify for simplified reporting:

* A private company, except for a banking/

deposit-taking company, an insurance company or a stockbroking company, which is a ‘small private company’, ie a private company that satisfies any two of the following conditions.

i Total annual revenue of not more than HK$50m.

ii Total assets of not more than HK$50m.

iii No more than 50 employees.

* A private company that is the holding company of a ‘group of small private companies’, ie a group of private companies that satisfies any two of the following conditions.

i Aggregate total annual revenue of not more than HK$50m net.

ii Aggregate total assets of not more than HK$50m net.

iii No more than 50 employees.

However, there are concerns that the revenue and asset criteria mentioned above are too restrictive. It was therefore proposed that private companies and private companies which are holding companies of groups of private companies not meeting the size criteria should also be allowed to adopt simplified reporting provided that most of their members so resolve. As such, a consultation paper has now been released to seek views on this.

Comments are invited by 16 January 2012.

Sonia Khao, head of technical services, ACCA Hong Kong

47

AP_T_update.indd 47 12/01/2012 10:55

Statements across frontiers?Just how comparable are fi nancial statements across national boundaries, given the clear and concise language in IAS 1? Graham Holt explores the evidence

IAS 1, Presentation of Financial Statements, requires that an entity whose financial statements comply with International Financial Reporting Standards (IFRS) has to make an explicit and unreserved statement of such compliance in the notes. Financial statements cannot be described as complying with IFRS unless they comply with all the requirements of IFRS, including International Financial Reporting Interpretations Committee interpretations (IFRICs). Inappropriate accounting policies cannot be rectified either by disclosure of the accounting policies used or by notes or explanatory material. On the basis of the above statements, it could be assumed that the comparability of financial statements could be assured, as the language used in IAS 1 is clear and concise.

Recently staff at the US Securities and Exchange Commission (SEC) analysed the annual consolidated financial statements of 183 companies, including both SEC registrants and companies that are not SEC registrants, which prepare financial statements in accordance with IFRS. The 183 companies were domiciled in 22 countries and approximately 80% were domiciled in the European Union (EU), with companies from Germany, France and the UK representing just over half. The companies in the analysis represented 36 industries and were selected from the Fortune Global 500, a listing of the world’s largest companies by revenue.

The standards reviewed were those in effect at 31 December 2009.

It was found that company financial statements generally appeared to comply with IFRS requirements. However, it was felt that the transparency and clarity of the financial statements in the sample could be enhanced. Many companies did not appear to provide sufficient detail or clarity in their accounting policy disclosures to support an investor’s understanding of the financial statements, and some also used terms that were inconsistent with the terminology in the applicable IFRS. Further, some companies referred to local guidance, the specific requirements of which were not clear.

Differences in the application of IFRS affect the comparability of financial statements across countries and industries. In the sample, any lack of comparability seemed to be caused through application of IFRS, or due to options permitted by IFRS or the absence of IFRS guidance in certain areas. In other cases, differences resulted from what appeared to be non-compliance with IFRS.

Differences arising from the standards themselves were affected by guidance from local standard setters or regulatory bodies that narrowed the range of acceptable alternatives permitted by IFRS or provided additional guidance or interpretation. There was also a tendency by some companies to carry over their previous national practices in their IFRS financial statements.

In the absence of a specific applicable IFRS, an entity is required first to consider guidance in an IFRS standard that relates to similar issues, and then to consider the IFRS Framework. The entity may also consider recent pronouncements of other standard-setting bodies that use a similar conceptual framework, other accounting literature and industry practices, if they do not conflict with IFRS. Approximately 20% of companies in the analysis referred to local guidance for a specific transaction as part of their accounting policy disclosures. An interesting case arose where a company elected to rely on the pronouncements of another standard setter as regards their revenue recognition accounting policy. Subsequently the standard setter changed its guidance but the company did not incorporate the changes that the standard setter had made. IFRS is silent on this matter.

IFRS requires compliance with IFRICs. However, like new IFRSs, IFRICs are not mandatory immediately. For example, in the EU, IFRICs are not implemented until after the European Commission adopts them. As a result, some companies in the EU adopted IFRICs at dates later than companies outside the EU. This practice can cause differences in accounting practices that the IFRICs are issued to address, due to a timing difference.

IFRS permits a departure from specific requirements of IFRS if an entity determines that the application of that requirement would result in the

GET 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

48 Technical

INT_T_HoltCPD.indd 48 10/01/2012 17:58

COMPANY FINANCIAL STATEMENTS GENERALLY APPEARED TO COMPLY WITH IFRS STATEMENTS, BUT TRANSPARENCY COULD BE ENHANCED

financial statements being so misleading that they no longer meet the objectives of the Framework. This is often referred to as a ‘true and fair override’. There were no examples of the true and fair override in the sample.

There were significant differences in the presentation of the statement of cash flows. IAS 7, Statement of Cash Flows, permits the use of the direct or indirect method of

presentation. The vast majority of companies used the indirect method, with companies in two countries primarily using the direct method. This was due to the use of the indirect method being prohibited at the time of initial adoption of IFRS. Further, there were many variations relating to the profit or loss measure used as the starting point to determine operating cash flows. Additionally, there were differences in the classification of items within the operating, investing and financing categories.

For example, most companies in the insurance industry classified their investment activities within cash flows from investing activities but some presented investing activities within cash flows from operating activities, either on a gross basis or net of payments of related benefits and

claims. IFRS defines cash equivalents as ‘short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value’. Differences were seen in the items classified as cash equivalents; these ranged from balances at central banks to investments with a maturity exceeding three months.

IAS 38, Intangible Assets, defines an intangible asset as ‘an identifiable, non-monetary asset without physical substance’ and requires each entity to ‘assess whether the useful life of an intangible asset is finite or indefinite’. Some companies determined that certain types of intangible assets – for example, brand names – had a finite life, while others determined that the same type of intangible assets had an indefinite life. The brand names included some of the world’s most recognised brands. Additionally some companies disclosed useful lives that appeared to be capped at a maximum length rather than using an assessment of the useful life of the asset. Companies can select either the cost model or the revaluation model as their accounting policy and must apply that policy to an entire class of intangible assets. All of the companies elected to

use the cost model to account for intangible assets.

