Issue 11 / Volume 11 / November 2015

HK$70.00

Plus:ProfileHKGCC Chairman Y.K. Pang

TreasuryHong Kong as hub for CTCs

LifeMentors and mentees

President’smessage

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November 2015 1

Dear members,

In its first two weeks since it was launched at the end of October, the Institute’s new Facebook page attracted more than 2,000 “likes” and achieved a post reach of more than 20,000. This is an encouraging response and I am sure more people will join us in the coming days. If you haven’t come to our page, go visit now as it is a great place for you to find out more about the latest happenings in your profession and at your Institute. You can also further your connection with fellow mem-bers about professional issues that matter to you. You’ll find our page at www.facebook.com/hkicpa.official.

Financial Secretary John Tsang spoke at our Cross-Straits, Hong Kong and Macau Accounting Profes-sion Conference early this month. He reaffirmed the positive value of audit regulatory reform, saying it will further uplift the profession’s quality and ethics, bring benefits to inves-tors, and strengthen Hong Kong’s position as an international financial centre and capital market.

As I have written here before, although the Institute welcomes the government incorporating many of our recommendations in its consultation conclusion, more clarity is needed before the legisla-tive process begins. Our position remains the same that there should be a clear separation of sanctioning powers from those of inspection and investigation within the independent oversight body, which should also have adequate qualified audit profes-

sionals to effectively perform regula-tory functions. We also believe that sanctioning guidelines are needed, and operational costs of the oversight body should come from investors.

As for the conference itself, it drew more than 400 CPAs from the Mainland, Taiwan, Hong Kong and Macau this year to discuss topical issues facing the profession such as the rapid development of technology. Accountants have been using information technology to help business comply with rules and regulations, and to establish moni-toring systems to detect wrong-doings at early stages. Technology can enhance our role as guardians of corporate governance and pro-moters of business success.

On the international front, as a founding member of the Global Accounting Alliance, we welcomed fellow institutes this month as we hosted the group’s board meeting in Hong Kong. This is an occasion for leaders of accounting bodies from major capital markets around the world to come together to share and collaborate on issues that matter to all of our 1 million members who work in more than 180 countries.

Locally, I spoke at a business conference earlier this month about the evolving role of accounting professionals in a challenging busi-ness and regulatory environment. Accountants are now expected to have a broader, deeper knowl-edge and technical expertise of various industries so that they can

add insight to new issues, which companies must manage and report on. Our traditional skills around establishing internal controls, con-ducting audits and managing risks remain fully relevant, but they have to be adapted and applied to suit a new corporate governance and regulatory environment.

On 27 November, a symposium will take place especially for small- and medium-sized practitioners, a core constituent of the Institute. We will update them about issues relating to tax, major accounting and audit-ing standards, the Institute’s practice review programme, as well as discuss post implementation and practical issues of the Companies Ordinance, data privacy, electronic risk and pro-fessional indemnity insurance. There will also be a session for participants to interact with our Legislative Council representative.

Our Best Corporate Governance Disclosure Awards programme is going to announce the winners later this month. The focus this year is on companies’ efforts in strength-ening disclosures and practices in internal controls, risk management as well as environmental, social and governance reporting. As quality is getting higher every year, watch out for the great achievers and the best models they can demonstrate to other companies.

Last but not least, do exercise your rights to vote for your Coun-cil in 2016 so that your views can be represented.

“ In its first two weeks… the Institute’s new Facebook page attracted more than 2,000 ‘likes’ and achieved a post reach of more than 20,000.”

Dennis HoPresident

ContentsIssue 11 / Volume 11 / November 2015

01NEWS

01 President’s message

04 Institute news

06 Accounting news

10FEATURES

10 Shining strategies China’s high-end luxury retailers face the challenges brought by the economic slowdown and changing consumer tastes

17 Thought leadership: Paul Druckman The International Integrated Reporting Council’s Chief Executive Officer on the benefits of integrated reporting in Hong Kong

18 Leadership: Y.K. Pang Chairman of the Hong Kong General Chamber of Commerce explains Hong Kong’s key role in the Pearl River Delta region

25 How to… Angela Shing on the art of impactful presentations

26 Treasure island Hong Kong’s treasury centre policy is expected to be effective at the start of the next fiscal year

30 Success ingredient: Edwin Morris The Chief Financial Officer at Asia Miles explains why accounting for “miles” can be rewarding

36 Leading by example We talk to mentors and mentees matched in the Institute’s Mentorship Programme about their relationships and learning experiences

40SOURCE

40 Auditing in China – yesterday, today and tomorrow China’s development in the auditing profession moves toward international convergence

44 ESG reporting in Hong Kong Listed companies undergo strengthened requirements to disclose environmental, social and governance obligations

48 Technical update The Institute has adopted the IASB’s amendments in HKFRS for Private Entities

50 TechWatch 156

36Leading by exampleThe Institute’s Mentorship Programme gives members the chance to share their invaluable work and life experiences

About our nameA 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.

President Dennis Ho

Vice Presidents Mabel Chan, Ivy Cheung

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

Head of Corporate Communications Stella To

Editorial Advisory Group Daniel Lin (Convenor), Eric Tong (Deputy Convenor), Eugene Liu, Alec Tong, Edward Tsui, Yip Ka-ki, Stanley Yuen, Raphael Ding, Chris Joy

Editorial Manager John So

Editorial Coordinator Maggie Tam

Office Address37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong KongTel: (852) 2287-7228 Fax: (852) 2865-6603

Member and Student Services Counter27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Email: www.hkicpa.org.hk Website: hkicpa@hkicpa.org.hk

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

Copy Editor Jemelyn Yadao

Contributors Tigger Chaturabul, Ben Poole, George W. Russell

Production Manager Jasmine Hu

Designer Trevor Cheng

Editorial Office 2/F, Wang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong

ADVERTISING ENQUIRIESAdvertising Director Derek TsangEmail: derek.tsang@mandl.asiaTel: (852) 2656-2676

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 November 2015. Print run: 7,050 copiesThe digital version is distributed to all 39,234 members, 18,260 students of the Institute and 2,252 business stakeholders every month. Subscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

52AFTER HOURS

52 Books The Lion Wakes: A Modern History of HSBC reviewed; Interview with author Richard Roberts and David Kynaston

54 Life and everything Lifestyle apps and coffee culture as recommended by Institute members

56 A life in the day Nury Vittachi meets Joyce Lai, Senior Personal Data Officer at the Office of the Privacy Commissioner for Personal Data

26Treasure islandHong Kong’s development as a regional hub for corporate treasury centres

Book review: The Lion Wakes: A Modern

History of HSBC

News Institute news Accounting news

Institute news

Institute hosts Cross-straits, Hong Kong and Macau accounting profession conference 2015More than 400 participants attended the Cross-straits, Hong Kong and Macau Accounting Profession Conference hosted by the Institute on 1 to 2 November at the Hong Kong Convention and Exhibition Centre. Talking points included the chal-lenges and opportunities for the profession brought by new information technology, as well as other practical issues affecting the profession. Hong Kong’s Financial Secretary, John Tsang, was the guest of honour, and gave the opening remarks.

“Economic activities from the One Belt, One Road initiative will involve vast investment and financing, and hence a great demand for professional account-ing services. It will bring unprecedented development opportunities for the cross-straits, Hong Kong and Macau accounting profession,” said Tsang.

He added: “Financial technology has a close relationship with the accounting profession. As an international financial and commercial centre, Hong Kong has one of the most developed information sectors in the world. Together with our

mature communication infrastructure, Hong Kong is an ideal place to develop ‘FinTech’.”

Institute and IFRS Foundation co-host IFRS ConferenceMore than 230 participants from around the world attended the IFRS Conference on 12 to 13 October hosted by the Institute in Hong Kong. Speakers from the IASB – including its Chairman Hans Hooger-vorst – leading Hong Kong and regional CFOs, and IFRS experts provided insight on upcoming standards and discussed the latest updates. The keynote address was given by Carlson Tong, Chairman of the Securities and Futures Commission, while Institute President Dennis Ho gave the welcome remarks.

“Going forward, perhaps financial reporting needs to better reflect the dynamic situation of the real world by giving much more analysis and disclos-ing more of the underlying information behind the figures. There also needs to be better connections between risk man-

agement and its accounting treatment. I am therefore happy to know that this conference will focus on the implementa-tion of IFRS 9 on financial instruments,” Tong said.

Institute’s new Facebook page launched The Institute has launched a new Facebook page to provide members and stakeholders another channel to stay connected to us. The page is a great place where members can find news and insight about the accounting profession, thought leadership and food for thought about issues that affect your work, friendly reminders about the membership and event highlights, tips about career and work-life balance and much more. Remember to “like” us to stay updated.

Lost contactThe Institute has lost contact with Chin Oi-lin, Irene (A16369). Please call the quality assurance hotline at 2287-7850 if you can help locate her.

John Tsang Chun-wah, Financial Secretary of the HKSAR (centre) together with (from left) Chui Sai-cheong, President of Union of Associations of Professional Accountants of Macau, Feng Shuping, President of Chinese Institute of Certified Public Accountants, Dennis Ho, Institute President, and Barney Chen, Chairman of the Board, Taipei Certified Public Accountants Association, at the opening ceremony.

4 November 2015

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Disciplinary findingsLui King Man, CPA (practising)

Complaint: Failure or neglect to observe, maintain or otherwise apply a professional standard, namely paragraphs 10, 11, 12 and/or 17 of the Hong Kong Standard on Auditing 700.

Lui is the sole proprietor of K.M. Lui & Co., which issued an un-modified auditor’s report on the financial statements of a private company that contained material misstatements relating to bank borrowings and related party transactions.

Decision and reasons: Lui was reprimanded and ordered to pay a penalty of HK$50,000 to the Institute. In addition, he was ordered to pay the costs of the disciplinary proceedings of HK$19,437. When making its decision, the Disciplinary Com-mittee took into consideration the particulars in support of the complaint, the respondent's personal circumstances, previ-ous similar cases, the parties’ submissions and their conduct throughout the proceedings.

Chow Ho Tung, Anthony, CPA

Complaint: Chow was convicted of offences involving dishonesty. The offences involved conspiracy to steal, conspiracy to defraud, and publishing a false statement in a company’s annual report. He was sentenced to imprisonment for five years and four months and disqualified from being a director of a company for 10 years.

Decision and reasons: Chow’s name was ordered to be perma-nently removed from the register of certified public accountants

with effect from 22 October. Chow shall also pay HK$24,066 for costs of the disciplinary proceedings. When making its decision, the Disciplinary Committee took into consideration the par-ticulars in support of the complaint, the respondent's personal circumstances, previous similar cases, the parties’ submissions and their conduct throughout the proceedings.

Lam Kin Leung, CPA (practising)

Complaint: Guilty of serious professional misconduct and failure or neglect to observe, maintain or otherwise apply a number of professional standards.

Lam is the sole proprietor of K.L. Lam & Co., which had been selected for practice review. The reviewer found that the practice failed to establish, maintain and document an effective system of quality control. The reviewer also identified a number of deficiencies in an audit engagement. In addition, Lam was found to have provided false or misleading answers in the electronic self-assessment questionnaire, which were submitted to the reviewer.

Decision and reasons: Lam was reprimanded and ordered to pay a penalty of HK$50,000 to the Institute. In addition, he was ordered to pay the costs of the disciplinary proceedings of HK$28,696. When making its decision, the Disciplinary Com-mittee took into consideration the particulars in support of the complaint, the respondent's personal circumstances, previ-ous similar cases, the parties’ submissions and their conduct throughout the proceedings.

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

The Institute in numbers

What are Hong Kong CPAs earning?

HK$299,999 or below

HK$300,000 – 599,999

HK$600,000 – 899,999

HK$900,000 – 1,199,999

HK$1,200,000 – 1,799,999

HK$1,800,000 – 2,399,999

HK$2,400,000 or above

Undisclosed

Not displayed

39%Earn more than

HK$600,000 per year

Data from annual Institute membership survey

Total remuneration (including salary, bonuses and incentive schemes)

13%

36%

20%

8%

7%

2%2%

10%

2%

November 2015 5

EY and social media network LinkedIn have entered into a partnership to jointly offer services that will help companies “use technology, social networks and innova-tive sales techniques to empower their go-to-market efforts,” the Big Four firm announced last month.

The firm will leverage on LinkedIn’s net-work of more than 400 million professionals around the world to help develop customer relationships as well as “unearth buried insights and establish key contacts” for com-

panies through social and data analytics. As part of the tie-up, EY has also agreed

to integrate a social selling practice into its organization through LinkedIn’s Sales Navigator tool, providing “thousands of EY people” with the product.

Jeff Weiner, LinkedIn’s Chief Executive Officer, called it the “largest single deal in our history” during the announcement of its third quarter earnings. The company reported a 37 percent increase in revenues year-on-year to US$780 million.

“Data analytics and technology have transformed the way companies oper-ate, and together, EY and LinkedIn will provide organizations with leading-edge tools to navigate those changes,” Mark Weinberger, EY’s Global Chairman and CEO, told the media.

The news mirrors the announcement in April of EY’s partnership with Microsoft, allowing the firm to deliver new offerings using the technology giant’s cloud and data platforms.

EY announces strategic alliance with LinkedIn

NewsAccounting

6 November 2015

Illus

trat

ion

by H

arry

Har

rison

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CIMA, AICPA plan to launch new associationThe American Institute of CPAs announced plans to create a new accounting associa-tion in partnership with the Chartered Institute of Management Accountants earlier this month. The association, currently unnamed, will allow for a better resourced structure to further promote the Chartered Global Management Accountant designation, which was created by the two bodies through a joint venture in 2011. CIMA Chief Executive Charles Tilley stressed that it would not be a merger of the two groups. “It’s not the end of them,” Tilley told Accountancy Age. “We will continue to promote management accounting.”

Companies struggle to pinpoint “materiality”Finance chiefs are struggling to determine what information is necessary for companies to disclose publicly as what’s considered “mate-rial” varies from regulator to regulator, The Wall Street Journal reported last month. “A lot of [companies] find it difficult to work with the concept of materiality,” said Hans Hoogervorst, Chairman of the International Accounting Standards Board. The board, last month, pro-posed allowing corporate executives to exercise more of their own judgment on what’s crucial to include in public filings.

