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Issue 5 / Volume 13 / May 2017

LET’S TALK ENERGY

Richard Lancaster, CEO of CLP Holdings,

explains the company’s powerful

role in the global conversation of

renewable energy

Plus:CPAs wantedFirms face talent shortage

Hong Kong’s pegCan it survive Trump?

LifeDetermined dragon boaters

HK$70.00

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President’smessage

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May 2017 1

Dear members,

This month, the Council conducted its annual visit to Beijing and Shanghai where we exchanged views with Mainland authorities, including the Ministry of Finance, Chinese Institute of CPAs, State Administration of Taxation, China Securities Regulatory Commission, China Certified Tax Agents Asso-ciation, and Shanghai Institute of CPAs. We also visited the Shanghai Free Trade Zone.

The fruitful discussions have deepened our relations with Main-land counterparts and officials. We discussed many topics during this visit, and one of them was about how to facilitate cross-border busi-nesses conducted by our members.

Our visit coincided with the high-profile Belt and Road Forum for International Cooperation held in Beijing. Attended by 29 world leaders, it aimed to inaugurate a new intercontinental order to bring Asian countries closer to one another, and collectively to Europe and Africa.

The Belt and Road initiative seeks to connect 65 countries across three continents, thereby impacting the lives of 4.4 billion people, and accounting for a total gross domestic product of US$2 trillion once the vision is realized.

There will certainly be business opportunities for Hong Kong as a super connector. As CPAs, we should play an active role in pro-viding our expertise services, from assurance, due diligence, financial analysis, merger and acquisition, restructuring, strategic planning to taxation advisory.

The Institute is now analysing the results of its 4th membership survey, which was conducted to seek members’ input in the areas of learning needs, the outlook of the profession, business develop-ment, earning power, and work-life balance.

With a better understanding of these areas, the Institute can make better strategic and long-term action plans to serve your needs.

Members indicated that they are seeking more professional and technical training from the Institute in a more diversified and accessible way. The Institute has listened and has been rolling out courses on a series of hot topics as well as webcasting popular events.

These include the favoured IT series, which is designed to equip members with knowledge on how to get the most out of the latest information technologies to

enhance business performance. Upcoming courses will cover topics such as cloud computing, digital boardroom, and modern finance in the digital age.

The Environmental, Social and Governance series is another popular course. It helps members develop their knowledge in relation to ESG reporting, its benefits and the relevant challenges faced by Hong Kong-listed companies.

Don’t miss these and many other great opportunities to equip yourself and further develop your career.

One convenient way to get instant information on the latest training events is through our new mobile app, which was just launched this month. Apart from CPD pro-grammes, you can also enrol in lei-sure and networking activities, make online payments, and track your enrolment and CPD record. Down-load it from the App Store or Google Play on your phone now.

More survey results and the Institute’s follow-up actions will be communicated to you in due course. In the meantime, I would like to thank the 3,748 members who par-ticipated for taking the time to share their views, which are important to the development of the profession.

“ Members indicated that they are seeking more professional and technical training from the Institute in a more diversified and accessible way.”

Mabel Chan President

ContentsIssue 5 / Volume 13 / May 2017

01NEWS

01 President’s message

04 Institute news

06 Accounting news

10FEATURES

10 The durable dollar Can the United States and Hong Kong dollar currency peg survive the Trump administration?

17 Thought leadership: Alice Telfer and Michelle Crickett The Head of Business Policy and Public Sector and the Director of Research at the Institute of Chartered Accountants of Scotland on the new ICAS guidance for making professional judgments

18 Leadership: Richard Lancaster Chief Executive Officer of CLP Holdings Richard Lancaster explains what good corporate governance means to him

25 How to… Yin Toa Lee on how Hong Kong companies can change their business practices in preparation for IFRS 16

26 Hiring for the future A Plus examines the reasons behind the shortage of accountants in Hong Kong and what firms are doing to attract and retain talent

32 Success ingredient: Y.K. Lee The Chief Financial Officer of Branded Lifestyle shares how he manages the back offices of several clothing brands in Asia and how data has become an important part in his decision making process

38 Moving as one Institute members share why dragon boating can be a thrilling and rewarding sport

45SOURCE

45 Hong Kong’s proposed preferential tax regime for offshore aircraft leasing activities extended to cover onshore market The Hong Kong government, by way of Committee Stage Amendments made on 19 May to the original bill, proposes to extend the scope of the original bill to cover onshore aircraft leasing

48 Technical update Examining the importance of utilizing professional judgment in accounting and how to make them effectively

50 TechWatch 174

26Hiring for the futureWith the shortage of accounting talent in and outside of Hong Kong, A Plus examines firms’ recruitment and retainment strategies

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.

Editor Gerry HoEmail: [email protected]

Copy Editor Jemelyn Yadao

Contributors Julian Hwang, George W. Russell

Editorial Assistant Queenie Lee

Production Manager Jasmine Hu

Editorial Office G/F, Bangkok Bank Building, 18 Bonham Strand West, Sheung Wan, Hong Kong

ADVERTISING ENQUIRIESAdvertising Director Derek TsangEmail: [email protected]: (852) 2164-8901

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 May 2017. Print run: 7,160copiesThe digital version is distributed to all 40,806 members, 18,645 students of the Institute and 2,293 business stakeholders every month. Subscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

President Mabel Chan

Vice Presidents Eric Tong, Patrick Law

Chief Executive and Registrar Raphael DingEmail: [email protected]

Head of Member & Public Relations Margaret Lam

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: [email protected] Website: www.hkicpa.org.hk 52

AFTER HOURS

52 Books TED TALKS: The Official TED Guide to Public Speaking reviewed, and a few tips on storytelling from Chris Anderson

54 Life and everything From the city’s top vegetarian restaurants to stylish charging cables and the Hong Kong Academy for Performing Arts’ Academy Festival, as recommended by Institute members

56 Let’s get fiscal Nury Vittachi on the ethical issues arising from the merging of money and technology

38Moving as oneWith the summer dragon boat competitions approaching, members of the Institute’s Dragon Boat Interest Group share their commitment to both the sport and the team

Book review

Editorial OfficeG/F, Bangkok Bank Building, 18 Bonham Strand West, Sheung Wan, Hong Kong

ADVERTISING ENQUIRIESAdvertising DirectorEmail: [email protected]: (852) 2164-8901

A PLUSCertiall 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 CertiMay 2017. Print run: 7,160copiesThe digital version is distributed to all 40,806 members, 18,645 stakeholders every month. Subscription: HK$760 for 12 issues per year.See

Book review

Moving as oneWith the summer dragon boat competitions approaching, members of the Institute’s Dragon Boat Interest Group share their commitment to both the sport and the team

News Institute news Accounting news

Institute news

New app launchedThe Institute has launched its new app that instantly updates members and students on Institute events, and enables users to easily enrol in them.

Specifically, the app allows users to enrol in the Institute’s continuing professional development programmes – both face-to-face and e-learning – leisure and networking events, as well as Qualification Programme seminars. Users can also make online payments for enrolment, as well as keep track of their individual CPD history and other enrolment records.

To find specific events, users can effectively filter all events by selecting the event category, type, date range, and entering keywords.

Members and students can down-load the app now from the Apple App Store or Google Play on their phones by searching “HKICPA”.

Highlight of eventsThe Financial Services Interest Group will hold an evening seminar on 9 June

covering the topic of the future of cryptocurrencies, such as Bitcoin, which was created in 2009. The speaker, Dr. Julian Hosp, will discuss the likely regulation and government scrutiny, acceptance among consumers and other considerations for investment in cryptocurrencies. Dr. Hosp is a Blockchain expert and the author of 25 Stories I Would Tell My Younger Self.

The Corporate Finance Interest Group has organized a lunch semi-nar on 22 June that will provide an overview of the collective investment scheme. Using case studies, Penelope Shen, Partner at Kwok Yih & Chan, will explore the latest issues and trends from the commercial and the legal perspectives, covering areas such as fund structures (traditional structures and the new open-ended investment fund company structure), and who the target investors are (pub-lic vs. professional investors).

Meanwhile the new IT series of

seminars kicked off this month and will run until 11 July. Topics covered include how to differentiate true cloud technologies from fake ones, and how the finance function can reap the benefit of cloud computing; how companies can apply analytics to business data to describe, predict, and improve business performance, recommend action, and guide decision making; why customers need modern cloud enterprise resource planning to stay relevant; and how a properly designed cloud strategy can help small- and medium-sized entities gain a competitive advantage.

These seminars are designed to provide professionals with knowledge of the latest information technologies available, and their implications for businesses and the accounting profession.

ObituaryThe Institute notes with regret the passing away of Wong Kamyen, Peter.

4 May 2017

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NewsAccounting

6 May 2017

The Financial Reporting Council, the accounting watchdog in the United Kingdom, opened an investigation into KPMG’s 2010-2013 audit of Rolls-Royce in May.

In January, the British luxury car and aero-engine manufacturing company was indicted of long-running corruption and agreed to pay £671 million in penalties to settle a deferred prosecution agreement with the U.K.’s Serious Fraud Office.

Rolls-Royce was found guilty of issuing bribes to middlemen over three decades that were worth millions of pounds in cash, as well as offering a luxury car, to secure orders from Indonesia, Russia, China, Thailand, India and Nigeria.

For example, from 1991 to 2005, it was revealed that the company issued more than £28 million to agents in Thailand in order to win three contracts and supply

aero engines to Thai Airways.In a statement, the Big Four firm stated

that it will fully cooperate with the FRC’s investigation, which follows the SFO’s probe into the company, and is confident in the quality of all of its audit work, including the five-year period that the FRC is examining. In addition, the firm said that “it is important that regulators acting in the public interest should review high profile cases.”

KPMG’s Rolls-Royce audit under investigation

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Risks to accounting estimates receive uneven scrutinyThe risk of error due to imprecise measurement methods and the risk of management bias in arriving at accounting estimates are not given the same level of attention by auditors, according to recent research from the University of Arizona, despite both being equally important. The study found that auditors respond to a high risk of management bias with a high level of audit effort, but loosen up on both bias and imprecision when management bias is at a lower risk, reported Compliance Week. It suggested that a more balanced focus on both management bias and measurement imprecision “would likely help mitigate auditors’ behavioural tendency to under-audit when the risk of bias is low.”

Barclays to pay settlement in SEC claimBarclays agreed to pay a fine of more than US$97 mil-lion from the United States’ Securities and Exchange Commission after it allegedly overbilled clients almost US$50 million. The SEC said the British bank commit-ted three violations: the first involving two Barclays advisory programmes that charged clients for due dili-gence and monitoring of third-party investment manag-ers, which were not performed as promised; the second regarding the bank’s collection of “excessive” mutual-fund sales fees; and the third involving billing errors that resulted in multiple accounts making overpayments as fees to the bank.

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Hong Kong urged to set up FinTech officeHong Kong should set up a financial technology office to position itself as FinTech hub in the region, accord-ing to a research report by the Financial Services Development Council, reported the South China Morn-ing Post. The FSDC urged Hong Kong to take a more proactive approach in developing distributed ledger technology, such as blockchain, for applications in the financial sector. The report also recommended the government to focus on developments in cybersecurity, payments and securities settlements, digital identifica-tion for know-your-client, as well as wealth, insurance and regulatory technology.

Hong Kong vs. London in China finance hub bidAt the Belt and Road Forum for International Coopera-tion held in Beijing this month, Hong Kong and London challenged each other over which city was best placed to serve as the finance hub for China’s Belt and Road global trade and commerce strategy, which would reportedly need trillions of U.S. dollars in funding. Hong Kong’s Chief Executive, C.Y. Leung, claimed that the city was “the preferred destination” due to its status as the largest offshore settlement centre for yuan trade and the world’s top stock market for new listings in 2016. Philip Ham-mond, the British Chancellor of the Exchequer, argued that London remains the world’s financial centre, and is “not an alternative to Hong Kong.” C. Y. Leung

May 2017 7

The percentage of CFOs in China who are optimistic about the

economic outlook despite policy uncertainties and geopolitical concerns, according to the Q1

findings of Deloitte China’s CFO Survey 2017.

26%

A world of numbers

The amount that the U.K.’s Financial Reporting Council has fined PwC for“misconduct” in its audit of Connaught, a social housing maintenance group,

which collapsed in 2010. During the Connaught tribunal in March, PwC admitted failure to exercise

appropriate scepticism for the audit of the 2009 accounts.

£5million

The number of businesses in the U.K. “significantly concerned” about

potential cyber threats arising from the new avenues for attacks created by the Internet of Things and smart technologies, such as batteries, electric vehicles and

systems controls, according to a PwC survey.

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SFC warns on undervalued assets in M&AsHong Kong’s Securities and Futures Commission warned company directors and financial advisors to ensure assets are properly valued in all mergers and acquisitions to protect shareholders’ interests, or face penalties. Valuers who provide materially false or misleading information may become liable, and face a fine or court orders for investor compensation, the SFC said in a statement. In its guidance note, the SFC reminded directors to thoroughly investigate the value of the assets to be bought, and act in the interests of the company.

