PLUS• Inside Shanghai’s new free trade zone• Vitasoy Financial Controller Friendly Fong• Can CPAs live without their BlackBerry?

Institute members show off their

culinary skills in time for the festive

season

Signing off on aremarkable year

T ime flies. My presidency will end this month after the annual general meeting. It has been a privilege to serve our members over the past 12

months. This year marked a momentous milestone for the Institute as it celebrated its 40th anniversary. As President, I have been fortunate to be able to learn from the examples set by my predecessors and supported by our dedicated Vice Presidents, Council and Committee Members and the capable Chief Executive and Registrar and the committed staff he leads. Thank you, all of you. Together, we have achieved a lot for our members in 2013.

First and foremost, the audit regulation reform has taken an important step following the issu-ance of a member consultation in October. Since then, we have been actively engaging members, in particular key stakeholders including practis-ing certificate holders, listed-company auditors, small- and medium-sized practitioners and pro-fessional accountants in business, to learn more about their views so that we can incorporate them in our final submission.

The consultation is a culmination of efforts with the government and the Financial Reporting Council since the Institute initiated the study in 2008 to enhance the independence of regulation of listed-company auditors in Hong Kong. Your opinions can make a difference, so remember to provide your response by 10 January 2014.

Another major achievement is the promulga-tion of the Sixth Long Range Plan, which was in-cubated under the leadership of Keith Pogson, our Immediate Past President, and finalized this year. The plan charts the Institute’s course for the years ahead as we continue to help Hong Kong maintain its status as an international financial centre and create new opportunities for the profession.

The member forum series, held on the last Monday of the month from April, is a new initia-tive this year. It enables us to meet face-to-face with members to explain the vision of the Sixth Long Range Plan and work of the Council. It also creates another way for us to listen to your opin-ions directly.

During the year, my role as President has given me extra opportunities to meet a range of differ-ent groups of our members. As a professional

membership body, we should keep doing this en-gagement so that we can meet the needs of our ever more diversified membership. My enthusi-asm is especially on students and young CPAs, as we need to develop them for future leadership.

Another group of members always on my mind is professional accountants in business. I have been championing to further enhance development for them, including launching a financial controller CPD series. The series of seminars, especially the the section on strategic financial management: experience sharing from PAIBs, received a very positive response. This bodes well for the Financial Controllership Programme to be debuted in 2014, which aims to provide in-depth, practical training to aspiring or recently appointed financial controllers.

Internationally, under my representation and leadership in the International Federation of Ac-countants PAIBs Committee on behalf of the Institute, an international task force I chair has published two important papers during my tenure about roles and domain of such accountants, and roles and expectations of CFOs.

As for our 40th anniversary, one of the com-memorative projects is “CPAs for NGOs,” which was launched earlier this month. More than 70 members have already signed up, and they will soon be deployed in pairs to visit under-resourced non-governmental organizations to advise on their financial management and governance.

I am privileged to be the Institute’s President this year not only because it is the 40th anniver-sary, but also as I am the first lady in this post. This brings the obligation that I have been under-taking for years to advocate gender balance in Hong Kong, which lags behind the world in terms of the percentage of women present on company boards and at the C-suite level.

Next year, I will continue to serve on the Coun-cil to support the Institute to meet the many chal-lenges ahead. I will also continue to join in the many member activities as I enjoy meeting you.

Finally, I wish you all a great festive season and our profession all the best under the new leader-ship team in 2014.

“ I am privileged to be the Institute’s President this year not only because it is the 40th anniversary, but also as I am the first lady in this post.”

Dear members,

Susanna ChiuPresident

President’s message

December 2013 1

2 December 2013

01 President’s message04 Institute news06 International news10 Greater China news

REGULARS

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ISSUE 12 VOLUME 9 DECEMBER 2013 CONTENTS

56 Business travel Honnus Cheung visits the exotic pacific paradise of Palau

58 After hours Aloysius Tse on wine; Sam Cheeseman on watches

60 Let’s get fiscal Nury Vittachi looks at some awards worth winning

LIFESTYLE

SOURCE

48 Audit regulation Patrick Perry discusses the requirements of the Securities and

Futures Commission in seeking audit working papers

50 Technical update Changes are in the works based on the IASB’s initial comprehensive

review of IFRS for SMEs

52 TechWatch 133 The latest standards and technical developments

55 Events A guide to forthcoming courses, workshops and member activities

14 Zone of contention CPAs seek opportunities associated with the launch of the China

(Shanghai) Pilot Free Trade Zone, as George W. Russell discovers

20 Telling it like it is A Plus asks the winners of the Institute’s Best Corporate Governance

Disclosure Awards how they maintain their high standards of practices and performance

24 Forty fabulous years An A Plus infographic traces the fascinating history of the Hong

Kong Institute of CPAs as it celebrates its 40th anniversary

30 Success ingredient Friendly Fong, Financial Controller of Vitasoy, spells out the strategy of

the iconic Hong Kong beverage company to George W. Russell

38 The BlackBerry addiction The possible demise of BlackBerry keeps many CPAs on edge.

Jemelyn Yadao finds out how they — and their accounting firms — might cope without it

42 Kitchen counters Aprons on and spoons at the ready, the Institute’s foodie members

show off their culinary prowess to Jemelyn Yadao

FEATURES

President: Susanna ChiuEmail: president@hkicpa.org.hk

Vice Presidents: Clement Chan, Mabel Chan

Chief Executive and Registrar: Raphael DingEmail: ce@hkicpa.org.hk

Deputy Director of Communications: Stella To

Editorial Advisory Group: Daniel Lin (convenor), Clement Chan, Nelson Lam, K.M. Wong, Angela Yeung, Raphael Ding, Chris Joy, Simon Riley

Editorial Manager: John So

Editorial Coordinator: Maggie Tam

OFFICE ADDRESS:37/F, Wu Chung House, 213 Queen’s Road East,Wanchai, Hong KongTel: +852-2287-7228 Fax: +852-2865-6603

MEMBER AND STUDENT SERVICES COUNTER:27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong

WEBSITE: www.hkicpa.org.hkEMAIL: hkicpa@hkicpa.org.hk

A PLUS is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine.

© Hong Kong Institute of Certified Public Accountants December 2013. Print run: 6,490 copiesThe digital version is distributed to all 36,094 members, 17,169 students of the Institute and 636 business stakeholders every month. Subscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

M&L

Editor: George W. Russell

Managing Editor: Gerry HoEmail: gerry.ho@mandl.asia

Copy Editors: Jemelyn Yadao, Sam Cheeseman

Production Manager: Jasmine Hu

Design Manager: Jennifer Chung

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About our name: A PLUS stands for excellence, a reference to our top-notch accountant members who are success ingredients in business and in society. It is also the quality that we strive for in this magazine — going an extra mile to reach beyond grade A.

4 December 2013

NEWSTHE INSTITUTE

Sanford Yung, the former Chairman of Coopers & Lybrand in Hong Kong, died last month after a long battle with cancer. He was 86 years old.

After flirting with a career in architecture, Yung pursued an accounting qualifi-cation and became the first Hong Kong Chinese accountant to qualify in Scotland.

Throughout his career he was admired for his integrity and analytical skills. Institute President Susanna Chiu described Yung as a “progressive role model”

for the city’s 36,000 accountants.He established his own firm, Sanford Yung & Co., in 1962, which became part

of Coopers & Lybrand in 1965. Yung was chairman of the firm until his retirement in 1992. (The firm became part of PricewaterhouseCoopers in 1998.)

After retirement, Yung served as a member of the Basic Law Drafting Commit-tee guiding the framework for after the change of sovereignty in 1997.

In 2001, he established a scholarship fund for accounting students in Hong Kong, Beijing and Shanghai and arranged internships for them at PwC in London and New York.

Yung’s active post-retirement life earned him a place on the cover of the November 2012 issue of A Plus.

The Institute also noted with regret the passing of Chiu Shin-koi, Ho Siu-lam, Lee Chi-kit and Wai Hing-chiu.

Former Coopers & Lybrand Chairman passes away

GRI rolls out its G4 guidelines

Disciplinary findingsPoon Kin Ying, CPA (practising) and JBPB & Co.Complaint: Failure or neglect to observe, main-tain or otherwise apply Hong Kong Standard on Auditing 230 Audit Documentation in that the respondents have failed to prepare audit docu-mentation that provides a sufficient and appro-priate record of the audit on the relevant areas.

JBPB & Co. audited the financial statements of a listed company in Hong Kong for the year ended 31 December 2007. Poon was the en-gagement partner of the relevant audit. The Financial Reporting Council’s investigation of the audit revealed that the published price of the listed company’s shares at the date of ex-change was not used to measure the fair value of the consideration shares issued from various fund raising activities, and the intangible asset acquired through the acquisition was not mea-sured at its fair value at the acquisition date.

After considering the FRC investigation re-port and information available, the Institute lodged a complaint against the respondents under section 34(1)(a)(vi) of the Professional Ac-countants Ordinance.

Decision and reasons: The respondents were reprimanded and ordered to pay a penalty of HK$35,000, which should be shared between the respondents equally for their failure or ne-glect to observe, maintain or otherwise apply a professional standard issued by the Institute. In addition, the respondents were ordered to pay the costs of the disciplinary proceedings of HK$244,986.60, which included the investiga-tion costs of the FRC of HK$201,268.60.

When making its decision, the Disciplinary Committee took into consideration the particu-lars in support of the complaint, the nature of the breaches and the conduct of the respon-dents throughout the proceedings.

Wallen Wu, CPA (practising)Complaint: Failure or neglect to observe, main-tain or otherwise apply section 450 Practice Promotion of the Code of Ethics for Professional Accountants.

Wu is the sole proprietor of Eden & Co. The Institute found fee information for profession-al services on its website’s homepage. After considering the information available, the In-

stitute lodged a complaint against Wu under section 34(1)(a)(vi) of the Professional Accountants Ordinance.

Decision and reasons: Wu was reprimanded and ordered to pay the costs of the disciplinary proceedings of HK$23,481. When making its decision, the Disciplinary Committee took into consideration the particulars in support of the complaint, the nature of the breach and the conduct of Wu throughout the proceedings.

Details of disciplinary findings are available at the Institute’s website:www.hkicpa.org.hk.

Veteran CPA Sanford Yung seen as role model

Disciplinary findings (continued)

The Hong Kong Institute of CPAs last month hosted a rollout of the fourth genera-tion of the Global Reporting Initiative sustainability reporting guidelines.

“GRI is about measurements that enable organizations to change the way they manage their impacts,” said Ásthildur Hjaltadóttir, GRI’s Interim Director of net-work partners. The new edition, she added, offers better integration of financial and sustainability reporting. “What G4 does is take things a step further.”

Chris Joy, Executive Director of the Institute, said the introduction of G4 is of great relevance to Hong Kong-listed companies and the Hong Kong market. “The Hong Kong Stock Exchange ESG reporting guidelines do not mandate the use of GRI but they are closely linked to it,” he said.

6 December 2013

The value of Japan’s exports rose 18.6 percent to be worth ¥6.1 tril-lion in the year to October in the biggest annual increase for three years, the Ministry of Finance announced last month.

A weak yen and economic improvement in Japan’s major markets has boosted demand. “Private-sector demand in the United States remains strong and European economies appear to be bottoming out,” Takeshi Minami, Chief Economist at Norinchukin Research Institute

in Tokyo, told Reuters.Car shipments fuelled the

export surge, rising 31.3 percent year-on-year, while the volume of overall exports to the U.S. and European Union member nations grew 5.3 percent and 8 percent respectively, the ministry data showed.

Despite the rise in exports, the country’s trade deficit nearly doubled to ¥1.09 trillion in October, compared with a year ago. The deficit has been exacerbated by the sharp rise in

energy imports needed since the Fukushima nuclear accident following an earthquake and tsunami in 2011.

The weaker yen has also made imports more expensive. The value of imports soared 26.1 percent to ¥7.2 trillion from a year ago, the data showed.

The government main-tained its cautiously optimistic economic forecast in a monthly report. “The economy is on the way to recovery at a moderate pace,” the Nihon Keizai Shimbun

quoted the report as saying.Japan has sought to acceler-

ate exports under Prime Minister Shinzo Abe to help offset the trade gap. The deficit has raised concerns about Japan’s ability

term, Reuters noted.

Last month, the Central Japan Railway Co. hosted a delegation of U.S. politicians and business people in a bid to sell high-speed trains to Amtrak, the U.S. passen-ger train system, to deploy on the New York-Washington route.

Indonesia’sGDP growth slows in Q3

Indonesia’s gross domestic product growth fell to its lowest level in nearly four years for the July-Sep-tember quarter, according to data released last month.

Economic expansion eased to 5.62 percent year-on-year from 5.81 percent in the second quar-ter, amid a widening current-ac-count deficit and rising inflation.

Massive capital outflows saw the rupiah fall 19 percent in the quarter, prompting Bank Indo-nesia to raise interest rates by 1.5 percentage points between June and September.

“We expect growth will improve in the fourth quarter as private consumption seemed to be preserved and government spending will increase in the last quarter,” The Jakarta Post quoted Deputy Economics Minister Bam-bang Brodjonegoro as saying.

India, facing concern over fiscaldeficit, may cut spending: reportTrade gap, consumer price inflation worsen

Japan posts biggest annual expansion in exports in three years

AFP

Raghuram Rajan

The Indian economy is fac-ing higher-than-expected inflation and a ballooning fiscal deficit that policy-makers will struggle to keep on target, analysts said as more negative economic data emerged last month.

The Congress-led gov-ernment of Prime Minister Manmohan Singh has vowed to keep its fiscal deficit at 4.8 percent of gross domestic product, but the gap in the first six months of 2013 has reached 76 percent of its target for the current financial year, Associ-ated Press noted.

Analysts have expressed scep-ticism that India can stick to its promise. Radhika Rao, an econo-mist with DBS Bank in Mumbai, cited slowing revenue and higher subsidies as reasons why India

would not meet its target.“The fiscal deficit is poised

to exceed the 4.8 percent of GDP target by at least 50 basis points, to 5.3 percent,” Rao told Mint, the Indian financial newspaper.

Reports emerged in Novem-ber showed that the government is considering cutting spending by nearly 600 billion rupees, or US$9.64 billion, to rein in the deficit.

The Wall Street Journal

quoted unnamed officials as saying the cuts under consideration amounted to nearly 4 percent of national expenditure for the fiscal year ending 31 March 2014.

India’s trade deficit – the amount by which the cost of a country’s imports exceeds the value of its ex-

ports – rose sharply to US$10.76 billion in October from US$6.7 billion in September, the Finan-cial Times reported.

