Committee for the Registry of Auditors and Accountants 1 January 2015

CRAC BULLETIN No. 40 – January 2015 (Not for sale)

The signing of the ‘Agreement between the Mainland and Macao on Achieving Basic Liberalization of Trade in Services in Guangdong’ under the ‘Mainland and Macao Closer Economic Partnership Agreement’ framework took place in Macao on 18

th December 2014.The Agreement

comes into effect on 1st March 2015.

It is reported that, the terms of promise made by

Mainland China’s Guangdong Province to Macao regarding the opening up of accounting, auditing and bookkeeping services are as follow: 1. Obligations involved: national treatment; 2. Conditional measures retained: a Macao resident

who has obtained CPA qualifications in Mainland China may become a partner of an accounting firm (set up in the form of a partnership) in the Guangdong Province, but rights to control the said accounting firm must be held by Mainland residents; a Macao resident becoming a partner of the accounting firm must reside in Mainland China and practising in this accounting firm for over 180 days each year; a Macao resident becoming a partner of the accounting firm must take out a professional liability insurance. With regard to terms of national treatment and conditional measures retained, please visit www.cepa.gov.mo.

In order to evaluate auditors, accountants, auditing firms and accounting firms’ adherence to the corresponding regulations with regard to ‘Instructions for Prevention and Suppression of Money Laundering and Financing of Terrorism for Auditors, Accountants and Tax Consultants in Macao SAR’, the CRAC has, with the assistance from the Public Auditing, Tax Investigation and Appeals Department of the Financial Services Bureau, initiated an investigation between August and October 2014, and selected 5 auditing firms and 14 auditors or accountants to conduct interviews

with.

Although similar investigations have been conducted by the CRAC back in 2011 in order to better understand the industry’s fulfilment of corresponding obligations, because Macao has since then become a member of numerous international organizations which require fulfilment of anti-money laundering and financing of terrorism obligations, it would be necessary to conduct this investigation again.

In accordance with corresponding regulations, professional license for registered auditors and registered accountants must be renewed on or before 1

st February each year. The CRAC has

already issued and mailed notification for renewal of license to all registered auditors and registered accountants in Macao in November 2014.

Please be reminded that the ‘application form for

renewal of professional license’ (as well as other attaching documents, if necessary) ought to be submitted at least 30 days prior to the renewal date directly to the CRAC office, or to the Recepção de Expediente (located on the 1

st Floor of the DSF

Building), ‘Taxation Division’ at the Integrated Services Centre, or to the Taipa Service Centre.

Applicants are encouraged to submit their applications at their earliest convenience. Upon

receiving the application forms, the CRAC would inform each applicant, via recorded delivery, the arrangements for payment of renewal fees and collection of new professional licenses. Meanwhile, the CRAC would only accept applications for renewal submitted after the deadline referred to above (but before 31

st March) under special

circumstances and with sufficient justifications; nevertheless, applicants would be subject to an additional charge of up to thrice the renewal fees; in addition, CRAC would not accept any application for renewal submitted after 31

st March. Failing to

submit the application in due time will result in automatic suspension of the professional license. For more information and enquiries, please contact the CRAC office on 8599 5343 or 8599 5344 during office hours.

Industry Supervision

Reminder

CEPA News

Committee for the Registry of Auditors and Accountants 2 January 2015

Leaders’ Speech: Professional Spirit and Professional Judgment - Core Principles of

the Profession Mr. Chui Sai Cheong, President of UAPAM, Mr.

Chen Yugui, Deputy President and Secretary General of the Chinese Institute of Certified Public Accountants (CICPA), Mr. Chen Fu-wei, Executive Director of the Taipei Certified Public Accountants Association, and Mr. Clement Chan, President of the HKICPA gave opening speeches at the conference.

Mr. Chui expressed that: not only is the quality

of accounting information dependent on the establishment and development of accounting standards, but more so on the professional spirit and professional judgment of the actual accounting practitioners. The accounting standards and professional spirit/judgment complement each other, and it is this core value that led to the prosperous development of the accounting profession, which provides fundamental support for the establishment of a credible society.

According to Mr. Chen Yugui, professional

judgment is the essence of the profession of registered accountants, and the ability to make professional judgment is the core ability of every registered accountant. Mr. Chen believes that: the exploration into the path of returning to professional ethics of registered accountants, the path of exercising professional judgment to realize self-development, as well as the path of achieving mutual benefit between the cross-strait four regions will undoubtedly inject new motivation for the development of a thriving accounting profession in the cross-strait four regions.