Snap Inc.’s Q1 loss may have tax benefitSnap Inc., the company behind the photo messaging app Snapchat, reported a US$2.2 billion first quarter loss that will likely lead to a tax reduction, reported The Wall Street Journal. Around US$2 billion of the loss came in the form of a stock compensation expense, where tens of millions of restricted shares and stock options were issued to employees as a form of payment, with the stock slated to vest once the company became public, the Journal said. Given the difference between the price at the time stock was granted and the market price when it was vested, Snap would be eligible for a tax deduction, provided that employees report the stock’s vesting value as income.

Sylvester Stallone to sue Warner Bros. Hollywood action-star Sylvester Stallone announced that he will file a lawsuit with his production company, Rogue Marble, against Warner Bros. Entertainment for alleged breach of contract, unfair business practices and accounting fraud in relation to his 1993 sci-fi film Demolition Man. According to the lawsuit, Stallone believes he is owed profits and accuses the film studio and entertainment company of being “unfair, unlawful and offensive” and “know-ingly playing fast and loose” with the film’s revenues. The lawsuit also underlines a wider motive of reforming “Hollywood account-ing” for the benefit of “all talent” in Hollywood, wrote USA Today. Warner Bros. did not yet respond to the suit.

Fujifilm postpones earnings announcementFujifilm announced that it has delayed its earnings announcement for the year ended in March until it has the results of an investigation into questionable accounting practices at its New Zealand unit. The Japanese photography and imaging company will set up a third-party panel of accountants and lawyers to look into the validity of the subsidiary’s accounting, due to uncertainty over lease transactions at Fuji Xerox New Zealand for the periods prior to the financial year of 2015. The findings are scheduled to be delivered to the company around mid-May, said Fujifilm.

May 2017 9

Sylvester Stallone in Demolition man (1993 )

Warner Bros/Silver Pictures/C

ollection Christophel

CurrenciesHong Kong peg

10 May 2017

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THE DURABLE DOLLAR

Many significant financial events – from property boom to bust, from bank run to recession – have previously put pressure on the currency peg between the United States

and Hong Kong dollars. The exchange-rate mechanism has proved remarkably durable but, as George W. Russell asks,

can it survive Donald Trump?Illustrations by Ester Zirilli

T he peg between the Hong Kong and United States dollars, formally known as the linked exchange rate

mechanism, ties Hong Kong’s economic policy to that of the U.S. Thus it’s no sur-prise that whenever Janet Yellen, Chair of the Board of Governors of the U.S. Federal Reserve System, announces a change in interest rates, as she did in March, all eyes in Hong Kong turn to the peg.

Normalization of Fed policy, after a period of historically low interest rates, is the latest in a spate of events thrusting the peg into the spotlight. Others include the renminbi’s inclusion in the basket of currencies that makes up the International Monetary Fund’s de facto unit in Sep-tember 2016, and Beijing’s push for the renminbi’s internationalization in 2014.

Now the peg is back under scrutiny since the U.S., under President Donald Trump, appears to be on a collision course with China over trade. Although Trump has eased off accusations that China is a “currency manipulator,” there is the awkward political situation of a significant part of China being tied to an obstreperous rival.

Some analysts, such as Ramkishen Sundara Rajan, Professor of Economics at ESSEC Business School, Asia-Pacific, suggest that now might be a good time to revisit the effectiveness of the peg.

With greater global exchange-rate volatility due to U.S.-China tensions (as well as the United Kingdom’s exit from the European Union and other trade con-cerns), Rajan says Hong Kong can expect more frequent and not always anticipated shocks. “In this regard, a greater degree of exchange rate flexibility could help allevi-ate the burden on the domestic economy.”

Henry Group Holdings, a listed com-mercial property developer in Hong Kong, highlighted currency-related woes in its

latest annual report: “The retail market remained fragile with the Hong Kong dollar peg to the strong [United States] dollar sup-pressing both the number of inbound tour-ists from Mainland China and retail sales.”

Indeed, the peg crops up often as a boilerplate reference in management and discussion analyses. As Ronny Lee, Chief Financial Officer of Henry Group and a Hong Kong Institute of CPAs member, points out, statements often note the peg’s effect on the overall economy.

Speculation riskThe peg was introduced in 1983 to provide Hong Kong’s small economy with an international underpinning (See Currency in crisis on page 15). A currency tends to strengthen when investment pours in (although exports become less competitive). When a country hits economic trouble, its currency often weakens. To hold exchange rates stable, many central banks deploy foreign reserves, buying and selling in currency markets.

Another option to stave off high vola-tility, especially for small countries, is to fix the value of their money to another

“ A greater degree of exchange rate flexibility could help alleviate the burden on the domestic economy.”

May 2017 11


12 May 2017

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currency, through a peg, a band or a board. At least 50 curren-cies are pegged to a major unit: about half to the U.S. dollar, while others are linked to the British pound, euro, South Afri-can rand or Australian and New Zealand dollars.

There is no doubt that pegs cause stresses. Speculators hope to catch bankers off guard or exert enough pressure to break the link. In 1998, investors betted the exchange rate was inappropriately strong for Hong Kong. In more recent years, the pressure has been coming on the “strong side” of the rate, with bankers struggling to deal with excessive inflows.

“Investors have occasionally questioned whether the currency board is the most suitable frame-work for Hong Kong and, in turn, this has prompted specula-tive pressures in the past,” says Claudio Piron, Managing Director of Global Research at Bank of America Merrill Lynch in Singapore. “The current cur-rency board is not necessarily the optimal regime.”

Some speculative attacks are deliberate. Financier George Soros, who pocketed US$1 billion in 1992 by betting the British pound would be forced off the European Exchange Rate Mechanism, was less successful in his 1998 Hong Kong venture. Then financial secretary Donald Tsang deployed vast reserves to defend the peg, buying nearly HK$120 billion in stocks.

Maintaining the peg can require great effort: the Hong Kong Monetary Authority, Hong Kong’s de facto central bank, has invested HK$3.63 trillion worth of assets in the Exchange Fund, which is used to maintain financial stability, including propping up the peg. (The fund made HK$61 billion last year on higher returns from stock investments).

The peg forces the HKMA to synchronize local interest rates with those of the U.S., even when the two economies are in different cycles. Interest rates are set according to growth: when an economy accelerates, central banks often raise rates to

slow inflation or, sometimes, to tame asset bubbles.

Questions of relevanceIn recent years, Hong Kong has been forced by its dollar peg to mirror monetary policy more appropriate for a crisis-struck U.S. than a still-growing Hong Kong. Most analysts believe inappropriately low interest rates are to blame for the more than doubling of property prices in Hong Kong since 2009.

Now that the U.S. Federal Reserve is in a tightening cycle, households in Hong Kong – which already had to take on much debt to buy expensive property – will face an added burden of rising monthly mort-gage payments.

Hong Kong’s broader economy, which has been dealing with heated inflows in recent years, especially from the Mainland, now faces the risk of outflows. “It’s expected that some of the US$130 billion of capital inflow into Hong Kong since 2008 will be exchanged back to the U.S. dollar,” HKMA

“ Investors have occasionally questioned whether the currency board is the most suitable framework for Hong Kong and, in turn, this has prompted speculative pressures in the past.”

At least 50 currencies are

pegged to a major unit. About half

are pegged to the U.S. dollar, while

others are linked to the British pound,

euro, South African rand or Australian and New Zealand

dollars.

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Currency in crisis

The Hong Kong dollar’s peg to the U.S. dollar was born amid the chaos of a recession in the early 1980s. Many Hong Kong property companies went bust and seven local banks collapsed between 1983 and 1986, while political uncertainties added a further twist. In August 1983, China declared it would take back Hong Kong on or before 1 July 1997, regardless of the outcome of its negotiations with the United Kingdom.

Sino-British talks on the weekend of 23–24 September 1983 ended in a stalemate. On those two days, the Hong Kong dollar fell 13 percent against the U.S. greenback, closing at a record low of HK$9.60 to US$1. Ordinary Hongkongers were rattled, former legislator and union organizer Chan Kam-chuen recalled. “People rushed to the supermarkets and emptied the shelves of food and other daily necessities.”

The government developed the peg with utmost secrecy in case speculators saw an advantage. “[Because] of the immediate effect on sensitive financial markets of everything we may say and do… we must proceed with care and caution,” then governor Sir David Wilson told the Legislative Council on 5 October 1983.

Nevertheless, Hong Kong’s savvy business community knew something was afoot. “Smaller manufacturers… refused to accept orders with Hong Kong dollar payments… dealers in raw materials also did likewise,” Chan said. “Some parents who were just able to afford to send their children overseas for education had to make the heart-breaking decision to recall them.”

The peg was finally fixed on 16 October 1983 – a Sunday. The Wall Street Journal called it a “drastic effort to bolster the… sagging currency,” while the Financial Times suggested it would cause problems as well as cure them, particularly the high cost of maintenance. But for many Hongkongers it was a decisive act that brought a level of calm amid troubled times.

Chief Executive Norman Chan warned in December 2016.

Economic concerns have traditionally underpinned oppo-sition to the peg. In 2012, Chan’s predecessor at the HKMA, Joseph Yam, argued in favour of a switch to a more flexible currency regime similar to that of Singapore, a market more like Hong Kong’s.

Economists such as Rajan say times may have changed, noting that if China focuses on domestic demand and greater intra-Asian trade linkages, and Trump’s U.S. becomes more inward-looking, “then the Hong Kong dollar peg may become much more con-straining going forward.”

Analysts warn of the need not to signal a change too early. “If you do not show your com-mitment to a specific decision, you risk that currency markets start speculating on upcoming changes,” notes Bert Burger, Senior Economist at trade credit insurer Atradius in Amsterdam and author of a 2016 research report, The Hong Kong dollar peg: change will come.

The Mainland unit has long been considered the most likely currency to constitute a hypo-thetical new peg, or at least be part of a trade-weighted group of currencies. Burger argues in favour of an eventual shift to a

peg with the renminbi. “First, the renminbi has to be fully con-vertible, and after that the Hong Kong dollar could be pegged to a basket.”

In February, outgoing finan-cial secretary John Tsang noted that, “In the short term, there is no possibility to see any change” to the current peg but suggested that this could be reviewed in the very long term as the renminbi would one day be liberalized and convertible.

However, that could be far in the future. “I don’t think the renminbi is likely to become that important to Hong Kong in the short term,” says Kun Li, Senior Analyst at Selerity, a research house in New York. “Few coun-tries use the renminbi as a trade currency. While Hong Kong is a major offshore renminbi centre, this offers benefits only to a few financial firms.”

Economists believe China is unlikely to apply undue pressure on Hong Kong. “Those in Beijing are realists,” says Steve Hanke, Professor of Applied Econom-ics at Johns Hopkins University in Baltimore and an architect of several successful currency boards. “Why would the Chinese government, or anyone in Hong Kong, want to give up a link to the world’s premier international currency?”

May 2017 15

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Thought leadershipAlice Telfer & Michelle Crickett

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May 2017 17

Making a judgment in a com-plex world, with principles-based accounting standards,

is not an easy task. The success of narrative and financial reporting relies on our ability to be able to make sound judgments and demonstrate our reason-ing for these judgments.

We asked a group of senior char-tered accountants (including finance directors, audit partners, audit com-mittee chairs, regulators and standard setters) to share their key principles for making a sound judgment.

A new guideThe result is A Professional Judgment Framework for Financial Reporting Decision Making, offering practical guidance for decision makers involved in narrative and financial reporting.

Irrespective of whether you are a preparer, auditor, audit committee member, or regulator, this practical guide provides a structure to help you come to a sound judgment when you have a complex reporting decision to make or are new to decision making.

“Confidence in financial report-ing and in principles-based standards requires us to demonstrate collectively that, as professionals, we are capable of making sound judgments. I believe that this professional judgment framework is vital for the future of the profession,” said Sir David Tweedie, former chair of the International Accounting Standards Board and former ICAS president.

Core principlesThe framework identifies core prin-ciples and provides a structured process

to guide decision makers through how to make, assess, and document signifi-cant judgments. Some of the principles supporting the formulation and chal-lenge of a professional accounting judg-ment are considered below.

Ensure that all relevant and determinable information has been collected and analysed – this requires an understanding of the purpose, legal terms and economic substance of the transaction, as well as expected cash flows and any uncertainties.

Assess the applicable accounting standards and other relevant guid-ance – in the absence of a relevant standard or specific standards, it can help to consider the treatment of similar transactions. The conceptual framework can be useful to clarify overarching principles on definition, recognition and measurement. There may also be precedents, accepted industry practice or national generally accepted accounting practice which can provide a steer. Ultimately, one needs to consider if the resulting relevant and reliable and gives a fair presentation of the transaction.