A world of numbers

PwC sued by venture fund for alleged audit deficienciesA life sciences venture fund sued PwC LLP last month for allegedly failing to scrutinize unau-thorized transfers from 2007 to 2013, a move that broadened the targets of a legal battle that started in September. “PwC adhered fully to its professional obligations in conducting its audits,” a spokes-woman for the Big Four firm said. In September, Burrill Life Sciences Capital Fund III LP con-tended in a San Francisco court that more than US$17 million was embezzled by Burrill & Co. Founder Steven Burrill and other individuals over the five years and alleged those transfers drained capital that could have been deployed into deals, dampening investors’ returns.

Unlimited time off for Grant Thornton employeesGrant Thornton in the United States announced a new unlimited paid-time-off-policy for its employees, which goes into effect this month. The policy, which the firm hopes will help retain and attract top talent, allows its more than 6,900 employees nationwide to be granted flexible time-off instead of a prede-termined set of paid time-off days. “Our goal is to further enhance our culture of trust where employees are empowered to manage their own time, which allows them to return to work refreshed,” said Pamela Harless, the firm’s Chief People and Culture Officer, in a press release.

The 2014 revenue of Digital Services, PwC’s digital marketing and consulting arm, making it the fourth-biggest agency network in the U.S., according to AdAge,

and putting it in the same league as traditional Madison Avenue

advertising agencies.

US$750million

Number of monitors that form an enveloping circular wall, with 313 degrees of surround vision, at the KPMG data observatory,

which opened earlier this month at Imperial College London. The

project is said to be the largest of its kind in Europe. The bank of screens

allows users to see data patterns up close in comparison to what they see

on an ordinary computer screen.

64

AFP

Hans Hoogervorst

or $US740 million. The loss Toshiba is bracing for in the six months to September, according to Nikkei,

a result of an accounting scandal uncovered earlier this year. It was

revealed in July that the Japanese electronics giant had overstated

profits over several years, leading to a mass resignation of its management.

¥90billion

AFP

November 2015 7

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Volkswagen “irregularities” may cost €2 billionAnalysts estimate that Volkswagen might have to repay €2 billion in tax credits to European governments and in customer compensation, after irregularities were found in the levels of carbon dioxide emitted by its cars, media reported this month. It’s the latest blow to the au-tomaker, still reeling from an emissions scandal related to its diesel engines. The German carmaker has lost €32.4 billion, or 40 percent, of its value since admitting in September that it installed “defeat devices” into 11 million diesel vehicles to cheat emissions tests.

Luxury giant gains from merger Richemont, the world’s second-largest luxury goods group, an-nounced last month that the merger of online retailers Yoox and Net-A-Porter, its subsidiary, will generate a significant one-off accounting gain for the company. Based on the 2 October closing price of Yoox shares at €28.06, the amount of the pre- and post-tax accounting gain is estimated to be between €610 million and €670 million, the Swiss company said, which will be reflected in finan-cial results for the year ending 31 March 2016.

Tesla hires Google VP as new CFOElectric carmaker Tesla named Jason Wheeler, previously vice president of finance at Google, as its new Chief Financial Officer earlier this month. He replaces Deepak Ahuja, who announced his retirement in June. The company also reported it delivered 11,603 vehicles in the third quarter, and expects to deliver about 17,000 to 19,000 cars in the current quarter. It expects order growth in China to remain strong with more store openings and the recent policy changes that allow buyers of Tesla vehicles to bypass license plate restrictions.

China, U.S. watchdog talks break downA final agreement that would have allowed the United States’ Public Company Accounting Oversight Board to examine the audits of Chinese companies listed on American stock exchanges fell through, Bloomberg reported last month, citing unnamed sources. The failed negotiations are said to be a blow to PCAOB Chairman James Doty, who said in June that the regulator was “very close” to reaching a deal. According to PCAOB spokeswoman Colleen Brennan, the PCAOB continues “to work toward a resolution on the question of joint inspections of China-based firms.”

NewsAccounting

November 2015 9

Cover storyChina luxury

10 November 2015

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S wans are a girl’s best friend, especially those encrusted with crystals,

says Francis Belin, Swarovski’s Senior Vice President of its Consumer Goods Business Divi-sion, Asia Pacific, referring to the brand’s best-selling product in China – a pendant necklace that f launts its signature swan logo. He is unfazed by news that a new-found fondness by wealthy shop-pers for less ostentatious, logo-free products is hurting brands such as Louis Vuitton, Gucci and Prada. “It’s not all logo fatigue. Some people want it, some don’t want it anymore,” Belin adds. “I think Chinese consumers are still looking for icons just like in any other country.”

What is harder for him to ignore is how this fading desire for logos from China’s consumers is indica-tive of the wider problem facing high-end luxury retailers in the country. The economic slowdown and changing consumer tastes are making the Greater China region a difficult place for luxury brands to do business.

Watches and jewellery are hard-

est hit due to the anti-corruption campaign launched by President Xi Jinping in 2012. The Chinese government has cracked down on the giving of expensive gifts, which fuelled Hong Kong’s luxury consumer goods market. The sales of jewellery, watches and clocks, and valuable gifts decreased by 10.4 percent in June, compared with the previous year, accord-ing to the Hong Kong Census and Statistics Department.

In October, LVMH, the world’s biggest luxury group, admitted that the stock market collapse in China over the summer had affected sales. The Paris-based group said com-parable sales growth globally at its fashion and leather goods division had slowed more than analysts expected to 3 percent in the third quarter, down from 10 percent in the previous quarter.

Swarovski is no exception. “In Greater China, it has been a slowdown from times when we were in high double digit growth, driven both by high same-store sales growth and distribution expansion, to a lower expansion pace and lower comparable store-

sales growth. And we moved down to the mid-single digit area,” says Belin, “but it’s not like the whole house is falling apart.”

Experts point out, however, that not everyone is feeling the pinch. “If you try to slice and dice it, you’ll notice that some catego-ries are a little bit better than oth-ers,” says Robert Hah, Consumer Products and Retail Consulting Managing Partner at Deloitte, taking menswear and women’s shoes as examples. “These don’t see as big of an impact because they aren’t traditionally gifted items. Things that require you to try on or test would have relatively less impact.”

Unlike the major high-end players, brands that are considered affordable luxury, such as United States-based fashion labels Kate Spade and Michael Kors, continue to see healthy growth. “One phenomenon we’ve seen is what we call qing she pin (輕奢品), or affordable luxury brands, which have seen a very good growth rate in China over the past few years,” says Jessie Qian, Partner, Consumer Markets at KPMG China.

With the Chinese government’s austerity and anti-corruption drive, combined with a volatile stock market and a fall in the yuan, China is losing its once voracious appetite for all things bling. Jemelyn Yadao talks to experts about business approaches that are being used to help luxury brands copeIllustrations by Alex Nabaum

SHINING STRATEGIES

November 2015 11

Cover storyChina luxury

Short-term pain, long-term gainPrompted by the drop in demand for high-end consumer goods, some Hong Kong retailers in recent months have been attempt-ing to minimize the short-term pain, demanding cuts on sky-high rents from the landlords. “Hong Kong rent has been a huge issue, and many of the rents are being completely re-negotiated,” says Hah at Deloitte. “For example, the rent of what was previously the Coach store in Central cost around HK$5.6 million per month, but Adi-das has re-negotiated for the same spot for around 20 percent less, so rents coming down provides a little bit of a breathing space.”

However, observers note that the short-term fixes do not excuse any luxury retailer from thinking about their long-term strategies. There is increased awareness among clients in the sector that luxury retail growth challenges in China today cannot be solved just by opening more stores, notes Qian at KPMG. “We have seen that the players in the market have become well-thought in their business stratagies and much more operational-focused. A few years ago there were some luxury brands who thought they could achieve sales growth with having three shops within four blocks,” she observes. “Right now, they would really think about what is the best strategy when it comes to opening a store and how to drive the revenue per store rather than aggressively open stores that are sometimes on a blind spot.”

Some consulting firms, like the Big Four, have been receiving requests from luxury retail clients about how to achieve a more robust cross-structure in China. “There has

New TST

The emergence of a “new TST” – Tokyo-Seoul-Taipei, as opposed to Tsim Sha Tsui – is often highlighted by observers who note reasons why the luxury sector in Greater China is being dragged down by Hong Kong and Macau, more than by Mainland China. (The concept was first discussed in a HSBC Global Research report last year.)

“Luxury brands are suffering because, for some of them, 20-30 percent of their [China] business is in Hong Kong and Macau,” says Francis Belin, Swarovski's Senior Vice President of Consumer Goods Business Division, Asia Pacific. He puts some of the blame on Occupy Central, as well as other tourist destinations offering a cheaper currency and a sense of newness. “Come to Hong Kong, it's just a shopping destination. If you go to Japan, Korea or Europe, you have cultural heritage, dif-ferent types of food. And if the prices are better or comparable, why pay more?

“I think Hong Kong is losing its com-petitiveness as a tourist destination. It's probably not losing much in terms of volume of what they capture, but it's definitely losing market share.”

Claudia Lo, Divisional Vice President of Investor Relations and Corporate Com-munications at Coach, and a member of the Hong Kong Institute of CPAs, is also

well aware of the threat the new TST poses for the industry. “The market is evolving. [Chinese shoppers] see different brands, they open their eyes, they travel. They don't just come to Hong Kong, they go everywhere, which means we have to evolve too to make sure that we under-stand them.”

Recognizing South Korea as an emerging hot destination where Mainland Chinese tourists are shopping instead of Hong Kong, Chow Tai Fook has been busy strategizing with plans to expand its foot-print to this new market. It has already opened four point-of-sales in the popular duty-free shops located in Seoul, Icheon and Jeju Island.

“With Mainland China's luxury market slowdown, we want to grasp new oppor-tunities. When planning to enter overseas markets, places where Chinese people go travelling and shopping are our prefer-ences,” says Hamilton Cheng, the brand's Finance Director, and an Institute member.

Despite the slowdown, Cheng still believes that Chinese travellers remain important for the sector. “The reason why we open POS in the duty-free shops [in South Korea] is because we are mainly targeting Chinese tourists,” he remarks. “If you take a look at our four POS there, approximately 70 percent of sales are contributed by tourists from the Mainland.”

been demand in terms of looking at how we establish shared services centres in Asia and China for multi-national corporations. These centres could include many of the back-office functions, human resources, finance, etc.,” says Hah.

To counter the headwinds, brands like Gucci, Burberry and Chanel have also been taking on a new strategy of rebalancing their global prices. In May, Chanel sent

“ Three years ago there were some luxury brands who thought they could achieve sales growth with having three shops within four blocks.”

12 November 2015

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November 2015 13

Cover storyChina luxury

14 November 2015

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shockwaves across the industry with the announcement that it would harmonize prices world-wide, starting with three iconic handbag models, to help it develop its share of the Chinese market.

Last year, major fluctuations in foreign exchange rates meant that some handbags had cost twice as much in Mainland China than in Europe, the fashion house said. “Chanel actually raised the Euro-pean prices of select bags by 20 percent and they lowered the China prices by 20 percent. The desire is that the price delta should never be more than 10 percent globally,” explains Hah. Other luxury brands are likely to follow suit.

Belin at Swarovski agrees that managing prices is one of the big challenges for luxury brands today. “There’s been complacency in the industry thinking that it was OK to charge so much more in China than in other markets” says Belin.

Improving insightThe slowdown has provided some brands in Greater China the oppor-tunity not only to test new pricing strategies but also to refocus on how to better understand Chinese consumers, and how they have evolved. As Belin puts it: “There is a degree of sophistication in understanding the consumers in China and it makes a huge differ-ence.”

He urges brands to avoid infor-mation that may over-simplify the profiles of Chinese consumers. “[Reports say] they don’t want

logos, they want lower prices, they want more entertainment, they want to shop less – as if they were one Chinese customer. We’re talk-ing about 1.4 billion people. It’s a market with a complexity, which is comparable to the U.S., with a collection of individual countries, cultures and languages.”

For Hamilton Cheng, Finance Director at Hong Kong-listed Chow Tai Fook Jewellery Group, and a member of the Hong Kong Institute of CPAs, analysing busi-ness intelligence on the brand’s Mainland Chinese customers is increasingly important as com-petition, especially from smaller brands, has intensified. “Because of the change in demand, we are actively presenting and launching more fashion jewellery products at affordable prices as part of our business strategies,” explains Cheng. “We control the costs to keep the prices attractive by using less expensive raw materials, while placing more emphasis on product design in order to meet consumers’ needs.”

Understanding how Chinese consumers research online and

via social media before going into the stores is also something that luxury brands cannot ignore. “Luxury goods have traditionally been slow to embrace e-commerce because they focused on the store ambience and getting to [person-ally] know the consumer,” says Hah at Deloitte. “But if you’re missing the Internet online experi-ence, you are not going to capture brick-and-mortar sales.”

Despite the challenges of better connecting with the Chinese con-sumers, some observers highlight that there continue to be plenty of opportunities in China, noting that they are relatively optimistic about the country’s third quarter 6.9 percent GDP growth rate.

“The growth rate may be slower, but we believe that the emerging middle class in China will gradually consume luxury goods and choose us,” says Clau-dia Lo, Divisional Vice President of Investor Relations and Corpo-rate Communications at Coach, and an Institute member.

Looking beneath the surface, Hah is also optimistic. “If you try to peel back the onion, you’ll see that consumption is growing,” he says. “Times like this allow the strongest to thrive, because if you don’t have a very robust strategy coupled with a sound operating model, you are not going to keep up. Companies that invest the time to review and refresh their business strategy and operating model are going to benefit in the medium to long term.”

“ There is a degree of sophistication in understanding the consumers in China and it makes a huge difference.”

According to the Hong

Kong Census and Statistics

Department, the total value of

retail sales in the city decreased

by 1.6 percent in the first half of

2015, compared with the same

period in 2014. In particular, sales

of jewellery, watches, clocks

and valuable gifts have decreased

by 10.4 percent in June, compared

with a year earlier.

November 2015 15

Thought leadershipPaul Druckman

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November 2015 17

Integrated reporting is no longer a punt: it is the guarantor of the future relevance of corporate

reporting and is the umbilical cord that connects a business to capital market decision-making, economic progress and social wellbeing. It has been piloted globally and is now being practised in over 25 countries across the world.