Mr. Chen Fu-wei pointed out that: since

accounting standards are largely principle-based in recent years, there is greater dependency on more adequate professional judgment to safeguard the profession, as well as to analyse, in all directions, the scope of professional spirit and professional judgment that should be in place within the cross-strait four regions. Mr Chen also believes that a number of insightful views could be seen in the future that could enhance participants’ understanding of the topic of the present conference.

With regard to professional judgment being the

core value of competency for the accounting profession, as well as the effect the inclination of principle-based accounting standards has on professional judgment, Mr. Chan has expressed his acknowledgment in this subject. Mr. Chan provided further explanation on the topic of professional judgment: under the framework of auditing standards, accounting standards, and code of professional ethics, accountants are often required to exercise what they’ve learnt from professional trainings, putting their knowledge into practice, as well as making use of their experience to make professional judgments in situations where there are insufficient information, time constraints and uncertainties in the economic environment.

Five Seminars: Analysis on Professional Judgment; Return to Professional Ethics

Two keynotes speeches and three thematic

speeches given by approximately 10 speakers were held during the conference. The speakers provided analysis on a number of issues, including the concept of professional judgment of registered accountants, professional judgment and professional competency, relationship between professional standards, major areas and risks of professional judgment, credibility of accountants and ethical standards, balance between sustainable development and quality assurance in accounting firms, and application of professional judgment by accountants in complex economic environments. All speeches covered both theoretical as well as practical issues that looked from both macro and micro points of view, making them inspiring and intriguing at the same time. We shall take a closer look in some of the topics in this edition of bulletin.

Analysis on Professional Judgment Professional judgment is the core value of

competency of an accountant: according to the International Education Standards for Professional Accountants, the competence of an accountant is reflected in many aspects, including theoretical knowledge, professional skills, behavioural skills, ability to think, as well as moral values, professional ethics and attitude among others. When an accountant applies all these abilities and puts them into practice, then their ability to make high quality professional judgment (cont. p3)

Cross-Straits Conference

The annual cross-strait grand event between accountants – Cross Straits, Hong Kong and Macao Accounting Profession Conference 2014 – has taken place in Macao on 13

th October 2014. This year’s

conference was hosted by the Union of Associations of Professional Accountants of Macao (UAPAM) and themed ‘Professional Spirit and Professional Judgment’. Over 500 accountants from the four regions cross-strait attended this year’s conference. Among the participants was Mr. Iong Kong Leong, CRAC President, who led a delegation to attend the conference. Accounting experts from the four regions gathered together to celebrate the event, as they expressed opinions and shared valuable experiences with others.

Committee for the Registry of Auditors and Accountants 3 January 2015

(from p2) on specific issues would naturally be reflected. Hence, professional judgment is a comprehensive set of abilities, and a core value to an accountant’s competence.

Professional judgment is an inherent

requirement of professional standards: professional standards are a set of technical and moral standards that regulate an accountant’s practice. Professional standards reflect on the consensus reached by the profession with regard to corresponding issues and are, therefore, a collective judgment by nature as well as a type of professional judgment. Nonetheless, there are many levels to what a judgment can be. Professional standards are a collective judgment, but not an ultimate judgment. When an accountant conforms to professional standards, they should still make further judgments depending on the specific circumstances encountered. Hence, professional standards cannot replace an accountant’s personal judgment. In addition, because accounting and auditing businesses are constantly updating and changing, time lag inevitably exists when accounting and auditing standards are converted into collective actions and, thus, professional standards cannot cover the endless issues that require judgment to be made by an accountant during their practice process.

Major areas of professional judgment:

examples of accounting-related professional judgment include: impairment of assets, revenue recognition, fair value measurement, accounting treatment and disclosure of related party relations and transactions, contingent events, events after the balance sheet date, consolidated financial statements as well as other accounting policies and accounting estimates.