Ensure due process is followed – aspects include assessing a range of alternative accounting treatments, identifying any threats to objectivity, managing this and consulting with others before obtaining appropriate endorsement for the judgment.

Assess and challenge the judgment it is helpful for auditors to stand back and review the overall picture. Individual client judgments may appear reasonable but cumulatively may result in a higher risk of misstatement.

Applying appropriate scepticism in discussions with the client is key. For audit committees, creating the right environment to effectively review and challenge the judgment is critical. At the meeting, this requires the facts to be clearly laid out, the right people in attendance, sufficient time for debate and a culture conducive to debate and challenge.

At each stage, from preparation to audit, challenge by the audit com-mittee and assessment by regula-tors, a professional judgment can only be made based on the facts and circumstances at the time, without hindsight. The basis of a significant judgment and its subsequent assess-ment and challenge must be suitably documented. This includes noting any disagreements, or difficulties in the assessment as well as how they have been overcome.

A principles-based approach to standard setting is a key driver of quality reporting. You can help contribute to improved narrative and financial reporting worldwide by using this guidance and building it into your current decision making procedures. The guide can be downloaded free of charge from www.icas.com.

We welcome comments on this framework from A Plus readers. Any queries or feedback regarding this publication can be sent to [email protected] more about professional judg-ment, what it is and how to handle it, on page 48 (Technical update).

This article originally appeared on the ICAS website.

Alice Telfer, Head of Business Policy and Public Sector and Michelle Crickett, Director of Research at the Institute of Chartered Accountants of Scotland, report on the new ICAS guidance on making a professional judgment

Navigating principles-based standards in financial reporting

com.–

Leadership profileRichard Lancaster

18 May 2017

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POWER TO THE PEOPLECLP Holdings, one of Hong Kong’s two electricity providers, is a frequent winner at the Institute’s annual corporate governance awards. Chief Executive Officer Richard Lancaster explains to George W. Russell how the company provides affordable and reliable service while practising sound community stewardship

R ichard Lancaster remembers the days when telling fellow dinner-party guests that he worked for a power company was a conver-sation stopper. “Nobody knew what to say,” recalls the Chief

Executive Officer of CLP Holdings, Hong Kong’s largest utility company. “Today,” he adds, “it’s like a lightning rod. Everybody wants to talk about renewable energy.”

But the idea of a Hong Kong powered by renewable energy remains a distant dream. The most visible source is the solitary wind turbine on top of a hill on Lamma Island, which was opened in 2006 as a demonstration facility by Hongkong Electric, and which produces just 100 kilowatts of electricity, enough to power 250 of Hong Kong’s 2.5 million households.

At that time, CLP was also asked to build a demonstration wind turbine. “We looked all over Kowloon and the New Territories to find a site where we could do it but much of the land outside the urban area is country park,” Lancaster recalls. “We couldn’t actually find a site on land here, and we did identify a site for an offshore wind farm but the cost was prohibitive.”

Today, CLP generates much of Hong Kong’s electricity through the coal-fired Castle Peak Power Station in Tuen Mun and the gas-fired plant at Black Point, also in Tuen Mun. However, the Castle Peak facility is a significant source of air pollution in Hong Kong, underlying a global problem with fossil fuels.

Photography by Juliet Shayne Lui

May 2017 19


“To reduce our carbon emissions we need to reduce the amount of coal we are using and shift towards natural gas and nuclear power,” Lancaster acknowledges. (CLP buys about 80 percent of the output from the Daya Bay nuclear power station in Guangdong for its Hong Kong customers).

But he warns that any global transition will be gradual. “Coal currently supplies most of the world’s electricity,” Lancaster says. “You can’t shut down coal-fired power stations and stop coal mining today because the lights would go out all over the planet.”

The heart of CLP Group’s mission, after all, is to keep Hong Kong up and running. “If we don’t do our job properly the lights go out,” says Lancaster. “We’re an important part of Hong Kong’s economy and we are part of the fabric of society,” he adds. “You can call it corporate social responsibility, you can call it what you like, but it’s a big responsibility that’s always fallen on our shoulders.”

Defining data pointsGood corporate governance, says Lan-caster, is about being in touch with stake-holders. “In simple terms, I look at it as doing the right thing and what’s right for the business with a long-term view in mind,” he says. “It’s about understanding what the issues are, and moving your business at the right pace to be in line with what expecta-tions are of you as a company.”

The company is a consistent winner at the Institute’s Best Corporate Gover-nance Awards. Last year, CLP was the only diamond award winner – the highest category – as was the case at the 2015 and 2014 awards and has won more top awards in the Hang Seng Index category than any other company.

CLP is one of a handful of companies that produce financial statements largely

in line with the principles of the Interna-tional Integrated Reporting Framework. “I think our business is quite a good fit with integrated reporting,” he says. “[It] is an effective and efficient way for us to commu-nicate the complexity of our business to our many stakeholders.”

One source of that complexity is new technology. “The information that’s avail-able is revolutionizing the way that we approach our business,” says Lancaster. “We are seeing customers installing their own renewable-energy systems on their rooftops, so no longer is electricity a one-way flow. It’s going backwards and for-wards between customers and the utility.”

Not long ago in Hong Kong, Lancaster points out, a meter reader visited a house-hold every two months. “That means you had six pieces of data on how a customer uses electricity in a year. With smart meters, we have real-time information. How we can help make sense of that is revolutionizing the way we interface with our customers.”

The Internet of Things, where almost every appliance is interconnected, is the next technological revolution. “You have a fridge these days that’s got more computing power than some of the first computers,” Lancaster says. “Everything you buy means that there is a huge amount of new informa-tion available and that is revolutionizing electricity networks as well.”

As CEO, Lancaster sees his role as one of temporary stewardship over a 115-year-old institution through a period of funda-mental change. “It’s my job to steer the ship through this period and see it in a better position, and in a more successful position, than when I started.”

Mixed market signalsOriginally from Sydney, Lancaster gradu-ated with a degree in electrical engineering

“ You can call it corporate social responsibility, you can call it what you like, but it’s a big responsibility that’s always fallen on our shoulders.”

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“ It’s my job to steer the ship through this period [of change] and see it in a better position, and in a more successful position, than when I started,” says Richard Lancaster

from the University of New South Wales and worked with power companies in Aus-tralia before joining CLP Group 25 years ago. He became CEO in 2013.

Like accountants, he notes, engineers are familiar with numbers and have innate problem-solving skills. “I also come with an operational background,” he says. “I’ve worked in large industries managing large and complex workforces. Managing people is also a skill that I’ve developed over the years and I think that combination fits well for CLP in this current chapter of its history.”

As well as experiencing technological change, Lancaster has witnessed the company expansion to the Mainland, India and Australia. “There are 300 million people in India that still don’t have access to electricity,” Lancaster points out. “Just having enough electricity to charge a mobile phone, to keep a light on so that the children can study at night, and having a television set going would be life-changing for many families.”

While nearly all of the population have access to electricity in China, pollution is a life-threatening problem. “Transitioning

May 2017 21


from reliance on coal towards more renew-ables and nuclear power – and keeping that transition affordable – is a key issue.”

Australia is a different market again, with an abundance of energy resources yet pricing levels almost double that of Hong Kong. “There are different regulatory authorities – the federal government and the state governments – so getting a consistent policy in Australia in a very complex market environment has been a challenge.”

In Hong Kong, another challenge for CLP is human resources. “There’s very little industry in Hong Kong, and in the electricity industry there’s nowhere we can go to bring in skilled people, so we have to develop

our own,” says Lancaster. “That’s been our approach right from the start: we grow our own talent, we train our own people.”

Hong Kong’s ever-expanding financial services sector has been luring university students away from the science, technol-ogy, engineering and mathematics majors that CLP needs. “We worked tradition-ally with universities, but now we’re going down into the secondary schools to encourage people into engineering as a career,” he says.

“We work hard to be an attractive employer,” Lancaster adds, “so we offer competitive pay and benefits, but it’s really about making sure we’re

providing interesting and fulfilling career opportunities.”

Lighting the way aheadLancaster expects the future will require a more participatory role for CLP. “We are experts, we do know this industry, we’ve known it for more than a century,” he says. “We know all the day-to-day issues that need to be managed and it is a complex business just keeping the lights on in a territory the size of Hong Kong with seven million people.”

CLP will continue to expand in its existing markets. This year, the company completed its acquisition of a 17-percent

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CLP is a consistent winnerat the Institute’s Best Corporate

Governance Awards. It was

the only diamond award winner, the highest category, last year as well

as in the 2015 and 2014 awards.

stake in Mainland-based Yangjiang Nuclear Power. And Lancaster sees a more public role in terms of thought leadership through an eventual transition to non-fossil fuels. “I think the change that we’re seeing is that we need to be more at the forefront of public policy and debate and contributing our views and expertise,” he says.

He says it is important that the energy industry work very closely with governments in developing long-term energy plans. “It’s not to say that we should be deciding public policy but we should be informing the government

and the communities and outlining the choices, the options, the trade-offs and the pros and cons.”

Stabilizing greenhouse gas emis-sions, Lancaster points out, means that there’s no net increase in tempera-ture. “Effectively that means at the end of the day that whatever green-house gas emissions we produce have to be reabsorbed back into the oceans and the forests so that there is a zero-net level of emissions. To get to that we will have to have the majority of our power produced from zero carbon emitting sources.”

The intangible nature of electricity as a commodity is paradoxical, Lan-caster observes. “We are producing and selling a product that is invisible – you only see it when it is in action, but you can’t put your hands on it, you can’t smell it, it has no colour, it has no per-sonality,” he says. “It’s just an invisible product. So utilities have tended to be behind the scenes, feeling that they’re doing the best job when cus-tomers are not thinking about them. That’s all changing.”

“ We know all the day-to-day issues that need to be managed and it is a complex business just keeping the lights on in a territory the size of Hong Kong with seven million people.”

Before joining CLP Group, Lancaster graduated with a degree in electrical engineering from the University of New South Wales and worked with power companies in Australia

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1065_Comm_HKICPA_sourceAD_1_output.pdf 1 5/11/15 3:03 PM

How to...Yin Toa Lee

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For many Hong Kong compa-nies, especially in the retail sector, leases play a critical

role in their business operations. Because most lease transactions (e.g. operating leases) are off-balance sheet today, accounting for leases under current lease standards often does not require significant efforts. Many preparers understand that the new IFRS 16, effective in 2019, would require a company to do more than simply converting its existing operating lease com-mitments disclosure to lease assets and liabilities. They are aware that its implementation could result in changes to the policies, processes, controls and information technology systems that support lease account-ing and tax. However, what is the commercial reality around IFRS 16 that has often been overlooked?

Under the new standard, lessees will recognize the present value of lease payments over the lease term as a lease liability on the balance sheet. Similar to current accounting, the definition of lease payments excludes certain variable payments, and the lease term includes only those options that are reasonably certain of being exercised. For example, as the consumption appetite on high-end luxury stores from Chinese tourists has declined recently, Hong Kong lessees may reassess their needs when negotiating their lease terms and payments with their premium mall landlords. A higher proportion of variable payments tied to monthly sales as compared with fixed payments or shorter initial lease terms may result in smaller lease liabilities.

Some Hong Kong lessees may reassess whether buying an asset

would be more advantageous than leasing it, even though the real estate prices in Hong Kong are still very high as compared with the rest of the world. In buying a property, a company needs to either have plenty of cash reserves on hand or be able to obtain financing from banks. For a newer property, it would be easier to obtain financing with a more extended term than an older property. If financing is obtained, the impact of having the self-use property and bank borrowing on balance sheet would be similar to the accounting under IFRS 16 to have the right of use assets and lease obligation grossed up. However, there are certain considerations to keep in mind between deciding to buy or lease. When buying, you actually make an investment to own the property down the road as your own assets as opposed to be paying for the landlord’s assets. In Hong Kong, with the escalating real estate prices particularly in the higher end premium properties, there could be substantive capital gains when those self-owned properties are sold off in the future which are tax exempt.

Typically, companies would separate the operating legal entities responsible for running the business with the entities holding the prop-erties to keep the properties clean from being comingled with the rest of the group’s business when the properties are sold or replaced with better properties. Such properties could be leased back to the operat-ing companies intragroup for a more reasonable rent as opposed to having unpredictable rent increases after the current lease term for third-party leases. However, when buying with bank loans, if you do not have a strong relationship with banks to

negotiate to exclude the repayable on demand clause, the total bank borrowing on balance sheet would be classified as current as opposed to current and non-current as in the case of lease obligation. Buyers should be cautious of such provi-sion as they could be obscured in fine prints in the loan contract and auditors could require it be classi-fied as current during an audit. At a minimum, companies deciding whether to buy or lease today should be aware of the potential commer-cial impact of the new standard on their business on top of the financial statements.