In addition, the consumer price-inflation rate accelerated to 10.09 percent in November from 9.84 percent in October, accord-ing to official data. “The inflation data are quite a large negative,” Vikas Babu, a currency trader at Andhra Bank in Mumbai, told Bloomberg.

NEWSINTERNATIONAL

AFP

Vendor selling vegetables in India

The government of Argentina has vowed to tackle a failing economy after a cabinet reshuffle last month.

“We are going to provide incentives for foreign currency flows, job creation and invest-ment,” incoming Cabinet Chief Jorge Capitanich told media, without providing specific policies.

Argentina’s foreign-exchange reserves have fallen to less than US$32 billion, 25 percent less than December 2012, while the private sector estimates inflation at about 25 percent.

“If the government fails to tackle the underlying inflation problem… there will be a strong risk of some sort of currency cri-sis,” Fiona Mackie, an Argentina-based analyst for the Economist Intelligence Unit, told Reuters.

December 2013 7

New Argentinateam vows tofix economy

Improved retail sales lift hopes for U.S. economic resilience

Retail sales in the United States rose 0.4 percent in October, according to the country’s Com-merce Department, surprising most analysts and suggesting the economy is more resilient than had been feared.

Sales of furniture, electron-ics, appliances and clothing all showed solid gains in a month affected by a 16-day shutdown of the federal government and cheaper petrol prices.

Economists said they suspected a decision by the U.S.

Congress to guarantee back pay for suspended federal workers might have helped fuel consumer spending.

“Lower gasoline prices freed up a considerable amount of cash for consumers in October, and they appear to have tuned out the drama in [Washington] and gone shopping,” Richard Moody, Chief Economist of Regions Financial Corporation in Birmingham, Alabama, told MarketWatch, the news and data website owned by Dow Jones & Co.

The consumer price index dropped 0.1 percent, the first de-cline in six months, as costs fell for energy, apparel and new cars. The decrease helped boost purchasing power, a U.S. Labor Department report showed.

Paul Dales, Senior U.S. Economist at Capital Econom-ics in London, told Associated Press that additional consumer spending would cause the overall economy to grow at an annual rate of 2-2.5 percent in the fourth quarter of 2013.

Sales in November and December are expected to rise 3.9 percent in value over 2012’s 3.5 percent sales growth, the National Retail Federation told the Chicago Tribune.

Ben Bernanke, the Chairman of the Federal Reserve Board, said last month he believed the economy was gaining strength. He told the National Economists Club the Fed’s efforts to revive the economy since 2008 had been “coherent, consistent and success-ful,” The New York Times reported.

Worries over euro area recovery as third-quarter results disappointFrench, Italian GDP contract, latest data show

AFP

The euro currency zone’s economic recovery sputtered in the third quarter of 2013 as Germany’s growth slowed, French gross domestic product unexpectedly shrank and Italy extended its record period of recession.

GDP in the 17-nation area rose just 0.1 percent in the three months to 30 September, lower than the 0.3 percent expansion in the second quarter, according to Eurostat, the European Union’s statistics office in Luxembourg.

Growth in Germany, the region’s largest economy, eased to 0.3 percent from 0.7 percent. Spain’s GDP rose 0.1 percent and Portugal’s increased 0.2 percent.

France surprised economists with a 0.1 percent GDP contrac-tion. Finance Minister Pierre Moscovici told Germany’s RTL

Radio that the weak reading was due to temporary factors such as a slowdown in aircraft orders.

However, the government of François Hollande faces growing concerns about its ability to revive growth in the wake of Standard & Poor’s decision on 15 November to cut France’s sovereign credit rating to AA from AA+.

The Italian economy also shrank 0.1 percent. Italy’s contrac-tion was the ninth in succession, extending its longest stretch of

decreasing GDP since the euro’s creation in 1999.

“The bleak GDP estimate shows just how fragile and hesitant the eurozone’s recovery is,” Nicholas Spiro, Managing Director of Spiro Sovereign Strategy in Lon-don, told Bloomberg.

Unemployment remains a major concern. The zone’s job-less rate of 24.1 percent among those 25 years old or younger caused EU leaders at a meeting in Paris last month to boost funds to tackle the issue.

“We are seeing a painfully slow recovery,” Frederik Ducrozet, Senior Euro-Area Economist at Credit Agricole CIB in Paris, told Bloomberg. “The good news is that the economy will grow, but defi-nitely too slowly to significantly reduce unemployment.”

Pierre Moscovici

AFP

8 December 2013

The United Kingdom’s Financial Reporting Council last month proposed changes to the country’s corporate governance code that it said were intended to improve risk management by listed-company boards and provide better information to investors.

The FRC’s proposals are designed to improve communication to providers of risk capital about the risks faced by companies in which they invest and how those risks are managed or mitigated.

“Risk management is one of the most important responsibilities of the board,” Melanie McLaren, the FRC’s Executive Director for Codes and Standards, said in a statement to media. “Understanding the principal risks facing the company is essential for the development of strategic objectives and the ability to seize new opportunities.”

The proposals follow an inquiry led by Lord Sharman, a former Chairman of KPMG International. Key elements of the draft include:• Board responsibilities would include setting the company’s risk appetite,

ensuring appropriate risk culture and assessing and managing the principal risks, including those to solvency and liquidity.

• Auditors would be required to consider and report if they are aware of any material matter in connection with the disclosure of principal risks.

• Companies would be required to conduct a robust assessment of how they manage or mitigate their principal risks, including risks to solvency and liquidity.Supplementary guidance for directors of banks was released in an

accompanying FRC consultation paper, Risk Management, Internal Control and the Going Concern Basis of Accounting, which seeks comments by 24 January 2014.

Canadian insurer opposesIASB’s mark-to-market ruleCanada’s largest life insurance company has vowed to oppose an International Accounting Standards Board proposal to value assets and liabilities on current market prices. Manulife Chief Financial Officer Steve Roder told The Wall Street Journal that this practice does not make sense because life insurance policies con-stitute liabilities that are paid out years or de-cades after they are sold.

Australia, New Zealandvote in favour of mergerThe members of the Institute of Chartered Ac-countants in Australia and the New Zealand Institute of Chartered Accountants, both Global Accounting Alliance bodies, have voted to form a single organization. The merger proposal re-ceived the support of about 77.5 percent of Aus-tralian accountants and about 69 percent of their Kiwi counterparts, Radio New Zealand reported.

Irish regulator to overseeauditing quality assurance Ireland’s government has introduced a proposal to amend the Companies Act to enable the ac-counting and auditing regulator to impose a levy on audit firms to defray the costs of carrying out quality assurance oversight, which is to be trans-ferred from accounting bodies to the Irish Audit-ing and Accounting Supervisory Authority, the Irish Times reported.

Shift to IFRS from 2015,Indian companies toldIndia’s Ministry of Corporate Affairs has sched-uled the first phase of International Financial Reporting Standards implementation from the financial year beginning 1 April 2015. The first phase will apply to companies worth at least 10 billion rupees (HK$1.24 billion).

PwC to partner with firstindigenous consulting firmPricewaterhouseCoopers Australia has taken a 49 percent stake in Australia’s first consulting company majority-owned by the Aboriginal community. PwC Indigenous Consulting is de-signed to raise the quality of public policy advice.

European Union seeks to increaseits influence over global standards

The European Union is seeking to strengthen the influence of its internal finan-cial reporting consulting group, it was reported last month.

A report authorized by Michel Barnier, EU Commissioner for Financial Ser-vices, recommended that funding of the European Financial Reporting Advisory Group be increased through mandatory levies on listed companies.

The report, headed by former European Investment Bank President Philippe Maystadt, also recommended that the EFRAG board considers political and economic as well as technical aspects of accounting standards.

At present, the International Accounting Standards Board writes standards applicable in EU member states. The European Commission must first endorse the standards for use in the bloc, but the EFRAG – as well as member countries’ national organizations – offers views on their suitability.

The report recommended that instead of either approving or rejecting IASB standards, the EFRAG should have the ability to make tweaks to standards.

U.K. proposals seek changes to risk management culture

NEWSINTERNATIONAL

FRC would set responsibilities for boards, auditors

10 December 2013

NEWSGREATER CHINA

A senior People’s Bank of China official last month indicated that the country would curb its purchases of United States dollars, saying China did not derive any benefits from further accu-mulation of foreign-currency holdings.

Yi Gang, Deputy Governor of the Mainland central bank and Head of the State Administration of Foreign Exchange, said in a speech that the appreciation of the yuan benefits more people in China than it hurts. “It’s no longer in China’s favour to accumulate foreign-exchange reserves,” he told the China Economists 50 Forum at Tsinghua University.

“It appears that many in the PBoC think the time is about right to scale back currency interventions,” Mark Williams, Chief Asia Economist at Capital

Economics, told Bloomberg.However, Yi’s comments were

not interpreted as indicating China would reduce its holdings of U.S. government debt. “They are probably going to keep their allocations reasonably stable,” Sacha Tihanyi, Senior Currency Strategist at Scotiabank in Hong Kong, told Bloomberg.

China’s foreign-exchange reserves surged US$166 billion in the third quarter of 2013 to a re-cord US$3.66 trillion, more than triple those of any other country.

Yi’s speech, on 22 November,

occurred two days after PBoC Governor Zhou Xiao-chuan published an article stating that China’s central bank would reduce its inter-vention in currency markets and broaden the yuan’s daily trading limit.

The band could be widened to 2 percent, Apple Daily reported, quoting comments by Joseph Yam, the former Chief Executive of the Hong Kong Monetary Authority.

The yuan’s spot rate is cur-rently allowed to diverge a maxi-mum 1 percent on either side of a daily reference rate set by the PBoC. The trading range was 0.5 percent before April 2012, after being expanded from 0.3 percent in May 2007.

The yuan has appreciated 2.3 percent against the greenback this year, Agence France-Presse noted.

An overhaul planned for China’s state-dominated energy industry will allow more private com-panies to exploit oil and gas resources and welcome foreign investment in energy conserva-tion and environmental protec-tion initiatives, Mainland media reported last month.

The government intended to encourage investment by companies with the competence and willingness to carry out national industrial policy, Wang

Zhen, Deputy Director of Energy Strategy at the China University of Petroleum, told China Securi-ties Journal, a Shanghai financial publication.

The National Energy Admin-istration said it would increase its financial support to both public and private players for shale gas exploration and extraction, in-cluding subsidies, tax breaks and customs tariff exemptions, the Xinhua news agency reported.

China’s Premier, Li Keqiang,

told foreign members of the China Council for International Cooperation on Environment and Development on 15 November that the government is willing to work with the international com-munity to develop technologies to improve the environment.

China’s rising energy costs are putting the country’s wider economic competitiveness at risk, Reuters reported. One issue is hastily built energy-inefficient buildings constructed as part of

the Mainland’s real estate boom.As a result, energy-efficient

building technologies will be pro-moted as part of a pilot scheme to cut emissions and save power, Xinhua reported. Ten large-scale brickworks and 40 villages will be part of an initial trial coordi-nated with the United Nations Development Programme.

The UNDP is helping to fund a five-year scheme to develop energy-efficient building methods in China’s rural areas.

China’s 157 billionaires are the youngest in the world, with an

years younger than the global average, according to a survey released last month.

China has the second-highest number of billionaires in the world after the United States, which has 515, according to the 2013 Billionaire Census by Wealth-X and UBS.

Beijing is home to the country’s highest number of billionaires with 26, followed by Shanghai with 19 and Shenzhen with 16, the study reported.

Only 9 percent of China’s bil-lionaires are women.

The UBS study calculated that the combined net worth of China’s billionaires at US$384 billion, is equivalent to the entire annual gross domestic product of South Africa in 2012.

Mega-rich arethe youngestin the world

Central bank signals slowdownin foreign currency purchases Yuan trading band may widen as part of PBoC reforms

Energy sector to be opened up to develop oil, gas resources

AFP

Yi Gang

December 2013 11

Manufacturing growth eased in November as new export orders shrank, a preliminary survey showed last month.

The Flash Markit/HSBC Purchasing Managers’ Index fell to 50.4, compared with October’s final reading of 50.9.

A level above 50, showing ex-pansion rather than contraction for the fourth consecutive month, indicated the government has achieved stability as it shifts its focus from export promotion to structural reform, Reuters noted.

“I think generally this still reflects a cautiously optimistic view.” Hao Zhou, economist at ANZ in Shanghai, told Reuters.

A PMI sub-index measuring new export orders fell to a three-month low of 49.4 in November from 51.3 in October.

The free market is likely to play a more important role in shaping the future direc-tion of the Chinese economy, national leaders announced after a plenum of the Com-munist Party Central Com-mittee held last month.

While details are yet to be issued, broad economic strategies announced included the encour-agement of foreign investment in China’s coastal cities, more secure property rights for rural landholders and a more defined, though unspecified, role for pri-vate enterprise, the BBC reported.

“The core issue is to straighten out the relationship between government and the market, allowing the market to play a decisive role in allocat-ing resources and improving

the government’s role,” a party communiqué, issued after the plenum, stated.

Some commentators expected a major change from the meeting, especially after Yu Zhengsheng, Chairman of the National Committee of the Chinese People’s Political Consultative Conference and the fourth-ranking party official, told People’s Daily in October that the plenum would usher in “un-precedented” economic reforms.

The vague communiqué dis-

appointed financial markets,

to near a 10-week low. “Ev-eryone is suffering from scant detail on China, which makes it difficult to draw conclu-sions,” Donald Williams, Chief Investment Officer at Platypus Asset Management in Sydney,

told Bloomberg.One of the policies announced

was a commitment towards a “greener” economy. China plans to introduce stricter assessment of local authorities’ environmen-tal protection performance in development projects.

Some analysts were scepti-cal about the policy’s chances of success, predicting that the implementation will be met with “daunting challenges,” the South China Morning Post reported.

Manufacturinggrowth eases,index shows

President asks EU to be more receptive to Chinese companiesChina’s President Xi Jinping has asked European Union leaders to avoid protectionism and be more welcoming towards Chinese businesses, it was reported last month.

Xi, who played host to an EU-China summit that began on 21 November, also called for expanded bilateral trade and investment cooperation. “Both sides should promote negotia-tions of investment agreements, oppose all forms of protectionism and promote the development of an open world economy,” he was

quoted as saying by the Chinese foreign ministry.

In the first 10 months of this year, trade between China and the EU totalled US$456 billion, 0.5 percent higher than the same period a year earlier, and revers-ing recent declines. However, the trade relationship has been af-fected by a series of disputes over steel, wine and solar panels.