Examples of corresponding professional

judgment that satisfy the requirements of auditing standards include: determining the materiality, identifying and evaluating material misstatement risks; determining the expectation value during the carrying out of materiality analysis process, as well as determining the acceptable variance between the recorded balances and expectation values; evaluating the effectiveness of internal control;

evaluating the misstatements identified during the audit process; evaluating the going concern of the entity being audited; evaluating whether audit evidences received are adequate and appropriate; forming a conclusion based on the audit evidence gathered, and selecting the appropriate type of audit opinion to be made; and determining whether or not to use the work of internal auditors or experts.

Examples of professional judgment related to

conformity of professional ethics include: network or networking firms, entities of public interest, close relations and non-assurance services.

Return to Professional Ethics

Professional ethic is the foundation of

professional judgment. There are two factors that influence the quality of professional judgment: 1. Competence, and 2. Independence and objectivity. Although the former is the most fundamental condition, most lay members are concerned with the latter. The reason being: inappropriate professional judgment are often made as a result of independence and objectivity being adversely influenced, which in turn, leads to the negative impact on the profession’s credibility as a whole to be far greater than the lack of individual competence. The definition of ‘professionals’ in other countries can be extended and applied to the understanding of the importance of professional ethics of professionals: the responsibilities of professionals to protect society’s public interest should rank above all other considerations; when professionals provide services to the general public as well as when professionals associate themselves with others from the profession, they should conform to a set of regulations that exceed personal ethics.

Trust is the cornerstone of professionalism. From a series of material effects that could impact the credibility of the accounting profession, we could conclude that: if an accountant puts their personal interests over public interests, resulting in the authority and independence of audit services to be damaged, then public trusts would eventually be lost.

With the economy of Macao ever developing, the demand for training courses from the accounting profession has continued to increase over the years. Hence, the CRAC has continued to collaborate with accounting institutions abroad in hosting 5 training courses between September and November 2014 this year, covering topics including accounting, risk management and taxation. Enrolment has been well received, as a total of 895 students have enrolled to participate in these 5 courses. Among them, 691 students have completed the course and will be awarded a certificate of

attendance jointly issued by the CRAC and the respective collaborating accounting institution. Below is a summary of the training courses:

Three Accounting Related Courses

‘Gaming Industry Accounting Workshop’

primarily presented the recent conditions regarding the industry income, outlook for future development and various major accounting issues, including revenue recognition and other key considerations for gaming promoters, capitalization of costs for property construction, (cont. p4)

Training News

Committee for the Registry of Auditors and Accountants 4 January 2015

As of 31

st December 2014, the number of

registered auditors, registered accountants, audit firms, and accounting firms registered with the Committee for the Registry of Auditors and Accountants is as follows:

Registered Auditors 114

Registered Accountants 175

Registered Audit Firms 13

Registered Accounting Firms 2

(from p3) debt restructuring, as well as offsetting financial assets and financial liabilities.

With regard to the International Accounting Standard Board’s (IASB) new standard on revenue recognition i.e. International Financial Reporting Standards (IFRS) 15 – Revenue from Contracts with Customers, a seminar based on this Standard was held to assist students in comprehending the complete picture and potential effects of the Standard. Content of the seminar includes: core principle as well as a 5-step approach in recognizing revenue, and presentation and disclosure requirements.

The workshop on ‘Construction Industry’ looked specifically at key features and principle risks of construction contracts as well as accounting issues and related risk areas. The instructor then presented a sample of construction industry risk guides, which in themselves present the risks of material misstatement, assertions, internal controls and substantive procedures for various classes of transaction and account balances.

Operational Risk Management

As presented in the above-titled seminar, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, or systems, or from external events. The operational risk management framework and approach includes the following: identifying risk, monitoring and reporting risk, controlling/mitigating risk and provision for loss arising from operational risk. The seminar focused

primarily on this framework and approach, exploring them in details. In addition, the instructor also presented practical case analysis to help students in further understanding the significance of operational risk management as well as grasping the corresponding concepts.

Tax Issues That Must be Clear Prior to Investing in Mainland China

The market of Mainland China has caught the

eyes of an increasing number of investors in recent years. The seminar on ‘Tax Issues That Must be Understood Prior to Investing in Mainland China’ primarily presented the major types of taxes in China and the caution items involved when making real estate investments in certain parts of China. As presented in the seminar, types of tax involved in real estate investments include stamp duty, deed tax, real estate tax, business tax, individual income tax and enterprise income tax among others. Tax burden of specific investment depends on multiple factors, such as: purpose of real estate held, national or provincial tax deduction regulations, and other real-estate related policies. In addition to tax burden, one also needs to consider any restrictions imposed on investments in Mainland China by foreign investors as well as corresponding policies on foreign exchange management. Meanwhile, the instructor also presented the progress of replacing business tax with value-added-tax in various test-points, as well as the major tax benefits in the Hengqin zone.