Lessees should understand that there are certain risks associated with the terms of such commercial approaches. Hong Kong companies should consider any changes to their commercial approach to lease contracts in the context of whether to be opportunistic when a good chance arises rather than sticking to their long-term plans. For example, a company may consider balancing a lower lease liability from a shorter lease term for a property against the security of longer-term access to the properties at a higher lease liability. However, lessors that are the larger real estate companies in Hong Kong may have more superior bargaining power to not take on the additional risk associated with variable pay-ments and shorter initial lease terms. While companies should not only make commercial decisions based on accounting results or vice versa, they should be aware of the account-ing consequences associated with their commercial reality.

The views reflected in this article do not necessarily reflect the views of the global EY organization or its member firms.

…prepare for the commercial reality of IFRS 16 in Hong Kong

The implementation of IFRS 16 Leases is less than two years away. Capital Markets Partner at EY looks at the resulting changes to business practices for Hong Kong companies

RecruitmentTalent shortage

A recent survey conducted by the International Federation of Accountants revealed a worrying shortage of accountants in major economies, especially in small- and mid-sized practices. A Plus looks at the recruitment situation in Hong Kong and what firms are doing to attract and retain talent

HIRING FOR THE FUTURE

Illustrations by Yau Hoong Tang

How can the accounting profession attract the millennial generation? The work-life balance issue faced

by junior staff, competition from jobs in the financial and other sectors, fewer students undertaking accountancy at university, and an uncertain economic outlook are combining to create a shortage of talent, especially in small- and mid-sized accounting firms.

Hong Kong’s recruitment woes reflect a global shortfall in the number of accountants working for non-Big Four firms. A recent survey by the International Federation of Accountants showed that attracting and retaining staff ranked among the top four challenges for them for the first time. (See IFAC survey takes note of smaller firms’ issues on page 31).

While supply and demand of accountants has fluctuated over the decades, this might be the first time the profession has been overlooked by a generation. “The accounting sector has been less appealing to the millennial generation because of its demanding working environment,” suggests Stephen Weatherseed, Managing Director of Mazars Hong Kong and a Hong Kong Institute of CPAs member.

Furthermore, fewer students are entering the profession. “We have seen a general drop in the number of students applying for the undergraduate accounting degree programme in the past few years,” says Edmund Wong, Associate Director of the School of Accountancy at Chinese University of Hong Kong and an Institute member.

Recent changes in regulation – from anti-money laundering efforts to tighter banking compliance and massive reshaping of global tax regimes – have created new challenges for businesses and a need for more people. “Capable staff in the area of forensic and compliance are in high demand,” says Weatherseed.

In addition, Hong Kong’s financial sector is expanding into new areas such as financial technology (FinTech), biotechnology, information technology and start-ups in banking, insurance, retailing and other areas – serving both Hong Kong and Mainland markets – where accountants will be needed.

It is not just the specialized accounting roles that are experiencing a shortfall, say Hong Kong-based recruiters. “Traditional audit and assurance are also still in demand,” says Jacky Cheung, Manager, Commerce & Industry (Accounting and Finance, Audit and Taxation), at Morgan McKinley.

Clement Chan, Managing Director, Assurance, at BDO and a former Institute president, says the biggest shortfall for his firm is junior staff. “The shortage is clearly on the grades between three years and five years of experience, where the attrition is most damaging.”

New market dynamicsThe worsening staff shortages are underscoring the important role of recruiters.

e also hel them rms n e an ng talent options,” says Carol Cheung, Associate Director, Financial Services, at Robert

“We have seen a general drop in the number of students applying for the undergraduate accounting degree programme in the past few years.”

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May 2017 27

RecruitmentTalent shortage

28 May 2017

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Walters, and an Institute member. “Employers sometimes come to us with a job title, and instead of just looking for talent with that title, we help them identify alternative options such as talent with transferrable skills who fit.”

Market considerations – from a slowing economy in China, a fluctuating trade environment given the threat of protectionism from the United States, political instability in Europe and uncertainty over Hong Kong’s future status as a gateway to China – are also affecting accountants’ career choices.“Although most candidates are still open to opportunities, we are finding that they are being more conservative in their job searches,” says Jay Bhatnagar, Associate Director, Accounting and Finance, at Hudson, another recruitment firm. “Given the changing market dynamics, we find that most candidates need to be sure about a new role before they make a decision.”

Bhatnagar says recruitment firms are increasingly employed to use their influencing abilities to help CPA firms “poach” staff from rivals. “Sometimes it is difficult, given the sensitivities involved for CPA firms to directly approach talent from their competition, but this is an area where recruitment firms have been adding value,” he says.

Smaller firms face a two-fold competitive threat to retaining key staff. The first is larger accounting firms that are looking for people with previous experience in CPA firms so that they know their basic auditing skills are sound. The second threat is from private-sector companies, often at a higher salary. “There is a strong demand for accounting professionals with compliance and the latest regulatory knowledge who at the same time could apply those skills under business circumstances,” says Cheung at Robert Walters.

In response, say recruiters, CPA firms will have to devise strategies to retain talent. “Some of these,” says Cheung, “include fast-track and clear career progression opportunities for current personnel, better bonuses given out half-yearly, and secondment opportunities, such as to overseas offices.

Shifts in influenceAs the IFAC survey illustrated, the dearth of talent is not confined to Hong Kong. “There is a talent shortage in the U.S. accounting profession,” Gary Bolinger, President and Chief Executive Officer of the Indiana CPA Society in Indianapolis, tells A Plus. “Among the factors is the increasing competition from other professions seeking people with similar kinds of skill sets required in the accounting profession.”

And Indiana is not alone. From the West Coast to New England, the U.S. accounting sector could barely cope with this year’s tax season. “There are more jobs than there are accountants at the moment,” Amy Pitter, President and Chief Executive Officer of the Massachusetts Society of CPAs, told The Boston Globe in February.

In the United Kingdom, accountants are entering the corporate sector earlier than before, creating a brain drain from firms.

“Candidates who are interested in pursuing careers in specialized functions such as audit or taxation tend to be light on the ground,” says Paul Buchan, Principal Consultant at the Edinburgh office of Eden Scott, a recruitment service.

Other English-speaking nations experiencing an accountant shortage include Canada and South Africa. New Zealand, a relatively small economy of just 4.6 million people, has been historically short of CPAs. “Those becoming qualified go on to their overseas experience, such as to the U.K.,” explains Angela Cameron, Managing Director of Consult Recruitment in Auckland.

New Zealand, like Australia, saw an influx of Hong Kong-qualified accountants immigrating in the years before the 1997 handover of the territory to China, but that exodus has slowed since then.

Instead, CPAs are now flocking to the Mainland, exacerbating the domestic short-age. “We can see cases where corporations relocate their regional office from Hong Kong to other locations such as Shanghai and Singapore,” says Cheung at Morgan McKin-ley. “Often they will offer opportunities for staff to relocate and some corporations who set up offices in China may still prefer Hong Kong candidates to take up the role.”

Chinese companies are also hiring more in Hong Kong, due to an “increase in focus by Chinese insurance, asset management and banking institutions to grow a stronger foothold in Hong Kong,” a Morgan McKinley report noted in January.

The focus on China is changing overseas recruitment patterns. “The common challenge for recruitment outside Hong Kong is a lack of Chinese-language capability,” notes Chan at BDO. “If we look outside Hong Kong, normally we turn to the Mainland, Malaysia or Singapore.” Chan says the firm considers

“Given the changing market dynamics, we find that most candidates need to be sure about a new role before they make a decision.”

May 2017 29

FOR ADVERTISINGTel: 2164 8901Email: [email protected]

M&LM&L, the publisher of A Plus

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candidates from the U.K., U.S. or Australia on an individual basis.

Cheung at Morgan McKinley agrees, noting that Hong Kong accounting firms’ need for external hiring is no longer high. “The majority of local accounting professionals can already fulfil the requirements from employers,” he says. One exception, he adds, is the globalization of tax. “Some positions require [knowledge of] specific countries’ accounting or taxation systems.”

Appealing to millennialsTo ensure talent remains available – and to attract more young people into the profession – Hong Kong’s accounting community will have to refashion its image. “We should focus on presenting the right message,” says Weatherseed at Mazars. “We have a strong culture and attractive working environment – friendly, creative, dynamic, international – which is what millennials are looking for.”

Some firms are moving away from fixed working hours to accommodate the demands of the new generation. “A number of our staff either currently or used to work on a schedule that is different from our normal working hours and days,” says Weatherseed. “We are more open to explore flexible working arrangements.”

Recruitment firms suggest accounting firms embrace the latest communications and media technology and spread a globalized mes-sage. “Accounting firms are increasingly using social media to build up their brand and attract talent,” says Bhatnagar at Hudson. “There is an increased focus on campus recruitment and they are also looking at luring Hong Kong people from other parts of the world.”

Cheung at Robert Walters says that even though international recruitment has declined, Hong Kong accountants gain exposure through talent exchanges. “Overseas accountants are seconded to Hong Kong offices and vice versa,” he says. “This is a good way to retain existing accountants.”

Wong says CUHK has streamlined its professional accountancy programme to lure more candidates. “It aims to prepare our students to acquire a global mindset and an understanding of international accounting practices and issues,” he says.

Global accounting stream students will work as summer interns in the Shanghai, Chongqing and Shenzhen offices of the Big Four firms, take a two-week course at Utrecht University in the Netherlands and visit companies and professional accountancy bodies in London.

Accounting students will also be more exposed to new technology at CUHK. “The school will launch a new course in big data in the coming academic year,” Wong adds. “We expect to offer more courses related to technology and analytics in the near future.”

Millennials, say accounting firm consultants, value flexibility, work-life balance and organizational culture. “They want to know your firm’s values,” says Jeff Phillips, Chief Executive Officer of Accountingfly, an accounting recruitment platform in Florida. “Give them a great place to work and they will transform your organization.”

IFAC survey takes note of smaller firms’ issues

The annual International Federation of Accountants Global SMP Survey attracted 5,060 responses from 164 countries, and was held from October to November 2016.

Attracting new staff and retaining existing staff ranked among the top four challenges identified by respondents for the first time. The other three were attracting new clients, keeping up with new regulations and standards, and pressure to lower fees.

Many of the questions addressing the impact of personnel issues were asked for the first time. Finding qualified staff (at all levels) and retaining qualified staff (at all levels) were considered to have the greatest impact, with 45 percent and 41 percent, respectively, viewing the impact as high or very high.

Of the respondents, 31 percent were based in Asia Pacific. Among the others, 38 percent came from Europe, 14 percent were from Africa, Central and South America and the Caribbean accounted for 7 percent, and 5 percent each were based in North America and the Middle East.

In terms of practice size, 35 percent were sole practitioners, while 36 percent came from practices with two to five partners and staff. Partners, sole proprietors or owners made up 76 percent of respondents, with directors representing 7 percent and senior managers and managers accounting for 12 percent.

“We have a strong culture and attractive working environment – friendly, creative, dynamic, international – which is what millennials are looking for.”

May 2017 31

Success ingredientY.K. Lee

From his busy Taipei headquarters, Y.K. Lee manages the back-office functions of Branded Lifestyle, a company with several clothing brands and more than a thousand of bricks-and-mortar stores stretching from Korea to Malaysia. He tells George W. Russell why he relies more on data than instinct

TAILOREDSOLUTIONS

The evening rain is momentarily torrential, lashing the windows of the Fung Group building located in Taipei’s busy Neihu District, a gentrifying neighbourhood of cheap noodle stands and chic cafés,

pristine technology parks and crumbling shop houses. Inside, the offices are abuzz as senior managers leave a meeting

convened to discuss a potential transaction. They don coats and scarves to brave the chilly Friday evening, their cold-weather gear incongruous in a conference room lined with racks of short shorts and skimpy tops from the group’s Hang Ten range.

“Every day is like being a fire fighter,” says Y.K. Lee, Chief Financial Officer of Branded Lifestyle, a retail clothing company with operations in Taiwan, Korea, China, Singapore, Malaysia and Hong Kong. “Even if I’m busy, people still come to me and ask questions – that’s my day.”

Lee, a Hong Kong Institute of CPAs member, runs the company’s finance and accounting, human resources, information technology and corporate services. “Basically I’m the head of the operational support group,” he says. “My role is overseeing the back office of every country that we operate in.”

Apart from the casual Hang Ten brand, founded in the United States in 1960, Branded Lifestyle operates the Arnold Palmer sportswear label; Roots, a Canadian outerwear brand; Hong Kong’s Leo clothing range and H:Connect, a Korean fashion house established in 2006.

Photography by Craig Ferguson

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Y.K. Lee worked at KPMG for eight years before joining Fung Group’s corporate governance division

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Lee says his group’s key task is to support the company’s “front office”, such as its design, sourcing, retail and marketing departments. “They all face our customers and we have got to serve them,” he says. “At the same time we have to make sure there are proper checks and balances.” Thus, the back offices of each individual country operation report not to their own country head, but to Lee.