This year marks the 10th anniversary of EU-China Com-prehensive Strategic Partner-ship. According to CCTV, Xi hoped to launch a cooperation

programme this year with the EU that covered urbanization, sci-ence, space and aeronautics and the green economy.

The President of the European Council, Herman Van Rompuy, and the President of the European Commission, José Manuel Bar-roso, attended the summit last month. “An agreement that can cover both investment protection and market access can be a very important contribution in this deepening relationship,” Barroso was quoted as saying by CCTV.

China is hoping to increase

trading volumes with central and eastern members of the European Union over the next five years. Premier Li Keqiang, who arrived in Bucharest for an official visit on 26 November, said China and the region have much to offer each other.

China’s trade with the former communist states of Europe totals only one-tenth of the value of trade with European Union members. “We need to work together to build large scale infrastructure projects,” Li told his Romanian hosts.

Party plenum sets out economicreform agenda, without specificsRelationship between government and market redefined

AFPYu Zhengsheng

12 December 2013

NEWSGREATER CHINA

Alibaba racks up recordone-day online sales tallyAlibaba, China’s biggest online shopping company, announced it had processed more than US$5.75 billion worth of transactions on 11 November in what is believed to be a world record for a single day. The date attracted 402 million unique visitors. Among the purchases were 1.6 million bras and two million pairs of underpants, The New York Times noted.

GM to move office fromShanghai to SingaporeGeneral Motors Co. announced last month that it would move its main international headquarters from Shanghai to Singapore. While Shanghai would remain its China base, the Singapore of-fice would run the American vehicle maker’s op-erations in Africa, Southeast Asia, Australia, New Zealand, India, South Korea and the Middle East as well as European operations of its Chevrolet and Cadillac units, the Associated Press reported.

NAO chief appointedchairman of INTOSAINational Audit Office Auditor-General Liu Jiayi was appointed Chairman of the International Organization of Supreme Audit Institutions last month after the 21st International Congress of Supreme Audit Institutions was held in Beijing. He succeeded South African Auditor-General Terence Nombembe.

Audit agency signs dealwith Kuwait counterpartThe National Audit Office last month signed a development and cooperation agreement with Kuwait’s State Audit Bureau. The three-year agreement will promote training activities and exchanges of experts and technical know-how, the Kuwait News Agency reported.

Nearly half of SingaporeSMEs invest in MainlandSingapore’s trade promotion agency last month released results of a survey that indi-cated nearly 50 percent of Singapore’s small- and medium-sized enterprises invest in China. That represents a 15 percent increase from the previous year.

China’s mounting local government debt is a manageable issue, the Head of the National Audit Office declared last month.

Auditor-General Liu Jiayi told at an international conference in Beijing that the major cause of the debt was investments in infrastructure, education and medical care that had contributed to the nation’s overall wellbeing.

The debt and interest could be repaid, the state-run news website Chinanews quoted Liu as saying. “Judging from our previous audit results, we are capable of solving our debt problems,” he said.

Local government debt nearly doubled between the start of 2011 and January this year, reaching about 19 trillion yuan, according to media reports .

In July, the audit office announced it would carry out a detailed examination of total government debt. The People’s Daily reported that the agency would tem-porarily suspend other projects to begin work on the audit, which is continuing.

Earlier this year, concerns over the debt escalated as banking officials sug-gested that a large share of new loans were being used to roll over bad loans, reported The Wall Street Journal.

Local government debt pile ismanageable, says auditing chief

SEC issues penalties to Chinese companies’ auditorsFirms fined, banned from further engagements

Regulators in the United States last month banned an accounting firm from auditing public companies after concluding that it failed to properly audit three U.S.-listed Chinese companies.

The Securities and Exchange Commission issued the penalties against Sherb & Co., an accounting firm in New York, in relation to audits of China Sky One

U.S. investors suffered losses when accounting-related problems at the compa-nies surfaced and their stock prices plunged.

According to an SEC report made public, the Sherb & Co. audits were “riddled with failures and improper professional conduct.” The defendants ignored obvi-ous red flags, applied little or no professional scepticism and failed to provide evidence to support their favourable audit opinions, the regulator added.

In another case, the SEC imposed a three-year ban from the auditing of public companies on the Patrizio & Zhao accounting firm in the New York suburb of Parsippany, New Jersey, over its audit of Keyuan Petrochemicals, a China-based company. That firm was also fined US$30,000.

The Financial Times noted that the U.S. Public Companies Accounting Over-sight Board had identified problems with both firms’ audit work as early as 2009.

The SEC has more than a dozen outstanding enforcement cases against Chi-nese companies and their executives, The Wall Street Journal noted. Last year, the commission accused China Sky One Medical of inflating revenues by recording fictitious sales. That case is pending.

14 December 2013

China policy

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December 2013 15

Yangshan port, part of the China (Shanghai) Pilot Free Trade Zone

China policy

16 December 2013

Entrance of the pilot free trade zone in Shanghai

December 2013 17

China’s newest special economic area has created a buzz in global business circles. George W. Russell explores the genesis of the China (Shanghai) Pilot Free Trade Zone and what Institute members say about it

he latest wave of eco-nomic reform in Chi-na was signalled by a group of workers from Shanghai’s traffic ad-ministration. In Au-gust, the maintenance

crews erected several signs showing the route to the China (Shanghai) Pilot Free Trade Zone.

Although both foreign and Chinese execu-tives had known a new special economic area was being planned for Shanghai, few people had any details – until blue-and-white signs went up in late August, directing traffic to a nondescript area of docks and warehouses in Shanghai’s eastern suburbs covering 28 square kilometres.

The zone was officially opened on 27 Sep-tember, and two days later, authorities kicked off the official registration period. By late No-vember, nearly 600 companies had been reg-istered in the zone and there were more than 4,000 others in the pipeline.

The new zone is being heralded as the be-ginning of a new era for Mainland economic policy. “It is probably China’s boldest attempt at economic reform since 1978,” declares Ken-neth Yeo, Head of Specialist Advisory Services at BDO and a Hong Kong Institute of CPAs mem-ber, referring to the free-market reforms insti-tuted by then leader Deng Xiaoping.

Those reforms led to the launch of the Shen-zhen special economic zone in 1980 and were followed by many more. Today, there are more than 100 such areas, including 20 special eco-nomic zones from Xinjiang to Hainan, at least 15 free trade zones and dozens of economic, technological and industrial development

zones where different economic policies apply.However, the new zone – at least in its stated

goals – appears to be like no other. “This is not intended to be another special economic zone or industrial park or bonded area,” says Lewis Lu, a Partner at KPMG China in Shanghai and an Institute member. “It’s an experimental zone for new policies.”

That opens the door to potentially wide-ranging changes, whereas previous spe-cial economic zones focused on financial in-centives, mainly in the fields of customs tariffs, income tax and value-added taxes, says Andy Wong, a Partner at ShineWing in Hong Kong and an Institute member. “The zone is expected to be accompanied by radical economic reforms, principally to further open and rebalance the economy,” he says.

Lu notes that any innovations introduced to the zone should be able to be replicated later across the rest of China. “Premier Li Keqiang’s idea is to see what the effect of the zone is before policies get rolled out to the entire country.”

City attractionsShanghai was an obvious choice for such an am-bitious project, say experts. “Relatively speak-ing, Shanghai has a very effective and trans-parent system,” says Vivian Jiang, a Deloitte Partner in Shanghai and an Institute member. “The city is pretty much a very open economy in terms of import-export and service industries.”

Jiang also points to the city’s excellent track record with pilots, citing the Pudong Airport Free Trade Zone as one of the city’s success sto-ries. The new zone incorporates the Pudong zone and three other existing special areas, the Waigaoqiao Free Trade Zone, Waigaoqiao Free

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38 October 2013

Trade Logistics Park and Yangshan Free Trade Port Area.

One major attraction of the zone is that it introduces a number of changes to the reg-ulatory framework for foreign investments. They include a relaxation of certain foreign investment restrictions within the zone in six areas: financial, shipping, commercial and trading, professional, cultural, and so-cial services.

Within these fields, eligibility re-quirements for foreign investors, foreign shareholding limits and business scope re-strictions have been eased. “There is no re-quirement on minimum capital, cash contri-bution ratio and time limit of paying up the subscribed capital in the zone,” says Wong.

Other benefits include simplification of approval processes for investments by for-eign enterprises and facilitation and pro-motion of new forms of trading within the zone. “Foreign companies will be treated the same as domestic investors from the

start of their business activities in China,” Wong adds.

According to Circular No. 38, promul-gated by the State Council – China’s cabi-net – on 18 September, which sets out the zone’s general plans, certain financial in-novations will be allowed, such as full cap-ital-account convertibility, cross-border use of yuan and currency market rates for foreign exchange. “These provisions also depend on future legislation,” cautions Tang Zhengyu, a Partner with the Sidley Austin international law firm in Shanghai.

Multinational corporations are already studying the financial implications of hav-ing a presence in the zone, especially in terms of yuan convertibility. “The foreign exchange policy applying in the zone is much more flexible than other areas in Chi-na,” concludes Zhu Yanan, an International Tax Manager with Houston-based oilfield services company Baker Hughes in Beijing and an Institute member.

Chinese companies, which constitute the majority of those registered, are also eager to take advantage of the zone’s of-fers. “One benefit for domestic companies is that the zone allows the setup of a plat-form company for outbound investment,” says Lu at KPMG.

Entering the unknownFor accounting firms such as KPMG, client interest hinges on the details of the policies in the zone, which Lu says are expected be-fore the end of the year. “When they come to us now, they want information,” he says. “More importantly they are trying to ex-plore together with us new business models, and new ways of doing business and new corporate structures for investment into or out of China.”

Many clients are registering with the zone simply because they can. “Clients that are registering or trying to register in the zone are probably at this stage more inter-

18 December 2013

“ This is not intended to be another special economic zone or industrial park or bonded area. It’s an experimental zone for new policies.”

China policy

18 December 2013

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Shanghai Waigaoqiao Bonded Logistics Zone, part of the China (Shanghai) Pilot Free Trade Zone

December 2013 19

ested in just ensuring they are registered so they do not miss out on any advantages later on,” says Yeo at BDO.

However, disappointment lies ahead for many of the companies vying to enter the zone. According to a partner at a Big Four ac-counting firm, many already registered face cancellation because they will not be consid-ered suitable under the more detailed condi-tions to be announced later. “I don’t think it’s a zone for everyone,” the partner says.

To be sure, authorities have tried to focus on potential international registrants, not only through announcing the zone’s six core specializations, but also through a Negative List, which cites prohibited and restricted foreign-invested businesses and industries.

Foreign-invested entities operating in industries that do not appear on the Nega-tive List no longer need prior foreign-invest-ment approvals from the Ministry of Com-merce and the National Development and Reform Commission.

The Negative List – featuring more than 2,000 business activities – was widely crit-icized on its release. Lu said he believes Chinese authorities would rather have an initially long list that can be pared back, rather than be seen to be piling on restric-tions in the future.

Still, the rules break plenty of new ground and have lawyers guessing as to the details. “At the moment, what is of greatest interest to the international community is how far China is willing to open up its cap-ital markets and allow full convertibility of the yuan,” says Yang Tie Cheng, a Partner with the Clifford Chance international law firm in Beijing.

Some proposed zone regulations – for example, anti-trust laws – contradict ex-isting legislation. “The zone adopts trial policies, some of which are in conflict with current regulations, and will be revis-ing them,” says Lisa Li, a Consultant with Shanghai Pudong Enterprise Incorpora-tion Agency Service Association, a compa-ny registration agent now located within the zone.

CPAs in the zoneThe future role of accountants in the zone remains unclear. Accounting firms fea-ture as category L723 (consultation and investigation) in the Negative List, ac-cording to an unofficial translation. “Ac-counting firms have been included in the Negative List, which does not mean you cannot set up,” says Lu at KPMG. “It means you need to go through levels of approval

before you can set up.”Wong at ShineWing believes there is

a role for accountants in the zone. “Only 40 percent of firms listed on the Shanghai stock exchange are audited by accounting firms using international standards,” he says. “Accordingly, more opportunities can be explored for providing services.”

Yeo at BDO agrees that Hong Kong CPAs should be sought after. “Institute members are usually well versed and experienced, not just with international accounting standards but also advising on cross-border transac-tions and fundraising projects.”

Small- and medium-sized practitioners are also keen to see if the zone offers any opportunities. “Hong Kong SMPs, with their networks in the Mainland, play a key role in providing professional services such as financial due diligence, tax compliance, audit and accounting to meet the growing needs of the cross-border businesses,” says Philip Fung, owner of Lak & Associates CPA in Sheung Wan.

Lu is taking a wait-and-see approach, add-ing that access for Institute members might be addressed in concert with the Chinese In-stitute of CPAs. “I think this is something that will be done on a reciprocal basis and that would have to be addressed.”

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20 December 2013

Corporate governance

The winners of the Institute’s Best Corporate Governance Disclosure Awards 2013 maintain high standards of practices and performance. A Plus finds out how and why they set new benchmarks in transparency

like it is...

elling itTTIllustrations by Harry Harrison

December 2013 21

hen it comes to identif- ying stakeholders, Bei- jing-based technology giant Lenovo takes the broadest view possible. “Lenovo’s suc-cess is built on… our ability to deliver on our pledges to investors, employees, customers, local communities, the planet and future generations,” says Wong Wai-ming, the company’s Se-nior Vice President and Chief Finan-cial Officer.

It’s that kind of global engagement that made Mainland-based com-panies among the most-enhanced winners at the Hong Kong Institute of CPAs’ Best Corporate Governance Disclosure Awards, announced last month. “With the Mainland, you can really see the improvement,” says Su-sanna Chiu, the Institute’s President and Chair of the Judging Panel.

Lenovo was one of three Main-land-based companies that picked up accolades, collecting a Platinum Award in the H-share Companies and Other Mainland Enterprises category. “We’re highly honoured by this award,” says

Wong, an Institute member.However, Lenovo – which ab-

sorbed the personal computer di-vision of IBM in 2005 and has a presence in 160 countries – could be expected to have a more cosmopoli-tan attitude. “I think Lenovo is really more of an international company,” notes Patrick Rozario, Chairman of the Awards Organizing Committee and Director and Head of Risk Advi-sory Services at BDO Hong Kong.

Chiu welcomed an increasing number of entries from private Main-land companies in addition to state-owned enterprises and singled out Lenovo’s “systematic environmental reporting” for particular praise.

The judges were also impressed by the other two Mainland winners: China Minsheng Banking Corpora-tion, which picked up the Gold Award in the same category, and China Shenhua Energy Company, which achieved a Special Mention in the Sustainability and Social Respon-sibility Reporting Award category. “The continuing competition among

Mainland companies was encourag-ing and helped to bring out new con-tenders,” says Peter Tisman, the Insti-tute’s Director of Specialist Practices.

