accounting and business_february 2012 (singapore edition)

a high pointaccountants scale mount kinabalu

thriving business smps must adapt and survive

opinion a decade of sarboxnetwork manage your brand

CpDget verifiable cpd units by reading technical articles

moDel of suCCessshanker iyer on 20 years in the business

on the brink eurozone: will asia cash in?

talent skills crisis intensifiesdirectors autonomy at risk

absg sg.ab ac

co

un

ting

an

d b

usin

ess 0

2/2

01

2

the magazine for business and finance professionals accounting and business singapore02/2012

SG_cover.indd 1 12/01/2012 15:10

Master of Science inApplied Accounting & Finance

Online Application :

http://ar.hkbu.edu.hk/~gs/index.php

Course Commencement : September 2012

Application Deadline : Full-time mode : 28 Feb 2012 / Part-time mode : 30 Apr 2012

I would like to attend the information seminar on 3 Mar 2012

Name : ________________________________________________

Title : Mr / Ms / Miss Tel : _____________________________

Address : __________________________________________

Email : ________________________________________________

Fax :______________________________________________

Reply Slip (Fax : 3411 5585)

AB Feb 2012

The above programme has been included in the list of reimbursable coursesfor Continuing Education Fund (CEF) purposes

Enquiries :

(852) 3411 2157

[email protected]

Course Details :

http://www.hkbu.edu.hk/~mscaf

Information Seminar

Date : 3 Mar 2012 (Saturday)Time : 2:30pm - 3:30pm

Venue : WLB 601, Wing Lung Bank Building for Business Studies, Renfrew Road, Hong Kong Baptist University, Kowloon Tong

For reservations, please call Miss Yu at 3411 2157

Suitable for

Accounting and Finance Professional, Business Managers and Senior Executives

Features

- Integration of accounting and finance knowledge- Most updated information about the development in

accounting and finance- Exemption of two subjects to current HKICPA and ACCA

members

Tuition fee HK$118,000

Study mode 11/2 - year part-time mode / 1 year full-time mode

C

M

Y

CM

MY

CY

CMY

K

357618.pdf 1 30/12/2011 4:45 PM

Asia Ads.indd 1 03/01/2012 11:38

Since setting up his own practice in 1993, Shanker Iyer has gone from strength to strength, collecting a number of prestigious accolades . For our interview with this respected and admired Singapore accountant, turn to page 12

HITTING THE WALL?Singapores accountancy sector is at a crossroads. Policymakers have big ambitions to transform the city-state into a global hub for accountancy services, but the profession is facing a serious talent crunch and the problem is not just about attracting talent.

The final report by the Committee to Develop the Accountancy Sector (CDAS) pointed out that the sector faces serious challenges in talent retention; at the same time Ministry of Manpower data indicates that auditor and accountant roles are consistently among the top 10 job vacancies. In fact, statistics for 2010 placed the job of accountant top of the list of vacancies in the professional services sector, with auditor second.

Though the issue has been a long-standing one, the demand for talent has become acute in the wake of the financial crisis and with Singapores growing affluence. This months main feature on page 16 examines the underpinning issues and provides insights from various industry players on ways to tackle the problem.

Solutions for easing the crunch seem mixed. Some observers argue that the severity of the shortage can be eased by attracting foreign talent and developing local talent and that strategy appears to be key for the CDAS.

Others warn that the shortage will dent Singapores plans to be an accountancy hub operating in a complex global economy. That hub needs accountancy professionals with a wide range of skills and crossborder work exposure. Some of the other investments to promote Singapore as a banking centre will suffer if the country does not have access to accountants with the right skills.

There is also the chance the shortage will relieve itself in the next few years, even without intervention.

While the process ahead remains uncertain, its clear the problem cant be resolved overnight. Attracting and retaining the right kind of talent may require patience and persistence going forward.

Sumathi Bala, [email protected]

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

TIMES UPTenure, multiple directorships and strong ties to CEOs all threaten the objectivity, independence and effectiveness of company directors in Asia. Page 52

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

3Editors choice

SG_B_Edletter.indd 3 12/01/2012 17:06

Audit period July 2009 to June 2010138,255

Features12 Going globalThe secret of Shanker Iyers success has been to step outside his comfort zone

16 Crunch timeTo become an accountancy hub, Singapore must solve its talent crisis

20 Euro stormA 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 order Global power will continue to shift to emerging markets, says IFA board member Japheth Katto