He joined the retail apparel sector in 2007, as it began to ex-perience fundamental changes caused by the rise of electronic commerce. “Retailing is basically about knowing your customers and how to serve them,” he says. The way they bought in the past is not the way they buy now. “Even next month, you don’t know how they would want to buy.”

Today, Lee finds himself in the world of global fast fashion, where consumer tastes change even more rapidly, dead-on logistics are vital, and bricks-and-mortar stores compete with the Internet. “It’s more challenging because we make a lot of decisions based on data instead of instinct.”

Bricks versus clicksBranded Lifestyle is unusual in that it is a regional multinational – its parent, Branded Lifestyle Holdings, is part of the retailing arm of the Fung Group, which also owns the Li & Fung sourcing and logistics empire – with its

headquarters not in Hong Kong or Shanghai or Singapore but in Taipei.

“There are a lot of designers here and the major departments are all here in Taiwan,” says Lee. “The previous owner was also from Hong Kong who lived here and set up the head office.” More importantly, he says, Taiwan remains the company’s largest operation. “In Taiwan we have about 430 shops and it contributes 40 percent of the group’s total sales.”

Korea, Lee adds, has about the same number of stores and contributes a similar share of sales. China has about 235 stores, of which 208 are H:Connect. There are a total of 20 stores in Singapore, 12 in Malaysia and 9 in Hong Kong and Macau.

From the Taipei headquarters, Lee and his team crunch sales numbers. “We set up a data

analytics team here centrally, so we can go into, say Korea, and look at the numbers,” he says. “We say, ‘Hey, we noticed that this shop yesterday was not doing well – the average amount per transaction was very low – so what’s the problem?’”

Lee has discovered there is no one-size-fits-all remedy for every market. “In Taiwan, customers still prefer to go to the shops and buy. In China, it’s totally different – there they buy online and Tmall is our biggest platform. If you look at the logistics costs, countries with e-commerce tend to have a higher cost because you need more people to do the picking and packing and deliver every individual pack.”

Thus the logistics costs in Taiwan are much lower as a percentage of sales than in China. “We can’t standardize everything,” Lee notes. “We can’t say we’ll limit the logistics cost to 2 percent of the transaction. It wouldn’t work. Colleagues in China would have to go back to bricks-and-mortar.”

Most of Branded Lifestyle’s products are made in China. Lee has witnessed an easing of cross-strait restrictions over the years. “In the past, there were shirts you couldn’t import from China and they had to be made in Taiwan at a higher cost,” he recalls. “Now the costs in China are getting higher, so we’re going to places like Bangladesh and Vietnam, but still China has better quality.”

Branded Lifestyle has 430 stores both in Taiwan and Korea, 235 in China, 20 in Singapore, 9 in

Malaysia, and two each in Hong Kong

and Macau.

“ In Taiwan, customers still prefer to go to the shops and buy. In China, it’s totally different – there they buy online and Tmall is our biggest platform.”

May 2017 35


Return to the regionThe Malaysia-born Lee has led a cosmopoli-tan life ideal for an executive at an Asia-Pacif-ic multinational. He grew up speaking Manda-rin at home but is also fluent in Malay, English and Cantonese, which he picked up from watching television. “When I went to school people would ask, ‘Did you watch that TV pro-gramme last night?’ So I had to learn it.”

As the son of a businessman, Lee found accounting an easy career choice. “When I was in secondary school I knew I wasn’t very good in science,” he says. “Even before I went to university I knew I wanted to study

business, and if you want to study business you had to choose accounting.”

He left Malaysia to attend the University of Manchester in England. After graduation he worked with a local accounting firm before joining Grant Thornton in Oxford. “That’s where I qualified as a chartered accountant,” says Lee. “By then I had spent five or six years in England and I thought that was enough.”

Lee began to plan an Asia-Pacific return, with Tokyo and Hong Kong at the top of his wish list. “At that time there were a lot of things going on in Asia,” he recalls of the late 1990s. “China was booming. Back then,

KPMG would recruit 40-50 people who were semi-senior. I went to an interview in London and they made me an offer as an auditor in Hong Kong.” He became a member of the Hong Kong Institute of CPAs in 2000.

It was a decision Lee would not regret. “Hong Kong was very dynamic and so fast and very challenging,” he says, still with enthusiasm. “I think what you learn in three years in Hong Kong is the equivalent of what you learn in six years in the United Kingdom.In Hong Kong, you are treated like a trainee for six months, then you’re all on your own. Go into battle and just fight.”

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Lee says he is head of Branded Lifestyle’s operational support group, which supports the company’s “front office,” such as its design and marketing departments

“ I saw every single part of the business – the supply chain, the retail, the design – and that’s how I learned about retailing in more depth.”

Lee spent eight years at KPMG before deciding he wanted to enter the commercial sector. It was not a rushed decision. “I didn’t want to leave before I got a really good job, so I was actually looking for nearly two years,” he says. “Then I joined Fung Group in their corporate governance division.”

Joining the company in 2007, Lee’s first task was to shepherd a recent acquisition – Trinity, which owns the Gieves & Hawkes, Kent & Curwen and Cerruti 1881 brands – towards a Hong Kong listing.

Data versus instinctThe Trinity listing role also included the internal audit function. “One thing good about being an internal auditor at that time was that I was actually involved in operations,” Lee says. “I saw every single part of the business – the supply chain, the retail, the design – and that’s how I learned about retailing in more depth.”

In 2012, Fung Group bought Branded est le. th ts e bran s ran e

Lifestyle works with suppliers by lever-aging its high volumes to obtain cotton more cheaply, and help manufacturers with financing. “A lot of suppliers in China borrow at 10-20 percent interest,” says Lee. “We work with our bank to of-fer less than 2 percent so they can reduce the cost to us.”

The company’s major cost pressure is rent. In Taiwan, says Lee, landlords are

flexible. “We normally sign for three to five years but sometimes when busi-ness is not doing so great, we’ll go back to the landlord and say we know that we have committed to paying NT$100,000 (HK$25,600) a month, but can we reduce the rent for this year?”

Lee says most landlords are willing to accept less rent due to the long business relationship – but the strategy has its limits. “If the next year business is still not good we go back to them and say can we reduce the rent again,” Lee explains. “Most landlords will not agree to that but there’s no harm in trying.” The gambit doesn’t work at all in Hong Kong. “You don’t even bother looking for the landlord,” says Lee.

Outside Taiwan, Lee’s team works with staff on the ground. “I look at the profit-and-loss and if a store is about to be making losses, we suggest they need to talk to the landlord and find a way to reduce the rental. If not, maybe they need to close the shop.”

Before heading back out into Taipei’s rain, Lee has a thought. “The front office staff here make a lot of decisions based on instinct: ‘It will be raining tomorrow, so let’s sell this.’ But if you look at the number of rainy days versus the sales of that par-ticular product, it may not sell that well.

“You might think your instinct tells you something but you’re going to go back to the data,” he muses. “Perhaps instinct should be backed by data.”

May 2017 37

Work and lifeDragon boating

A s the first glimmers of light begin to appear on a Sunday morning, it’s not unusual to

find people still tucked into their beds and sneaking in a few extra hours of sleep after a long week of work, but for a passionate group of CPAs, the dawns of Sundays are a time of action. Chris Li, a member of the Hong Kong Institute of CPAs’ Dragon Boat Inter-est Group, gathers at Stanley’s Main Beach at 7:30 a.m. with his like-mind-ed teammates for a training session. “Dragon boating is the definition of a fun sport,” says Li, the Chief Finan-cial Officer and Company Secretary at Hang Sang (Siu Po) International Holding Company Limited. “It pro-vides a great full-body workout, and I think water sports are also excellent for taking your mind off work.”

However, dragon boating possesses benefits beyond recreation and stress relief. For Institute members like Li, they also believe the sport is highly inspirational due to the tight-knit bonds that can be formed among teammates. “Dragon boating is a sport that promotes teamwork above all else,” says Li. “With 22 people together in one boat, we all play hard to achieve one goal. It’s how the term ‛one boat one heart’ was formed.”

When asked about his most memorable experience with the team, Li brought up his first year of dragon boating with the interest group. “It was May 2013 and we were competing in the Stanley Warm Up Race,” Li remembers. The weather was poor with heavy downpours, which forced the race to be postponed temporarily until

Dragon boating is the epitome of Hong Kong’s heritage and international culture. In the heat of the summer dragon boat competitions, Julian Hwang talks to Institute members to find out how this dynamic sport extends beyond simple camaraderie

Photography by Anthony Tung

MOVING AS ONE

38 May 2017

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The Dragon Boat Interest Group celebrates with its new boat in 2013

May 2017 39


Chris Li, Chief Financial Officer and Company Secretary at Hang Sang (Siu Po) International Holding Company Limited (in front, left)

40 May 2017

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the rain let up. “We waited a long time, and even when it finally did lighten, it still felt like heavy drops hitting your face,” he says.

Despite Li’s anticipation to begin and the unfavourable weather conditions, his seniors remained calm and lighthearted. “They told me not to worry and to just sit tight. In the event of a big wave, just ‘deep paddle’ and keep shouting to keep morale up,” Li recalls. “It felt like we were on fire when we finally did get in the boat!” Even though the team received second runner-up in the Mixed Teams Gold Bowl, the process and kinship truly inspired Li.

Dragon boating is one of Hong Kong’s most celebrated competitive sports, and with summer approaching, so too are a number of dragon boating competitions. The most prominent and internationally renowned of which is the Sun Life Stanley International Dragon Boat Championships that will take place on 30 May. “We’ll be participating in three upcoming dragon boating competitions on behalf of the Institute in late May and June,” says Li.

Following the Sun Life Championships, the team will also be competing at the CCB (Asia) Hong Kong International Dragon Boat Races at the Central Waterfront on 3 to 4 June, and the Recreation and Sports Club for Hong Kong Professional Bodies’ Dragon Boat Race at Stanley Beach on 18 June.

Competitive spiritStanley Yuen, Head of Compliance at Pictet Hong Kong and an Institute member, discovered dragon boating by chance. “The previous company that I worked at had a dragon boating team and I decided to join for fun,” recalls Yuen. Shortly after being out on the water, he became hooked – captivated by the charming and competitive nature of the sport. “I’d say dragon boating is just as exciting as other sports without the need for excessive physical contact between athletes, and sometimes, teams can be so evenly matched that referees need a high-speed camera to see who finished first!”

However, his team at the time did not enrol in many events outside of the crowd

favourites such as Tuen Ng Festival or Sun Life at Stanley Beach. “We only trained occasionally when the events were about two months away, and it just felt too lax for me.” It wasn’t until Yuen left his company and joined the Institute’s Dragon Boat Interest Group that he found his place.

With regular weekly training sessions, Yuen was also able to develop a deeper bond with his teammates. “It’s important to get to know your teammates so that you can sync up better while on the boat. The more

“ With 22 people together in one boat, we all play hard to achieve one goal. It’s how the term ‘one boat one heart’ was formed.”

Stanley Yuen, Head of Compliance atPictet Hong Kong (in front, far left)

May 2017 41


Gary Hung, Assistant Manager of Corporate Recovery and Forensics Services at Mazars (in front, right)

you train together, the more in-sync you can become.”

Given the high workloads of CPAs, Sunday mornings were deemed the best training time for everyone, although it’s not a guarantee that everyone will be able to attend. “The team’s stroking rhythm can sometimes be off if a member misses training, but I’m confident in our team and coach’s ability to readjust the pace quickly,” says Yuen.

Outside of training sessions, team members also have many opportunities to get together, with regular gatherings for holidays such as Christmas and the New Year, as well as dinners. Additionally, some members occasionally participate in dragon boat competitions hosted in other countries including China, Singapore and South Korea – sometimes representing CPAs from Hong Kong and sometimes as guests for other Hong Kong-based teams. “It’s a rare two-in-one bonding oppor-tunity because apart from competing

against foreign teams in new waters, you also get to sightsee with them!”

For members interested in taking up dragon boating, Yuen recommends experiencing the sport recreationally before aiming to race competitively. “It’s not something you can just pick up and get good at right away, so it’s important to listen to the advice offered by senior members and the coach,” says Yuen.

Different strokesDragon boats come in a variety of sizes, and as a result, the number of crew changes accordingly per boat. For a standard dragon boat competition, there are 22 members: including 20 paddlers, one drummer and one “steersman.” The first pair of paddlers are referred to as the “pacers”, and they are responsible for determining the correct pace that the rest of the team must follow. The drummer sits at the front of the boat, relaying the speed set by the pacers via a rhythmic

beat that doubles as a unity and morale booster. The steersman stands at the rear and is in charge of directing the boat.