Minsheng, one of the largest pri-vately owned financial institutions in the Mainland, has long stressed its commitment to a higher standard of corporate governance. Its nonper-forming loan ratio is one of the low-est in the nation due to its modern risk management policies, while last year, the Chinese Academy of Social Sciences rated it number one for so-cial responsibility among domestic banks.

It continues to shine in corporate governance through innovation. “Its independent non-executive directors are required to spend two or three days a month working at the bank,” Chiu points out.

China Shenhua Energy, mean-while, achieved its Special Mention in a difficult and controversial sector: coal. The 73-percent-state-owned company is the largest coal producer in China. “It’s a conservative, even se-

W

22 December 2013

cretive, industry,” Chiu says of coal mining, “and China Shenhua Energy has really made an effort in promoting transparency.”

Setting an example Introduced in 2000, the Best Corporate Governance Disclosure Awards are one of Hong Kong’s largest and most distin-guished awards for corporate governance. “The awards have been recognized as a hallmark of corporate excellence since their inception,” says Joseph Mau, Compa-ny Secretary and Head of Secretarial Ser-vices, Hong Kong Exchanges and Clearing and an Institute member.

Entrants say the awards criteria help to frame their corporate governance stan-dards. “The awards recognize excellence in reporting that goes beyond mere com-pliance with basic standards and rules, and therefore provide a good, independent evaluation of whether we have managed to deliver what we set out to achieve,” says Securities and Futures Commission Chief Executive Officer Ashley Alder.

This year reflects the first awards since more than 30 new code provisions became effective as part of the Corporate Gover-nance Code (part of Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong). The provisions cover board composition, remu-neration, accountability and audit, com-munications with shareholders, and other issues.

“We refined the marking scheme based on the revised corporate governance code,” says Rozario of this year’s awards, which were the 14th annual edition. “The judges have looked for evidence that more listed companies and public sector organizations have embedded good governance into their organizational culture.”

This includes, for example, adopting the new corporate governance requirements and best practices. “We take account of sustainability and social responsibility con-siderations in their business strategy and operations, and acknowledging the issue of diversity in the nomination process for new directors,” Rozario adds.

Chiu says it was encouraging to see en-trants going beyond what was required under the new code. “It was more compet-itive,” she observes. “It was not just about meeting the minimum standards changes to the corporate governance code imple-mented last year.”

Tisman says the core of the awards’ suc-cess is the realization that the implemen-tation of good corporate governance isn’t merely the warm glow of societal approval; it also contributes meaningfully to a com-pany’s bottom line. The winners agree. “We believe good corporate governance is the backbone to a successful and sustainable company,” says Christobelle Liao, Company

Hongkong and Shanghai Hotels.

Room for improvementRecipients accept that companies can al-ways do better. “We are delighted with the

Gold Award,” says Alder, referring to his agency’s success as the only recipient in the Public Sector/Not-for-profit category. “This encourages us to keep on enhancing the quality of our reporting,” he adds.

Mau at HKEx says the Institute’s awards judging process encourages companies to look for improvements. “The commentaries from the judging panel, which comprises ex-perts from all parts of the governance arena, provide us with insights for the improve-ment of transparency and accountability through our annual reporting,” he says.

This year, Diamond Awards, the high-est honour, were given in only two catego-ries and both went to previous winners. In the Hang Seng Index category, CLP Hold-ings maintained its position as the highest benchmark for Hong Kong companies. It was the power company’s 11th successive Diamond Award in its category.

“Over the years, CLP has established a

“It was not just about meeting the minimum standards changes to the corporate

governance code implemented last year.”

Corporate governance

December 2013 23

Hang Seng Index Diamond: CLP Holdings Platinum: MTR Corporation Gold: Hong Kong Exchanges and Clearing

Non-Hang Seng Index (Large Market Capitalization) Diamond: PrudentialPlatinum: The Hongkong and Shanghai HotelsGold: Hysan Development Company Special Mention: Transport International Holdings

Non-Hang Seng Index (Mid-to-small Market Capitalization) Diamond: No awardPlatinum: No awardGold: SOCAM Development

H-share Companies and Other Mainland EnterprisesDiamond: No awardPlatinum: Lenovo Group Gold: China Minsheng Banking Corporation

Public Sector/Not-for-profitDiamond: No awardPlatinum: No awardGold: Securities and Futures Commission

Sustainability and Social Responsibility Reporting AwardOverall Winner: CLP Holdings Special Mention: The Hongkong and Shanghai HotelsSpecial Mention: China Shenhua Energy Company

AWARD WINNERS

strong corporate governance culture with emphasis on honesty and integrity within the organization,” says CLP Company Sec-retary April Chan. “We aim at reinforcing and enhancing Hong Kong’s reputation as a world-class financial centre for local and overseas investors.”

CLP pipped the MTR Corporation, which picked up the Platinum Award. “We are thrilled to see the company’s continu-ous efforts in enhancing corporate gover-nance were recognized,” says Wong Wai-ling, the railway and property company’s Senior Manager – Company Secretarial.

HKEx followed behind with the Gold Award. “[The award] provides us with the motivation and momentum to stay in the forefront regarding our corporate gover-nance practices,” Mau adds.

Insurance giant Prudential took top honours in the Non-Hang Seng Index (Large Market Capitalization) category. Alan Porter, its Group Company Secretary in London, says the 165-year-old compa-ny’s international reach encourages higher standards of corporate governance. “Pru-dential is listed on four stock exchanges – Hong Kong, London, Singapore and New York – and we aim to be transparent and ac-countable to all our shareholders,” he says.

Another venerable company, The Hong-kong and Shanghai Hotels, founded in 1866, won the Platinum Award. “Good gov-ernance is not about having a governance code or policies or disclosure, but how it is applied in practice, from being sanctioned by the board and reaching all levels and op-erations of the group,” says Liao.

Hysan Development Company collected a Gold Award in the category. “As a family-controlled, listed company, we hope that [we] can provide some inspirational value,” says Wendy Yung, Executive Director and Company Secretary at Hysan and an Institute member. “Practising good governance does not mean that lots of financial resources or very complex board processes and systems are required.”

A Special Mention made of Transport In-ternational Holdings (formerly the Kowloon Motor Bus Co.) rounded out the winners’ list.

Only one award was given out in the Non-Hang Seng Index (Mid-to-small Mar-ket Capitalization) category, that of Gold to SOCAM Development, a unit of the Shui On Group and a previous winner. Rozario said he would still like to see a higher standard of entries in this category. “There is a lot of room for improvement,” he notes.

Chiu says that entrants in the category

made some encouraging advances. “They are getting better at aspects of transparency, such as the reporting of related-party trans-actions,” the President adds.

Another category where standards should be higher, according to the Institute, is Public Sector/Not-for-profit, where the SFC picked up the only award. “It was the most disappointing category,” says Rozario.

The Institute plans to work more closely with not-for-profit and non-governmental organizations in the future through its “CPAs for NGOs” programme launched earlier this month as part of the commemoration of the Institute’s 40th anniversary. It is designed to improve their disclosure and other gover-nance standards.

The winning companies say they will strive to do better at next year’s awards. Most companies were reluctant to admit what areas at which they could do better. CLP, one of the few that did, says it hopes to expand the size of its board.

Indeed, CLP’s Chan sees the improve-ment of corporate governance standards as a work in progress. “We review our princi-ples and practices to reflect changes in reg-ulations and international developments,” she says. “We recognize that corporate gov-ernance is an evolving process.”

40 40 Institute at 40

The Hong Kong Institute of CPAs is celebrating its 40th anniversary this year. Here, we look back on four decades of achievement

years of serving Hong Kong society

BRAND CHAMPION24 December 2013

Launch of the international integrated reporting framework

Society visits China

Zhu Rongji

December 2013 25

China Accounting Standards Committee signs to converge standards

INFLUENTIAL GLOBAL PLAYER

Institute at 40

Bus advertising the Society’s free advisory service

Children read May Moon and the Secrets of the CPAs, published as part of the Institute’s “Rich Kid, Poor Kid” educational programme

26 December 2013

The Institute launches the “CPAs for NGOs” programme

COMMUNITY CARER

STEADY STEWARD

Leeloong Building Belgian House Lippo Centre Wu Chung House

December 2013 27

TOP-TIER EDUCATOR

Institute at 40

Peter Wong at LegCo

The first annual general meeting in 1973

The Society launches practice reviewThe Society’s Best Corporate Governance Disclosure Awards

28 December 2013

GOVERNANCE AND REGULATION ADVOCATE

December 2013 29

566

Surpasses1,000 mark

1,156

Surpasses10,000 mark

11,496

Surpasses20,000 mark

20,063

Surpasses30,000 mark

30,417

35,533

1973 1978 1996 2002 2010 2013

(Statistics as June 2013)

Success ingredient

30 December 2013

Friendly Fong,Financial Controller,Vitasoy International Holdings

Photography by Anthony Tung

Vitasoy has been a food and beverage icon in Hong Kong for more than 70 years. Friendly Fong tells George W. Russell how the company keeps its market edge with technology, innovation and a dollop of cookies ‘n cream

Full of

eansBEven after two decades in her

job, Friendly Fong hasn’t lost her enthusiasm for learning new things. The Financial Con-troller of Vitasoy International

Holdings’ Hong Kong operation proudly shows off her latest achievement, the leather-bound thesis by which she obtained her doctorate of business administration.

“This has given me a much higher sense of respect for myself,” Fong says, grinning broadly. “It’s not the doctor title,” she adds. “It means that I have made serious inquiry into a critical business question about resources allocation to maximize shareholder value.”

Fong’s thesis at Hong Kong Polytechnic Uni-versity is titled Flow Signals from Advertising, Research and Development Expenditures: Their Impacts on Firm Value.

The subject was inspired by a problem she faced at Vitasoy, the iconic Hong Kong food

and beverage company, when confronted with numbers that are a challenge to quantify. “Since some benefits cannot be directly measured, it is always difficult to justify a budget for them.”

Fong, a fellow of the Hong Kong Institute of CPAs, asked herself: “How do you measure the value of marketing and research and development? Under accounting standards, you would expense immediately in the year they are incurred, but their value may be brought forward to the future years.”

The issues related to changes in research and development and marketing spending are covered thoroughly in Fong’s 172-page thesis. (It relies on complex formulae but the gist is that a consistent strategy on research and de-velopment and marketing positively impacts a firm’s value. Both Vitasoy’s Research and Devel-opment Chief and its Marketing Director were delighted to read her conclusions.)

“My findings can help firms’ management

December 2013 31

Success ingredient

understand how the advertising and re-search and development budgets should be used across time to create market-based as-sets over a long-term perspective,” she says.

Fong was able to apply the results of her ac-ademic pursuit to her own career. “Vitasoy is a company that produces a quality product so we need to maintain our marketing spending and our research and development spending side-by-side to protect and strengthen our brand,” she says.

Moreover, her achievement had practical value for the company as a whole, not just her own individual benefit. “Learning is a great thing,” she says, “as you become more valued, especially when you are able to in-fluence others as well.”

Brand consciousnessFong says her doctoral degree was a chal-lenge, not just intellectually, but also emo-tionally. “I am especially grateful to my mother, my husband, and my son for their understanding and forbearance with me for not being with them always because of my study and research,” she acknowledges in her thesis.

But Fong says she’s also part of the Vitasoy family. She quotes the first line of founder

32 December 2013

“ Vitasoy is something we grew up with from when we are small. I’m proud to be a member of the company.”

BEAN THERE, DONE THATRarely before has Glycine max been such a centre of attention. The humble soybean has featured in debates from climate change to genetic modification, obesity, the energy crisis and even the slow-down in China’s economic growth.

Despite its long popularity as a food staple in Asia, much de-mand for soybeans is driven by increasing needs for animal feed, where most soy grown in the West ends up, and biofuel, where at-tractive subsidies can be earned.

Livestock consume about 70 percent of soy produced worldwide, according to a recent study by Jerwin Tholen and Michiel Lenstra of KPMG Netherlands. Meanwhile, utilization of soy oil in biodiesel — designed to lower carbon footprints — in the European Union alone grew 90 percent from 600,000 tonnes in 2006 to an estimated 1.1 million tonnes in 2011.

Soybean prices have risen steadily over the past decade, al-though they have retreated from record levels in 2012 of more than US$17 a bushel (60 U.S. pounds, or just over 27 kilograms).

Without the use of sophisticated hedging, large-scale soybean buyers such as Vitasoy have had to cope with price volatility. “[Vi-tasoy] is facing a strong headwind of escalating raw material prices, especially the soaring soybean price,” Philip Mok, an analyst at VC Brokerage in Hong Kong, noted in a recent report.

Vitasoy has also had to cope with higher prices for sugar, milk powder (used in some beverages) and packaging. However, Mok believed that Vitasoy’s brand power enabled it to pass on most of the increased costs to customers with only modest effects on its gross margins.

Soybean users might be able to look forward to lower prices in future. Given that global soybean production was expected to climb 7.3 percent in 2013-14 to a record 286.5 million tonnes after a strong season in the United States and Canada and expanded output in Argentina and Brazil, investors are bracing for a fall.

The most commonly traded soybean future contract was worth about US$13.32 per bushel on 30 November but is expected to drop more than 13.5 percent to about US$11.50 by June 2014, the influ-ential German oilseeds industry publication Oil World forecast last month.

Although soybeans have a healthy reputation in China — espe-cially since a spate of dairy food scandals in recent years — authorities in the U.S. want to ban trans fats, which soybeans contain, from the human food supply. However, that could take some time to effec-tively legislate and implement. (In response, U.S. agribusiness is developing genetically modified trans-fat-free soybeans expected to be ready for planting in 2017.)

Chinese agricultural subsidies have favoured corn production, which has encouraged millions of farmers to switch from soybeans in recent years. In 2003, China imported about 10 million tonnes of soybeans. This year it is likely to have imported more than 60 million tonnes.

However, Chinese imports have hiccupped as economic growth has slowed. Last month, for example, U.S. producers reported the cancellation by Chinese importers of more than 300,000 tonnes of soybeans.

Nevertheless, China will still import about half the global total available for export, according to Qiao Yu of the Brookings Institu-tion, a Washington think-tank. Much of that will come from South America, where the expansion of soybean plantations is often at the expense of forests that store carbon, especially in the Amazon, con-tributing to deforestation, erosion and climate change.

Soybeans may well be healthy for humans, but their effect on the planet’s health will remain a source of debate.