Since the launch of the Hang Seng Corporate Sustainability Index in July 2010 and the publication of the Hong Kong Exchanges and Clearing’s consultation paper on proposed amendments to its envi-ronmental, social and governance reporting guide, the growing pace and scale of sustainability and ESG reporting in Hong Kong has been unmistakable. The proposals aim to strengthen ESG disclosure require-ments, encourage more widespread and standardized ESG reporting among issuers and help issuers meet greater demand and expecta-tions for non-financial information from investors and other stakehold-ers. In formulating the proposals, the HKEx took into consideration developments in both Hong Kong and international markets. HKEx Chairman Chow Chung-kong has said: “We believe that business sustainability can only be achieved by operating profitably without compromising the well-being of our society and the environment.”

Elsewhere in the world, inno-vations such as these are the first milestones on the journey towards integrated reporting.

Integrated reporting helps to bring ESG (or sustainability) report-ing into the mainstream corporate reporting cycle. Sustainability reporting has been one of the great reporting innovations over the last

twenty years – it underlines the essential relationship between busi-ness, society, economy and environ-ment. Integrated reporting is not simply combining the sustainability report, annual report and financial statements. It calls for an articula-tion of how an organization creates value over time and its reliance on a much broader set of capitals. It requires integrated thinking and it facilitates the breaking down of silos. Integrated reporting is founded on the fact that organizations depend not just on financial capital for their success, but on all of the six capitals that we have identified, where rele-vant to their business model – finan-cial capital; manufactured capital; human capital; social and relation-ship capital; intellectual capital and natural capital.

With so many organizations reporting benefits from imple-menting the International Inte-grated Reporting Framework, it is surely appropriate for companies in Hong Kong to have access to the same opportunities. In a survey from the South African Institute of Chartered Accountants on inte-grated thinking, for example, 93 percent said it had improved deci-sion-making at management level and 86 percent improved decision-making at board level. In addition, the early adoption benefits study, conducted by Black Sun, a corpo-rate reporting consultancy, showed that 91 percent of all respondents have seen a positive impact on external engagement with stake-holders, including investors, and of those that have published at least one integrated report, 87 per-cent believe investors better under-stand their strategy.

Since the release of the Inter-

national Integrated Reporting Framework in December 2013 by the International Integrated Report-ing Council, integrated reporting has been gaining considerable pace across the world.

As a global coalition, the IIRC has high-profile council mem-bers and ambassadors leading the movement for integrated reporting adoption. There are now over 750 participants in integrated report-ing networks worldwide, with, for example, 180 businesses currently practising integrated reporting in Japan alone. More than 1,000 businesses globally are using it to communicate with their investors and there is an increasing interest by pioneers in the public sector. The IIRC’s mission is to establish integrated reporting and thinking within mainstream business prac-tice as the norm in the public and private sectors.

The reaction to the release of the framework has been positive, both in Hong Kong and internationally. Now, more and more business lead-ers recognize the need to consider and report on wider business issues. In a recent survey of 500 leaders, by CIMA, the AICPA and Black Sun, nearly 50 percent of respondents, who are CEOs, CFOs and COOs, have already said they are moving towards integrated reporting, with a further 35 percent saying they will adopt integrated reporting in the next two to three years.

In the words of U.K. Sinha, Chairman of the Securities and Exchange Board of India and an IIRC Board member, “Whether integrated reporting should happen or not is no longer a question. We should look at how to implement it in a manner that is not disruptive.”

The International Integrated Reporting Council’s Chief Executive Officer explains why whether integrated reporting should happen or not is no longer questionable

“Ideally placed” – Hong Kong is now ready for integrated reporting

Leadership prof ileY.K. Pang

Y.K. Pang was reelected Chairman of the Hong Kong General Chamber of Commerce for 2015 in May

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BUSINESS AS USUALY.K. Pang, Chairman of the Hong Kong General Chamber of Commerce, tells Jemelyn Yadao about Hong Kong’s role in the Greater China and Pearl River Delta region, and the importance of professional services to local economyPhotography by Juliet Shayne Lui

T here are few things that Y.K. Pang dislikes more than stagnation. Which

is why the Chairman of the Hong Kong General Chamber of Com-merce can’t help but express his concern over the delays of projects that add to the city’s infrastructure.

“We really need the third runway as quickly as possible. The planes are now parking on the tarmac,” Pang says of the plans for a third parallel runway north of the airport island. “We need the high-speed rail, more roads that have been planned and housing development for the people. So it’s important that legislators do not filibuster and stop things for the sake of stopping them.”

Over-regulation is another area of concern for Pang, particularly in relation to the Competition Ordi-nance and standard working hours, as it will increase the cost of com-pliance for businesses and add to their burden. “Although it sounds nice in practice, [the Competi-tion Ordinance] may change the mutuality and friendliness that you

have in business dealings because you might be fearful that you might say something wrong and then you will be on the wrong side of the law,” he says.

On legislating standard working hours, Pang believes doing so will not solve the issue of excessively long working hours, but make it difficult for companies to survive. “Hong Kong is experiencing practi-cally full employment and so wages and working hours are a matter of supply and demand,” says Pang. “There are some people in Hong Kong who choose an easy lifestyle and there are some who choose to work 20 hours a day to pay for their kids to go to school. But it is their own choice and people should be given a choice.”

Pang’s innate way of speaking frankly about the challenges fac-ing Hong Kong stems, of course, from him regularly speaking on behalf of Hong Kong’s more than one million registered businesses. The ultimate role of the HKGCC, he says, is to serve as the voice of the city’s businesses.

The organization’s corporate members represent a wide range of local and international businesses. “We help our member companies do business through our core func-tions and this includes advocacy, knowledge-based events, network-ing opportunities and also business documentation services,” says Pang, who is also Chief Execu-tive of Hongkong Land Holdings and Director of Jardine Matheson Holdings, Jardine Matheson and Jardine Matheson (China). He joined the HKGCC’s General Com-mittee in 2005 and was elected vice chairman in 2010 and deputy chairman in 2012. He was elected chair two years later.

Despite the chamber being one of the oldest organizations in Hong Kong – it was founded in 1861 with 62 companies and banks making up the original membership – there is no room for resisting change, notes Pang. “We use social media quite a lot, we have launched a new mobile app for our members, our certification operations are increasingly done electronically,

November 2015 19

Leadership prof ileY.K. Pang

and we are also attracting more and more of the young professionals in Hong Kong.”

Indeed, cultivating Hong Kong’s next generation of business leaders is critical for Pang. “This year marked the 15th anniversary of our business school partnership programme,” he says proudly on the initiative that was created to help younger people gain a better understanding of the commercial world by connecting them with businesses. Citing the heat of last year’s Occupy Central movement, Pang acknowledges that this is sometimes easier said than done. “Young people perhaps had a cer-tain view of the older generation, but it is important to help them understand the role of business and their own role as deliverer of economic activity in Hong Kong going forward in the future.”

Strong connectionsThe chamber has long been analys-ing how businesses in Hong Kong can benefit from certain policies. It is known, for example, for being the organization that initially proposed in a report the concept of a foreign trade agreement with the Mainland as an alternative to the provision of preferential treatment of foreign capital in 2000. The report was submitted to then-Hong Kong chief executive Tung Chee Hwa and, as a result of the lobbying, the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was officially proposed.

The arrangement has proved

to be a win-win for both sides, observes Pang, citing statistics showing that by the end of Febru-ary, around 123,000 applications for certification of Hong Kong Origin under CEPA were approved by the Hong Kong government, with the total export value of goods from Hong Kong to the Mainland amounting to over HK$68 billion since the arrangement took effect. “In addition, the government also issued more than 2,800 Hong Kong Service Applied Certificates to Hong Kong companies to operate

on the Mainland through CEPA,” he says. “All of this has given Hong Kong [companies] many oppor-tunities to take advantage of the Mainland market and also helps raise the standard of services and also goods on the Mainland.”

Last year was “a breakthrough,” notes Pang, with an agreement to liberalize the trade of services between Hong Kong and Guang-dong being signed. “By the end of this year, we are expecting full liberalization of trading services between Hong Kong and the Main-

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“ Young people perhaps had a certain view of the older generation, but it is important to help them understand the role of business and their own role as deliverer of economic activity in Hong Kong.”

land and this has given Hong Kong a head start over the rest of the world before [China’s full] World Trade Organization [commitment] fully kicks in.”

Another example of the ever-expanding economic ties between the two sides is the Pan-Pearl River Delta initiative. While Hong Kong has undoubtedly played a pivotal role as a channel bringing capital, technology and talent into the delta, that role has shifted. “In recent years, this has now evolved into a more two-way investment

platform. So not only have Hong Kong companies invested in the Mainland in manufacturing facilities, we also see Mainland economic successes with China investing in assets in Hong Kong in a major way,” Pang says, pointing to China utilizing Hong Kong as a springboard to launch business activities in Southeast Asian mar-kets and the rest of the world.

With factors such as Hong Kong’s enhanced connectivity with the cities of the Pearl River Delta, Pang sees Hong Kong con-

tinuing to be a key player in the economic growth of the region. “Our infrastructure for business, for marketing, the legal infra-structure and also the informa-tion technology infrastructure in Hong Kong is second-to-none,” says Pang. The sheer concentra-tion of brain power in Hong Kong also make it an important focus of economic activity in the delta. “We have a very important pool of local talent, and we are also a gathering place for people from anywhere in the world.”

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Leadership prof ileY.K. Pang

Pang, who has been Chief Executive of Hongkong Land Holdings since April 2007, is concerned about how the Competition Ordinance and standard working hours will impact businesses

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Room for expansionThe reality, however, is that Hong Kong no longer has the world’s best financial sector, losing its top ranking to New Zealand and Singapore, according to a recent report by the World Economic Forum. One way for the sector to take back its crown is by widen-ing the net as it continues to be a major player on the IPO scene. “I think [the sector] needs to do IPOs of not only Mainland companies... we should work with companies from other countries such as India, Philippines, and others around the region, and we should try to do more in terms of fixed income assets too. Hong Kong is very strong on equities, we can do more on the fixed income side.”

Pang also urges the sector to take more advantage of the ample room there is to develop wide-rang-ing financial products through, for example, Islamic finance and the issuance of sukuk, or Islamic bonds. He notes that despite being a global finance centre, Hong Kong lags behind other countries when it comes to exploring new areas of financing, such as equity crowd-funding. “Even on the Mainland, you see many interesting new ways of crowdsourcing and crowdfund-ing which I think is one area we have been slower at, and we need to catch up.”

When it comes to taking on the

challenges of maintaining Hong Kong as a favourable environment for business, the chamber pays particular attention to protecting the grassroots workforce. “We have a lot of small- and medium-sized enterprise members. They are the backbone of the Hong Kong economy because they employ the most number of people,” says Pang.

He points out that SMEs in Hong Kong currently account for more than 90 percent of local businesses, and they hire about 1.2 million employees. With small companies already struggling to cope with increasing costs and cash-flow constraints, easing pressure on SMEs should be a key focus, he notes.

Competitive streakSince being re-elected chair for 2015 in May, Pang hopes to continue playing a part in further enhancing Hong Kong’s com-petitiveness – a goal he believes is impossible to accomplish without the help of the accounting profes-sion. “Without accountants and accounting, you have no idea of how much fuel is left in the tank,” he says. “You wouldn’t know how much money is left, how much you can invest, what’s happening with the money, what are things worth in your business. It is a core func-tion of business.”

CPAs, he says, particularly

chief financial officers, play an important role not only as business partners, but also in building busi-ness confidence. “This integrity and honesty that accountants have ensures that corporations in Hong Kong play by the rules and do the right things.”

Nevertheless, Pang acknowl-edges there is always room for improvement, and says that the Institute and the chamber can work together in promoting the merits of incorporating corporate governance practices into busi-ness operations. “Educating young accountants and business people can go a long way to instilling the requisite corporate culture that will in turn provide the founda-tions for a more attractive and effi-cient market in Hong Kong,” he says. “This is one area where there are a lot of synergies between the Institute and the chamber, benefit-ing both organizations and also the community.”

Recognizing the importance of accountability, transparency and integrity as important traits that drive corporate social responsibility and governance is what is needed to stay ahead of the game. “Our competitiveness is like rowing a boat against the current,” says Pang. “We have to keep forging ahead, we have to keep pushing and rowing ever faster or we’ll be left behind.”

“ This integrity and honesty that accountants have ensures that corporations in Hong Kong play by the rules and do the right things.”

The HKGCC was founded by 62

business people on 29 May 1861. The first Chinese member firms of

the chamber were Sun Yee Hong, Lai

Hong Hong and Tak On Bank, which joined in 1880.

1861

November 2015 23

How to...Angela Shing

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November 2015 25

Accountants need to do less talking? No matter what role we take in the workplace, we need to communi-cate effectively with colleagues and clients both non-verbally and verbally every day. We must pres-ent our ideas clearly so that the listeners correctly perceive our message and remember it. This is essential to building better working relationships.

Understand your audience firstTo give a powerful presentation, the first thing you have to do is under-stand your listeners. Only then can you plan your content and get your message across effectively. Based on the analysis of your listeners, determine the purpose of your pre-sentation, which may include the following:• Inform • Convince• Motivate• Entertain• Teach• Sell

Once the purpose is determined, develop the content with the aim of addressing the listeners’ core concerns.

Three-part “hamburger” formatA well-prepared presentation will

help to reduce anxiety before the presentation day and to impress your audience. A structured presen-tation, like a hamburger, consists of three main parts:• Introduction: Telling them what

you’re going to tell them• Body: Telling them• Closing: Telling them what you

told them

Make the “body” memorableA good introduction can capture an audience’s attention. Keep the introduction short (about 5 percent of the whole presentation), but make it count. The body of your presenta-tion accounts for 90 percent of your time, similar to how the middle part of a hamburger is the thickest layer. In this part of your presentation, you should deliver your ideas and all the details around them.

However, statistics reveal that people take a mental vacation once every six seconds. To avoid los-ing the audience, you can group together the details of your presen-tation into three to four sub-topics.