IAS 36, Impairment of Assets, requires assets to be evaluated for impairment individually, or, if the recoverable amount of an individual asset cannot be determined, by cash-generating unit. A cash-generating unit is ‘the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets’. It was seen that there were several levels defined as cash-generating units, including: the operating segment; below the operating segment but not defined; one level below the operating segment; two levels below the operating segment; and the individual store or outlet. This is obviously a cause for concern in terms of the nature and accuracy of the impairment charge.

One-third of companies disclosed that they entered into transactions within the scope of IAS 40, Investment Property. IAS 40 permits companies to elect to use either the fair value model or the cost model. Most companies applied the cost method, with those that used the fair value model mainly in the banking sector. There were problems with those companies who used the fair value model; several did not disclose the methods and significant assumptions used to determine the fair value of the investment properties, as required by IFRS. Also, there were variations by country in the determination of fair value for investment properties. The

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financial statements being so claims. IFRS defines cash equivalents use the cost model to account for


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THERE WERE INSTANCES IN WHICH LOCAL REGULATIONS REQUIRED A SEPARATE ACCOUNTWITHIN SHAREHOLDERS’ EQUITY

determination of fair value of investment property was regulated in one country, while in another it was measured for fair value in accordance with guidance published by a national organisation. Fair value should reflect market conditions at the end of the reporting period.

In IAS 37, Provisions, Contingent Liabilities and Contingent Assets, IFRS requires a provision to be recognised

when an entity has a present obligation whether legal or constructive as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle that obligation, and a reliable estimate can be made of the amount of obligation. Most companies stated these recognition criteria in their accounting policy, but did not provide any additional explanation as to how the criteria were applied. Some disclosed that one of the criteria applied to recognise a provision would be that no inflow of resources of an equivalent amount was expected. IFRS does not allow offsetting in the statement of financial position of amounts recoverable from third parties. In addition, some entities did not discuss the recognition criteria in IAS 37 but indicated that they looked to legal experts to

determine whether a provision should be recorded.

There were several instances in which local laws or accounting regulations required the use of a separate account within shareholders’ equity to provide for specifically mandated reserves. IFRS gives no guidance regarding the presentation of these separate accounts. A group of companies in a particular country disclosed that 10%

of profit was transferred to a non-distributable statutory surplus reserve in shareholders’ equity in accordance with national accounting standards. Similarly, an entity disclosed that national law required it to maintain a general reserve within shareholders’ equity for the risk of impairments equal to 1% of risk assets, which are defined by law.

IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations, requires: a) assets that meet the criteria to be

classified as held for sale to be measured at the lower of carrying amount and fair value less costs to sell, and depreciation on such assets to cease; and

b) assets that meet the criteria to be classified as held for sale to be presented separately in the statement of financial position and

the results of discontinued operations to be presented separately in the statement of comprehensive income.

Companies tended to address some, but not all, of the criteria required for classification as discontinued or held for sale. Several companies described accounting practices that did not appear to comply with IFRS. For example, one of the criteria used to classify an asset as held for sale was that a sale would be completed within one year from the statement of financial position date, rather than one year from the date of classification. Another company classified assets as held for sale that were not available for sale in their present condition. This is inconsistent with IFRS, which requires that the asset ‘must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets’.

There were other differences reported by the SEC in relation to deferred tax, operating segments and revenue recognition. As stated above many of the differences seemed to stem from national policies carried over at the time of transition to IFRS and national laws and regulations. It does appear that the aim of producing comparable financial statements across boundaries has some way to go.

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

units on the web

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ACCA member journal.pdf 1 14/12/2011 9:53:22

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All change for revenue recognitionThe far-reaching implications of a proposed new revenue model mean that businesses must start planning for the future, says Vivian Lai of PwC’s Accounting Consulting Services

THE BOARDS BELIEVE A SINGLE, CONTRACT-BASED MODEL WILL LEAD TO GREATER CONSISTENCY IN RECOGNITION AND PRESENTATION OF REVENUE

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Revenue, the ‘top-line’, is one of the most closely monitored measures in financial statements by investors and other stakeholders. But did you know that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are in the process of developing a new global accounting standard that will apply a single set of principles to all revenue transactions, regardless of industry?

On 14 November 2011 the boards issued an exposure draft, Revised Revenue ED, with the comment period ending on 13 March 2012. The boards have called it a ‘contract-based revenue recognition model’, sometimes referred to as the asset and liability model based on control.

What is an asset and liability model based on control? What are the five things you should know about the new model? Will you be affected?

Why this model?Current revenue guidance under both US generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) focuses on an ‘earnings process’, but difficulties often arise in determining when revenue is ‘earned’ and when the earnings process is complete.

The boards believe a single, contract-based model that reflects changes in

contract assets and liabilities will lead to greater consistency in the recognition and presentation of revenue. This asset and liability approach is the cornerstone of the IASB’s and FASB’s conceptual frameworks and is consistent with the development of other standards, for example consolidation and leases.

The boards initiated this joint revenue project in 2002. It hasn’t been easy to craft a principles-based

approach that functions as intended for all industries. Their first exposure draft, Revenue from Contracts with Customers, issued in June 2010, received extensive, unprecedented feedback (almost 1,000 comment letters), which the boards discussed at length in the first half of 2011. The boards have addressed many of the key concerns raised by the constituents in Revised Revenue ED and are seeking additional comment.

So what is a ‘contract-based revenue recognition model’ and what does asset and liability have to do with revenue recognition? When first introduced in 2002, no one understood the concept and constituents did not think that revenue could be considered in the same way as an asset or liability. The fundamental under a ‘contract-based revenue recognition model’ is that when a company enters into a contract with the customer, the company will obtain

rights to receive consideration from the customer (contract assets) and assume obligations to transfer goods or services to the customer (contract liabilities). At inception, the contract assets will equal the contract liabilities (ie precluding the recognition of revenue at contract inception).

When the company transfers the promised goods or services to the customer, it satisfies its performance obligation (contract liability decreases) and revenue is recognised.

Sounds easy – but the devil is in the detail! Understanding the impact will limit your surprises down the road.