Kwee Seong Lo’s mantra, “There is no thrill in easy sailing, when the sky is clear and blue…” The full poem features prominent-ly on the wall of Vitasoy’s headquarters in a gritty neighbourhood of godowns in Tuen Mun, in the northwest New Territories.

The company has been a part of Hong Kong life since 1940 when Lo, an advocate of soybean-based food products, began de-livering soy milk to Hong Kong’s chronically undernourished population using a bicycle.

Since then it has carved a niche in the psyche of Hong Kong consumers. Senior citizens can remember the large red-and-white Vitasoy logo – clustered with sign-boards for Rolex and Coca-Cola – at the old Causeway Road roundabout near the Hoover Theatre. “Vitasoy is something we grew up with from when we are small,” says Fong. “I’m proud to be a member of the company.”

The company hopes to maintain its reputation for innovation. Recently, it in-troduced yuan vending machines in Hong Kong as well as vending machines that are equipped with Wi-Fi connections.

New products continue to be unveiled, such as a cookies and cream soy beverage. The company, according to Fong, is embark-

ing on a programme to eventually offer, if possible, its complete range of foods and beverages in all of its major markets: Hong Kong, the Mainland, Australia, Singapore and the United States.

The recent food and baby formula scares in the Mainland have renewed the spotlight on non-dairy beverages such as Vitasoy. (To be sure, some of its products, such as flavoured soy drinks, contain milk solids.) “We never compromise on quality and we have strong quality controls for raw mate-rials,” Fong insists. “This helps us to guard against problems.”

For companies such as Vitasoy, the major cost pressure is the volatile price of com-modities. “Our biggest challenge is that soy-beans, milk powder and sugar are our major ingredients,” says Fong.

The company is having discussions about the use of hedging to reduce risk. “We are bringing together our management and the banks to understand the risk associated with different financial instruments.”

Fong says turning to cheaper suppliers is not an option. “We get some soybeans from China but we use mainly Canadian beans. Their quality is high and they meet our stan-dards such as for minimum protein levels.”

Strong foundationsContinuing professional development has been a hallmark of Fong’s career. The Kow-loon native is the youngest of three sisters, all of whom pursued accounting as a career. However, Fong was the only one to achieve her CPA qualification.

“I wanted to be at lawyer at first,” says Fong, “but I didn’t pass the aptitude test.” Undiscouraged, she vigorously pursued her second career choice: accounting. After graduation she worked for Deloitte for six years, leaving as a senior auditor.

“Deloitte provided a very good founda-tion and gave me a great deal of technical knowledge in accounting, both tax and au-dit,” says Fong. Her time there also encour-age her to acquire essential soft skills, such as time management and the ability to plan and execute projects.

With her acquired expertise in risk as-sessments and internal controls, Deloitte planned to transfer her to the Mainland, which was emerging as an important source of work for Hong Kong accountants in the early 1990s.

However, about to get married and ea-ger to remain in Hong Kong, Fong’s life was heading in a different direction.

December 2013 33

She noticed a job vacancy advertisement that Vitasoy had placed in the South China Morning Post, seeking an assistant account-ing manager. When Fong was hired after one interview, she quit Deloitte and went on her honeymoon.

It was then 1994 – a landmark year for Vitasoy when its various units were con-solidated and the company was listed on the Hong Kong stock exchange. Fong was involved in designing the group consolida-tion package and began her work in man-agement analysis and budgetary planning, a process that would lead to her doctorate nearly 20 years later.

She also began to learn about the Vitasoy group’s increasingly far-flung international operations. That involved getting in touch with different business units, a task that appealed to Fong’s outgoing personality. “In Form One, my best friend said I am very friendly and said I should take that up as a

name,” she recalls. “I was so happy about her comment.”

Streamlining processesFong’s analytical mind saw her promoted two years later to business systems man-ager. In that role, she oversaw the installa-tion and implementation of the company’s enterprise resources planning system and data warehouse.

“This integrated and improved commu-nications between different operations,” she explains. “It provided quicker and more useful data for analysis and speeded up the month-end closing, among other benefits.”

Her next role, as finance manager, put her back in touch with people. “I had to build the finance team and found people working in their existing posts for a very long time,” Fong remembers.

Fong’s Deloitte experience had taught

her the benefits of job rotation. “It enriches the workplace experience and contributes to career development,” she says. “It also recognizes contribution and offers new challenges for these colleagues to demon-strate their excellence.”

Guided by Fong, Vitasoy’s Hong Kong finance team redesigned and streamlined its processes and reduced paperwork, cre-ating what she calls a “very engaged” team. “I care about people,” she stresses.

That has led Fong to become involved with the Institute’s activities, such as acting as a Qualification Programme facilitator and participating in “Rich Kid, Poor Kid”.

She took a break from those activities to pursue her doctorate, and believed it would be something that her company’s founder would approve of, even though long hours of research took her away from her family. “There is quite a lot of sacrifice, but I hope to be a good role model to my son,” she says.

“ There is quite a lot of sacrifice, but I hope to be a good role model to my son.”

December 2013 35

BlackBerry lovers, including many CPAs, could be in for some bad news as the struggling Canadian company considers exiting the device business. Jemelyn Yadao finds out about accounting firms’ contingency plans and how their bring-your-own-device policies can help

Technology

mobile devices.

T

BEATING THE BLACKBERRY

38 December 2013

Illustrations by Matt Burchell

Risks and rewards

A smart change

December 2013 39

“For email, it’s still king among all the other smartphones because of its simplicity.”

Technology

Wong.

40 December 2013

“Using their own device is seen by the younger generation as an attraction when they consider joining a firm.”

December 2013 41

42 December 2013

Work-life balance

Daniel Lin

Photography by Samantha Sin

Kitchencounters

Some Institute members are just as skilful in the kitchen as they are in the office. Jemelyn Yadao sees how they hold the secret success ingredient to

creating culinary magic

December 2013 43

Work-life balanceWork-life balance

Sweet and cit-rusy aromas fill the kitchen as Daniel Lin takes out a small jar of his homemade red

onion marmalade from the fridge. “If I find that it’s too sweet, I’ll put in more balsamic vinegar. If it’s too tangy I’ll

add a bit of sugar,” says Lin, Managing Partner of Grant Thornton Hong Kong and a Hong Kong Institute of CPAs member.

After that, he starts preparing for his savoury crème brûlée, pureeing foie gras in a food pro-cessor, along with a

cup of warm milk and one whole egg. “The milk shouldn’t be too hot,” he says. “Otherwise it will scramble the foie gras. You don’t want to over-beat the egg either.”

Lin’s extensive cookery knowl-edge is the result of having a fond-ness for preparing food since he was a child and a talented mother who encouraged this interest. His mum is a former cooking teacher who stud-ied at the world-renowned Le Cordon Bleu culinary school in Paris.

“I would watch her cook when I was around two or three years old,” Lin recalls. “I would fry an egg and had a little stool to stand on. I roasted my first chicken when I was about six years old.”

While many professionals in Hong Kong see eating out or taking out as an easier option, citing their busy schedules as an excuse, some CPAs like Lin believe that they are never too busy to create culinary delights for both themselves and others.

Lin doesn’t cook as often as he would like, but when he does, he puts meticulous detail into the prepara-tion, just like any passionate profes-sional cook.

“It’s all about the balance of taste,” he says of the secret to getting any dish right. “With tomato, sometimes it’s very sweet or sometimes it’s less sweet. So that’s why you have to really taste it. Just before I do a final tasting and seasoning, I have a sip of water. That’s important because it moistens the palate for me to taste well.”

This Christmas and New Year, he’ll be doing a lot of improvizing in the kitchen, he says, a method that resulted in his mouth-watering Medi-terranean shrimp pasta.

“The heads [of the shrimp] are what really bring out the taste [in the sauce], but I didn’t have enough of them. That’s why I needed to im-provize,” he says. “Sometimes you can add tomato paste or a bit of fish stock or sugar. These things balance the dish.”

To bring out the full flavour of the dish, Lin fried and chopped up one shrimp head, using it to flavour the olive oil before mixing it with the pas-ta and sauce. “I call it waking up the sauce,” he says. “Otherwise, it would

be buried under the other flavours of the dish.”

Lin enjoys cooking a variety of food. Seafood, however, is what he loves cooking – and eating – the most. “Especially crustaceans, such as crab, shrimp, prawns and lobsters. Hong Kong has an abundance of them.”

Cookbooks fill Lin’s bookshelves from top to bottom, from recipe books by famous chefs, including Antonio Carluccio and Gordon Ram-say, to a book about desserts based on modern art. He even has the first cookbook he ever bought on display, Anne Willan’s French Regional Cook-ing, published in 1981. “I bought it when I was studying at Oxford,” he says. “That’s probably inspired me quite a bit.”

Lin sees cooking as a challenge to be mastered, not an escape from everyday life. “I wouldn’t say it’s re-laxing,” he says. “Especially when I go shopping, I’m under pressure [thinking about] what to cook for my friends. Sometimes I buy too much stuff and then I come home and think about what to do with it all. But after they try my food, they feel happy, I feel happy.”

A taste of home For Shilpa Bohra, most weekends are spent reconnecting with an old fam-ily tradition or exploring a combina-tion of two different ones, all through the art of cooking.

Like most Hong Kong residents of Indian descent, Bohra, an Institute

Manager at Messe Frankfurt Asia, a trade fair company, picked up the ba-sics of cooking Indian food from her mother. Her two sons, on the other hand, inspired her to take it to the next

balsamic vinegar. If it’s too tangy I’ll add a bit of sugar,” says Lin, Managing Partner of Grant Thornton Hong Kong and a Hong Kong Institute of CPAs member.

After that, he starts preparing for his savoury crème brûlée, pureeing foie gras in a food profoie gras in a food processor, along with a

cup of warm milk and one whole

foie gras in a food processor, along with a

44 December 2013

Mediterranean shrimp pasta

Foie gras crème brûlée

level and to try creating fusion food, a cuisine that combines two or more foods from around the world.

“For pizza, I would use paneer cheese, which is Indian, and mix it with pesto which is Italian. Mixing two different cultures, that’s what they [her children] enjoy,” she says, adding that this style of cooking even helps them to eat healthily. “If I cook simple Indian food that’s healthy, making it more of a fusion food tempts them to try.”

With almost every state in India having its own cuisine, Indian cook-ing brims with variety. Bohra, how-ever, notes that cooking Indian food

think making roti is much easier than normal bread.

you pick up the technique, it’s easy,” she says.

Bohra enjoys being able to im-press her guests with her cooking skills. “I recently cooked for a friend

from India and I knew he was longing for Indian food. He was speechless.”

She puts together authentic In-dian meals such as a thali, a platter

Indian dishes. Bohra’s aromatic veg-etarian thali includes three types of hot roti, raita (a dressing made with yoghurt, cucumber and mint), dhal (a staple lentil dish), paneer butter mas-ala (a red nutty curry), masala bhindi

rice. “That’s how we generally eat in India,” she says.

Her tendency to cook from scratch keeps her in kitchen longer than others. “For the curry bases, I like to cook using fresh ingredients, which means when buying vegetables, if possible, I cook it on the same day,” she says. “If it’s made on the same day it’s tastier. It does take time and effort but I think it’s worth it.”

Bohra enjoys making bread, espe-cially paratha -bread), occasionally incorporating

tofu. “Being a vegetarian, I’m always concerned about giving enough pro-tein to my kids and a tofu paratha is a good and healthy option,” she says with a laugh.

Cooking is also a stress-buster when Bohra is overloaded with work. Two hours of cooking a family favou-rite allows her to recharge. “I have experienced this for so many years,” she says. “When I cook my favourite dishes or my mum’s favourite dishes, it takes me to a different world.”

A winning dish

in black bean sauce to the huge bowl of tomato, potato and beef soup, Chris Chan’s dinning table presented what looked like a sump-tuous Chinese feast. The dishes, he notes, are what he sometimes cooks for friends and colleagues.

“Me and my team at

tofu. “Being a vegetarian, I’m always concerned about giving enough pro

December 2013 45

Thali

Fusion food

Shilpa Bohra

Work-life balance

work are very tight,” says Chan, a Mergers and Acquisitions Analyst at EY and an Institute member. “I am al-ways inviting them to come over and I’m always the guy in the kitchen.”

Two other dishes – steamed egg with dried scallops, and grilled lamb chops – are also on the table. Each has taken him 15 to 30 minutes to cook, Chan says. “These are also my favourite dishes, which I cook very often, even after a busy day.”

Like most great chefs, Chan’s main

economics teacher who passed on her cooking skills to her son when he was in secondary school. His family’s love for cooking even brought them a brief moment of fame. In 2003, Chan and his family took part in a TV cook-ing contest with 100 other Hong Kong families. “In terms of the tastiness of our dish and how interesting was the

story behind the dish, we won

says Chan. Having a large kitchen

to himself for four years while he was studying

in the United States perpetuated his passion for making delicious food. “I had a lot of chances to experiment and I cooked almost every day,” he remembers.

Surprisingly, he says, despite the nature of his job involving a lot of travelling, work has allowed him to have another taste of cooking on a daily basis. After recently staying in Beijing for six months as part of work and taking full advantage of having his own kitchen, he picked up the habit of cooking again.

Since he’s been back, Chan has been a fan of cooking quick dishes. “I like to cook Guangdong cuisine the most. It’s generally less spicy and oily compared to other cuisines.”

He doesn’t hesitate when it comes to trying more complicated recipes. “I like how I can exercise my creativi-ty when making a new dish,” he says. “When it turns out to be tasty, the feeling of success is very rewarding.”

Good food can’t be rushed, Chan cautions. “You need to get a sense of how much time you need to spend on baking something or steaming

something.”As well as

timing, he be-lieves that the key to creating an impressive dish is experi-ence. “I always tell my friends: don’t be afraid of cooking. Just cook as often as you can,” he says. “The more you do that the better you’ll get. Practice makes perfect.”

Food science When it comes to cooking the perfect dish, Peter Lee looks up to the British, especially well known chef Heston Blumenthal and food writer Nigel Slater.

“I’m trying to make a dinner res-ervation at the Dinner by Heston Blu-menthal restaurant in the Mandarin Oriental in London, because I’ll be there for Christmas,” says Lee, Man-aging Director of Veco Invest (Asia), an independent asset management company, an Institute member and

our dish and how interesting was the story behind the dish, we won

says Chan.

Having a large kitchen to himself for four years

while he was studying

46 December 2013

Chris Chan

Grilled lamb chops,

steamed fish in black

bean sauce, tomato

and potato soup with

beef and steamed egg

with dried scallops

Regional President of CPA Australia. “I would say I’m a follower of him.”