Having performed the duties of the paddler and occasionally as the drummer, Mandy Law enjoys dragon boating because it is a team effort where everyone plays an equally important role. “No matter how great of an athlete a person may be, or how big and powerful their strokes are, if the person can’t match the team’s rhythm, the person will inevitably end up slowing the boat down,” says Law, a senior member of bid management at an I.T. company and an Institute member.

For Law, dragon boating is a beautiful sport. “The open waters, the team spirit, the uniform pattern of every determined paddler like an engine driving towards the finish line, it’s all a very inspirational sight,” she says. More importantly, it is also a sport that requires commitment, mutual

42 May 2017

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Mandy Law, Senior member of Bid Manager at an I.T. company (centre)

understanding and compromise between teammates in order to be successful. Some looking to take up the sport may find these requirements intimidating, but Law believes them to be essential. “It’s critical to attend training sessions to learn the proper paddling techniques. Don’t be afraid to ask questions, and more importantly, you need to remember to have fun.”

Apart from Hong Kong-based dragon boating events, Law, who is also a member of the Institute’s Dragon Boat Interest Group, is experienced in overseas events as well. “Dragon boating is a very small and intimate community that presents lots of opportunities to expand your social circle. Once you get to know people, you may find yourself paddling alongside people from all walks of life,” she says.

The Hong Kong Friendship Dragon Boat Team is one such occurrence. From office

workers to fishermen, the team is open for all members of the public to join. “Because there’s less conflict of interest occupational-wise, interactions are much more relaxed,” says Law. “It’s really interesting getting to know and train alongside people from different industries.” For Law, seeing how passionately the fishermen treated the sport was an eye-opener. “Apart from training really hard, they sometimes even shared their homemade glutinous rice dumplings with us too!”

While at the 2nd Korea Open Busan International Dragon Boat Regatta for the Hong Kong Friendship Dragon Boat Team in September 2011, Law became friends with one of the participants from Indonesia’s national dragon boating team. “They performed very impressively and stole the competition,” recalls Law. “At the event’s closing dinner, we even exchanged team

jerseys and we’ve kept in contact since.” Regardless of the challenges Law faces

in training or competing, she maintains an optimistic attitude. “We always put forward our best effort, so that the completion of every race is another win against our limits.”

Sights and soundsDragon boating is easily recognized thanks to it’s colourfully decorated hull and the paddlers rowing in unison. But what new spectators may find unique are the paddlers dressed in bizarre costumes – seemingly unfit to race in. As Gary Hung, Assistant Manager of Corporate Recovery and Forensics Services at Mazars and an Institute member, explains, “Certain competitions like Sun Life and the CCB races will feature a fancy dress-up competition.”

“ Once you get the hang of it, maybe your shouts may help another teammate to stay on track and keep up the teams’ ‘fire’ too.”

May 2017 43


In these segments, each participating team will decide on a unique dress scheme. Once the teams are dressed-up, they would then go onto a stage and give a dance performance for the Sun Life competition, and alternatively for the CCB, the teams would do a slow lap in their boats. “It’s really fun for both the audience and us,” says Hung, who is also a member of the Institute’s Dragon Boat Interest Group. “We’ve done some crazy things, like painting ourselves in a myriad of colours.” The kookier the outfits, and the more creative the dance, the better the chance of winning the most-outstanding outfit awards.

However, great spectacles alone are only part of the excitement. Sound is what gives the sport its dynamic nature, Hung argues. “Succeeding at dragon boating is all about rhythm and following the exact timing of your teammates’ rowing speed. Only when the team strokes together will the boat glide,” says Hung. By using an audio cue, paddlers are able to constantly monitor their stroke speed and make adjustments as necessary. “Not to mention,

the shouting makes it a lot more exciting for the audience. Imagine how different the sport would be if everyone stayed silent!”

It was the colourful sights and sounds of chanting and drums together that inspired Hung to take up dragon boating. “I watched the sport on TV every year during Tuen Ng Festival since I was young and its traditions has fascinated me. I’ve always wanted to become a crew of a boat afterwards,” says Hung. When he first started, he had trouble synchronizing his stroking speed with the team’s. After a month of training, Hung realized the importance of rhythm control.

“As a beginner, pay attention to the rowing speed of your teammates, the beat of the drum and the shouts of teammates can help you stay focused on the correct stroking speed, especially since you can easily get exhausted and lose focus during a race. It’s also essential when the boat needs to suddenly adjust speeds,” he says. “Once you get the hang of it, who knows, maybe your shouts may help another teammate to stay on track and keep up the teams’ ‘fire’ too.”

Upcoming competitionsMembers of the Institute’s

Dragon Boat Interest Group will be participating in the

CCB (Asia) Hong Kong International Dragon Boat

Races 2017 on 3-4 June and RSCP Dragon Boat Race on

18 June. The Institute will also be

holding its annual CPA Cup National Day Celebration Dragon Boat Invitational

Race at Shaukeiwan Aldrich Bay on 8 October. Over the years, this fun-filled event

has gathered stakeholders, including accounting firms,

financial institutions, academic institutes,

government bodies and professional institutions, to join in the competition and build friendships among dragon-boat lovers. This year, a maximum of 16 teams are expected to compete in the race.

Members of the Institute’s Dragon Boat Interest Group train enthusiastically in the open waters off Stanley Main Beach

–

44 May 2017

Hong Kong’s proposed preferential tax regime for offshore aircraft leasing

activities extended to cover onshore market Katrina Wong and Kathy Kun outline the revised proposal

By way of Bills Committee Stage Amendments made on 19 May to the original bill granting concessionary tax treatment to offshore aircraft leasing activities in Hong Kong, the government now proposes to extend the concession to onshore aircraft leasing, i.e. no more ring-fencing of the domestic market.

Original proposalThe proposal made under the original bill provides that:(i) Where specified conditions are

satisfied, qualifying profits of qualifying aircraft lessors and qualifying aircraft leasing managers will be taxed at the concessionary tax rate of 8.25 percent (i.e. 50 percent of the normal profits tax rate of 16.5 percent);

(ii) As compensation for the loss of depreciation allowances, the deemed taxable amount in respect of income derived from the leasing of aircraft to a non-Hong Kong aircraft operator will be equal to 20 percent of the tax base of the lessor concerned, i.e. their gross rentals less deductible expenses, but excluding tax depreciation.

Original proposal risks being regarded as a potentially harmful tax practiceThe above proposal is a form of pref-erential tax regime that will be subject to examination by the Organization for Economic Co-operation and Develop-ment and the G20 as to whether the regime is a harmful tax practice under Action 5 of the Base Erosion and Profit Shifting Project undertaken by these two international bodies.

The Forum on Harmful Tax Practice, a working group under the OECD, is responsible for reviewing the preferential tax regimes of all participating jurisdic-tions relating to income from geographi-cally mobile activities (such as financial and other services activities). In deter-mining whether a preferential regime is potentially harmful, the FHTP would take into account a number of negative fac-tors, one of which is that “the regime is ring-fenced from the domestic economy.”

Apparently, shortly after the original bill was presented in March to the Legislative Council, the government was informed by the FHTP that the FHTP would adopt a rigid and narrow interpre-tation of the “ring-fencing” factor. Fail-

ure to address the concerns of the OECD as regards harmful tax practices will jeopardize Hong Kong’s reputation as an international financial center. Mean-while, the European Union has begun an exercise to draw up a list of “non-cooperative tax jurisdictions” by the end of 2017 and the existence of harmful tax measures is one of its concerns. A jurisdiction listed as “non-cooperative” could be subject to defensive measures which will make it a less attractive place for investment and doing business.

Given that in order to enjoy the proposed concessionary tax treatment, a qualifying aircraft lessor would be prohibited from leasing their aircraft to a Hong Kong aircraft operator (i.e. prohibited from operating in the domestic market), the original proposal may risk being perceived as a potentially harmful tax practice under “the ring fencing” factor.

Revised proposal

No more ring-fencing from the domestic economyUnder the current provisions of the Inland Revenue Ordinance, while leasing

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May 2017 45

SourceLeasing

of aircraft to a non-Hong Kong aircraft operator will be denied tax deprecia-tion, corporations leasing aircraft to a Hong Kong aircraft operator (i.e. onshore aircraft leasing activities) are entitled to obtain tax depreciation allowances in respect of the aircraft concerned and are subject to the normal tax rate of 16.5 per-cent [hereafter referred to as Scheme A].

Hence, the above proposal under the original bill aims to provide profits tax concessions in respect of offshore aircraft leasing activities in Hong Kong to a non-Hong Kong aircraft operator, by way of granting a deemed 80 percent deduction in lieu of tax depreciation (i.e. tax at only 20 percent of the tax base of the lessor concerned) and a concessionary tax rate of 8.25 percent [hereafter referred to as Scheme B].

To address the “ring-fencing from the domestic economy” concern, the government, by way of CSAs made on 19 May to the original bill, proposes to extend the scope of the original bill to cover onshore aircraft leasing. Under the CSAs:

(i) Corporations engaging in onshore aircraft leasing activities will be assessed under Scheme A by default; alternatively, such corporations may make an irrevocable election to be assessed under Scheme B.

(ii) Meanwhile, corporations engaging in offshore aircraft leasing activities will remain entitled to Scheme B only.

The table below summarizes the tax assessment options under the proposed CSAs.

One point of particular note is that where a qualifying aircraft lessor (or its connected person) has previously claimed tax depreciation in respect of an aircraft under Scheme A and then in a subsequent year makes an irrevocable election to be assessed under Scheme B, said lessor will not be entitled to the 80 percent deemed deduction under Scheme B. In such a situation, the gross rentals less deductible expenses, but excluding tax depreciation and the 80 percent deemed deduction, will be subject to the 8.25 percent

concessionary tax rate. It would appear that by switching

from being assessed under Scheme A to Scheme B, a qualifying aircraft lessor’s tax losses incurred under Scheme A would be multiplied by a factor of two when being used to offset against any subsequent assessable profits of the lessor under Scheme B.

Relaxation of the tax symmetrical ruleUnder the original proposal, as a means to avoid perceived tax leakage, the 8.25 percent concessionary tax rate will generally only apply to a sum received by a qualifying aircraft lessor or a qualifying aircraft leasing manager where no one will be able to claim the said sum as tax deductible in Hong Kong at the normal rate of 16.5 percent.

The revised proposal now provides that a qualifying aircraft lessor or a qualifying aircraft leasing manager will in any case be entitled to the 8.25 percent concessionary tax rate, regardless of whether the payer or anyone else will be able to claim the sum

46 May 2017

involved as tax deductible in Hong Kong at the normal rate of 16.5 percent.

However, where the payer is connected with the qualifying aircraft lessor or the qualifying aircraft leasing manager, and the said lessor or manager is only chargeable to tax at the 8.25 percent concessionary tax rate in respect of the sum, the amount of tax deductible in Hong Kong at the normal tax rate of 16.5 percent, while the said lessor or manager will still enjoy the 8.25 percent concessionary tax rate.

CommentaryWe welcome the government’s initiative to remove the ring-fencing factor and to relax the tax symmetrical rule of the original proposal. We believe these steps will enhance the attractiveness of Hong Kong’s proposed preferential tax regime for qualifying aircraft lessors and qualifying aircraft leasing managers.

The revised proposal should also make the said proposed preferential tax regime more BEPS-compliant in terms of countering harmful tax practices.

This is particularly the case given that the government has indicated that the 80 percent deemed deduction in lieu of tax depreciation under Scheme B for qualifying aircraft lessors, being fixed based on a set of actual industry figures, does not represent the said proposed regime having an artificial tax base. Otherwise, having an artificial tax base would be a negative factor when the FHTP reviews Hong Kong’s revised proposal from a BEPS-compliance standpoint.

Certain provisions of the revised proposal including the potential for a qualifying aircraft lessor to switch from being assessed under Scheme A to Scheme B or vice versa, are complicated. Where necessary, taxpayers should seek professional tax advice.

Karina Wong is Tax Partner and

Kathy Kun is Tax

Senior Manager at EY

Leases to Hong Kong aircraft operators

Leases to non-Hong Kong aircraft operators

Lessors are assessed under Scheme A by default: Depreciation allowance 20% deemed tax base Half-tax rate

Alternatively, they may elect for assessment under Scheme B: Depreciation allowances 20% deemed tax base Half-tax rate

Scheme B only: Depreciation allowances 20% deemed tax base Half-tax rate

Tax assessment options under the proposed CSAs

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May 2017 47

It may not be obvious, but we form judg-ment about almost everything: a friend or person, a property, a movie, etc. We usually form these views or judgments based on facts and complete informa-tion. The same applies in a professional environment.

Professional standards issued by the Institute – Hong Kong Financial Report-ing Standards, Hong Kong Standards on Auditing and the Code of Ethics for Professional Accountants – are based on globally developed, principle-based frameworks. So naturally, this requires the use of judgment when applying principle-based standards.