51 Fight for independence The effectiveness of directors in Asia is under threat

VOLUME 15 ISSUE 2

Editor-in-chief Chris [email protected] +44 (0)20 7059 5966

Asia editor Colette [email protected] +44 (0)20 7059 5896

International editor Lesley [email protected] +44 (0)20 7059 5965

Singapore editor Sumathi [email protected]

Chief sub-editor Eva Peaty

Sub-editors Peter Kernan, Vivienne Riddoch

Design manager Jackie Dollar

Designers Robert Mills, Jane C Reid

Production manager Anthony Kay

Advertising James [email protected] +44 (0)20 7902 1210

Head of publishing Adam Williams

Printing Times Printers

Pictures Corbis

ACCAPresident Dean Westcott FCCADeputy president Barry Cooper FCCAVice president Martin Turner FCCAChief executive Helen Brand OBE

ACCA [email protected] +44 (0)141 582 2000

ACCA Singapore435 Orchard Road#15-04/05 Wisma AtriaSingapore 238877+65 6734 8110 [email protected]

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

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

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

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

29 Lincolns Inn FieldsLondon, WC2A 3EE, UK+44 (0) 20 7059 5000

www.accaglobal.com

AB SINGAPORE EDITIONCONTENTSFEBRUARY 2012

SG_Contents.indd 4 13/01/2012 15:42

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 Whats behind the current trend of companies drawing down cash?

40 Errol Oh Malaysias Inland Revenue Board is getting tough

35 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

Regulars

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

Your sector

TECHNICAL46 Update The latest from the standard-setters

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

CAREERS54 Building brand you Online social networking is a powerful tool for managing your career

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

ACCA 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 to the 2012 ACCA Rulebook

60 Kaka Singh Affi liation is challenging, says ACCA Singapores president

61 Commitment is key ACCA deputy president Barry Cooper talks ethics

62 Climb every mountain Accountants scale Mount Kinabalu for charity

64 News SMPs must adapt to survive; highlights of the Council meeting on 26 November

Changes to the 2012 Changes to the 2012 Changes to the 2012 Changes to the 2012 Changes to the 2012

SG_Contents.indd 5 12/01/2012 17:07

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 Tokyos Tsukiji fish market, smashing the record price for a single bluefin

03 Honda had to destroy 1,055 cars, after Thailands worst flooding for 50 years led to the carmakers factories in Rojana being swamped for nearly two months

News in pictures6

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

04 North Koreas 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 Kyis 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.

Mon

th

in fi

gur

es

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.

CAPITALS 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 PwCs 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 DONT 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 JOB40%

OF RESPONDENTS

MOST FEAR

REPUTAT

IONAL

DAMAGE

1/10WHO REP

ORTED

FRAUD LOST MORE

THAN US$5M

51%Proportion of investors deploying strategic planning tools to plan for an uncertain business environment, according to AT Kearneys 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 Spains 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

th

in fi

gur

es

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

Helen Brand

STAMP DUTY DANGERThe key organisation representing property developers in Singapore has warned that the new cooling measures that sharply raised stamp duties could hurt the real estate market and the wider economy. The president of the Real Estate Developers Association of Singapore (Redas) said developers may face increased land costs. The curbs could also lead to a fall in home values, while possibly damaging the already fragile economy and dampening foreign investment. The measures dubbed by some experts as the harshest since September 2009 include an additional buyers stamp duty of 10% on foreigner home purchases.

TAX INCREASE DELAYEDJapans ruling party, the Democratic Party of Japan (DPJ), has agreed to postpone a sales tax increase amid growing opposition. A DPJ panel has agreed to delay raising the tax to 8% until April 2014, with a further increase due in October 2015. The 8% tax level

was due to come into force by April 2013. Prime minister Yoshihiko Noda has been seeking to double the sales tax from the current 5%, amid growing debt levels.

SLOW GROWTH TO COMESingaporeans must brace themselves for a longish period of slow growth, as the global economy is expected to be in for a slowdown, said minister for trade and industry, Lim Hng Kiang. The government, however, does not expect an economic crisis. Growth for 2012 is still expected to be positive, slowing to between 1% and 3%, from last years 4.8%. His comments came after Prime minister Lee Hsien Loong urged Singaporeans to take this years slowdown in their stride.

CUT TAX TO PROTECT ECONOMYPwC Singapore is calling for a reduction in the corporate tax rate in the upcoming Budget to help shield the economy from global turmoil. It says now is a good time for tax rates

to come down, with the eurozone crisis still unresolved and Singapore showing signs of slowing. PwC is pushing for the company tax rate to drop to 15% from 17%. It says that, with many businesses and individuals looking to Asia, lower taxes would be welcome.