Like Blumenthal, Lee has a keen interest in molecular cooking, a style of cuisine in which the chef explores the physical and chemical composi-tion of ingredients, and uses techno-

to prepare them in new styles.

“It’s about presenting ingredients in a different way, different texture and different form,” he explains, taking green peas as an example. “Instead of a mash, you can present it as a paste. You try to play with the in-gredient.” The creativity behind the technique appeals to him the most. “It provides the dish a different visual appeal and the eater a whole differ-ent experience,” he says.

With Slater, Lee admires him for his uncomplicated, home-style dishes. “When you cook his food, you feel happy,” he says. “When I cook at

home, I would cook in the style of Ni-gel Slater, something easy.”

Lee is keen to try new and dif-ferent recipes and is even open to trying out methods that involve lon-ger-than-usual cooking times. One of his signature dishes is a duck breast cooked sous-vide, which involves long, slow cooking in an airtight bag submerged in a water bath. “I slow cooked it for four hours. The meat is then perfectly juicy and tender.”

Lee’s passion for cooking started when he worked in Australia, where he says he was exposed to – and took advantage of – a wide range of local produce and high quality ingredi-ents. “Beef, vegetables, seafood, you name it. It was so easy to buy fresh,” he recalls.

The Italian way of cooking – and eating – however, is what excites him the most. “Italian cuisine is all about sharing,” he says. Another dish Lee

enjoys cooking is pasta with sea ur-chin. “The sea urchin has to be just the right, soft texture. You can’t over-cook it,” he says.

Lee would one day love to do charity work that involves teaching others how to cook, especially those who tend to eat out. “I’m not going to be the next Jamie Oliver,” he says with a laugh. “I think it’s important to educate the younger generation, when it comes to cooking. So, it’s something I would like to do in the future if I have a chance.”

For the time being, seeing the smiles on people’s faces after they have tried his dishes, and the sim-ilarly meticulous work he does as a CPA, is enough to bring Lee a rush of satisfaction. “The art of cooking is to allow people to enjoy the food,” he says. “It’s about digging in together and sharing your passion, your idea, your effort and the result.”

December 2013 47

enjoys cooking is pasta with sea ur-

Duck breast cooked sous-vide

Peter Lee

I n Hong Kong, the Securities and Futures Commission is pursuing working papers through the courts from EY’s China affiliate relating to

initial public offering audit work for a Chinese company, Standard Water.

In the United States, the Securities and Exchange Commission is pursuing working papers through administrative proceedings from the China-affiliated offices of Big Four firms and BDO relating to its investigation of accounting irregularities at several Mainland-based companies trading in the U.S.

However, a potential step forward has been made in respect of the U.S. proceedings with the signing of a Memorandum of Under-standing between the U.S. Public Company Accounting Oversight Board and the Chinese regulators on 24 May, which provides for the release of audit working papers in limited circumstances.

The practical implications of the MoU are not yet fully clear. It may indicate, however, a lessening of tensions and is at the very least an expression of greater desire for regulatory cooperation.

While it remains to be seen whether the SFC and SEC will ultimately be successful in their efforts, it is timely for Hong Kong’s audi-tors to remind themselves of the SFC’s pow-ers to request audit working papers under the Securities and Futures Ordinance and the best practice for dealing with such requests.

SFC’s power to request audit working papersSection 179 of the SFO gives the SFC the power to require an auditor to produce any record or document, which is in the nature of an audit working paper, and which relates to the affairs of a listed corporation where there are circumstances to suggest:1. The business of the corporation has

been conducted with intent to defraud

creditors, for any fraudulent or unlawful purpose, or in a manner oppressive to its members.

2. The corporation was formed for a fraudu-lent or unlawful purpose.

3. That persons concerned in the process by which the corporation became listed have engaged in defalcation, fraud, mis-feasance or other misconduct in relation to the listing process.

4. That persons involved in the manage-ment of the affairs of the corporation have engaged in defalcation, fraud, mis-feasance or other misconduct in relation to such management.

In addition, the SFC has the power to

require an auditor to produce audit working papers for the purposes of assisting authori-ties and regulatory organizations outside of Hong Kong in their investigations. Under sec-tion 186 of the ordinance, the SFC can choose to render such assistance where it is in the interests of the investing public or the public interest, the foreign authority or regulatory organization performs a function similar to that of the SFC, and the foreign authority or regulatory organization is subject to adequate secrecy provisions.

In practical terms, section 179 empowers the SFC to appoint an “authorized person” to give a direction to an auditor to produce audit working papers only where the authorized person has reasonable cause to believe that an auditor is in possession of the working papers, that the working papers relate to the affairs of the corporation, and that they are relevant to the circumstances being investi-gated under section 179.

Dealing with the SFC’s requestAs a matter of risk management practice, au-ditors of listed corporations will need to have

in place their own policies and procedures in order to properly handle the SFC’s requests for working papers. A partner with profes-sional risk management responsibilities should be appointed as designated partner to communicate with the SFC’s authorized person and to deal with their requests for audit working papers. Ideally, the designated partner should not have had any involvement in the audit in question.

At the outset, when a direction to produce working papers is received, the auditor should (i) ensure that the SFC certificate and the direction are in compliance with the SFO (seeking legal advice where necessary), (ii) review the direction to identify the scope of what is being requested and whether there are any grounds for objection, (iii) identify the relevant client company, the audit staff involved and locate and secure all working papers (both in hardcopy and electronic form) relevant to the audit(s) in question, and (iv) consider contacting the authorized person directly to better understand the scope of the direction and to open up a dialogue to discuss the proposed way forward.

In practice, the SFC has stated that the authorized person will write to the auditor concerned and give them the choice of either producing the audit working papers at their own office or at the SFC’s office. Where the auditor fails to elect an option within a specified time, a direction will be made that production of the audit working papers will take place at the SFC’s offices.

Where an auditor elects to produce original working papers at their own office, the SFC require the audit working papers to be kept in secured facilities under the control of the designated partner until the authorized person allows their release. There is a clear benefit to auditors in electing to produce original working papers at their own offices in terms of retaining some control over the in-

Audit working papers caught in the crosshairs of securities regulatorsPatrick Perry explains best practices when dealing with Securities and Futures Commission’s requests to produce documents and records relating to listed companies

Regulation

48 December 2013

December 2013 49

spection process and ensuring the continued integrity of hardcopy and electronic working papers. The SFC has stated that in practice it recognizes the inconvenience caused to audi-tors through original audit working papers being in the SFC’s possession and normally will take copies for the purposes of the investi-gation at the cost of the auditor.

When the SFC investigation officials attend the auditor’s offices, they should be accompanied at all times by members of staff appointed by the designated partner. The in-spection process should also be documented with particular attention paid to the working papers reviewed and copied by the SFC as well as any queries or comments made dur-ing the inspection.

Where SFC investigation officials inspect electronic working papers, IT experts from the SFC may also attend the investigation. In such circumstances, care must be taken to restrict the SFC’s access to only those elec-tronic working papers within the scope of the direction to prevent them gaining access to any irrelevant or confidential information.

Important points to rememberIt is important for auditors to remember that failure to comply with an SFC direction to pro-duce working papers without a reasonable excuse is a criminal offence. Auditors who fall foul of the provisions in the SFO relating to failure to provide working papers or who pro-

duce false or misleading working papers can expect to face fines or even imprisonment.Auditors are required to maintain secrecy in relation to all aspects of the SFC’s investiga-tions. As such, auditors must not inform their client of the investigation or seek their client’s prior consent to the disclosure of working papers to the SFC. Failure to comply with this confidentiality obligation is a crime.

There are grounds for withholding docu-ments, which can include physical inabil-ity to produce the information requested. Furthermore, the ordinance does not prevent a person from claiming legal professional privilege. Where SFC investigation officials request to review or take copies of any work-ing papers which may be legally privileged in nature, if these documents are to be provided, it is important to clarify to the SFC in writing that the working papers are privileged and that any waiver of privilege is restricted to the SFC’s investigation only. Taking this step should avoid any potential waiver of privilege in respect of third parties, such as was in issue in the case of Citic Pacific Limited v Sec-retary for Justice where documents subject to legal professional privilege were voluntarily provided to the SFC who handed them over to the Department of Justice for the purposes of seeking legal advice.

In addition to requesting access to audit working papers, it is also important for audi-tors to remember that the SFC has the power

to require an auditor to provide an explana-tion of the audit working papers produced.

An authorized person can give a direction that an auditor must provide an explanation or statement, either orally or in writing, which describes the circumstances under which the audit working papers were prepared or cre-ated, sets out details and instructions given or received in connection with the working papers, and/or provides an explanation of the reasons for making or omitting any entries in the working papers.

Auditors should take care in giving such explanations as the statements they make could be produced in any possible subse-quent litigation against the auditor.

ConclusionOnly time will tell whether greater coopera-tion between the regulators of Hong Kong, China, and the U.S. will avoid Hong Kong’s auditors being caught in the crossfire.

However, one thing is clear and that is be-ing confronted with an SFC direction to pro-duce audit working papers can be daunting for the unprepared. As such, it is important that auditors are aware of the scope of the SFC’s powers under the ordinance to request audit working papers; are familiar with the SFC’s practices and procedures for request-ing, inspecting and taking copies of audit working papers; and have proper policies and procedures in place to deal with the SFC’s requests in an organized and efficient manner that best protects their interests.

Where necessary, auditors should consider seeking legal assistance in setting up their own internal systems to handle SFC directions to produce and explain audit working papers and in responding to such requests.

The Hong Kong Institute of CPAs provides more details on the production of audit work-ing papers to the SFC in Statement 1.307 of the Members’ Handbook.

Patrick Perry is a Partner with the London office of the Clyde & Co. law firm.

A PLUS

T his article addresses the planned changes based on the International Accounting Standards Board’s initial

comprehensive review of the International Financial Reporting Standard for Small- and Medium-sized Entities.

The IASB issued the IFRS for SMEs in 2009.In accordance with its policy of converging

with IFRS, the Institute issued in 2010 HKFRS for Private Entities, which was largely based on the IFRS for SMEs with modifications to suit Hong Kong circumstances. It was issued as a reporting option to ease the burden of private entities by relieving them of the requirements to apply full HKFRS.

At the time of its issue, the IASB stated that it planned to undertake an initial comprehensive review of the IFRS for SMEs to assess the first two years’ experience that entities would have had in implementing it and to consider whether there is a need for any amendments. Specifically, the IASB would consider whether to amend the IFRS for SMEs to address any implementation issues identified during that review and also whether to reflect any changes to full IFRS since the IFRS for SMEs was published.

In many jurisdictions, companies started using the IFRS for SMEs in 2010 and the IASB began its initial comprehensive review in 2012. In this connection, the IASB issued a request for information to seek the views on whether there is a need to make any amendments to the IFRS for SMEs and, if so, what amendments should be made.

After considering the feedback it received, and taking into consideration the fact that the IFRS for SMEs is still a new standard, the IASB proposes to only make limited amendments to the IFRS for SMEs. In total, the IASB have proposed 57 amendments.

With the exception of the proposed amendments to section 29 on income tax, which is further explained in this article, each individual amendment only affects a few sentences and in many cases only a few words in the IFRS for SMEs. Most of the proposed amendments clarify existing requirements or add supporting guidance,

rather than propose changes to the underlying requirements.

For most entities that adopt IFRS for SMEs, the proposals are expected to improve understanding of the existing requirements, without resulting in drastic changes in practice or affecting the financial statements.

Amendments to incorporate new and revised IFRSThe IFRS for SMEs was developed using full IFRS as a starting point and then considering the modifications that are appropriate to reflect the different needs of users of SME financial statements and cost-benefit considerations.

Consequently, one of the most significant issues considered by the IASB was how the IFRS for SMEs should be updated in the light of changes to full IFRS since the IFRS for SMEs was published — in particular, how to balance the importance of maintaining alignment with full IFRS while maintaining a stable and independent standard that focuses on the needs of SMEs.

The IASB considered each new and revised IFRS issued since the IFRS for SMEs was published individually to decide which changes to incorporate in the IFRS for SMEs. On the basis of this assessment, the IASB proposes to incorporate changes in the following new and revised IFRS:• IAS 1 Presentation of Financial

Statements - Presentation of Items of Other Comprehensive Income;

• IAS 32 Financial Instruments: Presentation - Classification of Rights Issues;

• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments;

• Two amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, which relate to Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters and Government Loans;

• Six minor amendments from 2010 and 2012 annual improvements to full IFRS.

The IASB also proposes to amend section 26 on share-based payment to clarify that share-based payment transactions involving equity instruments of other group entities are in the scope of this section and the definition of “related party” for amendments made to IAS 24 Related Party Disclosures in 2009.

The IASB proposes to incorporate the above new and revised IFRS on the basis that they are particularly relevant to SMEs and are consistent with the primary aim of the IFRS for SMEs; they provide additional clarity and in most cases a simplification, and/or they fix known or expected problems or diversity in practice.

Furthermore, the IASB noted that these changes will modify a limited number of paragraphs in the IFRS for SMEs, with minimal resulting changes and so are consistent with its objective of maintaining stability during this first review of the IFRS for SMEs.

The IASB proposes not to include many of the most recent and significant changes to full IFRS, including those under IFRS 3 (2008) Business Combinations, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 13 Fair Value Measurement and IAS 19 (2011) Employee Benefits.

The IASB also decided that new and revised IFRS should not be considered until they have been completed and published — these include changes under IFRS 9 Financial Instruments, the Conceptual Framework and other IASB projects.

Amendments that change requirements in the IFRS for SMEsWhen the IFRS for SMEs was issued, section 29 on income tax was based on the IASB’s exposure draft on Income Tax issued in 2009. At that time the draft was expected to amend IAS 12 Income Taxes, however, it was never finalized.

Consequently, the IASB proposes to align the recognition and measurement principles in section 29 with IAS 12 but to retain the presentation and disclosure simplifications

IASB exposure draft of proposed amendments to the IFRS for SMEs

Technical update

50 December 2013

as in the original version.The IASB also proposes to make the

following amendments:• Require that if an entity is unable to make

a reliable estimate of the useful life of goodwill or another intangible asset, the useful life should not exceed 10 years (it is currently required to be fixed at 10 years);

• Account for leases with an interest rate variation clause linked to market interest rates under the requirements for leases in section 20 on leases, rather than requiring them to be measured at fair value through profit or loss in section 12 which focuses on other financial instrument issues;

• Require that the liability component of a compound financial instrument is accounted for in the same way as a similar standalone financial liability (it is currently measured at amortized cost).