What you need to knowThe proposed revenue model requires a five-step approach:i) identify the contract(s) with the

customerii) identify separate performance

obligations within the contract;iii) determine the transaction price of

the contractiv) allocate the transaction price to

each separate performance obligation

v) recognise revenue when an entity satisfies its obligations by transferring control of a good or service to a customer.

The proposed model is easy to understand on its surface, but its application could result in significant changes from existing practice. The principles require significant judgment and estimate. The boards’ conclusions are subject to change until they issue the final standard and the following are just a few key aspects based on Revised Revenue ED:

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* Change from ‘risk and rewards’ model to ‘control’ model Revenue is recognised when the customer obtains ‘control’ of the goods or services. A customer obtains control if it has the ability to direct the use of and receive the benefit from the goods and services. The transfer of risks and rewards is an indicator of whether control has been transferred under the proposed standard, but additional indicators will also need to be considered. As you might imagine, transfer of control of goods or services may not always coincide with the transfer of risk and rewards. For example, when companies sell goods to distributors with right of return and the level of return is significant, risk and rewards may not have been transferred at the time of delivery. However, control of those goods may have been transferred to the distributor depending on specific circumstances.

* One model does not fit all The new guidance will replace all existing IFRS (and US GAAP) revenue recognition literature. The boards did not want to create different models for recognising revenue from sale of goods or provision of services. However, the boards recognised that there are difficulties in determining when control is transferred, in particular for services and certain long-term construction contracts. Hence, Revised Revenue ED provides additional guidance such that performance obligations can be satisfied either at a point in time or over time if certain criteria are met.

Based on the guidance, many service arrangements and long-term construction contracts may meet the recognition over time criteria.

* Revenue is only recognised to the extent that it is reasonably assured Management will need to consider a number of factors to estimate the transaction price, including the effects of variable consideration and time value of money, based on the probability weighted or most likely amount of cashflow. However, revenue recognised is limited to the amount to which the company is reasonably assured to be entitled. It is reasonably assured when the entity has experience with similar types of performance obligations and that experience is predictive of the amount of consideration to which the entity will be entitled.

* Bad debt adjacent to gross revenue line Today, a company defers all of the revenue from a contract unless the collectability from the customer is probable. Under the new model, this hurdle has been removed. Also, uncollectible amount is presented adjacent to gross revenue line. In addition to affecting margins, these changes require recording a ‘day one’ estimate of customer credit losses for all transactions.

* New disclosures requirements The exposure draft requires an entity to make extensive disclosures intended to enable users of financial statements to understand the amount, timing and judgment around revenue recognition and corresponding cashflows arising from contracts with customers (eg

disaggregation of revenue, and reconciliations of the opening and closing of contract assets/liabilities). Preparing those disclosures requires system changes and could convey important information about business practices and prospects to its investors and market competitors.

For a more comprehensive description of the proposed standard, refer to PwC’s Practical Guide to IFRS: Revenue from Contracts with Customers, and the industry supplements in www. pwcinform.com, or www.fasb.org or www.ifrs.org can be visited.

Who is affected?Still wondering if the new revenue standard will affect you? Actually, the proposed revenue standard, if issued, will impact every company to some extent but the degree may depend on the nature of the company’s operations. Companies that previously followed industry-specific guidance or established industry practices will likely feel the greatest impact. The examples below represent only a small sample of affected industries:

* Contractors Those in the engineering, construction, aerospace and defence industries, among others, currently apply specific guidance under IAS 11, Construction Contracts. This includes rules for recognising revenue (usually on a percentage of completion basis), recording contract costs and accounting for change orders. The new model has similar concepts but there are nuances that could catch some by surprise. For example, there

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APPLYING THE NEW MODEL IS ALMOST LIKE STARTING WITH A CLEAN SHEET. THIS FRESH LOOKCOULD PROMPT CHANGES TO CONTRACT TERMS

APPLYING THE NEW MODEL IS ALMOST LIKE STARTING WITH A CLEAN SHEET. THIS FRESH LOOKCOULD PROMPT CHANGES TO CONTRACT TERMS

could be differences in the costs that are capitalised or how progress to completion is measured. At the extreme, some arrangements might not result in revenue until the project is completed (eg aircraft with no significant customerisation). Each company will have to assess its own specific facts under the new model.

* Real estate developers Industry-specific guidance under IFRIC 15 for real estate includes prescriptive requirements in areas such as the continuing involvement of the real estate developers. Revised Revenue ED takes more of a principles-based approach and focuses on whether the construction creates

an asset with alternative use to the developer and whether the developer is entitled to payment that compensates its performance completed to date. Companies may decide to modify arrangements to meet the new requirements (eg to establish the right to payment for compensation of work performed instead of loss of margin) to better align with their business objectives.

* Telecom The timing of recognition of revenue for telecom entities that currently do not account for equipment (eg ‘free’ handsets) separately from the telecom services will be significantly affected if the performance obligations in

their bundled offerings meet the proposed standard’s definition of distinct performance obligations. Furthermore, under the revenue proposal, direct costs of obtaining and fulfilling contracts are capitalised as assets if they meet certain criteria, bringing consistency to an area of mixed practice today (eg sales commissions). Management will need to use judgment to determine the amortisation period as the proposal requires entities to consider periods beyond the initial contract period – for example, the renewal of existing contracts and anticipated contracts.

* Retail and consumer Transfer of risk and rewards may not always coincide with transfer of control. Shipping terms, as well as sales with rights of returns, will have to be assessed under the new model. Additionally, under the proposal, revenue from licences of intellectual property is recognised when the customer obtains control of the rights. Compared with the current practice, this could result in earlier revenue recognition and have fewer licence fees recognised ratably over the licence period if the licence is separable from other unsatisfied performance obligations in the contract. Licence revenue might,

however, be constrained if the consideration is determined by reference to the customer’s sales under the new model.

What it means for youApplying the new model is almost like starting with a clean sheet of paper. This fresh look could prompt changes to contract terms or other business strategies, and companies also need to assess and document their revenue recognition policies under the new model. An important first step is analysing existing sales transactions and modelling the impact of the proposed guidance. Some of the operational implications may include:1) Changes in how contract terms

affect reported revenue, such as contingent fees and prepayments or extended payment terms, could influence how companies and their customers negotiate these terms. Companies may need to modify contract terms to maintain the original intent of arrangements or better align reported revenue with business objectives.