For example, when present-ing the actions to be taken for a particular issue, you can group the details into three sub-topics of dif-ferent people such as: management, front-line staff and back-office staff. Using sub-topics of similar nature, like people in the previous example, will help the audience

remember the key information.The globally acclaimed pro-

gramme Think On Your Feet® helps train learners to structure their ideas and details in 10 effec-tive ways to:• Explain complex ideas clearly• Get to the point• Be more persuasive• Respond on the spot• Grab your audience’s attention

Besides the body and the introduc-tion, the ending is also important to give a good impression to the audience. Spend about 5 percent of the time on a conclusion that echos what you have said in the introduction.

Equip, structure and rehearseThe main purpose of presenting your ideas is to help listeners com-prehend your information and its meaning. Here are the three key steps to make your presentation memorable:• Equip yourself with the appro-

priate skills• Structure your ideas in a memo-

rable way• Rehearse well before the

“show”

The above three steps will surely help you improve your confidence, increase your listeners’ retention levels, and enhance your credibility.

“ A structured presentation, like a hamburger, consists of three main parts.”

…make memorable presentations

The Director of InsideOut Training Solutions explains why high impact presentations take more than just good ideas

TaxTreasury

While Hong Kong has been one of the traditional homes for multinational companies to base their Asian treasury activities, the government is now looking to formalize this. Ben Poole looks at how the steps being taken may promote Hong Kong as a preferred location for regional treasury centres, especially in the face of competition from SingaporeIllustrations by ID WORKSHOP

TREASURE ISLANDH ong Kong’s moves to

affirm itself as a favoured regional treasury centre

have been progressing for some time, but picked up pace this year. In 2012, the government formed a working group to study policy ideas that could promote the territory as a corporate treasury centre. In February this year, Financial Secretary John Tsang announced the relevant policy.

Over the past six months, a draft of the policy has been made available to the corporate treasury community for consultation. This is now completed and it will proceed through the legislative process. The new policy should be ready to roll out at the start of the fiscal year, 1 April 2016.

“The Hong Kong Monetary Authority, the Inland Revenue Department and the Financial Services and the Treasury Bureau have been working very hard in developing the policy,” says Peter Wong, Director of the Treasury Advisory Practice at PwC and also a member of the Treasury Market Association. “As the Founding Chairman of the International Association of CFOs and Corporate Treasurers (China), I engaged treasurers to provide our feedback on the draft. I would say that the policy represents a breakthrough.”

Policy elementsThe policy consists of two core elements. The first is to remove the existing tax asymmetry, allowing companies to use interest expenses and claim back on these as well. In addition, corporates that make inter-company transfers within the same group through Hong Kong will not suffer a tax penalty for doing so.

The second element is to encour-age more companies to centralize their treasury function into a cor-porate treasury centre. The HKMA has defined a list of eligible treasury activities, such as cash pooling, intercompany loans and hedging activities including hedging interest rate risk, foreign exchange risk and commodities risk. For example, air-lines have to hedge against their fuel expenses so they can use the cor-porate treasury centre as the legal entity. Any hedging profits would normally be subject to the regular Hong Kong corporate income tax of 16.5 percent. Under the new policy, the profits tax rate for treasury-related activities is cut by 50 percent for corporate treasury centres.

“Certain relaxation of the interest deduction rules for intra-group financing business and a concessionary half-rate regime for qualifying corporate treasury cen-tres would enhance Hong Kong’s competitiveness and demonstrate the government’s commitment

to providing a market-friendly taxation framework for corporate treasury centre activities in Hong Kong,” a spokesperson from the HKMA told A Plus.

This is a view supported by the industry, where the current tax rates were a factor in making Hong Kong appear less attractive as a regional treasury centre location. “When the tax laws are enacted, it will have the effect of levelling the playing field for companies that are looking where to set up in Asia, reducing Hong Kong’s deficiencies,” says David Blair, Managing Director of Acarate Consulting in Singapore, a consultancy that focuses on all aspects of treasury from policy to practice.

Treasurers should be aware that companies need to set up a separate legal entity to house all treasury activities in order to enjoy the 8.25 percent tax rate. However, in Hong Kong, there is no need to apply to get approval to receive corporate treasury centre status. Once the separate legal entity is established to purely carry out treasury activities, the 8.25 percent tax rate will be applied when the tax return is filed describing these treasury activi-ties. In Singapore, as a comparison, companies not only need to register for approval for the treasury tax rate, but will often need to apply again further down the line as it is possible

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“When the tax laws are enacted, it will have the effect of levelling the playing

field for companies that are looking where to set up in Asia, reducing

Hong Kong’s deficiencies.

November 2015 27

TaxTreasury

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tax rate for treasury-related activities

Companies must register for the treasury tax rate

10%Singapore

tax rate for treasury-related activities

No need for companies to register for the treasury tax rate

8.25%Hong Kong

to lose the status. Treasurers in Hong Kong can breathe a sigh of relief that they will not have to prepare for this type of additional administrative burden.

Additional attractionsBeyond the changes to the tax law for cor-porate treasury centres, Hong Kong has other advantages when promoting itself as a regional treasury centre location. “Hong Kong is competitive in terms of the financial system, the banking system, the infrastructure and the talent pool,” says Ernest Mui, Director of Treasury and Tax at Knorr-Bremse Asia Pacific.

The business model for many multi-nationals is also shifting towards a high proportion of RMB business. Hong Kong has a strong depth and breadth in its offshore RMB market. Secondly, the close proximity of Hong Kong to China makes it an attractive location as China continues to liberalize its currency.

“For companies that already have a treasury centre in Singapore, I would say that they would probably take a longer time to move or relocate their offices to Hong Kong. Singapore and Hong Kong have equally good financial infrastruc-tures,” says PwC’s Wong. “For multina-tionals that have not yet set up anything in Asia, treasury is one of the functions of the regional management office, and they would not want to be removed completely from the regional management office to put them in another country. That is a consideration.”

RMB influenceAs the Chinese government continues to promote RMB as an alternative to the USD for global payments and investments, it will be another boost to Hong Kong’s attempts to attract companies to set up corporate treasury centres.

“Multinationals investing in China are able to connect their onshore RMB cash pool to the offshore cash pool in their Hong Kong corporate treasury centre much easier than before with the contin-ued liberalization of the capital account,” says Wong. “The ‘One Belt, One Road’ and ‘Going Out’ initiatives will increase the RMB internationalization. They will

find that Hong Kong will provide a good platform to manage their international treasury functions.”

The initiatives by China to facilitate cross-border cash pooling and prefer-ence to use Hong Kong as a pilot site and conduit for phased regulatory relaxation provides it with first mover advantages over other locations. “Hong Kong’s close relationship with China means it is in a unique position to operationally bench test regulatory easing with minimal risk,” says Alex Koh, Regional Treasurer Asia Pacific at advertising and public relations multinational WPP and a member of the Hong Kong Institute CPAs. “Hong Kong’s established rule of law provides a comfort factor for companies trying to implement cross-border pooling with a regulatory regime that previously did not permit this. However, that sentiment is changing and Hong Kong is at the forefront of China’s efforts to internationalize the RMB.”

Since 2009, the Chinese government has allowed RMB to be the settlement currency in trade between China and over-seas. Some 25 percent of China’s foreign trade is now settled in RMB. A lot of this RMB is deposited in Hong Kong – about 70 percent of the offshore global RMB cash pool, around 1 trillion yuan, is here. This size of deposit can provide liquid-ity for activities ranging from day-to-day transactions to different types of banking products. It also represents approximately 10 percent of Hong Kong’s domestic bank RMB deposit base. “According to one international bank, the RMB deposit will grow from the current 10 percent to approximately 40 percent by 2024,” says Wong. “This potential for growth helps explain why Hong Kong may be a place to operate an RMB business from cash man-agement and financing to using different hedging instruments – it can all be done in Hong Kong.”

All of this, combined with the government’s half-rate regime for qualifying corporate treasury centres, is expected to not only encourage the development of Hong Kong as a regional hub for treasury, but also cement the city’s position as a leading international financial centre.

“ Hong Kong’s close relationship with China means it is in a unique position to operationally bench test regulatory easing with minimal risk.”

November 2015 29

Success ingredientEdwin Morris

THE EXTRA MILEEdwin Morris, Chief Financial Officer at Asia Miles, talks to Jemelyn Yadao about his journey to becoming an effective business communicator as well as the rewards of working in Asia’s burgeoning loyalty programme industryPhotography by Juliet Shayne Lui

M ore than eight million people are members of Asia Miles, the lead-

ing travel and lifestyle rewards programme. However, as its Chief Financial Officer Edwin Morris points out, not many can say what the scheme actually does.

In answering the question, the Hong Kong Institute of CPAs mem-ber puts himself in the shoes of an everyday, thirsty consumer. “Say there are two bottles of water on sale. I don’t really care which bottle to buy provided it is the cheaper one. However if you tell me that I can earn Asia Miles by buying one of them and not the other, I would probably make an effort to buy the one that will help me earn Asia Miles,” says Morris. “I want to earn Asia Miles because of what I can do with it.”

A wholly owned subsidiary of Cathay Pacific Airways, the company has access to seats on flights of its 25 airline partners for members to redeem – among other rewards – using miles that they earn by spending from a range of travel and lifestyle categories including flights, hotels, dining, financial services and retail. It has

more than 600 programme partners worldwide. “Asia Miles helps shift consumer behaviour for brands. We’re providing a point of differ-ence and a competitive advantage,” Morris explains. “That is what loy-alty marketing is about – It’s about influencing consumer’s behaviour so people will always come back to buy your product.”

Although Asia Miles was launched in 1999, the loyalty programme market in Hong Kong is still relatively nascent compared with places such as Australia, Europe and the United States. For Morris, this is what makes running and growing the company along-side the chief executive officer a stimulating task. “It’s an evolving market,” he says. “I think Asia Miles is in a very fortunate position – it is a very reputable programme, highly aspirational, and in a very commanding position in defining what loyalty programme could be in this part of the world.”

One way Morris foresees the industry in Asia evolving is by taking note of paths taken by counterparts in Western countries. “Eventually, I see more loyalty programmes [in Asia] becoming

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November 2015 31

Success ingredientEdwin Morris

Morris helped Swire Properties

with two public listing attempts

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coalitioned. This is what is happen-ing in the U.K., U.S. and Australia,” he says.

Asia Miles is currently working on transitioning into a sophisti-cated coalition loyalty programme. “You do this because the combined proposition of all the business part-ners on a common loyalty platform will be greater than the sum of the individual parts.”

The more programme partners there are on such a loyalty platform, the more powerful it becomes. “For example, on a loyalty platform you may have the airline, a supermar-ket, a hotel, a restaurant, a credit card and an insurance company,” Morris says. “For the businesses, they are able to tap into each others’ customer base and leverage off that. And for the consumers, they are able to more easily earn the miles that they want in every facet of their life.”

Career bonus pointsBefore joining Asia Miles, Morris’ career path had been predominantly shaped by his decisive personality. After three years at the then-Big Six firm Arthur Andersen in Sydney and qualifying as a Chartered Accountant, the decision to go back to his birthplace, Hong Kong, was an easy one. “It was 1997 and I thought to myself, I know the market, I’ve grown up here, and plus I wanted to witness

history,” he says, referring to the city’s handover that year. He subsequently joined Price Waterhouse (now PwC) in Hong Kong with a focus on auditing financial institutions.

Around one year and half later, he received a surprising phone call from a headhunter with a tempt-ing job offer from Goldman Sachs. “It was like everybody’s dream,” he recalls. Focusing on propriety accounting and risk analysis, Mor-ris worked closely with the bank’s traders, kept track of profit and loss and worked on the foreign currency desk and equity desk.

After two years, Morris was determined to make a switch from the “sell side” to the “buy side” or investment side, and joined a bou-tique private equity firm in Hong Kong, sourcing and monitoring investments around Greater China.

His five years at the firm taught him valuable non-technical skills, he says. “It taught me how to assess a management team running the business, which is just as important as what the numbers are telling you. You would learn to think about whether the interests of the management team are aligned with my own as an investor. If not, what can I do to structure an agreement so that our interests are aligned?” he says. “Even though the company may be a fantastic company to invest in, if the management team

“ It taught me how to assess a management team running the business, which is just as important as what the numbers are telling you.”

November 2015 33

Success ingredientEdwin Morris

Morris is also a Chartered Accountant (Australia)

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has other ideas in mind [different] from your own, it’s risky to be in partnership with them.”

Again, his openness to explore different things led to another opportunity, as he joined HUD Group (Hong Kong United Dock-yard), a joint venture between Swire Pacific and Hutchison Whampoa , in 2005 and then joined Swire Properties soon after. “I spe-cifically said I wanted to also join a brand name company and have a more operational role,” he says. “After seeing so many companies becoming successful as an investor, I started having this edge to be involved in the creation and man-agement of something rather than always being on the sidelines.”

With having to reacquaint himself with accounting, learn about the properties industry from scratch, and playing a critical role in two public listing exercises, Morris describes his experience as financial controller at Swire Properties as a career highlight but also incredibly intense. “That was probably the hardest work I’ve done in my life,” he says, looking back at the first listing attempt which took place just 18 months after he had joined. “In 2010, we were planning to list, but on the last day of public subscrip-tion, the Greeks got into financial trouble, hence the beginning of financial crisis. Overnight all the potential investors became very nervous. It was decided in hindsight, and very rightly so, that it wasn’t the best time to go ahead with the listing so we pulled it.” The second attempt, he adds, came at the end of 2011, and the company eventually got listed in

January 2012. Despite working perhaps 14

hours a day, seven days a week for five consecutive months, Morris admits to strangely finding the pro-cess enjoyable. “Here is a unique opportunity to be involved in put-ting one of the premium companies in Hong Kong on the market,” he explains. “For the entire Swire Properties management team, it was a collective learning experi-ence. From people at the working level to the director level, the entire company is working towards a common purpose and I found that very exciting, very uplifting.”

Essential experienceUnlike the well-established proper-ties industry in Hong Kong, there is a lot of room for the city’s loyalty programme industry to grow. Morris believes that his CPA train-ing and qualification makes him well-equipped to help Asia Miles develop. “The value that someone with a finance or accounting back-ground can provide is a financial discipline,” he says. “And we do this from the beginning, from the formulation of strategy, and the execution of the strategy and the business as usual daily operational performance. We make sure that we’re making a reasonable return for all investments. If not, then we should re-assess.”