Amendments that introduce new guidanceThe IASB proposes to add new guidance in the following areas, based on full IFRS guidance:• Preparation of consolidated financial

statements if group entities have different reporting dates;

• Calculation of non-controlling interest;• Classifying financial instruments as equity

or liability;• Accounting for the settlement of the

dividend payable for a distribution of non-cash assets;

• Share-based payment transactions in which the identifiable consideration appears less than the fair value of the equity instruments granted or the liability incurred;

• Accounting requirements for extractive activities;

• New definitions, including active market, foreign operation, minimum lease payments and transaction costs.

Amendments that introduce new exemptionsThe IASB proposes to add new exemptions as follows:• “Undue cost or effort” exemptions from

the measurement of investments in equity instruments at fair value in the two sections on financial instruments;

• An “undue cost or effort” exemption from recognizing intangible assets separately in a business combination;

• Exemption from the requirements for distributions of non-cash assets ultimately controlled by the same parties before and after the distribution;

• An “undue cost or effort” exemption from the requirement to offset income tax assets and liabilities.

Amendments that reproduce guidance from SME Implementation Group Q&AsThe IASB proposes to include the following guidance from Q&As developed by the SME Implementation Group (an advisory body to the IASB):• Clarification of the use of

the IFRS for SMEs in a parent entity’s separate financial statements;

• Guidance on the “undue cost or effort” exemption that is used in several sections of the IFRS for SMEs;

• Clarification that all cumulative exchange differences that arise from the translation of a foreign subsidiary are not recognized in profit or loss on disposal of the subsidiary.

Amendments that simplify disclosures requirementsThe IASB proposes relief from the need to prepare prior year reconciliations of balances for biological assets and share capital for consistency with other sections of the IFRS for SMEs. The IASB also proposes to remove the requirement to disclose the accounting policy for termination benefits.

Amendments that provide minor clarificationsThe remaining proposed amendments are minor and are not expected to result in changes in practice or to affect the financial statements for the vast majority of entities that adopt the IFRS for SMEs. Such amendments fall into one or more of the following types:• Clarifying wording and IASB’s intention;

• Rewriting unclear sentences;• Clarification of the scope of sections; • Removing inconsistencies.

To further assist respondents with their review of the amendments, a full mark-up of the IFRS for SMEs, which includes all paragraphs of the standard, has been posted on the IASB website. Accompanying the mark-up is a list of the proposed editorial amendments.

The Institute’s Financial Reporting Standards Committee is deliberating on the proposals and will be preparing a submission to the IASB, as the finalized version of which is expected to result in a revision to HKFRS for Private Entities. In this connection, the Institute welcomes comments.

Please submit your comments to Simon Riley, Director of Standard Setting, by 20 January 2014.

This article is contributed by the Institute’s standard setting department.

December 2013 51

Financial reporting

Invitation to comment on IFRS for SMEs exposure draftThe Institute has issued an invitation to comment on the International Accounting Standards Board’s exposure draft of Interna-tional Financial Reporting Standard for Small- and Medium-sized Entities, with comments requested by 20 January 2014.

The IASB proposes to make limited amendments to the IFRS for SMEs to clarify existing requirements and add supporting guidance, rather than propose changes to the underlying requirements in the IFRS for SMEs.

For most SMEs, the proposals are ex-pected to improve understanding of the exist-ing requirements, without having a significant effect on the entity’s financial reporting practices and financial statements. The Institute has developed the HKFRS for Private Entities based on the IFRS for SMEs. The revision to the IFRS for SMEs, upon finalization by the IASB, will be incorporated into HKFRS for SMEs in accordance with the Institute's convergence policy.

Institute comments on Agriculture: Bearer Plants exposure draftThe Institute sent a comment letter to the IASB on its exposure draft of Agriculture: Bearer Plants.

The Institute supported the proposal to ac-count for bearer plants as property, plant and equipment in accordance with the require-ments in IAS 16 Property, Plant and Equip-ment, rather than in accordance with IAS 41 Agriculture and agreed with the observations that bearer plants in general after reaching maturity did not undergo further significant biological transformation.

The Institute agreed that most bearer plants were used in a way that was very similar to the use of property, plant and equipment. It was believed that the account-

ing models of IAS 16 can be applied to bearer plants. However, given that the growing phase of different bearer plants may differ significantly, the Institute recommended that the maturity date (i.e. the cut-off date for accu-mulation of direct costs) should be defined to avoid divergence in practice.

Professional accountants in business

IFAC discussion paper on CFO role and expectationsThe Professional Accountants in Business Committee of the International Federation of Accountants has issued the discussion paper The Role and Expectations of a CFO: A Global Debate on Preparing Accountants for Finance Leadership, with comments requested by 10 February 2014.

The paper is designed to stimulate a global debate on preparing accountants for finance leadership roles, including chief financial officer. It features five principles that highlight the changing expectations, scope, and man-date of the chief financial officer and finance leadership roles and recommends actions that professional accountancy organizations and employers can take to prepare profes-sional accountants for career progression to finance leadership.

The paper will be used as a basis to en-gage professional accountancy organizations, employers, and other stakeholders on sharing and enhancing approaches to preparing pro-fessional accountants for finance leadership.

Comments via the Institute should be sent to commentletters@hkicpa.org.hk by 10 January 2014.

Corporate finance

SFC publishes FAQs on enhanced sponsor regime The Securities and Futures Commission has published more than 50 frequently asked

questions on the enhanced sponsor regime, categorized under five areas: general, eligibil-ity to act as principal, examinations, examina-tion exemptions and team structure chart.

Publication of Hong Kong sponsordue diligence guidelinesThe Hong Kong Sponsor Due Diligence Guide-lines have been developed for the purpose of promoting standards in the conduct of due diligence in respect of new Hong Kong listings of equity securities. These guidelines have been developed in the light of the new paragraph 17 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, which sets out the standards and certain pro-cedures, taken together with the requirements of the Listing Rules, expected by the SFC of sponsors in the conduct of a due diligence to support the listing of equity securities in Hong Kong. The underlying intention is that, as far as possible, the guidelines set out practical steps to be considered at each stage of a due diligence.

Report on SFC’s adherence to operational procedures The SFC Process Review Panel is an indepen-dent, non-statutory body established in 2000 to review and advise the SFC on the adequacy of its internal operational procedures and de-cisions and ensure that its regulatory powers are exercised in a fair and consistent manner. The panel has recently published its 2012-13 report. From the 58 cases reviewed, the panel made observations and recommenda-tions that the SFC will examine.

Taxation

Inland Revenue Department announcementsMembers may wish to note the following:• Legislative Council questions about (i)

133The latest standards and technical developments

TechWatch

52 December 2013

statistics on salaries tax concerning details of taxpayers paying at progressive and standard rates, as well as tax revenue for the year of assessment 2011-12, and (ii) arrangements regarding the payment of provisional salaries tax by taxpayers under financial pressure.

• A double-taxation agreement with Canada is in force and applies to years of assess-ment starting on or after 1 April 2014.

• The second protocol to the double-taxation agreement with Austria came into force on 3 July.

• A Iist of qualifying debt instruments as at 30 September.

Legislation and other initiatives

New Companies Ordinance in effect from 3 March 2014 The Secretary for Financial Services and the Treasury has appointed 3 March 2014 as the commencement date of the new Companies Ordinance (Chapter 622 of the Laws of Hong

Kong) and the subsidiary legislation, except for certain provisions specified in the Companies Ordinance (Commencement) Notice 2013, gazetted on 25 October. Two other notices were gazetted on the same date to bring the new Companies Ordi-nance into operation:(a) the Companies Ordinance (Amendment of Schedule 7) Notice 2013 to update the list of compoundable offences; and(b) the Companies Ordinance (Amendment of Schedule 10) Notice 2013 to update the list of consequential amendments to be made to other ordinances.

A set of 83 forms specified by the Reg-istrar of Companies, for use under the new Companies Ordinance with effect from the starting date, was published in the Gazette on 1 November.

Specification of the second batch of nine forms for use under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), which will be the new name for the current Companies Ordinance with effect from the starting date of the new Companies

Ordinance, was gazetted on 8 November. Companies Registry External Circular No. 2/2013 has details about the commencement of the new Companies Ordinance, the new forms and transitional arrangements in rela-tion to the forms. The provisions of the new Companies Or-dinance, the subsidiary legislation and other useful reference materials including briefing notes on each part of the new Companies Or-dinance and each subsidiary legislation, high-lights of key changes in the new Companies Ordinance, FAQs and presentation materials, updated from time to time, are available at the New Companies Ordinance section of the Companies Registry’s website. A set of new electronic forms will be used for submission using the Third Party Software Interface function at the e-Registry. Third party software developers and users’ IT profes-sionals can perform related tests of the TPSI functions in a new TPSI testing environment set up for the new e-forms.

Latest anti-money laundering noticesMembers may wish to note the following no-tices and publications in relation to combating money laundering and terrorist financing:• Financial Action Task Force public state-

ment: Draws attention of its members to the risks of transactions involving Iran, North Korea, Algeria, Ecuador, Ethiopia, Indonesia, Kenya, Myanmar, Pakistan, Syria, Tanzania, Turkey and Yemen.

• The FATF document Improving Global AML/CFT Compliance: On-going Process draws the attention of members to jurisdic-tions with deficiencies that pose money laundering/terrorist financing risks.

• United States executive order 13224 relat-ing to “Blocking property and prohibiting transactions with persons who commit, threaten to commit or support terrorism.”

For more background information on the current law in Hong Kong relating to anti-money laundering, see the Institute’s Anti-money Laundering Bulletin 1, Requirements on anti-money laundering, anti-terrorist financing and related matters, and the supplement on suspicious transaction reporting.

December 2013 53

Please refer to the full version of TechWatch 133, available as a PDF on the Institute’s website: www.hkicpa.org.hk

A PLUS

Your guide to courses, workshops and member activities

Visit the Institute’s website for other programmes and to enrol and pay online: www.hkicpa.org.hk

Corporate governance

Concept of institutional integrity management will provide participants with a basic understanding of how to formulate an institutional integrity framework that can help prevent corruption and fraud.CPD hours: 2Language: English Date: 18 DecemberTime: 6:30 – 8:30 p.m.

Corporate governance code and associated listing rules (re-run) will provide an overview on the corporate governance environment in Hong Kong and help participants understand the major amendments that have been effective since April 2012.CPD hours: 1.5Language: EnglishDate: 11 DecemberTime: 6:30 - 8:00 p.m.

Financial reporting

Workshops for group accounting aims to assist participants to develop the skills for preparing consolidated financial statements (session I) and consolidated statement of cash flows (session II). Each session will include short lectures covering key points of the relevant accounting standards and practical case illustrations.CPD hours: 5.5 hours (session I), 4 hours (session II)Language: CantoneseDates: 5 December (session I), 9 December (session II)Times: 9:30 a.m. – 4:00 p.m. (session I), 9:00 a.m. – 1:00 p.m. (session II)

HKFRS for Private Entities workshops are organized to assist members with the implementation of the standards. They will take place over three days and each session will include plenary instruction followed by group breakout exercises and feedback.CPD hours: 21Language: EnglishDates: 12, 19 and 20 DecemberTime: 9:00 a.m. – 5:00 p.m.

Management skills

The potential dangers in the cyber world will explain the current trend in cyber crimes such as email scams, online business frauds and e-banking frauds, as well as provide participants with prevention tips to avoid the potential traps.CPD hours: 2Language: EnglishDate: 6 January 2014Time: 6:30 - 8:30 p.m.

Wellbeing and stress management serves as preventive training for members who wish to understand stress and minimize its effects. It also helps participants to enhance the wellbeing and performance of their staff who experience stress. CPD hours: 3Language: CantoneseDate: 11 December Time: 9:30 a.m. – 12:30 p.m.

Investigative interview skills is one of the seminars in the Practice Management Series. It will teach participants how to prepare, conduct and follow-up a business interview. CPD hours: 3Language: EnglishDate: 12 December Time: 6:30 – 9:30 p.m.

December 2013 55

Events

Taxation

Value-added tax reforms in China will discuss the key impacts of the VAT pilot programme, implemented in the Mainland since 1 August, for multinational companies doing business in, or with, China. The speaker will explore what the future phases of the programme will mean for businesses in key sectors including financial services, insurance and construction.CPD hours: 1.5Language: EnglishDate: 10 DecemberTime: 6:30 - 8:00 p.m.

56 December 2013

For a tropical destination far from the bustle of Southeast Asian re-sorts, consider heading east over the Pacific Ocean. There, with

crystal clear waters and shimmering white sand, is the tiny republic of Palau.

Although this island country of just 20,000 people is very much on the radar of diving enthusiasts, its remoteness means much of the country is an unspoiled gem.

Even Palau’s sovereign status is hard to discern. It has been a United Nations member since 1994, but it is in a “free association” with the United States and Washington (through the U.S. Department of the Interior) handles

its defence needs and provides much of its funding.

Palau is the westernmost island group in the Caroline Islands of Micronesia, between Guam and the Philippines. Getting to Palau takes some effort – and scheduling. United Airlines flies twice a week from Hong Kong, via Guam, and the whole journey can take 24 hours or more.

However, tourism is a major industry and visitors to Palau are made to feel welcome. The airport is in Koror, the capital and largest town, where most hotels, restaurants and shopping spots are located. Another settlement, Mal-akal, is a harbourfront town from which excur-

sions and inter-island boats depart.The urban areas, however, draw little at-

tention: most visitors come for the diving. Indeed, its undersea attractions are legend-ary: the Blue Corner, in Palau’s south, is one of the most famous dive sites on the planet.

There, and elsewhere in Palau’s abundant seas, tourists are drawn to shoals of colourful triggerfish, wrasse, travelly and barracuda. In addition, there are more than a dozen species of whales, dolphins and porpoises to be found in Palau waters.

The Rock Islands, part of its southernmost territories, became a UNESCO world heritage site in 2012 and have been a sanctuary since

Alluring archipelagoHonnus Cheung, Travelzoo Asia CFO and Institute member, explores the attractions of Palau, both above and below its pristine waters

Business travel

Where to eat• Barracuda No-frills fish and beer

hangout by the pier. M Dock Road, Koror. 488-4254.

• Drop Off Bar & Grill Specializes in grilled fresh fish. Main Street, Koror. 488-1755.

• Katey's Healing Garden Popular vegetarian venue. Airai Hotel Annex, Koror. 587-3333.

• Kramer’s Café at Pirates’ Cove Waterfront location popular with visitors. Malakal Harbor, Koror.

488-8448.• Landmark Marina Brazilian

churrascaria in pleasant surroundings. M Dock Road, Koror. 488-1069.