2) The impact of changes to the revenue model will affect key financial measures and ratios, and will likely impact a wide range of arrangements that are linked to their financial measures, including compensation and bonus plans, earn-out arrangements, and covenants in financial agreements. Early communication to stakeholders will be critical.

3) Changes to revenue might also have tax implications and could affect the timing of cash tax payments if, for

54 Technical

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Qualified for thereal world

example, revenue recognition is accelerated.

4) Companies may need to change information technology systems to capture different information and develop new processes for estimates and disclosures that are not required today.

5) Judgments and estimates can be challenged by others in hindsight. The resulting need for increased judgment will require thoughtful documentation and dialogue with those charged with governance.

6) Adopting the new guidance will entail adjusting prior period financial statements, with a few practical exceptions. Gathering data on historical transactions could be challenging, particularly for companies with multi-year contracts. Successful implementation of the standard will require upfront planning.

7) The comment period for Revised Revenue ED ends on 13 March 2012 and the boards anticipate issuing the final standard by the end of 2012. Companies should take this opportunity to participate in the standard-setting process and provide input to the boards.

The final standard will have an effective date no earlier than 2015. While still a few years away, its successful implementation will require planning ahead and keeping stakeholders well-informed. The extent of impact may be extensive; don’t be caught by surprise!

Vivian Lai is senior manager of Accounting Consulting Services at PwC

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The e-learning suite spots[We take a look at just some of the ways in which ACCA members can gain access to CPD learning

opportunities by engaging with a range of online platforms and initiatives

One of the biggest attractions of ACCA’s CPD suite is the flexibility that allows it to be applied to all types of learning. Members can use this to their advantage when planning and sourcing CPD where it is not possible for them to attend courses or face-to-face events. Here we look at just some of the ways members can source CPD learning through engaging with the online platforms available.

Social networking and learning on the moveCommunication platforms are evolving rapidly, offering professionals new and innovative ways to communicate. The increase in the use of mobile communications allows you to network and learn whenever it suits you. ACCA has a number of official networking

groups that have the potential to offer you new learning, both in terms of verifiable and non-verifiable CPD. There are ACCA sites on LinkedIn, Facebook and Twitter. Alternatively, you might prefer to use ACCA’s own e-learning gateway at: virtuallearn.accaglobal.com/pages

PodcastingWith podcasts you can automatically receive the latest file covering your chosen topic as soon as it becomes available. You will find ACCA podcasts on current and relevant topics of interest to members. Members are able to access a series of podcasts (to which they can subscribe free of charge) on the ACCA website through the following link: www.accaglobal.com/podcasts/members Many more relevant podcasts are also available elsewhere on the internet. A good place to start is the iTunes Store.

Distance learningDistance learning is an excellent option that allows you to follow a particular

course by taking it online rather than in a classroom. It offers an opportunity that not only allows you to learn and apply the course syllabus to your role, but also opens up the opportunity of networking with fellow delegates online. Online networking in this way can facilitate lots of questions and debate on topics that are of interest to you for your role or career. Distance learning is also informative, inspiring and – most importantly of all – relevant to your CPD.

Voluntary work through professional forumsProfessional forums are another networking opportunity that can help you to source learning in your area of interest that could be relevant to your role. Often these can be sourced online but they still give you the opportunity to meet face to face periodically. Networking with people who have similar professional interests and objectives may open up opportunities to keep up to date with recent developments both locally and globally.

You can only count CPD learning as verifiable if you’re able to answer ‘yes’ to the following three questions:

1) Was the learning relevant to your role/career?2) Were you able to apply the learning to your role/career?3) Did you retain evidence of your learning?

If you have undertaken general learning that is not related to a specific outcome, it is likely to be non-verifiable CPD. Such learning includes general reading and research.

*REMEMBER…

FOR MORE INFORMATION ON CPD OPPORTUNITIES, PLEASE VISIT www.accaglobal.com/members/cpd

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A bad example

[As a decade of Sarbanes-Oxley has shown, heavy-handed regulation can be a matter for regret, says ACCA president Dean Westcott

Whenever there is a major financial scandal, the call inevitably goes out for tighter regulation to prevent such a thing from ever happening again.

That call is not always heeded but this year marks the 10th anniversary of an occasion when it most certainly was. The Sarbanes-Oxley Act will be 10 years old in July. Designed to thoroughly plug the gaps that enabled executives at Enron and WorldCom to get away with what they did, the law placed onerous responsibilities and duties on executives, and forced companies and their accountants to set up elaborate and expensive internal controls.

It has been argued that Sarbox has been good for corporate governance as well as the credibility of accounts. But question marks remain about its effectiveness and serious criticisms have been made of the huge costs it has imposed on businesses. Critics also point out that it failed to prevent the collapse of Lehman Brothers – the outrider of the financial crisis.

Some have warned of the danger of repeating the mistakes of Sarbox in the current process of reforming audit practice. It is undoubtedly healthy to have a root and branch examination into whether audit could have done more to alert companies and regulators about impending financial problems and whether audit practice should evolve so as to maintain its value and relevance. But some of the proposals currently being put forward appear to be based on the same optimistic assumption that underlay Sarbox – namely, that the way to prevent corporate malpractice is to impose rigid and bureaucratic rules from the top.

ACCA is studying the proposals issued by the EU at the end of last year on both audit and financial reporting. The key issue for us is that the needs of the users of annual accounts are protected. But we should not ignore the question of cost and the risk of imposing regulatory costs that are disproportionate to the benefit sought.

We urge regulators around the world to bear in mind the experience of Sarbanes-Oxley and to focus as much on meeting the challenges of today and tomorrow as on fixing the problems of the past. I know ACCA will continue to call for balance in ensuring any new regulation is good for business and in the public interest.

Dean Westcott FCCA is finance director of Hinchingbrooke Hospital in Cambridgeshire, England

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Fine-tuning the rules[ACCA’s Ian Waters runs through the changes that have been made in the 2012 edition of

the ACCA Rulebook to refl ect the development of the association and its processes

This article sets out the main changes to ACCA’s bye-laws, regulations and its Code of Ethics and Conduct, as published in the ACCA Rulebook. The Rulebook is usually updated once a year. However, during 2011, interim changes were made, which took effect on 1 June 2011, and were reflected in the online version of the Rulebook at that time. These interim changes have been included in the details set out in this article.