The importance of good com-munication couldn’t be more stressed, notes Morris. “I try to talk to the staff about what actually drives shareholder value at Asia Miles, and to focus our efforts into things that do drive shareholder

value because resources are finite and we have to make sure we make the best use of it. I also try to do that externally particularly with the board,” he says. When it comes to everyone else, he is actively promoting a programme that he genuinely believes provides good value for its members. “In that case, I would also try to encour-age people to become Asia Miles members.”

Morris views loyalty pro-grammes as “a big marketing machine” that relies on consumer insights generated from big data to shift customer behaviour. “My role as CFO is to work together with the senior management team to make use of those insights and from that, see what strategy we should take, how we should implement it and track how implementation is going.”

His previous accounting-focused experience was essential for him to take on his current job responsibilities and help drive business strategies with confi-dence. “I don’t see this role as something different; I see it as an extension [of my previous finan-cial controller role], building on the technical aspects, which I think creates a lot of value for the company.”

“ I try to talk to the staff about what actually drives shareholder value at Asia Miles.”

The two main forms of loyalty

programmes are: the standalone programme, in which a single

provider enables the accumulation and redemption

of points, and the “coalition”

programme, which allows members

to accrue and redeem points with many commercial partners affiliated

to the network.

November 2015 35

Professional coachingMentors and mentees

Carrie Chung (left) with her mentee, Christie Leung

36 November 2015

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To Christie Leung, her mentor is more than a professional role model. She is a glimpse

into the future of Leung’s career path as a CPA.

The Finance Manager at Hutchinson China MediTech and a member of the Hong Kong Institute of CPAs made the transition from an audit firm to the commercial industry with guidance and prepa-ration from Carrie Chung, Senior Financial Analyst at LCJG Limited and a member of the Institute.

To nurture aspiring CPAs and the future of the profession, the Institute launched the Mentorship Programme and provided mentees like Leung the opportunity to learn from experienced CPAs. Through experience sharing and consulta-tion, the programme hopes to aid in career development and individual growth on both sides of the mentor-mentee relationship.

Institute members with post-qualification experience of three years or less can apply to be men-tees, while those with post-qualifi-cation experience of seven years or more are eligible to be mentors. In the application process, partici-pants identified their objectives for joining the programme and are matched based on compatibility and learning needs as indicated by the mentees.

When Leung submitted her ap-plication to join the initiative, she in-tentionally specified her preference for a mentor from the commercial sector. “At that time, I was still at an

audit firm. Normally when you’re at work, you meet people from the same sector as you,” says Leung. “The programme is a good opportu-nity to not only meet new people but accountants of different natures and from different industries.”

For Leung, the ideal mentor would be someone who had experi-ence with commercial accounting but was also willing to talk about lighthearted topics both profes-sional and casual in nature. “A mentor shouldn’t be like a boss but more like an older sibling that you respect,” she says. Because of this, Chung turned out to be the perfect match for her concerns.

“I joined the programme to develop my coaching skills,” says Chung. “In some ways, Christie was like a first child because now I have a subordinate at work who I coach using some of the same skills I learned while mentoring [Christie],” she laughs. For Chung, part of the coaching process is being a good listener. “My priority is to help her

solve work issues based on my own experience, but the first step is to really listen to her concerns without interrupting,” she explains.

Chung’s years of experience in the retail and distribution industry and her mentorship came at a crucial time for Leung as she prepared to go into the pharmaceuticals industry after a stint at EY. “Management accounting was very new for me and I had to get my head around things like budgeting or analysis with a business sense,” says Leung. “I learned a lot from Carrie about understanding another accounting field and it was helpful for me in the job interview to show that I had this understanding.”

While some busy CPAs might be concerned about the time commit-ment a mentor would need to make, Chung reassures that participation is both flexible and comfortable. “At first I thought it might be very rigor-ous but in reality, it’s much more casual and open,” says Chung.

Leung has previously joined other mentorship or buddy pro-grammes in university, and even joined the assessment centre in her previous firm to interview young people joining the company. “I met a lot of people from the next generation of CPAs and learned how to really communicate with them because they’re so different from my own generation,” she says. “Even though I am the mentee, Car-rie could learn more about the next generation through my experiences that I shared with her.”

“ The programme is a good opportunity to not only meet new people but accountants of different natures and from different industries.”

The Institutes’ Mentorship Programme celebrates its one year anniversary. Tigger Chaturabul talks to mentors and

mentees about their experiences along the wayPhotography by Juliet Shayne Lui

Leading by example

November 2015 37

Professional coachingMentors and mentees

Kit Leung (left) with her mentee, Endy Chan

38 November 2015

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When the pair meet, they take their conversations to cafes or restaurants for lunch or tea. “Apart from work topics, we can also talk about everything from shopping to eating,” Leung says. “She has taught me a lot about where to go for good discounts or good food,” adds Chung.

The mentor-mentee pair keep in touch mostly through Whatsapp. “I was very happy to receive Christie’s update about her job change in June,” says Chung. “It was what she wanted and I got to see her accomplish it.”

Taking initiativeEndy Chan learns skills that he can’t acquire in the office from his men-tor. The Audit Manager at Deloitte China and an Institute member finds Kit Leung to be an ideal role model when it comes to planning out his work-life balance for the future.

Leung is Deputy General Man-ager of the Finance Department at China Travel Financial Holdings Company and an Institute member. “When I signed up to be a mentor, I wanted to pass on my experiences to my mentee and improve my coaching skills in the process,” she says. “I was expecting my mentee to be a fresh grad but I was sur-prised when Endy turned out to be so experienced and nearly the same age as myself.”

The Mentorship Programme ap-plication process allows applicants to specify what industry they’d like their match to be from. However, other than years of experience, the programme doesn’t pair partici-pants based on age. “What we have is a good situation,” says Chan, “because we turned out to be from the same generation, we can share experiences without a big gap.”

Their partnership became a

good opportunity for them to learn from each other. “As a mentor, we’re not just responsible for giving constructive feedback, but to also show the value of the accounting profession. We have to be willing to share,” says Leung.

Joining the programme calls for more than just time commitment – mentees are encouraged to take initiative and be proactive when it comes to seeking advice from mentors. Chan has been consistently initiating meetings and discussions, coming prepared with a list of ques-tions to really make the most of the programme. “Kit is not only an ex-perienced financial accountant but also a mother-of-two and involved in many extra activities,” Chan ex-plains. “I wanted to learn about time management and how to maintain a work-life balance from her.”

While Chan has mainly been focused on his career and communi-cating well with clients, Leung has helped him realize that he must also think about expanding his network and communication among peers. “I actively find topics to talk about with my mentor because it helps me improve social skills,” he says.

As most mentor-mentee pairs in the programme are matched with participants outside of their firm and expertise, there can be limitations in sharing of technical skills or com-pany environments. This however

does not hinder Leung and Chan’s mentor-mentee relationship. “I believe the purpose of the Institute’s Mentorship Programme is not the technical learning process but rather about learning soft skills,” says Leung. “Although I have worked in an audit firm before, Endy has more curiosity about different industries now and that’s why the programme is quite valuable for him.”

Leung’s CPA friends who are also part of the programme have found a way for their mentees to network more broadly. “We have a group of three mentor-mentee pairs from different backgrounds and are planning to meet up together soon,” she shares.

As a mother, Leung has always preferred to teach by example, a principle she also maintains as a mentor to Chan. To be a good role model, Leung shares not only what she has done, but also the problems she has encountered and how she solved them. “When I first started in the financial industry, I felt that I wasn’t well prepared. That’s why I feel it’s important to guide Endy to set clear goals and do what I can to prepare him as his career develops,” says Leung.

Chan has already achieved one goal in his recent promotion to Audit Manager, news that Leung received with pride and happiness. “Even if Kit is not in Hong Kong or busy at the time, I can still share important updates or even any difficulties I encounter,” says Chan.

It’s all about time management, Leung shares. “Accountants are busy, but it’s not just about focus-ing solely on their work,” she says. “My mentor won’t teach me audit techniques,” says Chan, “but she can show me how to get a head start on my future.”

“ I wanted to learn about time management and how to maintain a work-life balance from her.”

November 2015 39

China opened its doors to foreign invest-ment in the 1980s under the leadership of Deng Xiaoping. Key events that influenced the evolution of China’s auditing profes-sion during that time shaped many aspects of the profession we observe today. An awareness of these events help lay the foundation for a deeper and more thorough understanding of the auditing profession that we see in China at the present time.

Today China’s auditing profession is well headed down the path of achieving convergence with international profes-sional standards. The Chinese leadership has begun to speak about China having more influence on the global stage in the auditing arena. However the devil is in the details as the profession comes to grips with applying the requirements in interna-tional standards in China’s dynamic and di-verse environment. China’s audit oversight bodies are independent and structurally free from any connections to the profes-sion; a signpost of good audit regulatory practice recognized by international audit regulatory communities. However, there remains much work to be done to address the complexities associated with such a

structure, so as to deliver the efficiency and effectiveness of auditor oversight that China authorities has set out to achieve.

A look back in timeWhen China opened its doors to foreign investment in the 1980s, companies from Hong Kong and Taiwan reacted quickly to seize potential commercial opportunities. These companies made their way into China and quickly became major players largely by forming joint ventures with local affiliates, setting up factories and entering into commercial arrangements to export Chinese-made goods over-seas. Rapid market growth and increase of commercial activities generated a demand for accounting and auditing services locally. This led to a restoration of a focus on building a national auditing profession. Prior to this time, develop-ment of China’s auditing profession in the country had largely been stagnant.

Chinese authorities needed a quick solution to meet the demand in the capital market for audit know-how — particularly demand generated by foreign companies that have new ventures in China. The Chi-

nese government’s intermediate response was to look to the global accounting network firms to fill this skills gap. The Chinese government permitted the Big Four global accounting network firms to operate in China cooperatively with China’s Ministry of Finance affiliated firms. In most cases, the Chinese affiliates of these global accounting networks were set up by the networks’ Hong Kong affiliates. These arrangements were referred to as sino-foreign cooperative accounting firms. The Chinese authorities set an operational period of 20 years for these arrangements at that time. It was felt that these joint ven-ture firms would be ready to become local Chinese accounting firms by that time.

As a result of these events, the rela-tionships formed between the Chinese authorities and the Hong Kong affiliates of the global accounting network firms went beyond that of business partners. Not only did the Hong Kong auditing profession help fill the auditing skills shortage in China, they also provided auditing knowledge and technical expertise which China needed to develop its own auditing profession. Access to such know-how spurred the

Auditing in China – yesterday, today and tomorrow

Len Jui and Jessie Wong look back at the recent history of the Chinese auditing profession and discuss the challenges ahead

40 November 2015

SourceMainland auditing

growth of the Chinese auditing profes-sion locally. Among other things Chinese standards-setters and regulators were introduced to international standards used by accounting professions across the globe. By responding to the auditing skills shortage in China at that time, the Hong Kong auditing profession contributed significantly to shaping the auditing land-scape in China that we see today.

Ethnic Chinese audit professionals from foreign jurisdictions also picked up on the demand for their skills in China. Being ethnic Chinese, these individuals were fluent in the Chinese language, and had the competitive advantage of being able to communicate effectively with their Main-land counterparts. They were also in sync with the local cultures. To a large extent foreign ethnic Chinese audit professionals also contributed to the physical growth of the auditing profession in Mainland.

Making progressIn October 1993 the Law of the People’s Republic of China for Certified Public Accountants was passed – a monumental piece of legislation enshrining the ac-counting profession’s role in fostering the growth of companies and ensuring stabil-ity of the capital market in China. The roles of Chinese CPAs were also stipulated in numerous other pieces of legislation such as the China’s Company Law, Securities Law, Law on State-Owned Enterprises and Commercial Bank Law.

China’s auditing profession has made notable progress as Chinese regulators continue to focus on building the profes-sion’s capabilities and competencies. Year 2012 saw the expiration of the sino-foreign cooperative arrangements. Under the directive of the MoF, these joint venture firms converted into special general part-nerships. This new legal form has been formulated by the MoF specifically for the Big Four sino-foreign cooperative account-ing firms in recognition of their unique

historical development and circumstances specific to these firms.

To take on the special general partner-ships structure, the firms are required to meet specific requirements relating to the proportion of partners who are Chinese-qualified public accountants and partners who are foreign-qualified public accountants. Contrary to what had been portrayed in the news, such a requirement is targeted at regulating the qualifications and licensing not the nationality of public accountants. Similar requirements are also common in many other jurisdictions around the world. Commenced in August 2012, the conversion process for the firms is now complete.

Despite this, the effects of the evolution of China’s accountancy profession are still felt today. Beginning in 2006, the Chinese Institute of Certified Public Accountants has held the Cross-straits, Hong Kong and Macau Accounting Profession Conference annually, together with the Federation of CPA Associations of Chinese Taiwan, the Hong Kong Institute of Certified Public Ac-countants and the Union of Associations of Professional Accountants of Macau. This is a key event aimed at providing the platform for dialogue for accounting professionals in Mainland, Hong Kong, Macau and Taiwan. The conference is well attended by leaders of the various accountancy profession bodies and it has ambitious aims to:• Enhance the economic cooperation

of the four cross-straits jurisdictions

through deepening exchanges and cooperation of the local accounting professions. The jurisdictions will cooperate and actively work towards achieving convergence with interna-tional professional standards.

• Promote the convergence and mutual recognition of professional standards of the four cross-straits jurisdictions with the larger objective of enhancing collective economic competitiveness.

• Strengthen dialogue and coordination between the four cross-straits jurisdic-tions with the larger objective of build-ing the foundation for participating and influencing the formulation of interna-tional standards at the global level.