Some stakeholders have asked: Is it necessary to set standards based on principles?The decision to base Hong Kong professional standards on glob-ally developed principles is to enable accountants to apply the standards against any variation of circumstances, including diverse economies, legal structure and culture. Gary Kabureck, member of the International Account-ing Standards Board, also explains in The case for principle-based accounting: “Principles written at too high a level result in issues with comparability and other challenges but excessive rules result in unnecessary complexity and invite structuring. Just like today’s modern technology, which is obsolete tomorrow, the same is true of detailed accounting rules as new transaction types, creative terms and conditions and complex structures emerge almost daily. Application of judgment, guided by and within standards-level or concep-tual boundaries, is the only plausible solution.”

So, what is professional judgment to accountants?Paragraph 13(k) of HKSA 200 explains professional judgment as the application

of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate.

Can everyone form the same professional judgment?It depends. There are many influences in forming a professional judgment. The International Auditing and Assurance Standards Board believes that professional skepticism – an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence – influences professional judgment.

Other relevant concepts in ethical requirements, including independence of mind, objectivity, and competence, as well as entity or market-specific and environmental factors may impact a person’s attitude and mindset when applying judgment.

In its Invitation to Comment, Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control, and Group Audits, the IAASB notes that personal individual traits will impact the application of professional skepticism (and therefore professional judgment decisions). For example, this includes having the strength of mind that enables one to deal with confrontational matters with courage – the Institute thinks this may include being comfortable with challenging management in areas that are highly judgmental or subjective – and having the appropriate competence in the subject area, including knowledge, skills and experience. Behaviour is also influenced by inherent cognitive

biases such as long-term relationships between the preparer and auditor. Other factors that will influence how a professional skepticism is applied, includes tight financial reporting deadlines, heavy workloads, as well as time and resource constraints.

Believe it or not, cultural diversity around the globe can also impact professional judgment decisions. This is illustrated in a research report by the Korea Accounting Standards Board and the Australian Accounting Standards Board entitled Accounting Judgments on Terms of Likelihood in IFRS: Korea and Australia. The report investigated how accountants in Korea and Australia interpret 35 terms of likelihood in International Financial Reporting Standards, such as “probable” and “unlikely.” The research found that most of these terms tend to be interpreted inconsistently between jurisdictions and among professionals within the jurisdiction. For example, probable means a likelihood of 71 percent in Australia and 62 percent in Korea, while unlikely means 28 percent in Australia and 12 percent in Korea.

How to make a sound professional judgment?The Institute’s Standard Setting Director, Christina Ng, and Compliance Director, Linda Biek, provide some advice on how to make a sound professional judgment.

How have you seen professional judgment misapplied?

Christina: When applying professional standards, I often see accountants cherry pick parts of a standard to read and do not really understand the spirit or principles of the standard. Not making the effort to dig deeper into

Professional judgment: What it is and how to handle it

48 May 2017

SourceTechnical update

Useful resources

Sound professional judgment could be developed through years of experience, but the Institute’s Standard Setting Department emphasizes the importance of ample education and training in the relevant standards and softer, non-technical skills.

The following electronic courses may be useful to strengthen your understanding of how to apply professional judgment and skepticism:• HKICPA-CAANZ's Professional Skepticism e-Learning Programme for Audit Partners and Managers • Elevating Professional Judgment in Auditing and Accounting: The KPMG Professional Judgment Framework

The following guidance may also be useful when applying professional judgment:• Will you be second guessed? Applying judgment in the financial reporting process, PwC, January 2017• A professional judgment framework for financial reporting, Institute of Chartered Accountants of Scotland, August 2016• The professional judgment framework, Ernst &Young Foundation, 2014• Financial Statements: Framing your judgment calls, Deloitte, 2014• Professional Judgment Resource, Center for Audit Quality, August 2014

understanding the standards and the company’s or client’s transaction from a holistic point of view are also common mistakes. In these cases, they often miss the big picture and, as a result, make inappropriate judgments.

Linda: Our experience has shown that professional judgment is sometimes applied after a company decides they want a certain accounting outcome, which may deviate from the outcome prescribed by the standards. Auditors then work to find a way to justify the said outcome and claim they relied on “professional judgment” to take a position that is contrary to what would be reasonably expected under the applicable accounting standards.

What advice would you give a preparer or auditor in making sound judgments?

Christina: Just like in our personal lives, a sound professional judgment cannot be rushed – you need to invest time in understanding the requirements of the standards, the company or client background and the economic environment. Preparers and auditors should therefore make this a priority. Also, don’t be afraid to probe into details of a transaction or a company or client’s explanations and decisions.

They should also be mindful that professional judgment may change

based on facts and circumstances or as new information comes to light. It is therefore critical to have proper documentation of all information that was available at the time of forming a judgment – and, in circumstances where more than one way of accounting is available, the rationale for why a particular method is more appropriate than the other.

Linda: A paradigm shift may be needed for auditors to embrace their roles in the area of public interest. In order for financial information to remain robust and judgment to be properly applied, auditors should begin with a solid technical framework and clear understanding of their client’s business and industry. They should strive to ensure the clients adhere to the relevant accounting standards. If clients apply alternatives because they consider the relevant accounting standards do not produce results that reflect the economic reality of a transaction, then auditors must assess the reasonableness and validity of management’s rationale, obtain evidence that supports management’s views, and ensure proper documentation. If there is insufficient evidence supporting management’s rationale, then auditors must consider if issuance of a qualified audit report is needed. Sound judgment is best applied when auditors consider

the relevant facts and circumstances that may factor into a financial statement user’s decision making before concluding on a challenging matter.

Watch this spaceThe IAASB, the International Ethics Standards Board for Accountants and the International Accounting Education Standards Board have a Joint Working Group that explores what actions may be appropriate within their collective standards and other potential outputs to enhance professional judgment and skepticism.

The Institute recognizes that forming professional judgments has its challenges, particularly in complex scenarios. The Standard Setting Department invites members to share, in what situations did members find challenging to apply professional judgment, and what forms of support would be helpful to develop your skill in exercising judgment. Contact us at [email protected].

This article is

contributed by the

Institute’s Standard

Setting Department.

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May 2017 49

https://www.icas.com/technical-resources/a-professional-judgement-framework-for-financial-reporting

http://www.pwc.com/us/en/cfodirect/publications/point-of-view/financial-reporting-judgement-decision-making-framework.html

http://www.ey.com/Publication/vwLUAssets/ey-faculty-connection-issue-45-professional-judgment-framework/$FILE/ey-faculty-connection-issue-45-professional-judgment-framework.pdf

https://www.iasplus.com/en-us/publications/us/cfo/2014/judgment-calls

http://www.hkicpa.org.hk/en/cpd-and-specialization/cpd/cpd-and-learning-resource-centre/online-courses/professional-skepticism-elearning-program/

https://www.kpmguniversityconnection.com/University/view/curriculum/?module_id=40

http://www.thecaq.org/professional-judgment-resource

Members’ handbook update

Handbook update nos. 197 to 198 Update no. 197 contains revised PN 730 Guidance for Auditors Regarding Preliminary Announcements of Annual Results.

Update no. 198 contains a series of amendments arising from the publication of Annual Improvements to HKFRSs 2014-2016 Cycle.

Professional accountants in business

New CGMA treasury resource helps management accountants The Association of International Certified Professional Accountants and the Association of Corporate Treasurers have recently published a Chartered Global Management Accountant resource, Treasury and Cash Management Essentials, which provides practical guidance to help management accountants add value to the business by deepening their understanding of key treasury practices.

This interactive guide identifies key components of the modern treasury function and provides tools and resources to help management accountants expand capabilities in these areas. It also emphasizes the importance of alignment, understanding and close cooperation among the management accounting, tax and treasury functions to achieve effective decision making on investments, funding and risk strategies.

HKEX launches director training webcastsThe Hong Kong stock exchange has launched the first of its director training webcasts entitled “Duties of directors and the role and functions of board committees.” With emphasis on providing practical advice and tips on how to tackle challenging scenarios through real-life case studies, the webcasts are designed to enable directors to understand the responsibilities they have undertaken as directors of listed companies.

Small and medium practitioners

Results of 2016 IFAC Global SMP SurveyThe 2016 IFAC global small- and medium-sized practitioners survey was conducted from October to November 2016 and received 5,060 responses from 164 countries, including responses from Hong Kong SMPs. The survey results were released on 15 March.

The 2016 findings showed that attracting new or retaining existing staff became one of the top challenges faced by SMPs for the first time since the survey was conducted in 2011, while attracting new clients, keeping up with new regulations or standards, and pressure to lower fees remained as key challenges. As regards the anticipated impact of technology developments over the next five years, staying current with new hardware and software, as well as moving to the cloud, topped the list of technology challenges.

In addition, a significant majority of respondents recognize the value of offering business advisory and consultancy services and provide some form of these services, with corporate advisory, management accounting and human resource/employment regulations being the most common services provided.

Corporate finance

SFC statement on recent GEM listing applicantsFurther to the issuance of guideline to sponsors, underwriters and placing agents involved in the listing and placing of growth enterprise market stocks and the joint statement with HKEX regarding the price volatility of GEM stocks, the Securities and Futures Commission has recently provided an update and further guidance regarding its regulatory approach. This includes the way in which the SFC raises concerns directly with listing applicants, sponsors, underwriters and placing agents, and takes decisions pursuant to the powers granted to it under the Securities and Futures Ordinance.

HKMA new webpage on opening and maintenance of bank accountsIn recent years, international efforts in combating illegal activities including money laundering, terrorist financing and tax evasion have stepped up significantly. Banks across the globe have accordingly enhanced their control measures. The account opening process is now more complex and requires

The latest standards and technical developments

TechWatch 174

50 May 2017

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longer time as compared to five or 10 years ago.

On 24 March, the Hong Kong Monetary Authority launched a webpage and a dedicated email account ([email protected]) to receive comments and answer queries regarding opening and maintenance of bank accounts.

The webpage contains information about account opening and maintenance procedures, documentation and information requirements and contact details of banks. It also provides information on what banks should not do when processing account opening applications, and useful tips for reference by unsuccessful applicants.

Taxation

Announcements by the Inland Revenue DepartmentMembers may wish to be aware of the following matters:• The issues of profits tax returns,

property tax returns and employer’s returns for the year of assessment 2016-17.

• The signed agreements on automatic exchange of financial account information with Belgium, Canada, Guernsey, Italy, Mexico, the Netherlands, Portugal and South Africa.

• The Inland Revenue (Amendment) (No. 3) Bill 2017 has been gazette. The bill expands the list of "reportable jurisdictions" of Hong Kong, in relation to the automatic

exchange of financial account information.

• A Legislative Council question on promotion of re-industrialization and development of industries.

• A notice on Block Extension Scheme for Lodgement of 2016/17 Tax Returns and a reminder to settle the second instalments of tax for the year of assessment 2015/16.

• Tax representatives’ corner.

Legislation and other initiatives

Consultation conclusions on anti-money laundering regulation and disclosure of beneficial ownershipThe government has published a combined set of consultation conclusions following the two recent consultations on anti-money laundering regulation and disclosure of the beneficial ownership of legal entities. The government plans to introduce legislation to proceed with the two sets of proposals by July.

The consultation conclusions indicate that no significant changes will be made to most of the main consultation proposals. However, the proposed registers of beneficial ownership, referred to as registers of people with significant control, which unlisted Hong Kong companies will be required to keep, will be accessible only to competent authorities and not, as previously proposed, also to members of the public. In addition, information on PSC registers will need to be retained for six years only and not 10 years as originally proposed.

As regards the conclusions of the consultation on the regulation of AML, the proposals remain that the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) will be amended to require designated non-financial businesses and professions to comply with statutory customer due diligence and record-keeping requirements. Relevant professional bodies will be empowered to regulate their own members for AML compliance and to issue guidelines applicable to their members. The Registrar of Companies will become the regulator and licensing authority for trust and company services providers.

As regards to concerns expressed about the proposed 90-day transitional period for trust and company services providers to move to licensing regime, it is now proposed to add a provision in the legislation such that an applicant will be deemed to be operating with a licence from the time that it files an application with the Companies Registry. In other words, applicants need only ensure that they file their applications within the transitional period. Furthermore, that period will be extended from 90 days to 120 days.

Please refer to the

full version of

TechWatch 174,

available as a PDF on

the Institute’s website:

www.hkicpa.org.hk

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May 2017 51

Imagine travelling back into the past, long before the advent of electricity and the foundation of our cities and countries, back when humanity thrived under hunting and gathering tribes. Back then, there wasn’t much to do once the sun set. The lack of portable light meant that looking for food or exploring was a near impossible task.

With limited options on night-time activities, people often found comfort huddled around a roaring campfire, listening to the stories of elders and their kinsfolk. There was always something pro-foundly captivating about these moments the joining of multiple minds to become a collective – all sharing the same desires, emotions and resolve.