DEAL CEMENTS CLOSER TIESJapan and India struck a US$15bn currency swap deal that could support the sagging rupee as Japanese premier Yoshihiko Noda made a lightning trip to New Delhi to push closer ties. The deal was part of a slew of agreements clinched by India and Japan, which is seeking to forge stronger alliances in the Asian region as a counterweight to Chinas growing might. Japan has technology and capital while India has a young workforce as well as abundant demand for infrastructure, Noda said.

IPOS FALL 3%The equity capital markets in Singapore have raised US$6.3bn from 68 issues in the year to date, down 3% from last year, according to data from Thomson Reuters. Mapletree Commercial Trusts US$764m initial public offering (IPO) is the biggest by a Singaporean-based company for 2011 on the Singapore Exchange (SGX). The honour of the top IPO on the SGX, however, goes to Hong Kong-based Hutchison Port Holdings, whose US$5.5bn offering also makes it the largest ever in Singapore, surpassing SingTels long-held record since 1993.

OUTSIDE INVESTMENT ENABLEDIndia will allow foreign nationals to invest directly in the countrys listed companies, in a bid to deepen its under-developed capital markets. [We] decided to allow qualified foreign investors to directly invest in the Indian equity market in order to widen the class of investors, attract more foreign funds and reduce market volatility, the Finance Ministry said. The move, which also allows pension funds and trusts greater freedom to invest directly, was due to come into effect on 15 January 2012.Helen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen BrandHelen Brand

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 Asias 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.

10 News round-up

SG_B_newsroundup.indd 10 12/01/2012 10:49

20

BANKS AND TELCOS A SAFER BETSingapore banks and teleco companies have been pitched as safe bets for investors next year away from more volatile sectors such as commodities and property. Analysts expect the wider market to dip further in 2012, before a rebound later in the year. A decline of 16% thus far makes Singapore the worst performer in South-East Asia. It is about on par with Japans decline but not as steep as the drop in Hong Kong, India or mainland China.

INDUSTRIAL GROWTH SLOWINGChinas industrial companies are posting slower profit growth, a further sign that the countrys economy is losing pace. According to the National Bureau of Statistics, industrial firms saw their net income rise by 24.4% in November, compared with 25.3% in October 2011. The industrial sector has been one of the main drivers of Chinas expansion. Chinas growth has slowed for three quarters in a row and some forecasts see it dipping below 9% in 2012, which would be the weakest expansion in more than a decade.

MORE KEY SECTORS IDENTIFIEDThe National Productivity and Continuing Education Council has identified four additional sectors to boost Singapores productivity. They are: financial services, accountancy, social services and process construction and maintenance. These sectors, together with the 12 identified in 2010, will expand the scope of sectors reviewed by the council from 40% to approximately 55% of the countrys gross domestic product and from 55% to 60% of employment in Singapore.

M&A ASSESSMENT SPEEDS UPChina will quicken the pace of assessing merger and acquisition (M&A) proposals in 2012 to handle a fast-growing number of domestic and crossborder deals. Shang Ming, who heads the anti-trust division of the Ministry of Commerce, said the sluggish global economy had slowed down organic business expansion and pushed companies towards increasing

sales through M&A deals. His ministry had received 194 applications for M&A deals from domestic and foreign companies between January and mid-December, up 43% from a year earlier.

OLYMPUS AUDIT PROBEDA panel reviewing auditing at Olympus said it had so far found no violations

hit a new high of S$2.5bn in 2010, up 9.6% from 2009. Business expenditure on R&D, an indicator of private sector spending in research, also grew by 6% from S$3.7bn in 2009 to S$3.9bn in 2010. Total expenditure on R&D in Singapore in 2010 was S$6.5bn, up 7.4% from 2009. The statistics were reported in the National Survey of

SINGAPORE FEELS EFFECT OF TRADING PARTNERS WOESSingapores economy contracted less than expected in Q4, but the outlook remains clouded by the troubled economies of its key trading partners in the developed world. The economy contracted at an annualised pace of 4.9% in the October-December period from the third quarter, when it had managed to eke out a small gain of 1.5%, the Ministry of Trade and Industry said. The median forecast in a poll of nine economists was for a 5.5% contraction in Q4. The economic crisis facing Singapores key trading partners took its toll on the island nation as the sovereign debt crisis in the eurozone and weak growth in the US economy crimped demand for goods and services. The contraction in Q4 capped when Singapores growth eased to 4.8% after a record 14.5% expansion in 2010.

of accounting guidelines in the handoff to the Japanese arm of Ernst & Young from another auditor, which drew questions from a previous panel looking into a US$1.7bn accounting scandal. The panel said in an interim report that further examination was needed of the handling of the takeover by Ernst & Young ShinNihon from KPMG AZSA in 2009. External auditors for Olympus have faced questions over whether they were tough enough in monitoring its books.