Where to stay• Airai Water Paradise Hotel & Spa

Classic hotel recently renovated. Main Street, Koror. 587-3530.

• Carolines Resort Intimate bungalow hideaways. Meyungs, Koror. 488-3754

• Palau Pacific Resort Koror’s grande dame of accommodation. Meyungs, Koror. 488-2600.

• Palau Plantation Resort Cosy cabins, cottages and villas in a verdant setting. Ngerbeched Hamlet, Koror. 488-3631.

• Palau Royal Resort Luxury digs operated by Japan’s Nikko Hotels International. Main Street, Koror. 488-2000.

What to see• Belau National Museum

Micronesia’s oldest historical collection. Ngerbeched Hamlet, Koror. 488-2265.

• Mount Ngerchelchuus Sweeping vistas from the highest point in Palau. Ngardmau, Babeldaob.

• Ngarchelong Home to many mysterious stone monoliths. Ngarchelong, Babeldaob.

• Palau Aquarium Small but newly opened and informative. M Dock Road, Koror. 488-6950.

• Rock Islands Spectacular limestone and coral outcrops. Chelbacheb, Southern Lagoon.

December 2013 57

Business travel

1997. Even the sharks are protected. Palau’s wa-ters also feature at least 20 shipwrecks, mostly Japanese ships sunk in World War II as well as American and Japanese fighter planes.

Unlike some countries with protection only on paper, Palau takes action to preserve its reefs: the local prison hosts several convicted poach-ers of tropical fish as well as thieves – both local and foreign – who pilfered artefacts from the wrecks.

Another celebrated feature is Jellyfish Lake on the island of Eil Malk, one of the Rock Islands, where visitors can snorkel with non-venomous freshwater jellyfish. The experience is often de-scribed as like swimming in a giant lava lamp.

Most of the islands and reefs can be visited as day trips from Koror. As well as diving, tour operators offer sea kayaking, sailing, overnight island camping trips and walking tours.

Not all Palau attractions are under the sea. The island of Koror features two spectacular wa-terfalls, Ngardmau waterfall on Palau’s tallest peak, Mount Ngerchelchuus, and the Ngatpang waterfall on the Tabecheding River.

Micronesia’s mysterious prehistory can be seen north of Koror on the island of Babeldaob with its stone monoliths and ancient trails.

To the south of the capital are the islands of Peleliu and Angaur. Peleliu has a grim recent his-tory: more than 15,000 men were killed during fierce fighting in 1944. The jungle vegetation of Angaur hides numerous wrecked U.S. and Japa-nese tanks and planes.

With Palau being so remote, shopping oppor-tunities are limited. However, there are many lo-cal handicrafts, such as intricate woodcarvings of animals and canoes and storyboards, the car-ry-on-sized wooden bas-relief depictions of leg-ends. Another local speciality is hand-pressed coconut massage oil.

Palau cuisine, of course, revolves mainly around seafood, but also includes chicken, pork and root vegetables such as taro, cassava and po-tatoes. Local dishes include tinola (chicken and papaya soup) and ulkoy (shrimp and squash frit-ters). A prized local delicacy is mangrove crab.

Japanese influence has popularized sushi and sashimi, while tourism has helped Europe-an, Korean and Chinese restaurants, as well as American fast-food outlets, to prosper.

The indigenous alcoholic beverage is sakau, made from the roots of a pepper plant, while dis-tilled liquor from coconut palms is also available.

Previous page: Rock Islands This page (from top): a diver exploring a coral reef; coconut palms; Jellyfish Lake; a Palau Flycatcher on the island of Peleliu

58 December 2013

Weather woesAloysius Tse looks at disappointing vintagesin Western Europe

The 2012 vintage in Europe has been generally disappointing due to poor weather conditions persisting

throughout the growing season. January and February were particularly cold for a Medi-terranean climate, while low spring rainfall, a 30 June hailstorm and lower-than-normal temperatures in August affected ripening.

Drought and intense summer heat curbed yields in some winegrowing regions. Here is a summary of the 2012 vintage in the most important European wine producing countries: France, Italy, Spain, Germany and Portugal. In France, there was a cold rainy spring, followed by intense heat in the summer. These conditions led to flowering problems. The wet spring and hot summer also resulted in widespread mildew. These conditions existed both in Bordeaux and Burgundy.

In Burgundy, yield was reduced by 30 to 50 percent, while in the Rhône Valley, bad weather led to small berries, reducing yields up to 30 percent. The Northern Rhone whites remain outstanding despite its small crop.

Of all the French regions, Champagne suf-fered the most, losing up to 2,600 hectares due to spring frost. However, grapes harvested in Champagne were generally healthy, with good levels of acidity balanced by ripe sugar contents and flavours.

The Loire Valley and the South of France suffered weather-related effects similar to those encountered in Burgundy.

In Italy, a wet spring in many regions lowered yields by up to 40 percent. Early varietals were worst affected. In Alto Adige, late ripeners such as Merlot and Cabernet suf-fered due to cold weather with lots of rain in September. Yields were 10-20 percent below average.

Drought conditions in Tuscany delayed maturity and reduced yields by 30-50 per-cent. Ripening was uneven due to the pro-longed flowering period, making harvesting more labour-intensive.

Piedmont fared better even though the plentiful rainfall in May and June, coupled

After hours

with lower temperatures, resulted in bud loss and lower yield. Yields in Emilia-Romagna are way down due to excess heat and the drought-like conditions.

In Spain, there was an unusually cool spring. The hot dry summers across the country meant little disease pressure and produced concentrated fruit. Cabernet Sau-vignon was badly affected with yields down by 70 percent.

Late frost in February, and isolated inci-dents of hail in July and heat shock reduced yield by 15 percent in northern Spain’s Ribero del Duero region. Due to the onslaught of drought and hailstorms in the Alavesa in June and July respectively (along with an infesta-tion of Tetranychus urticae, the European red spider mite), agricultural officials in the Rioja region considered that vintage 2012 would be the smallest harvest since 1945. Other regions in Spain were less affected.

In Germany, other than the warm and dry weather around harvest time, the rest of the year was quite challenging. The cold weather in May resulted in abnormal fruit set (the transition from flower to grape), followed by a period of rainy weather that resulted in mil-dew. Warm dry weather around harvest time saved the day. German growers reported very little yield reduction and both Pinot Noir and Reisling were of good quality.

Portugal saw a large reduction in yield due to extreme climatic conditions, including an extended drought and a damaging hail-storm, cutting yields up to 40 percent in some

leading vineyards. The lengthy drought and excessive hot summer conditions in specific areas, such as Alentejo, produced excellent concentrated grapes. In general, the grapes were small with good colour, high phenolic levels, good ripeness, good acidity and high potential alcohol.

Throughout these countries, unforgiv-ing weather conditions during the growing period have brought low yields. A number of growers reported small berries and inferior quality fruit. Chateau d’Yquem has decided not to produce a 2012 vintage of its world famous sweet wine due to rains that pre-vented grapes from reaching the required levels of concentration.

In October, a Morgan Stanley research report indicated that as a result of the poor harvest in Europe, there is a short-fall between global wine consumption and production of about 300 million cases. The report also claims that global production for vintage 2012 has fallen to its lowest in more than 40 years.

Furthermore, the International Organiza-tion of Vine and Wine reports a substantial 23.4 percent increase in the global export price per litre of bulk wine between 2011 and 2012. We can therefore expect to have to pay a fair bit more for wine for our Christmas and New Year celebrations this year.

A drought-affected vineyard in the Burgundy region of France.

Aloysius Tse is Chairman of Bacchus Fine Wines Group and a Past President of the Hong Kong Institute of CPAs.

CLAUD

E THOUVEN

IN/BIO

SPHOTO

December 2013 59

The Oscar nightfor watchmakers

Sam Cheeseman looks at the stand-out winners of the Grand Prix d’Horlogerie de Genève

Af

It’s a cold evening in Geneva, and guests adorned in ball

gowns and tuxedos are taking their seats in the luxurious Grand Théâtre de Genève. Lights dim and excited tones hush as they await to discover whether their prized inventions have been honoured.

Like Michelin stars or “best of show” ribbons, the annual Grand Prix d’Horlogerie de Genève awards are highly sought-after symbols of distinction for the finest timepieces of the year.

Judged by a mix of wristwatch experts and celebrities, such as Aurel Bacs, the outgoing International Director of Christie’s Watch Department, and singer and watch collector John Mayer, the “Watchmak-ing Oscars” consider the finest timepieces pro-duced over the past 12 months across a range of exciting categories.

The top prize is the Aiguille d’Or (Golden Hand), which is awarded to the judges’ overall favourite entry in the competition. This year, the honours went to Girard-Perregaux’s Con-stant Escapement L.M.

The Constant Escapement is a grand watchmaking achievement in that it has mas-tered something long considered a holy grail of watchmaking: the constant force. In order to understand why this is so groundbreaking, it requires a little technical knowledge.

With any other mechanical watch, the escapement (that transfers the power from the mainspring to the timekeeping element) will, depending on whether the mainspring is fully

charged or running low, have an irregular beat.

Girard-Perregaux’s con-stant force mechanism uses a silicon blade, a sixth as thin as a human hair, to

store energy up to a certain amount before it transmits,

making the watch beat at regu-lar intervals no matter how much

or how little energy is stored in the mainspring. The result is a time-

piece that gives far more accurate time than any other mechanical watch.

The Constant Escapement is both a technical and visual wonder. On the face, the ticking movement is as aestheti-

cally charismatic as a tour-billon – a real eye-catcher with a hypnotic, refined

charm. It beats mesmeriz-ingly back-and-forth as opposed to the more tra-ditional complications, which generally beat in a circular motion.

The butterfly wing frame and vibrating blade in its central axis are bor-dered by two barrel-shaped energy reservoirs, with a power reserve indicator located at nine o’clock. Its traditional dial is caged within a very large 48mm white gold case, capping off a watch rich in stylish, post-industrial decadence.

Winner of the Horological Revelation Prize and worthy of similar admiration is the Res-sence Type 3. The Ressence

Girard-Perregaux Constant

Escapement L.M.

works on the basis of an optical illusion: the watch face is filled with a fluid that refracts light like air, so the time on the dial appears to be projected on to the glass as though it were a screen. It’s a remarkable concept that pushes boundaries while still maintaining traditional appearances.

On the face there is a seconds indication that runs to 360 instead of the standard 60, and dials for weekdays, minutes and date. Interestingly, all dials within the centre of the face revolve around each other and reset to their original positions every hour.

The indications are engraved in their discs and filled with strontium aluminate – based on photoluminescent particles of white, grey and orange – creating a strikingly minimal-

ist and modern feel. This patented display system is housed inside

a domed sapphire crystal and is both wound and set by

rotating the case back. An automatic, gravitational gearing system means that time setting is discon-nected by simply inverting

the watch.The awards continued

with master watchmaker and legend of modern horology Philippe Dufour, who created a

world-first in the double escape-ment watch, being awarded the Special Jury Prize in recognition

of a career of artisanal ingenuity. On a snowy Friday night

in November, the Grand Prix d’Horlogerie de Genève nodded its head to the stars of an industry that constantly strives for the realization of exciting new ideas.

Ressence Type 3

60 December 2013

T hose paltry, insignificant, not-worth-winning awards – the Os-cars, the Nobel Prizes, the Pulitzer,

Miss World, etc., are over – and they missed me again.

But now it’s time for the big one, an award that really makes a difference: the SSA. Never heard of it? You’re forgiven, since I just made it up. SSA stands for Stereotype-Smashing Accountant. It gives much-needed recognition to people who do great work to destroy the grossly unfair image of CPAs as boring people.

Take Kenneth Gorelick for example. He got top marks in his accounting degree, but found that people were more impressed by his hobby: he could hold a single note on a saxo-phone for 45 minutes (not a joke). So he grew his hair long and became music star Kenny G, but used his accounting skills to stay solvent, making himself rare among pop stars.

But that’s ancient history. In recent weeks, several likely individuals have popped up, making this a perfect time to launch the SSA to fill up this page, I mean, to place a worthy winner on to The World Stage.

Runner-up for the first ever SSA is an accountant called Nii Okai Acheampong. According to ghanaweb.com, Nii has just been installed as “chief fisherman” of Ngleshie Alata, an area of Accra, the capital of Ghana in West Africa.

The installation was chaired by Nii Kwashie Gbolor IV, the chief of Ngleshie

Amanfro, who sounds like a character from the sci-fi series Dune, and who I have included purely to torment the unfortunate soul who does the spellchecking on this page, mwa ha ha ha ha.

Nii was taken away from his audit work-ing papers and paraded through the towns of the coastal district as the new chief fisher-man escorted by vast numbers of drummers and dancers. Not a lot of accountants get in-stalled into their jobs with that sort of hysteri-cal public acclaim, except for partners in the Big Four firms in Hong Kong, of course.

And the winner of the first SSA? Top spot goes to Italian accountant Paolo Oliverio. He wowed the entire one-man judging panel by using his accountancy skills to become the real-life equivalent of a character in a Dan Brown novel.

This Italian accountant first came to the press’ attention when he was embroiled in a bribery case involving former Italian prime minister Silvio Berlusconi, the celebrity party king also known as “Charlie Sheen” and “Lind-say Lohan.” Later, when various scandals erupted involving a secret society, the press ditched the word “accountant” and described Oliverio as a “financial fixer.”

But his latest arrest, in November, is his most spectacular yet: prosecutors said the mild-mannered accountant masterminded the kidnapping of priests in an attempt to rig a clerical election.

The full story: A priest named Father Re-

nato Salvatore wanted to be re-elected Supe-rior General of the Order of Clerics Regular, an ancient body founded in 1582. Few people have heard of it, but it has 1,000 clergy mem-bers and 15,000 other staff. (See how this sounds like The Da Vinci Code?)

Reformist priests planned to vote for a new leader, a monk appropriately called Father Monks. Prosecutors told a court in Italy that accountant Oliverio employed two policemen to detain the priests for questioning under false pretences, holding them for hours, until they had missed the voting, according to Eco-nomia, an accounting periodical.

I agree that Oliverio is not exactly a role model. But no one could call him boring. No one would dare.

Nury Vittachi is a bestselling author, columnist, lecturer and TV host. He wrote three storybooks for the Institute, May Moon and the Secrets of the CPAs, May Moon Rescues the World Economy and May Moon’s Book of Choices.

Get your daily dose of Nury’s humour at www.mrjam.org

Let’s get fiscal

How to smash the stereotypeAccountants who make headlines deserve an honorary award, says Nury Vittachi

“I agree that Oliverio is not exactly a role model. But no one could call him boring.”