The publication of the ‘Guidelines for Professional Judgment of Certified Public Accountants’ is a major focus of the accounting profession in the cross-straits four-regions in 2014. The guidelines was published during the ‘Cross-Straits, Hong Kong and Macao Accounting Profession Conference’, with the purpose of encouraging institutions in the cross-straits four-regions to voluntarily adopt these guidelines, or to use these guidelines as reference materials as they set up their own guidelines.

It is reported that it had come to a consensus by participants of 2012’s conference that professional judgment is the essence of the accounting profession, and professional judgment of higher-quality is crucial to the enhancement of the quality of accounting information, response to the effect of economic globalization, reinforcement of professional credibility of accountants, and creation of an amicable environment for practice.

The principle content of these guidelines include: an outline of professional judgement of certified public accountants, how to make professional judgments, and suggestions for high quality professional judgments as well as means of achieving them. These guidelines were drafted with

the purpose of guiding certified public accountants to enhance their awareness and ability to make professional judgments, as well as to provide reference and suggestions on how to make sound professional judgments and enhance certified public accountants’ abilities in doing so.

The ‘Guidelines’ are available from the Chinese Institute of Certified Public Accountants’ website at www.cicpa.org.cn.news/201410/t20141017_45962.html. (Only available in Chinese)

Cross-Straits Conference

Committee for the Registry of Auditors and Accountants 5 January 2015

Policies regarding Hengqin New district’s

industries, tax revenue, and financial incentives have gradually been promulgated and implemented in recent years. In order to allow people from Macao’s accounting profession to become better familiar with corresponding information, the CRAC has hosted a dinner seminar themed ‘Latest Developments and Policy Updtes in the Hengqin New District’ on 19 September 2014, and has invited Mr. Liu Yang, Chairperson from the Zhuhai City Hengqin New District Management Committee Executive Services Promotional Bureau, and Mr. Chi Tenghui, Deputy Chairperson of the Financial Services Bureau (Hengqin) to be key speakers at the seminar. Their speeches were respectively titled ‘7-Star Hengqin’ and ‘Introducing Hengqin’s Financial Policies’, aimed to introduce the latest developments and financial policies to the participating registered auditors and registered accountants. The dinner seminar was attended by over 50 registered auditors and registered accountants. The following are summaries of the speeches.

7-Star Hengqin

Hengqin New District is a national strategic new district, and the largest island of Zhuhai with an area of 106 km

2. Hengqin is situated in the southern

part of Zhuhai, facing Macao on the east with as short as only 200 meters apart. Upon completion of the Hong Kong, Zhuhai and Macao Bridge, travelling to Hong Kong would only take approximately 30 minutes by car in the future.

According to the speaker, Hengqin is awarded a

‘7-star status’ in all of its geographical location, transportation, business environment, ecological environment, and infrastructures among others. For instance, regarding geographical location and transportation, there are a total of 5 airports, 4 cargo ports and 7 ferry terminals within a 2-hour-drive or a 100km radius from Hengqin, which allows access worldwide in a split second. As for business environment, Hengqin is rather innovative when it comes to public services, for example, it is the first area in China to have a legislation of commercial registration that is convergent to that of Hong Kong and Macao, as well as established a Hong Kong and Macao expert group on legal issues. In addition, there are a number of tax benefits or incentives being implemented in Hengqin, such as enterprise income tax, personal income tax, as well as other financial policies e.g. enterprises meeting specific criteria may enjoy a flat 15% enterprise income tax,

and awarding people with outstanding achievements.

Introducing Hengqin’s Financial Policies

The development of Hengqin New District’s

financial industry has been growing exponentially between 2009 and 2014. Financial institutions that have already settled down in Hengqin include those running in traditional industries such as banking, securities and insurance companies, as well as those running in new and emerging industries such as equity investment fund, financial leases and trading platform for financial commodities among others.