FUNDING BOOST FOR R&DPublic expenditure on Singapores research and development (R&D) sector

R&D 2010, published by the Agency for Science, Technology and Research (A*STAR).

CHINA TOP FOR IPOSChina has again outshone the US as the top venue for initial public offerings (IPOs), despite steep share price falls on the mainland and Hong Kong stock markets. Companies raised US$73bn from IPOs in Shanghai, Shenzhen and Hong Kong this year, according to Dealogic almost double the amount of money raised on the New York Stock Exchange. Hong Kong retained its crown as the top bourse for the third year in a row, with US$30.9bn raised.

Fountain of Wealth, Singapore

11AnalysisCURRENCY CRISISOnce a contender to become the worlds 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?

SG_B_newsroundup.indd 11 12/01/2012 10:49

When Shanker Iyer FCCA started his practice in Singapore in 1993, it was an unplanned move. I did

not actually intend to open my own practice, because I knew it would be very tough, he says. But I had always wanted to do my own thing. After working as a partner in a firm for many years, I couldnt see myself going into a company and reporting to someone for the rest of my life.

Formerly a partner with Moores Rowland in London and Singapore, he moved to Singapore in 1992 when the UK economy began to show signs of recession, and found himself at a

crossroads: join a company or open his own firm?

He picked the road less travelled and, almost another 20 years later, The Iyer Practice is a boutique firm specialising in international business and with sidelines in niche areas such as trusts; it is probably the only certified public accountant firm in Singapore that has a commonly owned trust company which is licensed by the Monetary Authority of Singapore. Its clients are primarily successful private companies or high-net-worth individuals around the world who are either doing business in, or structuring investments through, Singapore.

Iyer chairs both the Singapore International Chamber of Commerce (SICC) and the Singapore branch of

the International Fiscal Association, the latter being his fourth term. Prior to that, between 1998 and 2004 he served as president of the British Chambers of Commerce (BCC) in Singapore, a position that eventually won him an Order of the British Empire (OBE) in 2002 for his services to British commercial interests in Singapore Singapore and also as the inaugural president of the European Chamber of Commerce in Singapore from 200207.

Speaking of the accolades he has accumulated, Iyer says: If I wanted to get to the level where I am now, it was very important to do something outside the office. You cannot just live in your

own world; you have to go out there and build your profile.

Rude awakeningThat need for exposure was brought home to him in the early days of his practice. The difference between working as a partner in a major firm and working on his own came as a rude awakening, he recalls. Although he had spent several years in his former firms Singapore office, and was thus familiar with the landscape, he was not prepared for the obstacles faced by small, new and unknown firms; even basic things like approaching a bank for financing or pitching his business to clients took on new layers of complexity.

Coming from a big company, doors open for you because their name and

A GLOBAL TALENTAfter deciding to go it alone, Shanker Iyer FCCA has seen his career go from strength to strength picking up a clutch of prestigious accolades and positions along the way

COMING FROM A BIG COMPANY, DOORS OPEN FOR YOU BECAUSE THEIR NAME AND LOGO IS BEHIND YOURS. BUT ON YOUR OWN, ITS JUST YOU

The CV2011

Elected chairman of the Singapore International Chamber of Commerce.

2008Elected chairman of the International Fiscal Association, Singapore Branch.

2002Elected president of the European Chamber of Commerce, Singapore and conferred as Order of the British Empire (OBE).

1998Elected president of the British Chambers of Commerce, Singapore

1993Established The Iyer Practice in Singapore.

1973Gained ACCA Qualification.

12 Interview

SG_F_Shanker.indd 12 12/01/2012 10:51

13

SG_F_Shanker.indd 13 12/01/2012 10:51

logo is behind yours. But on your own, its just you, and nobody behind you, he says. Which makes it that much more satisfying when you succeed, because then you have done it through your own effort and talent.

In order to build his own profile, he became heavily involved in the business

The tipsThe main obstacle to growing a practice is talent, not business, says Iyer. If you are good at what you are doing, theres plenty of business around, he says. Its similar to going to a restaurant or a shop: everybody wants good service, so if you can provide that, and your reputation is good, clients will come. The challenge that smaller firms face is people attracting and retaining them. And its going to get worse with the current policy of restricting foreign talent.

It is also not possible to compete with the Big Four in terms of attraction, he adds. At the end of the day we are running a business, he says. We have to keep pace with salaries but there is a limit.