Bye-lawsThe following changes to the bye-laws were approved at the 2011 AGM and subsequently by the Privy Council:

* When a member (or his or her firm) has been subject to a disciplinary process other than that of another professional body, it is more appropriate to discipline the member under a provision of bye-law 8(a) other than 8(a)(v) or (vi).

* Prompt notification to ACCA is required by a member when he or she or another member may have become liable to disciplinary action (save where this would be contrary to a legal obligation).

Membership RegulationsThe principal amendments to the Membership Regulations are as follows:

* The meaning of ‘book-keeping’ and the permitted activities of ACCA students have been clarified, including the entitlement of ACCA students who are licensed insolvency practitioners to undertake insolvency work.

* The Practical Experience Requirement (PER), set out in appendix 2 to the regulations, has been clarified to say that it must involve 36 months’ work experience in one or more accounting and finance-related roles.

* A definition of ‘workplace mentor’ has been provided.

At the start of 2011, ACCA launched a new suite of entry-level qualifications known as Foundations in Accountancy (FIA), and the Mature Student Entry Route is no longer available. Interim amendments to the Membership Regulations were necessary to reflect the fact that, since January 2011, students are being registered to the new FIA suite of qualifications, which includes the Certified Accounting Technician (CAT) qualification, but also other entry-level and ACCA feeder qualifications.

Other interim changes included:

* amendments to recognise the new practical experience requirement for CAT, called Foundations in Practical Experience Requirement;

* a change to the name of paper P1, from ‘Professional Accountant’ to ‘Governance, Risk and Ethics’, to reflect the increased content in the syllabus in respect of risk in response to feedback from employers.

Global Practising RegulationsThe substantive change to the Global Practising Regulations allows non-accountants to act as continuity nominees in respect of some activities, such as insolvency work.

Global Practising Regulations – Annexes 1 to 4Substantive changes to Annexes 1 to 4 to the Global Practising Regulations:

* clarify that a licensed insolvency practitioner in the UK is in public practice, and so a member who holds an insolvency licence from another professional body must hold an ACCA practising certificate;

* require a member applying for an audit qualification in the UK, Ireland or Cyprus on the basis of audit experience or a certificate obtained

some time ago to demonstrate relevant recent audit experience and CPD, or to undergo appropriate audit training;

* align the European annexes with the requirements of the European Statutory Audit Directive in that only two of the three years of practical training for the audit qualification need to be under the supervision of a statutory auditor;

* reflect the minimum professional indemnity insurance requirements in the UK and Ireland for firms wishing to conduct insurance mediation activities.

Global Practising Regulations – Australian AnnexThis is a new Annex, brought about as a result of ACCA achieving recognition by the Australian Tax Practitioners Board (TPB). TPB registrants may undertake tax and business activity statement agent services, and Annex 5 sets out the requirements of ACCA members who wish to undertake such services, incorporating the TPB’s requirements of ‘good fame, integrity and character’.

Irish Investment Business RegulationsThe only substantive amendment here reflects the new name of the investment business lead regulator in Ireland (now the Central Bank of Ireland). There are corresponding amendments to the Regulatory Board and Committee Regulations, the Authorisation Regulations, the Irish Annex to the Global Practising Regulations, and section 270 Custody of client assets of the Code of Ethics and Conduct.

Regulatory Board and Committee RegulationsThe substantive changes here better reflect the way in which the Regulatory

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THE RULEBOOK IS AVAILABLE AT:www2.accaglobal.com/rulebook2012

Board is appointed by Council, and how Committees are established.

An interim change was also made, because the terms of office of all the lay members of ACCA’s Regulatory Board expired in September 2011. In order to aid succession planning, future appointments will be made so that one-third of the Regulatory Board’s lay members will retire, in rotation, each year. Amendments to the Regulations were required to facilitate the issue of contracts to members of the Board for terms shorter than three years.

Authorisation RegulationsThese now clarify that the Admissions and Licensing Committee may only order a hearing to proceed at short notice if it deems it to be in the public interest. It may also exclude from any hearing anyone (including the applicant) who is likely to disrupt the orderly conduct of proceedings.

Complaints and Disciplinary Regulations The substantive changes to the Complaints and Disciplinary Regulations:

* provide a definition of ‘finding’ and amend the definition of ‘order’ accordingly (a change reproduced in the appeal regulations);

* separate interim orders from conditions imposed on an adjournment, and clarify that conditions imposed on an adjournment cannot be appealed;

* set out the effective dates of interim orders and conditions imposed on an adjournment;

* clarify the regulations relating to publicity in light of the new definition of ‘finding’ and in respect of conditions imposed on adjournment;

* enable the chairman, under certain conditions, to correct errors without a further hearing;

* enable the Disciplinary Committee to exclude disruptive individuals from hearings (including members from their own hearings);

* require the Disciplinary Committee to indicate the facts on which its findings are based before a member is invited to make submissions on mitigation and sanction;

* allow for suspension of membership or registered student status at a health hearing.

Appeal RegulationsSubstantive amendments to the Appeal Regulations:

* make separate regulations for Disciplinary Committee and Admissions and Licensing Committee appeals, because a ‘finding’ is applicable only to a Disciplinary Committee hearing;

* specify what needs to be included in the appellant’s grounds for requesting the Appeal Committee to reconsider an application notice;

* provide a procedure for ensuring timely notification to ACCA if the appellant wishes the Appeal Committee, at a full appeal hearing, to reconsider some grounds of appeal where permission was refused by the chairman;

* allow the Appeal Committee to rescind findings as well as orders;

* clarify the regulations relating to publicity.

Code of Ethics and ConductDescriptions of professional accountants and firms and the names of practising firms – Section B4The change to this section clarifies that ethical requirements in respect of ‘stationery’ apply to websites and other electronic communications.

Professional liability of accountants and auditors – Section B9The proposed change incorporates the model rule, encouraged by the Ministry of Justice, in respect of paid trustees and trust draftsmen, whereby if the trust document is to include a ‘trustee exemption clause’, the member has a duty to take reasonable steps to ensure the person creating the trust is aware of the meaning and effect of the clause.