Down the path of international convergenceWith China’s growing importance on the world’s stage, Chinese standard-setters and regulators saw the merits of adopt-ing international standards. Chinese authorities moved swiftly to accomplish this, effectively achieving convergence with the International Financial Report-ing Standards in 2006. Efforts to achieve convergence with International Standards on Auditing began in 2005 and reached fruition in 2010. Convergence with the in-ternational Code of Ethics for Professional Accountants was completed in 2009. Prior to these, China became members of the International Federation of Accountants and Confederation of Asian and Pacific Accountants in the late 1990s. China cur-rently has representation on key interna-tional regulatory and standard setting bod-ies including the International Organization of Securities Commissions, International Accounting Standards Board, International Auditing and Assurance Standards Board, International Public Sector Accounting Standards Board, International Organiza-tion of Supreme Audit Institutions, IFAC Board and committees and International Valuation Standards Committee.

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November 2015 41

Having taken these steps, the challenge that lies ahead is putting in place a struc-ture for on-going monitoring and improve-ment of the standards as China gains a better understanding of how the standards are used in practice. Audit practitioners grapple with understanding and complying with accounting and auditing requirements. This is made more challenging by having to concurrently juggle China’s business envi-ronment and local cultures. Consequently the profession demands for more detailed interpretation and guidance. China has historically been a rule-based society. As such, professionals, businesses and the so-ciety at large are much dependent on direct guidance and interpretations from relevant governmental authorities. This extends to China’s regulatory framework.

Alongside adoption of international professional standards, Chinese authori-ties have also encouraged local accounting firms to step up on the growth and develop-ment of their practices. This policy direction for the profession is often referred by Chinese authorities through the use of the slogan “to become bigger and stronger.” In its strategic plan for 2011-2015, the CICPA indicated that facilitating the internation-alization of local accounting firms is one of its strategic objectives for the five-year period. In working to achieve this objective, the CICPA is encouraging local accounting firms to join global accounting networks. Mergers between local accounting firms to form bigger-sized firms have also taken place. While the Chinese policymakers’ and regulators’ objective of creating bigger local accounting firms has begun to take shape, policies and regulations now need to be targeted at going beyond achieving “growth” in the structural form. The chal-lenge ahead is on ensuring the simultane-ous improvement of the quality of these larger firms in substance.

Audit licensingAudit firms in Mainland are required to be licensed by the MoF and the relevant pro-vincial governmental finance departments. Firms that undertake audits of listed entities are further required to be licensed by the Chinese Securities Regulatory Commission. Registration requirements for firms include criteria relating to registered capital investment, number of CPAs and scope of business operations. Licenses for individual auditors are issued by provincial CPA institutes. CPA licensing requirements include CPA qualifying examinations and work experience requirements. The CPA qualifying examination is held nationally and is centrally administered by the CICPA.

For non-Mainland accounting firms, a temporary license from MoF is required in order to perform audit work in China. China accounting firms are prohibited from coop-erating or sharing working papers and other information with non-Mainland accounting firms that do not have a valid license. The li-censes normally have a validity period of six months with the exception of Hong Kong, Macau and Taiwan. Licenses granted to accounting firms from these locations have validity periods of five years (Hong Kong and Macau) and one year (Taiwan). In terms of the scope of the licenses, they only cover the firm’s existing audit engagements and do not extend to new audit engagements. Where there are changes in circumstances, these need to be reported to the MoF. The ministry has imposed reporting obliga-tions for license holders and has inspection powers. Licensees are required to comply with China’s laws and regulations including state secrets laws:• Accounting records of Chinese compa-

nies are prohibited to be taken outside of China.

• Information obtained may not be shared with third parties outside of the

provisions of the temporary license.• Where MoF has signed regulatory

cooperative agreements with foreign audit regulators, matters regarding regulatory procedures and audit working papers access will be dealt with in accordance with the agreements in place.

MoF may impose penalties on licensees for non-compliance including a prohibition from applying for a temporary license for five years.

More recently, MoF issued new require-ments, effective 1 July, aimed at regulating cross-border auditing practices conducted by Mainland and foreign CPA firms in con-nection with overseas listings of Mainland companies. Under the new requirements, foreign accounting firms are required to cooperate with an eligible Mainland CPA firms in the case of such companies. The requirements also impose obligations on the foreign CPA firms to report to the MoF.

Audit oversight frameworksChina has a tripartite audit oversight framework consisting of the MoF, the CSRC and the CICPA. All of these bodies have oversight responsibilities for the au-diting profession and the power to inspect accounting firms. The MoF has powers to inspect companies and as deemed necessary for purpose of the inspection, MoF may require auditors to provide audit documentation of the company under in-spection. The CSRC has powers to inspect companies listed on Mainland stock ex-changes and those accounting firms that perform audits of these listed companies. Unlike in many other jurisdictions, the CICPA, although a professional accounting body, is a government entity that operates under the auspices of the MoF and has in-spection powers over Mainland accounting

42 November 2015

SourceMainland auditing

Len Jui and Jessie Wong are Partners

with KPMG

firms. In Taiwan, the independent Financial Supervisory Commission has responsibil-ity for audit oversight and in Macau, the Financial Services Bureau’s Committee for the Registry of Auditors and Accountants plays this role. Only Taiwan is currently a member of the International Forum of Independent Audit Regulators.

The above structure is aligned with many other jurisdictions including the United States, United Kingdom, Australia and Japan where the responsibility for audit oversight lies with a body that is inde-pendent of the profession. While Mainland, Macau and Taiwan all have audit regulators that are structurally independent from the profession, Hong Kong is in stark contrast. The auditing profession’s self-regulatory framework has remained unchanged for a period of time with the HKICPA holding oversight and discipline powers over the audit profession. The independent govern-ment agency Financial Reporting Council was established in 2006 and tasked to investigate possible auditing and reporting irregularities in relation to listed entities. However registration, inspection and disci-plinary powers over the profession mostly reside with the HKICPA. On the securities market front, the Securities and Futures Commission has regulatory powers over listed companies in Hong Kong. The SFC can command auditors to furnish work-ing papers to assist in its investigation of companies. The Hong Kong government is currently considering changes to its audit regulatory framework to better align with international norms. An information paper was issued by the Financial Services and the Treasury Bureau in October 2013 in this regard with proposals for changes to stimulate public debate. On 26 June, the FSTB issued conclusions of its public consultation on the proposals. Among the comments received, notably, respondents

expressed general support for the pro-posed independent audit oversight model for Hong Kong listed entities. The next step is for FSTB to prepare the draft amendment bill based on the consultation conclusions. It is anticipated that the legislation will likely be finalized in 2017 and become effective in 2018.

Importance of good corporategovernance in Chinese companiesHigh quality audits in China cannot be achieved by focusing solely on developing China’s auditing profession. It necessarily goes hand-in-hand with building a foun-dation of good corporate governance and high quality financial reporting in Chinese companies.

This principle needs to be firmly im-printed in China’s blue print for nurturing and promoting its accounting and auditing professions. Importantly companies need to build up the resources necessary to implement and monitor effective corporate governance. Such a structure should be supported by tone from the top that empha-sizes high quality financial reporting.

Features should include appropriate segregation of duties between manage-

ment and those charged with governance, establishing competent audit committees to oversee the financial reporting process and external audit including selection, ap-pointment and termination of the external auditors, and ensuring appropriate risk management and internal controls such as internal audit. At the same time, initiatives are needed to educate the capital markets and investors on the importance for com-panies in which they invest to focus on good corporate governance.

In order for good corporate governance to be a permanent feature of Chinese com-panies, the demand for such best practices needs to be market driven. To close the loop, regulators also need to see to it that there are appropriate enforcement of finan-cial frauds and audit failures.

The immediate next step for China’s regulatory community is to focus on developing a skilled and competent ac-counting profession. This is fundamental to ensuring high quality financial reporting in Chinese companies. There is urgency for the regulators to step up on this task as opposed to devoting even more resources on auditing reforms. The sole focus dedi-cated to oversight and regulation of audi-tors now need to be directed to financial reporting and corporate governance at the company level. After all, companies are the originators of financial information, not the audit profession.

Adapted with permission of The CPA Jour-nal, The Voice of the Profession, February 2015, pages 14-17 (www.cpaj.com). All rights reserved.

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November 2015 43

tion on ESG factors, including positive and negative screening, engagement and ESG integration. To alert professional accountants to essential ESG metrics and indicators sought by investors, the report provides a sector-neutral list of core per-formance indicators most frequently used by investors to evaluate ESG performance, and a review of how investors might consider the financial implications and monetization of these factors.

In response to the challenges of ESG integration, the report recommends five actions for the profession and professional accountants in business:• Engage investors effectively to under-

stand their information needs and communicate performance;

• Incorporate ESG factors and non-financial performance information into governance and accountability arrangements to improve information and disclosure quality;

• Link financial and non-financial perfor-mance and outcomes to improve under-standing of sustainable value creation;

• Ensure that ESG disclosures meet investor needs by being material, timely, consistent and comparable in order to improve usefulness of report-ing and greater transparency; and

• Bring together data that may be dis-persed in different parts of the organi-zation or its supply chain to support internal and external decision making.

The current ESG disclosure regime in Hong Kong

HKEx ESG reporting guideThe ESG guide was published by the HKEx in August 2012 following a public consul-tation and the ESG guide is now incorpo-rated into the Listing Rules of the HKEx. The ESG guide covers four areas including workplace quality, environmental protec-

Environmental, social and governance reporting in Hong Kong

Stephen Chan gives an overview of the history and development of ESG reporting in Hong Kong

Introduction

Environmental, social and governance reporting has been a voluntary disclo-sure practice worldwide since early 2000, when Global Reporting Initiatives issued its first reporting standard. Many private and listed companies have taken up their corporate social responsibilities by disclosing the efforts they make to contribute to the community and protect the environment.

In recent years, major exchanges around the world have strengthened their requirements for listed companies to disclose their ESG obligations, including the Hong Kong stock exchange.

The International Federation of Accountants has also addressed the issue of how professional account-ants in business should respond to the increasing demands from investors for ESG information in its report Investor Demand for Environmental, Social, and Governance Disclosures: Implications for Professional Accountants in Business. This report considers trends in investor demand for and use of ESG information, and recommends how PAIBs can better support their organizations in responding to these demands, and ultimately improve the management and reporting of ESG performance.

The report highlights an evolving trend toward greater interest in ESG factors, and integration of these factors and ESG performance information into investment processes and decisions. It also reviews investor approaches to acquire informa-

Current ESG guide

ESG subject area A - workplace quality ESG subject area C - operating practices

A1 – Working conditions (2 KPIs) C1 – Supply chain management (2 KPIs)

A2 – Health and safety (3 KPIs) C2 – Product responsibility (5 KPIs)

A3 – Development and training (2 KPIs) C3 – Anti-corruption (2 KPIs)

A4 – Labour standards (2 KPIs)

ESG subject area B - environmental protection ESG subject area D - Community involvement

B1 – Emissions (6 KPIs) D1 – Community investment (2 KPIs)

B2 – Use of resources (5 KPIs)

B3 – Environment and natural resources (1 KPI)

44 November 2015

SourceESG reporting

tion, operating practices and community involvement, with 32 key performance indicators in total for listed companies to report. Although the ESG guide is currently a recommended practice, the HKEx plans to raise the obligation level to “comply or explain.”

Hong Kong Companies OrdinanceThe Companies Ordinance in Hong Kong was revised in 2014. According to Schedule 5 of the ordinance relating to the “Contents of Directors’ Report: Business Review,” such report must now contain a discussion on:i. The company’s environmental policies

and performance; andii. The company’s compliance with the

relevant laws and regulations that have a significant impact on the company; and

iii. An account of the company’s key

relationships with its employees, customers and suppliers and others that have a significant impact on the company and on which the com-pany’s success depends.

All companies incorporated in Hong Kong are required to follow the above disclosure requirements unless they are exempted.

HKEx Listing RulesTo ensure a level-playing field for all listed companies, the HKEx has introduced dis-closure requirements in Appendix 16 of the Listing Rules, which are broadly similar to the above new disclosure requirements of the ordinance.

Need for improved ESG reporting in Hong Kong

The following surveys reveal that there is

still significant room for improvement in ESG reporting in Hong Kong:

BDO Hong KongThe BDO Corporate Governance Review 2014 found that the number of listed companies who made detailed disclosure on their sustainability practice has declined (see the two tables above). The review is an extensive annual analysis conducted by BDO Hong Kong of the corporate govern-ance practices of a total of 238 Hang Seng Composite Index companies. This is the ninth consecutive year and the review was carried out by answering around 48 survey questions using information disclosed in the annual reports of the companies. Questions not only covered compliance with mandatory code provisions, but also recommended best practices of the Code on Corporate Governance Practices and particular subjects of interest.

Percentage of listed companies claiming to have established dedicated structures and processes to direct and monitor the company’s wider social environment and ethical performance, and to have reported that to the board regularly.

2012 2013 2014

Hang Seng Index 73% 90% 81%

Hang Seng Composite Index 47% 66% 55%

Hang Seng China Enterprises Index

60% 74% 49%

Percentage of listed companies claiming to have made disclosures of policies regarding issues such as energy consumption, employment, recycling, carbon emissions, water or electricity consumption etc.

2012 2013 2014

Hang Seng Index 78% 92% 85%

Hang Seng Composite Index 55% 65% 58%

Hang Seng China Enterprises Index

66% 74% 60%

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November 2015 45

Stephen Chan is

Director and Head

of Risk at BDO

Hong Kong

HKExIn June 2014, the HKEx sent a letter to all listed companies requesting their partici-pation in a ESG survey to gauge the extent to which they had complied with the ESG guide and other ESG reporting guidelines or frameworks, such as those of the Global Reporting Initiative, Carbon Disclosure Project, International Organization for Standardization 26000 or Dow Jones Sustainability Indices. According to the HKEx, despite a reminder in August 2014, the response rate was low, at 21 percent, and out of approximately two-thirds that did respond indicated they were not at that time reporting on ESG issues.

Carbon care AsiaThe report Hong Kong Carbon Perfor-mance Report 2013 published by Carbon Care Asia in December 2013 found that “only one-tenth of the 357 companies listed in the Hang Seng Composite Index produced formal reports on greenhouse gas emission – the first step in preparing themselves for a climate change strat-egy, according to the first comprehensive report on carbon performance among Hong Kong businesses.”