On the other hand, he feels that the talent shortage may be eased by other factors, beginning with the abolishment of audit for small businesses. The audit profession will see a significant reduction in demand in the next few years. Well see a lot of people refocusing from audit, and that will free up talent for other areas, he says.

Similarly, Iyer suggests, competition with banks may peter out. I believe that the competition with banks will be less of an issue in future, he says. Following the financial crisis, banking has become a less attractive industry. We may see less and less people going into the sector.

community, drawing on connections from his earlier stint in Singapore. He had been auditor for the BCC since the mid-1980s and, in 1995, was invited to join the committee. Finally, the big break came in 1998 when he was elected president of the chamber.

Never in my wildest dreams did I expect to become president of the BCC, he says. When that happened, my profile was substantially lifted. It was no longer just professional work, but recognition in society.

The timing, as it happened, was also right for him to demonstrate his own skill. The BCCs finances were not in good shape at the time, and his accountancy background came in useful for straightening things out.

International connectivitySince starting his practice, Iyers focus has always been on international business, including and not limited to his close involvement with the British business community in Singapore. My strength was in being qualified to work globally, and Singapore had a lot of international businesses then, as it still

does now, he says. So I concentrated on strengthening my international connectivity to begin with.

It was an apt choice considering his background. The Iyer family has been in practice literally around the globe for four generations, beginning with his grandfather, who had a practice in Burma, although he had to abandon it and flee to the UK when the military took over. His two uncles are chartered accountants; one had a practice in Canada. And Iyer and his brother are chartered accountants. Now, his own children are going into practice, too. Were an accounting family; you could say its genetic, he quips.

The various services offered by The Iyer Practice expand on this initial specialisation, covering areas such as wealth management which follows Singapores strategy to grow that segment of the financial sector and international tax, which is particularly relevant to the firms work.

The world of international tax has evolved in quite some ways, Iyer says. We see increased exchange of information, the developed countries

14

SG_F_Shanker.indd 14 12/01/2012 18:05

needing to protect their tax base, and more focus on international structures. The biggest and most fundamental of these changes is, he adds, undoubtedly greater exchange of information within the last few years. Until then, there was always the issue of secrecy. No country would discuss their domestic tax affairs with other countries, unless there was

some serious criminal activity involved.Now, he says, disclosure is becoming a

global phenomenon. Although his clients are not yet affected, there is a general awareness of the changing landscape, and the firm is already receiving inquiries. Its early days, he comments. But going forward, everybody will have regard for the new environment. The advantage of being based in Singapore, he adds, is that it has a very strong brand and is well positioned to overcome issues caused by the changes.

A changing professionInternational business and tax are not the only things to have changed. In almost 40 years, says Iyer, the accountancy profession has changed quite a bit, especially in terms of regulation. In Singapore, the current review of the Companies Act will have a significant impact on the audit profession because of the proposed abolishment of audit for small businesses. Firms will have to do things very differently, he observes. They will have to change the way they approach clients and the areas they focus on. Anyone who still relies on statutory audit to survive will have a problem, because that whole market is likely to shrink in a few years time and be concentrated in a handful of specialist firms.

In five or six years, he predicts, specialisation will become the trend, with an increasing number of young accountants having to choose a particular area rather than entering audit en masse. Its not a bad thing at all, he says. The universities will have to train people differently, of course.

Another change in the industry, he observes, involves the expansion of service providers outside the traditional

accounting pratices. Global trust companies are moving increasingly into what used to be the province of accountancy firms, which may prod firms into offering services more often associated with the financial sector. Large international trust companies are starting to set up in Singapore and offer services somewhat similar to to those provided by accounting firms, he says. Some are even doing tax work, although that largely remains the preserve of the accounting profession, he says. But

theres nothing to stop traditional firms from doing the same, just as we are doing now.

With his experience of establishing a successful practice, Iyer is open to the idea of young accountants striking out on their own. I dont think age is a barrier in itself, he says. Of course, clients expect to see some experience in order to take them seriously.

It is important for the entrepreneurially minded to understand and focus on their own strengths, he explains. The more specialised you are, the more chance you have of succeeding, he says. Get to be known in your own chosen field; pick something that the more established firms dont do much of, especially in the use of technology.

It also helps to train overseas and in a bigger firm, he adds, because that gives one a wider perspective both in seeing the bigger picture and in familiarity with a broader range of services. The more exposure you have, the more you will be able to add value to your business.