Ian Waters, regulation and standards manager, ACCA

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From left: Lissa Landis FCCA, China controller, Staples; Martijn Vankan, China country finance director, Shell China; Daniel Wan FCCA, MD and CFO, Shui On Land; and John Derham, finance director – Asia Pacific, Federal-Mogul Corporation

The deepening crisis in Europe and the resulting economic fallout continue to make China an attractive territory for investment. But to succeed in an increasingly globalised landscape CFOs must expand their skillset, delegates at the ACCA CFO Summit in Shanghai heard last December.

Although China remains an attractive investment opportunity for multinational companies, delegates were warned that if the crisis in Europe deepens, the country would likely exercise caution in the implementation of financial reform.

‘The crisis in the EU affects everybody,’ said Xu Sitao, chief representative of the Economist Intelligence Unit (China). ‘It has a significant impact on trading and the financial market worldwide.’

‘On the other hand, China itself is undergoing a financial revolution, so if the situation in the EU continues to worsen, China might very well adopt a much more conservative approach in implementing new policies,’ said Xu. China remains watchful of the West’s economy, as another global recession could lead to a drop in demand for the country’s lucrative exports.

For many companies expanding in China, the country’s rising economy – now the world’s second-largest – remains a source of optimism against the backdrop of a debt-riddled West, although a slowing of China’s gross domestic product (GDP) in the third quarter of 2011 caused concern for investors, when it slowed to a 9.1% increase, down from a 9.5% increase in the second quarter.

Xu told delegates that if the EU were to collapse, China could do two things to protect itself from economic harm: lower its expectation of economic growth or lower the interest rate by halving renminbi appreciation.

Martijn Vankan, finance director at Shell China, said that for CFOs working within the region, the delicate nature of the world’s economy should lead to a reassessment of priorities. ‘It becomes which bank do you put it in? Which bank can you still trust?’ he said.

Long-term viewBut Vankan emphasised that with careful planning a downturn could reap benefits, encouraging CFOs to take a long-term view: ‘A downturn is a time when things become cheaper,’ said Vankan. ‘So if you make sure that during an upturn you do the right thing, you make sure you’ve got some reserves to go through the downturn, then the downturn can be a great opportunity to make acquisitions, go into new business and hire new people.’

Edward Shay, vice president (finance) at IBM Growth Markets, was similarly optimistic about expansion into emerging markets. Shay offered advice

to CFOs looking to expand globally, suggesting that transformation at the infrastructure level was key to both lowering cost and freeing resources.

‘There are some key processes as you look at the journey,’ said Shay, adding that it took IBM close to 15 years to smooth international operations. ‘It’s about the standardisation of data systems,’ he said, adding that IBM ‘went from 48 ledgers down to one. We had multiple charts and accounts and we eliminated all of them and created one global system. Standardisation is key from a transformation perspective. Consolidating global processes is a key part of the journey.’

Shay also stressed that attention and focus at the executive level was crucial to effective global expansion. For the CFO that means expanding skills beyond a technical basis. As Vankan put it: ‘Maybe in the past the CFO was expected just to do the accounts and provide the numbers. Now that those in

Challenging times for CFOsThe crisis in Europe could work to China’s advantage – but only with careful preparation and long-term planning, delegates at the ACCA CFO Summit in Shanghai discovered

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the business and the shareholders expect more from the CFO, accountancy skills are less important.’

John Derham, finance director (Asia Pacific) at Federal-Mogul Corporation, agreed, adding that while the CFO’s role is at the top level, understanding the company on all layers was increasingly important.

‘You’ve got to spend time on the manufacturing side, spend time with customers, suppliers,’ said Derham. ‘The customer side is critical. As the CFO you’ve got to instill a customer mindset across the entire finance team. Everything you do should be about: “Does this add value to the customer? Does this make a difference, does this differentiate our product?”’

The talent challengeBut for many of the CFOs at the summit, one main obstacle obstructed smooth expansion in China: a want for talent. With typical staff turnover as high as 25% to 30% in China, holding and retaining the right staff becomes a major part of the CFO’s role.

‘At Shell, people are our top priority and that’s our biggest challenge,’ said Vankan. ‘Your reputation is really a function of the people you have. Having the right people, especially in a growing business like ours, is a big challenge.’

The message for CFOs was, rather than seeking out new talent, identifying and nurturing the key players already in place brings rewards.

‘Look for those people who really do demonstrate communication, the ability to lead and be respected by the team, who want to drive change within the organisation,’ said Derham. ‘Once you’ve identified key players, give those guys more opportunity to really expand their skills.’

Nicola Davison, journalist

The key message of the conference is that finance needs to go beyond technical skills and training. I struggle with that a little bit because I’m very much a technical person but I have to step out of those safe boundaries, work with the business, present to global management and really understand the market that we’re working in.

Working here, my first concern is people. Market turnover in China is around 25% to 30%. Staples has 38%; this is really my top priority, to make sure I identify the right people,

keep the right people and to find what motivates my Chinese staff. It’s quite different; personal relationships are really important in China.

You have to give staff a reason to stay. If they’re not getting something back from the management relationship then they’ll look for a new manager. But once loyalty is there they’re willing to stay and go way beyond the call of duty.

We’re not a multinational; we’re based in China and are looking to expand into the global market. We see the great potential for our business. Chinese companies have many years of experience of how to cut the costs down, but we don’t have the resources that multinationals have, so the first issue is how we’re going to raise the money to support expansion overseas. This is a key challenge for us.

Another issue is that we’re expanding overseas but may not know the overseas market, we don’t know the regulations well

and we don’t know the markets well. We thought the global economy was not so bad, but after Xu Sitao’s speech we realised it is likely to worsen. That has an impact on our forecasting; we’ll probably revise a little downward.

For our Group, like a lot of other companies, the BRIC [Brazil, Russia, India and China] area is very important, in particular, China. China is changing fast and the growth is dramatic. It is therefore a challenge to try to push all of that growth and development into our people at the same pace. I speak to colleagues and they’re dealing with growth rates of 20% to 30% per annum. That kind of growth within a company brings significant challenges.