Storytelling is still very much the same

today, except much grander and even more interconnected. Through the Internet, the audience is now the entire world, and lessons and stories from the world’s best teachers are instantly accessible in the comfort of our homes. Chris Anderson, TED Curator and author of TED TALKS: The Official TED Guide to Public Speak-ing, believes this technological revolu-tion has sparked a “renaissance in public speaking.”

In the book, Anderson shares his insights behind the concept of “presenta-tion literacy,” which can be defined as “the art of speaking effectively” to not only empower and inspire the audience, but to also avoid presenting those “boring univer-sity lectures, interminable church sermons,

or roll-your-eyes predictable political stump speeches.”

For many, giving a talk can be a terrify-ing experience. Anderson attributes this fear to reputation. “Being social animals, we crave each other’s affection, respect and support,” he writes. A poor performance is inevitably damaging to long-term reputa-tion, but Anderson believes that fear gener-ates the best motivation for making proper preparations before giving the talk.

To give an example of the potential power behind a talk, he describes one of his most memorable experiences with TED: the last day of the February 2002 TED con-ference, or “the day that TED might have died.” At the time, the event was hosted annually by the charismatic co-founder and

Book review

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

Title: TED TALKS: The Official TED Guide to Public SpeakingAuthor: Chris Anderson Publisher: Mariner Books

–

52 May 2017

THE SECRETS TO STORYTELLING

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architect Richard Saul Wurman – the man who Anderson thought to have been the life of the conference. However, Wurman announced that the 2002 conference would be his last before his departure from TED. With Anderson taking over the organiza-tion, he was tasked with convincing around 800 audience members to continue invest-ing in TED.

Looking back at his past performance, Anderson criticizes himself harshly. “There are a hundred things I would change, start-ing with that wrinkly white T-shirt I was wearing.” He was not a natural speaker and so nervous that he had to sit down to give the 15-minute talk that determined the fate of TED.

He had made full preparations and opened with a contemporary topic that he knew his audience would connect with: the dot-com bust of 2000 and how his business shattered nearly overnight. “I spoke from the heart, with as much openness and con-viction as I could summon... That I’d come to think of myself as a complete loser.” Anderson told the crowd of his shortsight-edness towards the Internet age and then explained how the organization became a world of ideas and inspiration for him, and more importantly, how it became his salva-tion and happiness.

Despite his lack of confidence and a shaky start, the crowds erupted in applause. It probably helped that Anderson broke the tension by including a humourous and apocryphal anecdote about the value of hap-piness and Yvonne de Gaulle, the wife of former French president Charles de Gaulle, shocking her diplomatic dinner guests by expressing her desire for “a penis” (mispro-nunciation of “happiness”). TED was saved.

Anderson provides a thorough break-down of every do and don’t of giving a talk throughout the book: from establishing a compelling and conversation-worthy subject to determining the best presentation medium for the subject. Accompanying examples of past TED talks, both poorly and brilliantly executed, further consoli-date his points.

The book provides keen insight on the various aspects of a talk, and convincing lessons on elevating your storytelling, whether you are a veteran public speaker or not. “Are you ready? Let’s go light a fire.”

To Anderson, a speaker doesn’t need to become the next Martin Luther King Jr. or Winston Churchill to deliver a good talk. “Anyone who has an idea worth sharing is capable of giving a powerful talk,” he writes. “The only thing that truly matters in public speaking is not confidence, stage presence or smooth talking. It’s having something worth saying.”

That said, it’s essential that you convey your points in words that your audience can understand. “You can only use the tools that your audience has access to,” Anderson explains. Prior to giving a talk, you must remember that you cannot assume everyone will understand your industry-specific jargon, nor your values and assumptions without being given prior context. “It’s only from the common ground that they can begin to build your idea inside their mind.”

When delivering a talk, Anderson recommends avoiding four talking styles:1. The Sales Pitch – the speaker’s job is to give, not to take or ask of something from the audience. By being generous and giving the audience a takeaway, you are much more likely to elicit a welcome response from them.2. The Ramble – when the audience signs up for a talk, they are handing their precious time and attention to you. It’s imperative that you do not waste it with meandering but instead provide something worth taking away. Nic Marks, an economist, writes, “Kill your darlings. I had to be prepared to not talk about some things I absolutely love and would have liked to squeeze into the talk, but they were not part of the main narrative.”

3. The Org Bore – It’s important not to focus on topics such as the history of your organization, how successful your developments are nor how well your team works together, because these are all experiences that are interesting for you, but not necessarily for the audience. Instead, talk about the work that you’re doing and the power of the idea behind it.4. The Inspiration Performance – Speakers often dream of the standing ovation after giving a talk, but this may lead to aspiring speakers to pursue bad habits, like the usage of humour and anecdotes simply for the sake of getting a positive response from the audience. “Approval and inspiration needs to be earned,” explains Anderson. Relying on charm alone will often result in the audience feeling manipulated.

The TED Curator’s rule of thumb is substance over style. “Someone is inspiring not because they look at you with big eyes and ask you to find it in your heart to believe in their dream,” he writes, “It’s because they actually have a dream that’s worth getting excited about. And those dreams come from blood, sweat and tears.”

Delivering a compelling story

May 2017 53

Life and everythingAs recommended by Institute members

Eat

Vibrant vegetarian dining by Calvin Ho, Founder of the Leisurely Veggie Group

Elegantly Veggie, Tsim Sha Tsui

Leisurely Veggie, Causeway Bay and Elegantly Veggie, Tsim Sha TsuiI’m not a vegetarian, but I established the Leisurely Veggie and Elegantly Veggie restaurants with the mission to promote a diet that is friendlier to us, the animals and the environment. The former is a mediterranean-themed restaurant that is suitable for all occasions, while the latter is more romantic and sophisticated. Both restaurants feature a fusion style of cooking, with signature dishes such as Dandan Noodles, a Portobello Truffle Pizza, a Japanese Alfalfa Sprout Hand

Roll, a Thai-style Curry with Naan, and Taiwanese Deep Fried Reishi Mushrooms. Our desserts range from western-style cheesecakes to Chinese double boiled sweet soups as well.

Green Common, Ocean TerminalFounded by the famous environmental activist, David Yeung, Green Common is the first restaurant in Hong Kong to utilize “Food 2.0” in their dishes, which is a series of vegetable-based meat substitutes devel-oped to promote sustainability without sac-rificing the nutritional value found in meat.

Signature dishes include the RainBowl Rice, Red Bull Fighter, and my favourite Hainanese Chicken Rice alternative: the Hainan Runaway Chicken.

Veggie Family, Mong KokOwned and managed by a vegetarian In-stitute member, Arthur Au, Veggie Family is a restaurant that I’ve been going to for a long time and is always a top hit under the vegetarian option on OpenRice. Signature dishes include Tofu Ginger Tea, Monkey Head Mushroom in Hot Chilli Soup and Veggie Bag in Black Truffle Sauce.

Gadgets Katie Liu, Assistant Finance Manager at NATIVE UNION, on the next generation of cables for charging

As people use technology more and more, they want to ensure that the devices they use reflect their personal style and taste. Working for NATIVE UNION, I’m constantly surrounded by innovations in both design and tech-nology as we look for ways to enhance people’s interactions with their tech.

Our cables are highly versatile, and are equally functional as they are stylish. Whether at home, at the office or travelling abroad, I always make sure to have a cable like one from the

COSMOS Cable collection handy. Taking a nod towards architecture, the cable features a Terrazzo-inspired appearance and utilizes a flexible knit inspired by high performance sport shoes.

Charging cables are also constantly evolving and something that I’m ex-cited about. With devices using USB-C becoming more prevalent, a number of new cables will be released that are focused on making USB-C charging more accessible. COSMOS Cable

collection Belt Cable

54 May 2017

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Art & culture

Natalie Cheung, Internal Auditor of the Hong Kong Academy for Performing Arts, on the first-ever Academy Festival “The purpose of art is

washing the dust of daily life off our souls,” said Pablo Picasso.

Do you find yourself too tightly wound because of the various deadlines at work? With almost half of 2017 behind us, it’s time for a well-deserved break and to unwind ourselves with

some artistic events over the summer.

The Academy is launching its first Academy Festival. From late April to early July, the talents of students from the Academy’s six schools will be showcased. It will become an annual event created to engage members of the public to celebrate the

graduating classes, while also helping spread the joys of experiencing the performing arts through activities such as Cantonese opera, dance, drama, concerts, exhibitions, film screenings and sharing.

For more details of the programmes, please visit:www.hkapa.edu/event/AcademyFestival2017

Tom Ford Lips and Boys Lipstick Trio

Make-up Joyce Tang, Finance Manager of Estée Lauder, on current beauty must-haves

Wearing a little make-up is an easy way to help you look more energetic and feeling refreshed. For many, achieving a completed look may be too time consuming and usually results in having to rush out the door. But if you have the right tools, it can be really easy. For me, a BB-cream cushion and a nice lipstick are a great help. I recommend the Estée Lauder Double Wear Cushion BB because it is light, easy to blend and lasts all day. It is also comfortable to wear and helps brighten up your face with no touch-ups needed. Additionally, it features a moisture-infused formula that helps cover your pores, fine lines and any imperfections. It doesn’t leave you feeling dry, and it’s such a light foundation that you don’t even feel it. Did I mention it also has SPF50?

I also recommend lipsticks from Tom Ford. They’re moist, so you don’t need to apply any lip balm on top, and have a smooth texture like silk. They’re made using organic ingredients like soja seed extract, Brazilian murumuru butter and chamomilla flower oil, which helps make ap-plication incredibly smooth. The lipsticks are also available in mini size, which is really convenient for people who want to carry more colours with-out needing a larger cosmetics bag.

Tom Ford Lips and Boys Lipstick Trio

DesignGradEx (17 June - 2 July, 10am-9pm, free admission at

Studio Theatre, HKAPA)

May 2017 55

The dark side of finance mixed with technology is too much for Hong Kong’s humorist

56 May 2017

Let’s get fiscal…. with Nury Vittachi

The MTR carriage was so crowded that when I used a phone-banking app to look

up my current account balance, four people breathed in sharply and offered sympathetic smiles.

Maybe next time I’ll bring the kids and they can press money into our hands.

Money and technology are an interesting mix, but I don’t think humanity has really worked out all the kinks.

For example, articles about robots invading the accounting sector always say that computers, unlike humans, don’t make mis-takes with numbers.

This is rubbish. Humans do ridiculous things with numbers and their computers multiply them to huge scales.

Proof: I once covered an inci-dent in India when people received monthly phone bills for the equiva-lent of US$20 million each.

This columnist has two daugh-ters, so that seemed pretty reason-able to me.

But it’s a lot in India, so recipi-ents complained. Telecom com-pany MTNL Dolphin generously sent out texts saying customers need not pay the mega-millions.

But whoever typed the SMS added – and I am not making this up – “If paid, please ignore.” Someone in the accounts department was apparently hoping that a few people would have handed over US$20 million without wanting it back.

Where finance and technology meet, ethical issues often arise.

Case in point: Reader Ricky Chou sent me a report about a man

who paid big bucks for a high-speed broadband connection and then found that someone in his apartment block was hijacking it to download massive files.

So he put an impenetrable password on it and changed the name of the signal to “GET YOUR OWN INTERNET.” The thief, having no choice, paid for his own Wi-Fi connection, and called his hotspot: “LOOK I DID.” The first guy then changed the name of his Wi-Fi signal to: “GOOD I’M PROUD OF YOU.”

I like that story, as it shows tech-nology being used to boost financial ethics rather than cheat people.

In contrast, a colleague for-warded a recent news report from Northern Ireland also involving accounting, technology and ethics.

A crooked accountant named David Goodwin got away with the perfect crime 100 times in a row. It started when he volunteered to bring in his laptop and check the accounts at a busy, charity-minded church. Since the members donat-ing cash and the needy spending it were very trusting, he found it easy to divert big chunks of money to his own accounts.

After two years, he’d com-mitted his 100th crime and felt unstoppable.

And that’s when the church had a guest speaker: a reformed criminal who talked about how his life had changed since he had seen the error of his ways.

Everything the man said hit Goodwin like a thunderbolt.

Goodwin spent hours creat-ing spreadsheets showing exactly

how he had committed each of his 100 crimes, and then walked to the local police station, where he opened his laptop and said: “Look what I’ve done.”

Doesn’t that story leave you with a warm fuzzy feeling?

No? Me neither. Because I saw it at the same time that I saw a scary report, which said that the amount of invisible, intangible money being spent every day (clicking to buy stuff on Minecraft, etc.) had overtaken the amount of actual physical money being spent every day. Coins and banknotes will disappear, pundits say.

This is bad news.My main tool for impressing on

my children the value of money is the extreeeeeemely slooooooow way I count out their pocket money every week, an expression of deep-est agony on my face.

A cash transfer click fails to convey the pain that should be associated with any act of money moving away from my pocket.

I’m going back to the MTR. At least I get a bit of sympathy there.

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

Accounting tech causes me ethical upsets

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