On top of this, he says, there are three As that clients look for: affability, availability and ability. The most important is affability; you need to get along with your clients. The second, availability, means being on call all the time. Its very important for a budding young accountant to have the right PR skills, to be able to get on with people and communicate, he says. Clients will always go for someone whos available to them.

The third, which a lot of clients take for granted, is ability. They assume that because we have a licence, weve done our studies and have been approved by the authorities.

Ultimately, he says, success whether in a generalist role or a niche, a large firm or your own practice comes down to one trait: Be persistent. Theres no difficulty in getting clients if you get the right message out.

Mint Kang, journalist

THE MORE SPECIALISED YOU ARE, THE MORECHANCE YOU HAVE OF SUCCEEDING. GET TO BE KNOWN IN YOUR CHOSEN FIELD

15

SG_F_Shanker.indd 15 12/01/2012 10:51

Singapores accountancy sector has suffered a major talent crunch in the last year and a half. The final report by the

Committee to Develop the Accountancy Sector (CDAS) said that the sector faces serious challenges in talent retention; meanwhile, Ministry of Manpower data indicates that auditing and accounting roles are consistently among the top 10 job vacancies. Statistics for 2010, the year of the CDAS report, placed the job of accountant at number one on the list of vacancies in the professional services sector, with auditor at number two.

The issue is a long-standing one, say industry players. Darryl Wee, country head of ACCA Singapore, dates it back at least to the 1990s and the increased demand for assurance services that accompanied Singapores economic growth. However, he says, the shortage recently became acute after the recovery from the financial crisis, and may continue to grow if nothing is done to ease it.

Statistics from Robert Half International, which specialises in the placement of finance, accountancy,

banking and technology professionals, also indicate a relative shortage of qualified accountants in Asia prior to 2008, according to Tim Hird, managing director for Asia. This has been exacerbated in the last few years by global institutions shifting their operational functions to the region for cost control. The amount of contract work for accounting professionals has gone up by 300% in the last two years, he says. This might mean that more accounting-related work is being outsourced for whatever reason.

Attraction and retentionAn insufficient supply of local accounting graduates is commonly stated as one reason for the shortage. However, the issue runs far deeper than that, says Professor Pang Yang Hoong, dean of the Singapore Management Universitys School of Accountancy.

Each year, the three universities together produce almost 1,200 accountancy graduates. In addition, returning foreign accountancy graduates, as well as private education providers and professional bodies such as ACCA, produce another several

hundred accountants each year, she adds. The problem is in the relative unattractiveness of compensation packages and long working hours in the accountancy sector, compared with other sectors that hire accountants and accounting graduates, such as the finance sector.

Only half of Singapore Management Universitys accountancy graduates, she says, go into professional accountancy jobs each year. In contrast, up to a third will enter banking or finance for the attractive salaries offered.

Concurring, KPMG managing partner Tham Sai Choy says that the long-term cause of the problem is competition for talent within the Singapore labour market. The accounting profession remains an attractive career proposition but now competes with a vast array of new career opportunities, he says. These other careers also offer prestige, job satisfaction and monetary rewards.

Attracting talent is only one half of the battle, says Philip Yuen, CEO of Deloitte Singapore. The attrition level is relatively high, he says. At the junior level, it is relatively easy

AGAINST THE FLOWSingapores accountancy sector is continuing to struggle to attract and keep hold of its talent, so how will the crisis affect the city-states bid to become an accountancy hub?

16

SG_F_talentcrunch.indd 16 10/01/2012 14:38

to fill positions. But after a few years, many people move on. The challenge is to retain the ones we want. It is, he adds, difficult for the accountancy sector to compete with the remuneration packages offered by the banking sector.

Accountants are often hard to retain as they are high in demand and therefore have a lot of opportunities to choose from. There is also a perception that moving jobs can provide a higher salary, agrees Hird, citing the ACCA-Robert Half International Talent Mobility Survey 2011, which found that nearly half of accounting professionals in Singapore intended to work with a new employer in two years time.

Uphill struggleIt is all but impossible for firms other than the Big Four to attract local graduates, say partners in medium-sized firms in Singapore. Shanker Iyer, chairman of The Iyer Practice, says that he relies entirely on talent from

around the region to fill positions, and his firm is not alone in doing so. There are simply not enough local graduates to go around, he says. The supply crunch is in all areas, right down to corporate staff. Even chartered secretaries are in demand.

In economic upswings, says Teo Cheow Tong, senior partner/HR partner at RSM Chio Lim, the situation becomes even worse for well-known firms like his RSM Chio Lim is Singapores largest audit and advisory firm outside the Big Four as the competition then is not just with the banks, but with other firms trying to headhunt their experienced people.