Oxfam Hong KongOxfam urges the HKEx to raise its ESG reporting standards, as a step to drive corporations to improve their corporate social responsibility policies. Oxfam con-ducted a survey on institutional investors’ views on listed companies’ ESG disclosure

requirements between March and June, and found that most of the institutional investors that responded felt that ESG dis-closure was important and affected their investment decisions. However, disclosure requirements in Hong Kong lag behind international standards.

2015 consultation paperIn its latest move to promote ESG reporting further for Hong Kong listed companies, the HKEx published on 17 July Consultation Paper on Review of the Environmental, Social and Governance Reporting Guide for a three-month consul-tation, seeking views and comments on the proposed changes to the ESG guide.

The changes proposed by the con-sultation paper aim to strengthen ESG disclosure requirements and enable listed companies to formulate policies, measure relevant data, monitor progress and report to investors and other stakeholders on their work in this area. It is proposed that the ESG guide will be split into two levels of disclosure obligations: (a) “comply or explain” provisions; and (b) recommended disclosures. The proposed major changes therefore include both “upgrades” and “revisions”:

Upgrades• Listed companies will be required to

state in their annual report or ESG report whether they have complied with the “comply or explain” provisions of the ESG guide.

• The general disclosure under each of the aspects of the ESG guide will be upgraded to “comply or explain” (with their wording to be aligned with the directors’ report requirements under the ordinance).

• The key performance indicators under the “environmental” subject area will be upgraded to “comply or explain.”

Revisions• The introductory section of the ESG

guide will be revised to provide more guidance on reporting and to be more in line with international standards.

• The ESG guide will be re-arranged into two subject areas: “environmental” and “social” (see table above).

• The wording of the recommended dis-closure will be revised to bring it more in line with international standards by incorporating disclosure of gender diversity.

The views expressed by the author in this article do not constitute legal or profes-sional advice, and the materials/informa-tion contained therein or are referenced thereto are based on publicly available information.

Proposed revised ESG guide

ESG subject area A - environmental ESG subject area B - social

A1 – Emissions (6 KPIs) B1 – Employment (2 KPIs)

B2 – Health and safety (3 KPIs)

A2 – Use of resources (5 KPIs) B3 – Development and training (2 KPIs)

B4 – Labour standards (2 KPIs)

A3 – The environment and natural resources (1 KPI)

B5 – Supply chain management (2 KPIs)

B6 – Product responsibility (5 KPIs)

B7 – Anti-corruption (2 KPIs)

B8 – Community investment (2 KPIs)

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November 2015 47

The International Accounting Stand-ards Board issued the IFRS for Small and Medium-sized Entities in 2009 in response to international demand for the IASB to develop global standards for small- and medium-sized enti-ties. The Institute adopted the IFRS for SMEs in 2010 in the form of Hong Kong Financial Reporting Standards for Private Entities as a reporting option for private entities that have no public accountability.

When the IFRS for SMEs was issued, the IASB stated that it planned to under-take an initial comprehensive review of the IFRS for SMEs after two years of use to consider whether there was a need for any amendments. Specifically, the IASB said it would consider whether to amend the IFRS for SMEs to address any implementation issues identified and also whether to consider any changes made to IFRS since the IFRS for SMEs was published.

The IASB decided to commence its initial comprehensive review in 2012 based on its view that sufficient juris-dictions had adopted the IFRS for SMEs to provide broad insight into the imple-mentation experience. After consider-ing the feedback it received during the initial comprehensive review, and tak-ing into account the fact that the IFRS for SMEs is still a new standard, the

IASB has made limited amendments to the IFRS for SMEs. The Institute has adopted those amendments in HKFRS for Private Entities.

Amendments that could have a signifi-cant impact for private entities• Addition of an option to use the

revaluation model for property, plant and equipment.

• Replacing the modified text in section 29 Income Tax of HKFRS for Private Entities with the revised section 29 of the amendments to the IFRS for SMEs. As a result of this change, the recognition and measurement requirements for deferred income taxes of HKFRS for Private Entities, IFRS for SMEs and IAS 12 Income Taxes are now aligned.

• Alignment of the main recognition and measurement requirements for exploration and evaluation assets with HKFRS 6 Exploration for and Evaluation of Mineral Resources.

Amendments that add undue cost or effort exemptions and requirementsAmendments that exempt an entity from the following requirements when appli-cation would cause undue cost or effort:• Measurement of investments in

equity instruments at fair value.• Recognizing intangible assets of the

acquiree separately in a business combination.

• Offsetting income tax assets and liabilities.

• Measuring the liability to pay a non-cash distribution at the fair value of the non-cash assets to be distributed.

The IASB has added clarifying guidance in section 2 to emphasize that an undue cost or effort exemption is not intended to be a low hurdle. An entity is required to carefully weigh the expected benefits of applying the exemption to the users of its financial statements against the cost or effort of complying with the related requirement.

Amendments that add other exemp-tions (based on similar exemptions in full HKFRS)• An exemption from the fair value

measurement requirements for equity instruments issued in a business combination under common control.

• An exemption from the fair value measurement requirements for distributions of non-cash assets controlled by the same parties before and after the distribution.

• An exemption that allows an entity to use the cost of the replacement part as an indication of what the cost

2015 amendments to HKFRS for Private Entities

48 November 2015

SourceTechnical update

This article is

contributed by

the Institute’s

Standard Setting

Department

of the replaced part was at the time when it was acquired or constructed, if it is not practicable to determine the carrying amount of a part of an item of property, plant and equip-ment that has been replaced.

Amendments that modify presenta-tion or disclosure requirements• Requirement that an entity must

disclose its reasoning for using any undue cost or effort exemption.

• Requirement that investment prop-erty measured at cost less accumu-lated depreciation and impairment is presented separately on the face of the statement of financial position.

• Requirement that entities should group items presented in other com-prehensive income on the basis of whether they are potentially reclas-sifiable to profit or loss.

• Requirement that an entity must disclose the factors that make up goodwill recognized in a business combination and the useful life of goodwill.

• Requirement to disclose the total carrying amount of subsidiaries acquired with the intention of sale or disposal within one year from the acquisition date.

• Alignment of the definition of a related party with HKAS 24 Related Party Disclosures, including incor-poration of the amendment to the definition in HKAS 24 from Annual Improvements to HKFRSs 2010-2012 Cycle, which includes a management entity providing key management personnel services in the definition of a related party.

• Removal of the requirements to disclose prior year reconciliations of balances for biological assets and number of shares outstanding, and to disclose the accounting policy for termination benefits.

Other amendments or clarifications• Addition of an option to use the

equity method to account for invest-ments in subsidiaries, associates and jointly controlled entities in its separate financial statements, if presented.

• Clarification of the criteria for basic financial instruments and addition of examples of loan arrangements that would meet the criteria.

• Modification to require that if the useful life of goodwill or another intangible asset cannot be established reliably, the useful life should be determined based on management's best estimate but should not exceed 10 years. Previously a default 10-year life was presumed in such cases.

• Addition of the conclusions in HK(IFRIC) – Int 19 Extinguishing Finan-cial Liabilities with Equity Instruments to provide guidance on debt for equity swaps when the financial liability is renegotiated and the debtor extin-guishes the liability by issuing equity instruments.

• Modification resulting in leases with interest rate variation clauses linked to market interest rates no longer being accounted for as separate derivatives.

• Modification to require that the liabil-ity component of compound financial instruments should be accounted for in the same way as a similar stand-alone financial liability (currently measured at amortized cost).

• Replacement of the undefined term “date of exchange” with the defined term “date of acquisition.”

The rest of the amendments are either clarification of definitions or redrafting of unclear and inconsistent require-ments. There are also amendments for first time adopters of HKFRS for Private Entities. For details of the amendments,

please refer to the Institute's members' handbook update no. 175.

Transition and effective dateEntities reporting using the HKFRS for Private Entities are required to apply the amendments for annual periods begin-ning on or after 1 January 2017. Earlier application is permitted provided all of the amendments are applied at the same time.

Amendments must be applied retro-spectively, unless impracticable, with the following exceptions:• If an entity chooses to apply the

revaluation model to any classes of property, plant and equipment, it must apply the related require-ments prospectively from the begin-ning of the period it first applies the amendments.

• An entity is permitted to apply the revised income tax requirements prospectively from the beginning of the period in which it first applies the amendments.

• An entity must apply the clarified terminology “date of acquisition” prospectively from the beginning of the period (only applicable if an entity has business combinations.)

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November 2015 49

Members’ handbook

(i) Update no. 173 contains PN 730 (Revised) Guidance for Auditors Regarding Preliminary Announce-ments of Annual Results and PN 852 (Revised) Review of Lottery Accounts.

(ii) Update no. 174 contains the amend-ments to HKFRS 15 Revenue from Contracts with Customers which fol-lows from the International Account-ing Standards Board’s decision in July to defer the effective date of IFRS 15 Revenue from Contracts with Customers from 1 January 2017 to 1 January 2018. Companies applying HKFRS continue to have the option to apply the standard early.

(iii) Update no. 175 contains 2015 Amendments to the Hong Kong Finan-cial Reporting Standard for Private Entities in response to the IASB’s issuance of the 2015 limited amend-ments to the International Financial Reporting Standards for Small and Medium-sized Entities.

The key changes to the HKFRS for Private Entities are: • Allowing an option to use the

revaluation model for property, plant and equipment; and

• Replacing the modified text in section 29 Income Tax of HKFRS for Private Entities with the revised section 29 of the amend-ments to the IFRS for SMEs. As a result of this change, the recogni-tion and measurement require-ments for deferred income taxes of HKFRS for Private Entities, IFRS for SMEs and IAS 12 Income Taxes are now aligned.

Entities reporting using the HKFRS for Private Entities are required to apply the amendments for annual

periods beginning on or after 1 January 2017. Earlier application is permitted provided all amendments are applied at the same time. 

Ethics

Institute comments on IESBA’s exposure draftThe Institute commented on the International Ethics Standards Board for Accountants’ exposure draft on Responding to Non-Compliance with Laws and Regulations.

The Institute supports the principle that professional accountants have a responsibility to act in the public inter-est and recognizes that the aim of the exposure draft is to guide professional accountants in assessing the implica-tions of suspected or identified non-com-pliance with laws and regulations and to determine an appropriate response.

The Institute welcomes the align-ment of the scope of laws and regula-tions with that of ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements under the new proposals. The Institute also supports the differential approach for the four categories of professional account-ants when responding to suspected or identified non-compliance with laws and regulations.

The current proposals extend the professional accountant’s current role in responding to suspected or identi-fied non-compliance with laws and regulations that are deemed potentially substantially harmful to the wider pub-lic, in particular, to consider whether to disclose the matter to an appropri-ate authority even if disclosure is not required by law or regulation. Although the proposals have set out various subjective criteria and have introduced the third party test for assessing the need for, and the nature and extent of,

further action, the lack of precise crite-ria and how various factors interrelate may still create an expectation that professional accountants are obliged to disclose non-compliance with laws and regulations to an appropriate author-ity. Accordingly, the Institute suggests that further guidance or clarification on the level of threshold for taking further action would be helpful in order to facilitate consistent application of the proposed requirements.

 Small and medium practitioners

 2015 IFAC global SMP surveySmall and medium practitioners are encouraged to participate in the 2015 IFAC Global SMP Survey, which should take less than 10 minutes to complete and will be closed on 30 November.

The survey is the International Fed-eration of Accountants’ seminal annual initiative that helps it and its member bodies better understand and serve SMP constituents, raises awareness of their needs and challenges and the role and value of SMPs globally. Responses will contribute to global insights for the profession, which will help the Institute and IFAC better direct resources to sup-port SMPs and their clients.

Guide to compilation engagementsIFAC has issued a new guidance to help SMPs apply the International Audit-ing and Assurance Standard Board’s revised International Standards on Related Services 4410 Compilation Engagements.

Practitioners can use the guide as an introduction to compilation engagements, to deepen their prior understanding and knowledge, as a day-to-day reference guide, or as the basis for training modules. It includes practical guidance on the application of the ISRS

The latest standards and technical developments

TechWatch 156

50 November 2015

SourceTechWatch

Please refer to the

full version of

TechWatch 156,

available as a PDF on

the Institute’s website:

www.hkicpa.org.hk

4410 requirements and “Consider Points,” which offer suggestions to facilitate efficiency and address areas where practitioners often encounter difficulties. Featuring illustrative examples alongside relevant extracts from the standard, the guide also includes appendices with key checklists and forms that practitioners can use or modify to meet the requirements of their particular jurisdiction.

 IFAC Global Knowledge Gateway: video series The following video series that are recent additions to the IFAC Global Knowledge Gateway may be relevant and of interest to SMPs.(i) In parts eight and nine of this nine-

part video series “Perspectives on Strengthening Small- and Medium-Sized Practices,” IFAC SMP Commit-tee Chair Giancarlo Attolini discusses an approach to managing client relationships that involves profiling clients according to four categories and identifies key practice manage-ment metrics. 

The earlier parts of this series cover Attolini’s discussion on the importance of small- and medium-sized enterprises to the global econ-omy and the IFAC Guide to Practice Management for SMPs, his insights on new service that firms can provide to their SME clients, the importance of networking in building and cultivat-ing relationships between SMPs and SMEs and his ideas on staff develop-ment and technological awareness. 

(ii) In the first part of a new video series “Doing the Right Thing, Even when No One Is Looking: Thinking beyond Ethics,” Mats Olsson, a member of the IFAC SMP Committee, discusses how doing the right thing for your clients and practice is much broader

than only behaving ethically – and making changes in your behavior and activities can improve your client’s business and enhance your role as a trusted advisor. 

Corporate finance

Proposal for weighted voting rights structure put on holdThe Listing Committee of the Hong Kong stock exchange has decided, after considering the views of the board of the Securities and Futures Com-mission, that it will not proceed with finalizing its draft proposal on weighted voting rights for discussions with stakeholders nor seek to put forward a proposal for a formal consultation, as originally proposed.

The committee’s views on the acceptability of primary and/or second-ary listings by companies with weighted

voting rights structures are summarized in its press release.

 Legislation and other initiatives

   Anti-money laundering noticesMembers may wish to note the following notices and publications in relation to anti-money laundering or combating the financing of terrorism:• Government notice 6440: An updated

list of terrorists and terrorist associ-ates has been specified under the United Nations (Anti-Terrorism Meas-ures) Ordinance.