Of my staff, 90% are local, but in an international environment, such as in European countries or in the US, you don’t find such a high prevalence of one nationality. That’s something we’re trying to change because part of being global is understanding other cultures. We’re actively trying to hire non-Chinese employees so our staff can experience how to deal with other cultures.

I do not think it’s ‘all over’ [in the West’s economy]. I think there’s been a renewed interest in the rise of China and what the market in China can do for the world. The difficulty I see at the moment is that most multinationals still have a strong US or EU perspective. It is naturally very hard for people who have global roles in these companies to feel the upbeat pace in China. To convince somebody in Spain to invest money here when they have to release people, that’s difficult.

*LISSA LANDIS FCCA, China controller, Staples

*STEVEN LI FCCA, CFO, ACCU Service

*GERRY JOSEPH Head of accounting (China), Bayer

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Themed A Harmonious Society with Love, the 15th ACCA Hong Kong Charity Fun Day raised over HK$1.1m for three organisations that support people living in poverty, with hearing impairment and with autism. Held on 8 January at the Chater Road Sunday Pedestrian Zone in Central, the event was officiated by Matthew Cheung Kin-chung, Hong Kong’s secretary for labour and welfare.

The day kicked off with a costume parade by rickshaw racing teams. Their amazing costumes – ranging from Angry Birds to Super Mario Bros – and their creative yet touching slogans sparked laughter and admiration from judges and onlookers.

The event’s highlight was a rickshaw race involving 34 teams from accountancy firms, companies, colleges and institutions. At 52.25 seconds, Hong Kong Exchanges and Clearing (HKEX) was named champion (see table), as well as winning the Top Donation Achiever Award. Other awards on the day went to PwC’s EnerGiser (Most Outstanding Costume) and Ernst & Young (Outstanding Cheering Team).

After the race, participants enjoyed music and dance performances performed by various organisations and schoolchildren. They also joined in at Fun Land’s games booths, with many leaving loaded down with gifts.

This year’s corporate sponsors included Nine Dragons Paper, SML Group, Ultra Active Technology and World Wide Touch Technology. Co-sponsors were Belle International Holdings and Fung Seng Enterprises.

Cheung remarked that the theme of this year’s Charity Fun Day perfectly echoed the spirit and core values enshrined in the government and promote the United Nations Convention on the Rights of Persons with Disabilities: ‘Through this truly meaningful event, we can both help the needy and enjoy this occasion

together in fostering an inclusive and harmonious community for all,’ he said.

Proceeds raised this year will be donated to Jubilee Ministries, Silence and Society for the Welfare of the Autistic Persons (SWAP). Jubilee Ministries will use its donation to fund a project to distribute 300 lunch boxes and 250 cups of soup to the elderly living alone and the homeless each week, while Silence is launching a one-year programme to support people with a hearing disability in adapting to the work environment.

SWAP will provide a one-year programme offering pottery, painting, photography and African drum classes for autistic people to improve their concentration, develop their artistic talent and boost their confidence.

Sherry Lee, journalist

Fun and fundraisingACCA Hong Kong’s 15th charity fun day saw colourful costumes, dazzling dancing and some serious rickshaw racing – all in the name of a number of good causes

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Clockwise from top right: the rickshaw race; a dance performance; rickshaw race winners; magic moments; an unusual Batmobile; Matthew Cheung Kin-chung (centre), ACCA Hong Kong chairman Bernard Wu (second left) and beneficiaries’ representatives

THE WINNERS Champion HKExFirst runner-up Sino Group of HotelsSecond runner-up Sino – Pacific PalisadesFourth Belle International Holdings – Merrell teamFifth BDOSixth Belle – Staccato teamSeventh Deloitte Touche TohmatsuEighth AWAHKNinth Hong Kong School of Commerce

*RICKSHAW RACE

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01Paul Chan (centre), legislative councillor (accountancy constituency), with ACCA members

03Gary Xiao FCCA (top) and Harry Pei FCCA

04Members at the Shanghai event

HONG KONGPAUL CHAN LEADS LEGISLATIVE COUNCIL VISITThe Legislative Council (LegCo) was relocated to the LegCo complex at Tamar in September. Paul Chan, legislative councillor (accountancy constituency) and past chairman of ACCA Hong Kong, gave ACCA members a tour of the new facilities on 30 December to help them understand more about how the council works.

Chan also gave an overview of the composition and work of the council. In addition, the visit also provided a valuable opportunity for members to meet Chan and network with each other.

ACCA Shanghai was honoured to be invited to the 10th Corporate Governance Conference on 19 December, one of the most prestigious annual events held by the Shanghai Stock Exchange (SSE). ACCA technical director Sue Almond gave a presentation on narrative reporting and transparency.

The event was attended by more than 200 delegates mainly CEOs and CFOs of A-share listed companies, as well as representatives from the event’s supporting organisations: State-owned Assets Supervision and Administration Commission of the State Council and the Organisation for Economic Co-operation and Development.

Speakers included Guo Shuqin, chairman of the China Securities Regulatory Commission; Han Zheng, mayor of Shanghai and deputy secretary of the CPC Shanghai Municipal Committee; and Geng Liang, president of the SSE.

NEW MEMBER RECEPTIONS ACCA Shanghai held new member receptions in Shanghai and Nanjing on 13 and 26 November, respectively.

A total of 138 members attended the two events, which consisted of a welcome address by Lisa Zhu, head of ACCA Shanghai, an ACCA pin-awarding ceremony, as well as an inspirational talk on the qualities of a self-realised leader, delivered by Fion Yip.

Fion, formerly director of ACCA Greater China and HR director of Ernst & Young, discussed the importance of understanding oneself in order to master the art of leadership.

FOURTH EDUCATOR FORUM

SHANGHAISUE ALMOND SPEAKS AT 10TH CORPORATE GOVERNANCE CONFERENCE

02ACCA technical director Sue

Almond spoke on narrative reporting and transparency

ACCA Shanghai held the fourth Educator Forum at the Swissôtel Grand Shanghai on 3 December. The event was attended by over 70 lecturers and professors from 32 ACCA partner universities in East and West China.

ACCA fellow members Gary Xiao and Harry Pei delivered presentations on the role of the CFO in strategic management, and delivering the value of the CFO through good leadership practice, respectively.