Industry insiders estimate that in any given year prior to the financial crisis,

any one of the Big Four firms could have single-handedly absorbed a third to one half of all the local accountancy graduates produced without taking into account those who chose to enter a different profession.

This is not to say that the Big Four are not facing the same issues. There have been occasions when Singaporean firms experienced major talent outflows offshore, such as the massive privatisation of the Chinese economy between the late 1990s and early 2000s. For us, the shortage became acute during that period, recounts Deloittes Yuen. A lot of Singapore accountants were pulled to China, and so were accountants from other countries around the region, including Malaysia, where we traditionally source overseas talent.

There is also the tendency of fresh graduates to join the firm for its prestigious name, and then leave after several years when they have the experience to secure a position

in commercial accounting. We are a training ground for the industry, Yuen says wryly. Having worked with us, they are very marketable; its a good thing for everyone.

What about the hub?Singapores ambitions to be an accountancy hub have been made clear, with deputy prime minister Teo Chee Hean highlighting them in a speech last October. These ambitions are almost certainly going to be affected by the talent shortage, but it is difficult to estimate the extent of the impact. ACCAs Wee thinks that developing an accountancy hub will actually ease the shortage rather than exacerbate it, as CDASs

recommendations will help small and medium-sized firms make themselves more attractive to talent.

So long as the economy is doing well, the shortage is unlikely to go away, he says. However, the severity of the shortage can be eased by increasing the pool of talent by both attracting foreign talent and developing local talent which appears to be key motivations for the CDAS recommendations.

On the other hand, KPMGs Tham feels that the shortage will create problems in the near future. Singapore operates as a hub in a complex global economy. That hub needs accounting-trained professionals with a wide range of skills and crossborder work exposure. Some of the other investments to promote Singapore as a banking centre or as a fund management centre will suffer if we do not have access to the right skills, he says. No doubt, some of that shortage can be dealt with by importing the skills. But if we did that, we would have wasted the opportunity to build enriching careers for even more of the talented people we do have in Singapore.

The most optimistic view comes from Ernest Kan, president of the Institute of Certified Public Accountants of Singapore (ICPAS), who feels that the shortage will have little or no impact. Given Singapores fiscal policy outlook, it is unlikely that this issue will create significant repercussion, he says, pointing out that measures are already underway to widen the talent pool.

As early as October 2010, for example, the Accounting and Corporate Regulatory Authority began to recognise international experience in auditing to satisfy the practical experience requirement for registration as a public accountant. And this year, a post-university qualification programme backed by ICPAS and designed by ACCA is likely to be launched to bring non-accounting graduates into the profession, as is successfully practised in the UK.

THE PROBLEM IS IN THE UNATTRACTIVENESS OFCOMPENSATION PACKAGES AND LONG HOURSIN THE SECTOR, COMPARED WITH OTHER SECTORS

17


Level of position being filled

Entry

Mid-management

Senior

Source: Robert Half

corresponding drop in fee volume. Professionals will be able to have better work-life integration without having to make financial sacrifices.

Yuen also adds that there is a need to change the image of audit. Many businesses deem audit a necessary evil and do not fully appreciate the industry, creating a gap between audits actual value and its perceived value in clients eyes. We need to promote the value of audit and bring people to understand what audit is about, he says.

What may lie aheadThere is a chance that the shortage will relieve itself in the next few years, even without intervention. Robert Halfs Hird estimates a 10% to 20% increase in the number of people seeking to enter the accountancy sector in both Hong Kong and Singapore over the last two years. Applications by local candidates have increased by two to three times, he says, while foreign candidates have gone up three to four times.

At the same time, many are worried by the governments Singapore First policy, which will hit the exact group of overseas professionals that small and medium-sized firms rely on to plug their talent gap.

Furthermore, warns ACCAs Wee, the supply of overseas talent may dry up as countries around the region begin to face their own shortages brought on by economic growth. It may not be feasible to over-rely on lower-cost foreign inflows as a panacea to ease the shortage into the indefinite future. The local pool of experienced talent with specific domain expertise needs to grow urgently and dramatically, he says.

Overall, it is certain that just as the problem has been entrenched for some time, the solution will also take a while to make itself apparent. As Yuen puts it: If we had a recipe for success, it would have been done much earlier.

Mint Kang, journalist

With the ongoing convergence in global accounting standards, accountants professional skills become more portable across borders, says KPMG managing partner Tham Sai Choy. For example, emerging economies are often in need of experienced accountants. Accounting-trained professionals are therefore enjoying more job opportunities both at home and abroad, and competition for talent is both local and global.