• Government notice 6853: An updated list of terrorists and terrorist associ-ates has been specified under the United Nations (Anti-Terrorism Meas-ures) Ordinance.

• Government notice 7002: An updated list of terrorists and terrorist associ-ates has been specified under the United Nations (Anti-Terrorism Meas-ures) Ordinance.

• United States executive order 13224: The list relating 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 relat-ing to AML/CFT, see the Institute’s Anti-money Laundering Bulletin 1, Requirements on anti-money laundering, anti-terrorist financing and related mat-ters, and the supplement on suspicious transaction reporting.

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November 2015 51

In the 19th century, traditional Chinese banks, or qianzhuang (錢莊), weren’t worldly enough to offer trade finance or foreign exchange products. Within 25 years of Hong Kong’s establishment in 1841, a dozen international banks had set up shop to fulfil the burgeoning British colony’s needs, but only one was locally founded: The Hongkong and Shanghai Banking Corporation, established in 1865 by Scottish traders.

The new bank’s mettle was swiftly tested with the Panic of 1866 – a global financial downturn. It thrived amid the

chaos and provided a substantial emer-gency loan to the Hong Kong govern-ment, beginning an enduring relationship between the bank and the administration. It also created a culture of prudence epito-mized by generations of dour Scots who stayed true to their trade roots.

Colourful as HSBC’s early history might be, The Lion Wakes: A Modern History of HSBC, an authorized biography of Hong Kong’s most famous corporate export, focuses on the bank post-1970 – in particular its massive growth from an Asian to a global financial institution.

That means scant attention is given to giants such as Sir Thomas Jackson, chief manager in Hong Kong between 1876 and 1902, and Wang Huaishan, a Shanghai “compradore” from the 1860s who made the bank a fortune through short-term “chop loans” to merchants.

The book, written by prominent British historians Richard Roberts and David Kynaston, skims through the Chinese revo-lution in 1911, World War I and Japanese aggression and skips the glitter of interwar life on the Bund told elsewhere, particu-larly in Frank H.H. King’s four volumes,

Book review

After hours Book review Life and everything A life in the day

Author: Richard Roberts and David Kynaston Publisher: Profile BooksTitle: The Lion Wakes: A Modern History of HSBC

Roaring trade: How HSBC conquered global finance

The HSBC building in the Bund area

of Shanghai

52 November 2015

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The History of The Hongkong and Shang-hai Banking Corporation (Cambridge University Press, 1986-87).

The HSBC as we know it dates back to the days of Irishman Arthur Morse, who revived the bank after World War II. HSBC consolidated its hold on Hong Kong and watched closely as Mao Zedong and then Deng Xiaoping reshaped China. In the 1970s, the Hong Kong banking market was saturated and unregulated deposit companies frequently collapsed, plunging the sector into crisis.

But it was under the chairmanship of Sir Michael Sandberg that HSBC made a deci-sion to go global and The Lion Wakes gets into gear, chronicling momentous acquisi-tions such as that of Marine Midland Bank in the United States in 1980 (also the year the Beijing branch reopened) and Britain’s Midland Bank in 1992.

HSBC didn’t always get its own way: its 1981-82 bid for Royal Bank of Scotland failed amid hostility from the mandarins at the Bank of England. (Hongkongers may see the bank as virtually an arm of govern-ment, but London thought it dangerously close to Beijing.)

Today, HSBC’s global presence is a trib-ute not to just canny Scots like Sir William Purves and Douglas Flint, but also clever local bosses such as Aman Mehta, one of the first senior managers from outside the Brit-ish system and who transformed its Middle East operations.

The Lion Wakes recounts some interesting boardroom battles but there are too few per-sonal touches, such as when Purves ordered John Bond to fly to New York to assume personal control of Marine Midland. Bond hesitated before responding: “All right. But will you tell my wife?”

The narrative ends in 2014 so recent scan-dals are not addressed. While giving free rein to smart local minds is wise, what would have happened if the Americans overseeing the subprime mortgage disaster in 2007 had been sidelined? Cautious Scots might have seen through that mirage.

When HSBC separately approached two eminent British historians about a corpo-rate history to mark the bank’s sesqui-centenary, they decided that working on it together might be the best answer.

After all, Richard Roberts and David Kynaston have a history of their own: their joint efforts had produced such well-regarded business and financial chronicles as City State: A Contempo-rary History of the City of London and How Money Triumphed (Profile Books, 2010) and The Bank of England: Money, Power and Influence 1694-1994 (Oxford University Press, 1995). They have also written a number of corporate financial histories.

“We have complete trust in each other’s research conscientious-ness,” says Roberts, Professor of Contempo-rary Financial History at King's College London and Director of the Insti-tute of Contemporary British History. “We read each other’s text and very enjoyably discuss our respective interpretations.”

Kynaston, a Visiting Professor at Kingston University in London, says they have complementary styles. “Dick is a more technical financial person with a grasp of economic and balance sheets,” he says. “My kind of specialty is social history, looking at the people and the details.”

The commission meant four trips to Hong Kong for Kynaston (two accom-panied by Roberts), which marked something of a welcome return. “I had been to Hong Kong in the 1980s and it

left a real mark on me,” says Kynaston, whose fascination for the city had been inspired by friend and fellow academic Harry Ricketts and his Kiplingesque portrayal of expatriate ingénues, People Like Us: Sketches of Hong Kong (Eurasia Books, 1977).

In Hong Kong, the authors worked with HSBC’s team of in-house archi-vists. “The bank provided a very able project manager who acted as a liaison between us and the bank,” says Roberts. Kynaston adds: “We spent a lot of time in the Central Library, which is a wonderful institution, and the University of Hong

Kong [Main Library].”The history had to

forgo Kynaston’s style of people-driven narrative. “They were keen not be portrayed as excessively personality driven,” he says. “HSBC had this teamwork ethic; they weren’t individual glory hunters; it was a military-style system.”

Roberts says former group chairman Sir William Purves was the

standout interviewee, while Kynaston praises his successor Sir John Bond’s record keeping. “Bond gave you the impression he was very much an execu-tive chairman, responding to things that landed on his desk and you got a good sense of the day-to-day action.”

With the HSBC tome under their belt, both men are working on finan-cial book projects. Roberts is writing a history of British fiscal crises, while Kynaston is working on an updated account of the Bank of England since its political independence in 1997.

Author interview:Richard Roberts and David Kynaston

November 2015 53

Life and everythingAs recommended by Institute members

Bhutan is one of the happiest countries in the world. The rich and unique cultural heritage has been carefully preserved, as have the mountain scenery and unique natural environment.

What to do:• Visit Punakha Dzong, known as the Palace of Great Happiness,

where the wedding of Bhutan’s king was held. It is the second oldest and second largest dzong, or fortress, in Bhutan.

• Hike up to the Tiger’s Nest Monastery in Paro Valley, over

3,000 metres above sea level. The sacred Buddhist temple is a meditation site and hangs on a cliff precipice.

Where to stay:• Uma by COMO in Paro Valley offers a luxury retreat with a

great hiking trail nearby.• Gangte Goenpa Lodge in Gangte Valley is an exclusive

lodge with great service and offers a spectacular view over the entire valley.

Places to visit in Bhutan by Honnus Cheung, Chief Financial Officer at Travelzoo Asia Pacific

JOOX is a free streaming music app that’s perfect for any occasion. It provides a range of local and global hits from my favourite artists in Hong Kong or international markets. I can enjoy endless music throughout the day. JOOX’s free Radio options offer a wide selection of music, from genre to language, time period and audience so I can listen to what I’m in the mood for. The app also allows me to tailor my own playlists. If I want to check out the latest releases, I can easily tap the “New Releases” feature to get updated music downloads.

I also use iPick, which is a new food and bever-age social app, to follow my friends’ food moments. It is an interactive live stream that gathers cred-ible reviews, photos, comments and updates from

friends about food and restau-rants they like. Since a good meal can be elevated with the help of a chic dining area, iPick provides a new innovative 360-degree viewing function of se-lect restaurants. Décor and presentation matter, and now I can experience the atmosphere of a restaurant through this new feature.

I enjoy these new apps with my iPhone 6 Plus. This device provides more than ample amounts of screen space to experience the apps. Even with a slightly larger screen, the iPhone remains comfort-able to hold. I can easily listen to my favourite music on JOOX or search popular restaurants with iPick on the iPhone 6 Plus.

Best lifestyle apps by John Lo, Chief Financial Officer of Tencent

iPick

JOOX

54 November 2015

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Winter is approaching and households may need to switch on the fan heater to keep their homes warm. However, some have found highly effective ways to reduce power bills – with the application of a little behavioural science.

Personalized Home Energy Reports served by CLP are now available to all 2.1 million households through the Eco Optimizer 2.0 (www.clp.com.hk/EO) and offer a detailed analysis of electricity usage, along with some easy-to-read comparisons to similar households in the neighbourhood.

On top of that, the reports also offer energy saving tips, such as:• Switch to energy efficient LED bulbs which save around 75 percent of

power, compared to incandescent bulbs.• Use a reverse-cycle air conditioner to save 50 percent of energy, compared

to a fan heater, which can save an average of HK$300 over the winter months.• Choose an induction cooker to save at least 30 percent on power costs

for cooking.

As people get increasingly smart in their habits, I’m confident our concerted efforts can make Hong Kong a greener place to live.

How to save on energy costs by slightly changing consumption behaviour by Betty Yuen, Vice Chairman of CLP Power Hong Kong

The art of coffee by Patrick Kwok, Head of Operations of Starbucks Hong Kong and Macau

Working at Starbucks has given me the opportunity to explore the world of specialty coffee. Coffee grown in different origins and pro-cessed with different methods, roasting levels and blends produce specific flavour profiles. I enjoy drinking black coffee and espresso so that I can try the original taste of coffee from around the world.

Coffee tasting – or cupping – is the practice of identifying cer-tain tasting characteristics of the coffee: aroma, acidity, body and flavour. For example, Latin America coffee will have crisp acidity with flavours of nuts, cocoa and soft spice. Coffee from Africa can be lush and juicy with flavours from floral and citrusy to berry and spicy. Asia-Pacific coffee is full-bodied, syrupy smooth and exotic with dark chocolate and subtle earthy tones.

Melbourne has long been known as the coffee capital of Aus-tralia, where I tried an espresso-based milk coffee, cappuccino, for

the first time. Now, my favourite milk coffee is a ristretto bianco made with a ristretto shot, where a shot of espresso is extracted from the normal amount of ground coffee but with less water, and steamed milk. The ristretto shot is more concentrated with more body and less bitterness.

Australia also introduced another type of milk coffee, the piccolo latte, which is made of a ristretto shot with warm, silky milk served in a small 4oz glass. This mini latte lets you taste your favourite espresso with milk, without the bloated feeling.

In short, there are thousands of ways to enjoy your coffee – hot, iced, blended with ice and sugar, with syrup, pureed, with milk, alcohol, chocolate and more. While there are many choices and combinations, there is no right or wrong. Enjoy the process of exploration and have fun finding a flavour that best suits you.

Save

Drink

November 2015 55

Hong Kong’s favourite humorist meets a secretive CPA who much prefers talking in code rather than numbers

56 November 2015

A life in the day…. with Nury Vittachi

Private medical records leaked. Wi-Fi users tricked. Data from Octopus cards

secretly sold. These days, privacy issues have come from nowhere to become a major concern for all of us.

In Hong Kong, which has a much stronger history of respect for indi-vidual rights than most other places in Asia, the privacy issue needs an extremely strong team of experts – including Joyce Lai, Senior Personal Data Officer at the Privacy Commis-sioner for Personal Data.

How did someone from the numbers profession end up as a top player in this human rights issue? It’s an interesting story. Early in her career, Lai made a discovery: accountancy need not be about numbers at all. While the heart of the profession might well be people with the ability to create numerical order out of chaos, there is also a huge need for thinkers – people who considered the big picture, and had the ability to go out and talk to peo-ple about difficult, complex things.

It was at her first serious job that she realized that she didn’t love numbers in the way her colleagues did. “I am an analytical person, who loves analysing and writing,” she noticed.

At that time, she had taken a challenging but well-trodden route to success. She had been born in Hong Kong, but her family, like thousands of others in the 1990s, had migrated to Australia. Lai took a Bachelor of Commerce degree at the University of Queensland and worked hard, being rewarded with a job at Arthur Anderson & Co. in Hong Kong, which at the time was the highest-paying Big Six accounting firm. “My mum and dad

rejoiced,” she recalls. But it was while working as

an auditor there that she had her revelation that she was less of a numbers person and more of an analytical thinker. This led her to join the Compliance Division of the now defunct Hong Kong Futures Exchange, which took her away from the desk and the numbers.

She was much happier out on the road, handling the tricky task of inspecting organizations and focusing on breaches in rules and regulations. Her rare skills were noticed. In the year 2000, during the merger of the Stock Exchange of Hong Kong, the Hong Kong Futures Exchange and the Hong Kong Securities Clearing Company, she was selected to be part of the seven-member Merger Task Force. The process went smoothly, and she was transferred to the Listing Division of the newly formed Hong Kong Exchanges and Clearing Limited.

But it was her next move, to the Office of the Privacy Commissioner for Personal Data in the Compliance and Policy Division, where she really found her role in life – and a way to serve Hong Kong.

Privacy had recently become a hot new issue in the business world – and a new fascination for the public. Lai had to deal with high

profile, headline-making issues. Data from Octopus card users had been sold for tens of millions of dollars. When computer storage drives went missing, people’s medical records were leaked. A raft of new laws about personal data were introduced, and every organization had to comply.

“Now that most large organiza-tions treat personal data much more seriously, they employ Data Protec-tion Officers, and most are legal practitioners and accountants,” Lai points out, adding: “I love my job.”

There’s another reason for her happiness. While work as a privacy expert is intensive, it does not require her to be in the office day and night and weekends, as some of her earlier jobs had. Which is important, since she values having a life outside the office, as a wife and mother.

And she’s also picked up a hobby that takes her out “on the road” in a different way. For the past two years, Lai has completed the 10 kilometre Standard Chartered Mara-thon, and next year is going for the 21 kilometre run.

Lai is on the road again.

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

The undercover accountant

“ How did someone from the numbers profession end up as a top player in this human rights issue?”