Gary is the finance and operations director of Hershey’s Shanghai, while Harry is finance controller for Asia at Cooper Crouse-Hinds Asia Pacific.

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BEIJINGNEW MEMBER CELEBRATIONThe New Member Celebration 2011 was held at the Beijing International Hotel on 17 December, attended by nearly 100 new members and affiliates.

Jordan Yu, head of ACCA Beijing, warmly congratulated the new members in his welcome speech. Fellow members of ACCA holding prominent positions also shared their valuable professional experiences. These were: Deng Hui, financial director of the Ritz-Carlton Beijing, Chiu Kan Wing, tax partner at Grant Thornton, Ma Zhuanjie, financial director of GHY Stone, Zhao Gang, general manager of Huaneng Guicheng Trust Inc’s trust department; and Ao Yanjie, partner at Golden Rock Capital.

Members also took part in lively group discussions on topics closely related to recent economic developments, including the future prospects of China’s stock market, pilot VAT reform in Shanghai and China’s real estate industry.

E-CIRCULARS TAKE PLACE OF PAPER CIRCULARSACCA Hong Kong is committed to developing sustainable and environmentally friendly processes and channels of communication.

As part of this commitment, members will no longer receive circulars on various ACCA events or activities in paper form, except for those who do not have an email

address on ACCA records. The paper-free initiative came into force last month (January).

It is therefore important for you to ensure that the current email address held by ACCA is correct and up to date. You can log in to myACCA (www.accaglobal.com/en/member.html) to check your personal information and update your details as appropriate.Those who do not have email address

registered with ACCA will continue receiving circulars in paper form. However, you are encouraged to register an email address and update any changes to your personal particulars via myACCA to help save the environment and avoid postal delay.

If you have any queries, please call ACCA Hong Kong on 2524 4988 (press 3, then press 2) or email [email protected]

24/7 SUPPORT INTRODUCED FOR TELEPHONE ENQUIRIESACCA Hong Kong has been at the forefront of the transformation of ACCA’s global operations, which means members, students and other stakeholders will receive completely consistent, best-in-class, globally available transactional services.

As one of ACCA’s largest member and student markets, ACCA Hong Kong has implemented a single freephone number, +852 2524 4988, for Hong Kong customers, allowing general transactional queries to be handled by the global contact centre, which

operates 24 hours a day, 365 days a year, at no charge to customers.

Supported by ACCA’s global contact centre, Hong Kong-based customers now have greater flexibility when they need to speak to ACCA and have queries resolved. At the same time, ACCA Hong Kong has also been developing better online services for customers as it is recognised that many members and students increasingly prefer to transact with ACCA online.

One significant advance in this area has been the introduction of a complete online registration process

for students, which enables them to register with ACCA – including uploading documents – in less than 15 minutes. To enable students to take advantage of this service, ACCA Hong Kong has introduced self-service terminals in its offices.

All this is part of a commitment from ACCA to offer the best and most convenient service delivery within the global accountancy profession – starting with Hong Kong.

Please also note that from 1 February, ACCA Hong Kong’s office hours are 10am to 6pm, Monday to Friday.

05 Jordan Yu, head of ACCA Beijing, welcomed members. The event also included a number of lively group discussions

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Inside ACCAInside Inside Inside Inside Inside Inside Inside Inside Inside Inside Inside Inside Inside

BRAND AWARDED OBEACCA chief executive Helen Brand is pictured at Buckingham Palace in London in December, shortly after receiving her OBE from the Queen.

She was made an Officer of the Order of the British Empire in the Queen’s official Birthday Honours list in June last year, for services to accountancy.

Brand said: ‘I truly believe that this honour is in recognition of ACCA’s success of which I am extremely proud to have played a part, alongside its members, students and staff around the world.

‘I was delighted to be able to share the special investiture day with my family, whose immense support has allowed me the privilege of serving as chief executive.’

HONOUR FOR HUE A rare honour has been bestowed on Vietnam’s finance minister, Vuong Dinh Hue, for his contribution to the development of the accountancy profession in Vietnam.

ACCA has made him an honorary member – this award has only been given six times since 1999.

The presentation was made by ACCA president Dean Westcott last year.

Council highlights Highlights of the meeting on 26 November

Council’s final meeting of 2011 took place at 29 Lincoln’s Inn Fields on 26 November. This was held immediately following the annual meeting of ACCA’s International Assembly. Assembly members Shalini Popat (Kenya) and Nisreen Rehmanjee (Sri Lanka) were invited to give oral reports to Council on the outcomes of the Assembly meeting, including the debates Assembly members held around the topics of the advent of the e-professional and the future of ACCA’s global policy development.

Council was also pleased to welcome Olivier Boutellis-Taft, chief executive of the Federation of European Accountants, who gave a topical presentation on the European Commission’s green paper on audit.

A number of other issues were debated at the meeting.

* Council met in break-out groups to discuss issues around the advent of the e-professional, a topic which had also been considered by the International Assembly. The discussions focused on how technological advances are changing the role and skills of the finance professional, the key drivers for the increasing use of technology and a profile of the next generation of worker. The outcomes of the discussions will help to inform the development of ACCA’s strategy in this area.

* Council also considered the regular report of the chief executive, covering a number of strategic developments both within and outside ACCA and developments in key markets. Council was particularly pleased to note that ACCA had been awarded a contract to advise on the development of a new post-university professional accountancy programme in Singapore.

* Following an earlier decision that Council’s next international meeting should be held in Nairobi in June 2012, Council received a report on arrangements for the meeting, together with proposals for a programme of events involving members, students and other important stakeholders. The meeting in Nairobi will take place on 23 June, after which smaller groups of Council members and senior staff will undertake visits to Ethiopia, Tanzania and Uganda in order to maximise the opportunity for stakeholders in the region to meet with representatives of ACCA’s governing body.

* Council agreed recommendations from Nominating Committee regarding skills criteria for non-Council members on a number of its standing committees.

* In other business, Council agreed a timetable for choosing its preferred nominee for vice president in 2012–13. It also received presentations from the chairmen of the governance design and market oversight committees on the work plans for their committees for the coming year.

Council will next meet in London on 10 March 2012.

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