Data from the fifth annual Robert Half Global Financial Employment Monitor corroborates his assessment, with 67% of respondents indicating that it is very or somewhat challenging to find skilled accounting and finance professionals for certain jobs. A further 56% said they are at least somewhat concerned about retaining their staff in 2012, up from 45% in 2010.

In Singapore, compared with Hong Kong, firms have an easier time filling entry-level positions but a harder time getting senior personnel.

Average time to hire

Singapore

Five weeks

Nine weeks

14 weeks

Hong Kong

Seven weeks

10 weeks

12 weeks

*FLOATING ACROSS THE BORDER

students are more motivated by career advancement and good working relations with colleagues than by monetary compensation.

Another commonly highlighted issue is the need to move away from the current heavy emphasis on audit, which is believed to distort supply and demand. RSM Chio Lims Teo says making audit optional for non-public interest entities will ease the demand on firms and professionals. Businesses that view audit as nothing more than a statutory requirement are resistant to fee increases, although standard compliance has increased over the past few years, he points out. Making audit optional will result in a fee structure that is more reflective of real demand. This will lead to lower demand for audit services and talent without a

Suggestions for the futureThe most anticipated of the above measures is for non-accountancy graduates to begin entering the profession, something which many anticipate as a game-changer.

Close after that comes work-life balance and career progression, which are often cited as the long-term reasons for poor talent retention in the sector. Firms need to speed up and broaden career progression for young accountants, says KPMGs Tham, pointing out that accountants roles have today expanded from the back room to the CEOs right hand.

Singapore companies are not dedicating sufficient resources to train accountants in middle management, says Dr Kan, citing recent ICPAS research which indicates that Generation Y accountancy

18


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 worlds next reserve currency.

Now, thats 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 ones 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 Hemingways 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 worlds 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 Europes economic imbalances.

Harvard economist Martin Feldstein has pointed out that since the euros 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?

20

AP_F_eurozone.indd 20 12/01/2012 16:23

crisis, such as Irelands move to back its troubled banks, didnt seem to damage faith in the euro system.

and suddenly, againAlthough a few eyebrows were raised over Greeces spending for the Athens 2004 Olympics, it wasnt until December 2009 that the story about the true size of Greeces 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, lets say in the first six months of 2010, where they could have reacted, but they let that period go. They didnt 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 peoples 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, thats 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 worlds 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 theyll sign it, he says. They have no other choice.

However, Amor doesnt believe that austerity will be enough to end the crisis. You want a more robust union in terms of fiscal discipline, supervision, sanctions, etc?

Thats [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, weve had enough? And thats the moment of truth. But thats 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 Universitys Judge Business School, agrees. The Chinese are always looking for a good deal and theyre 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 worlds 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 wont 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 EUROPES BARGAINS?

22


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 Japans 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 countrys 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 Japans 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 years earthquake and tsunami

THE ACCOUNTANCY PROFESSION HAS REACTED WITH DECISIVENESS AND ALACRITY IT NEEDEDTO, GIVEN THAT THE EARTHQUAKE STRUCK WEEKSBEFORE THE START OF JAPANS 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

25


The disaster has also served to further hamper discussions over Japans 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.

Jimis 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, Jimis 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

26


A PWC REPORT ON THE GLOBAL COMMUNITYS PERSPECTIVE OF THE SITUATION OVER THECOMING MONTHS SUGGESTED THAT CEOSCONFIDENCE 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 communitys 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 Japans 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 governments announcement, the Japanese parliament approved a bill to secure funding for reconstruction efforts through changes to the nations 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

27


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, ACCAs 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 doesnt 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

28

AP_F_riskreport.indd 28 12/01/2012 16:59

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 its our job to identify and evaluate every risk in a target companys 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 ABCIs exit target.

ABCI researches the sources of the companys 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 teams 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 KPMGs 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 INPUT0% 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

ACCAs study asked how accountants could influence the decision-making process

30


CM

Y

CM

MY

CY

CMY

K

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 accountants-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. Africas links

with the region are deepening and expanding. For instance, Australias trade with Africa is growing at an average of 6.1% a year and China ended 2010 as Africas 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, Africas great potential in energy, minerals and commodities will make the continent the next frontier for the Asia Pacific economies.

From Australia to Vietnam, Asia Pacifics 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 its 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. ACCAs latest quarterly surveys of the worlds 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 worlds 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 Economists World Debt Guide, which shows overall debt as a perce

accounting and business_february 2012 (singapore edition)

Documents

ab accounting

business studies

business managers

business singapore022012sg

fulltime mode

talent retention

singapores accountancy

year parttime mode