It is reported that, the prosperous development

of Hengqin’s financial industry is largely due to the support and guidance from the ‘four major policies’, i.e. Official replies of the State Council between August 2009 and July 2011 on ‘Hengqin Overall Development Plan’, ‘Hengqin Financial Innovative Issues’ and ‘Relevant Policies for the Development of Hengqin’, as well as the ‘Pearl River Delta of Guangdong Province Construction Financial Reform and Innovation Comprehensive District Overall Scheme’ promulgated in June 2012. Meanwhile, Supplement IX of the ‘Mainland and Macao Closer Economic Partnership Agreement’ (CEPA) proposes that: to authorize banks of Macao to set up branches or corporate bodies in the Hengqin New District to service the district’s economic development, provided that it has a total asset not less than US$ 4,000 million at previous year end. With this, Hengqin New District becomes the only district in Mainland China whose admittance threshold for banks has been lowered by CEPA. Subsequently, Supplement X of CEPA authorizes financial organizations with Hong Kong and Macao background that satisfy specific criteria to establish financial management companies in the form of Holdings, and full license securities companies in Guangdong Province.

In order to carry out the policies above, the

Hengqin New District Management Committee has respectively released a series of measures. At present, there are various highlights when it comes to innovations of Hengqin financial services, for instance: Macao has seen its first bank settled down in Hengqin, activation of cross-border insurance activities, emergence of the first multi-currency Union Pay card, foreign exchange institutions authorized to engage in foreign exchange business through Union Pay cards for the first time. These financial management institutions have combined assets exceeding $700,000 million.

Themed Dinner Seminar

Committee for the Registry of Auditors and Accountants 6 January 2015

Round II of the licensing examinations for registration and reinstatement of registered auditors and registered accountants/accounting technicians have successfully taken place between 22 November and 6 December 2014. These examinations took place at the training centre for civil servants, located on 6

th Floor of Cheng Feng

Commercial Centre, Alameda Dr. Carlos d’Assumpção. A total of 78 candidates participated in this round of examinations. Among them, 14 candidates have enrolled to sit examinations for auditors, and 64 have enrolled to sit examinations for accountants. Please refer to the table below for information regarding each subject.

Examination results are expected to be announced in February 2015. Enrolment for Round I of licensing examinations 2015 is expected to begin immediately after. For more information

regarding examinations enrolment, please visit the CRAC website regularly for updates, or contact the CRAC office on 8599 5343 or 8599 5344 for enquiries.

A number of international accounting meetings were held in November 2014. The CRAC has assigned delegations in attending the following:

The Confederation of Asian and Pacific Accountants (CAPA) held a Committee Meeting in Rome, Italy on 8-9 November. The CRAC has assigned a delegation to attend this meeting themed: Enhancing the level of Financial Management in the Public Sector.

The 19th World Congress of Accountants (editor’s note: major accounting event held every 4 years) was

held in Rome, Italy between 10-13 November. This year’s congress theme was: ‘2020 Vision: Learning from the Past, Building the Future’. Approximately 4,000 representatives from accounting institutions worldwide (including CRAC) participated in this conference as they shared experiences with other participants.

A CRAC delegation attended the ‘China-Japan-Korea Accounting Standards Setters’ Meeting 2014’, held by the Ministry of Finance of China’s China Accounting Standards Committee (CASC) in Shenzhen, China on 23

November. The first annual tri-lateral meeting took place back in 2002, and

each year the 3 countries’ accounting standards-setting organization would take turn in hosting these meetings.

On 25-27 November, the Asian-Oceanian Standard-Setters Group held its 6th Annual Meeting in Hong

Kong. The meeting was hosted by the Hong Kong Institute of Certified Public Accountants (HKICPA). As founding member, the CRAC assigns a delegation to attend the meeting each year.

Date Subject

No. of Candidates

Registered Auditors

Registered Accountants

22 November 2014 General and Financial Accounting / General Accounting 3 33

23 November 2014 Macao Taxation Law 13 46

29 November 2014 Cost Accounting 4 45

30 November 2014 Commercial Code 12 43

6 December 2014 Auditing Standards 4 -

Committee for the Registry of Auditors and Accountants

Address : 1/F, Centro de Recursos da Direcção dos Serviços de Finanças No. 30, Rua da Sé

Tel : (853) 8599 5343, 8599 5344 Fax : (853) 2838 9177 E-mail : crac@dsf.gov.mo Website : http://www.dsf.gov.mo

Accounting Standards Hotline

(853) 8599 5300

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