full edition - Hong Kong Institute of Certified Public Accountants
Transcription
full edition - Hong Kong Institute of Certified Public Accountants
PLUS · Restructuring gears for boom · CPA life depicted on TV · ICAS’s Anton Colella profiled · Fixing China’s SOEs ISSUE 4 VOLUME 11 APRIL 2015 BUILDING UP HONG KONG Liebherr Managing Director Francis Kwok talks about how to ensure long-term profitability HK$70.00 President’s message Strengthening our connection with present and future leaders Dear members, “The increasing pace of information and communications technology and the potential disruption it would bring is a major concern of every business as well as the profession.” During the past few months, the Institute’s leadership continued to organize meetings with China’s Ministry of Finance to discuss issues surrounding the exposure draft of the provisional regulations on CPA practices carrying out cross-border audit services. We reflected our members’ concerns, explained the potential impact on the Hong Kong accounting profession and the financial community, and presented our proposals on how to practically address the intended objective of the exposure draft, that is to tackle illegal cross border auditing activities. The meetings were constructive and I would like to thank the MoF for its receptiveness and openness to our views. The Institute will continue to work on this important issue for our members and report on any progress. As a new initiative this year to further strengthen our connection with stakeholders, the Institute’s Chief Executive and I have been meeting leaders of financial regulatory bodies, major trade organizations and major political parties. During the visits, we provided an update on the accounting profession, exchanged views on areas of common concern and explored opportunities to work together on business and other public interest issues. The meetings with business chambers were useful in raising awareness of key developments in the profession that would impact on their constituents such as listed companies. The increasing pace of information and communications technology and the potential disruption it would bring is a major concern of every business as well as the profession. This was highlighted in the recent chief executives’ strategy forum held by the International Federation of Accountants in New York, and attended by the world’s leading accounting bodies, including your Institute. The forum reminded businesses, irrespective of their size, to acquire new mindsets and approaches to information and communications technology management. The use of intelligent systems to exploit “big data” will transform both the operational and interpretative elements of accountancy, and cybersecurity will be a top risk for everyone in management, the forum pointed out. Other significant macro issues discussed included: the reputation and credibility of the profession (particularly audit and tax practitioners), increasing regulation of the accounting profession globally, relevance and attractiveness of the profession, and growing demand for transparency and accountability by national governments and commercial entities through financial and nonfinancial reporting. The Institute has just published the eighth quality assurance report, which highlights significant and frequently encountered matters identified through the practice review and professional standards monitoring programmes in the past year. These findings are very useful for our practices to improve their audit work. I encourage you to read the report, which is available on the Institute’s website. To enhance its governance framework, the Institute has just set up a new whistleblowing mechanism for staff and third parties to report suspected fraud, unlawful acts, impropriety and irregularity in matters related to the Institute. Cases will be handled independently by our Audit Committee and complainants’ confidentiality will be strictly observed. There is overwhelming feedback on the Institute’s inaugural mentorship programme, which will be officially launched later this month in response to young members’ need for the opportunity to learn from experienced members for the purpose of their career development. The matching process, based on compatibility and expectations, has been completed with 149 mentor-mentee pairs, exceeding the initial target of 100. I am sure they will all benefit and I wish them every success. Speaking of young people, I had several chances to meet different groups of university students in the past few months and explain to them why a career in accounting, though demanding, can offer them a bright future that comes with huge responsibility. This connection is important for the Institute to groom future leaders of Hong Kong. Dennis Ho President April 2015 1 CONTENTS ISSUE 4 VOLUME 11 APRIL 2015 20 REGULARS 01 04 06 09 12 President’s message Institute news Accounting news Business news Companies news FEATURES 14 Fixing China’s SOEs As the reform of China's state-owned enterprises speeds up, a mass of opportunities open up for Institute members, Jemelyn Yadao reports 20 Corporate makeovers ATV has put restructuring specialists in the limelight. George W. Russell finds out why CPAs should prepare for a boom in related work 26 Scottish accent Anton Colella, Chief Executive of the Institute of Chartered Accountants of Scotland, explains to George W. Russell about how ICAS remains a globally prominent voice in accounting 32 Constructive thinking Francis Kwok, MD of construction equipment maker Liebherr (Hong Kong) talks to George W. Russell about the build-up of projects 38Show time for young CPAs TVB drama Young Charioteers takes the Hong Kong audience into the working lives of Institute members, writes Tigger Chaturabul SOURCE 42 Mainland tax Matthew Y. Lau and Paul D. McKenzie look at the changes to indirect transfer transactions, introduced through Public Notice 7 44 China taxation Tax arrangement for artists and athletes 46 Technical update Amendments to HKAS 1, 28 and HKFRS 10,12 48 TechWatch 149 The latest standards and technical developments 51Events A guide to forthcoming courses, workshops and member activities LIFESTYLE 52 Business travel Honnus Cheung explores the distinct districts of Peru’s captial George W. Russell on wine; Jemelyn Yadao on watches 56 Let’s get fiscal Nury Vittachi talks bees and money PHOTO: AFP 54 After hours About our name: A PLUS stands for excellence, a reference to our top-notch accountant members who are success ingredients in business and in society. It is also the quality that we strive for in this magazine — going an extra mile to reach beyond grade A. President: Dennis Ho Vice Presidents: Mabel Chan, Ivy Cheung Chief Executive and Registrar: Raphael Ding Email: [email protected] Deputy Director of Communications: Stella To Editorial Advisory Group: Daniel Lin (Convenor), Eric Tong (Deputy Convenor), Eugene Liu, Edward Tsui, Yip Ka-ki, Stanley Yuen, Raphael Ding, Chris Joy Editorial Manager: John So Editorial Coordinator: Maggie Tam OFFICE ADDRESS: 37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2287-7228 Fax: (852) 2865-6603 MEMBER AND STUDENT SERVICES COUNTER: 27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong WEBSITE: www.hkicpa.org.hk EMAIL: [email protected] M&L Editor: George W. Russell Managing Editor: Gerry Ho Email: [email protected] Copy Editor: Jemelyn Yadao Contributor: Tigger Chaturabul Production Manager: Jasmine Hu EDITORIAL OFFICE: 2/F, Wang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong ADVERTISING ENQUIRIES: Advertising Director: Derek Tsang Email: [email protected] Tel: (852) 2656-2676 A PLUS is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine. © Hong Kong Institute of Certified Public Accountants April 2015. Print run: 6,850 copies The digital version is distributed to all 38,438 members, 18,728 students of the Institute and 699 business stakeholders every month. Subscription: HK$760 for 12 issues per year. See www.hkicpa.org.hk/aplus for details. NEWS THE INSTITUTE Institute’s quality assurance unit looks back at year’s work QAD report highlights compliance issues in 2014 The Hong Kong Institute of CPAs last month published its quality assurance report for 2014. The Quality Assurance Department’s eighth annual report summarizes its work in practice review and professional standards monitoring programmes in the past year. The main purpose of the report is to highlight common findings to members and to allow practices to consider whether they have similar problems that need attention to improve their audit work. In 2014, the department carried out 212 on-site reviews, slightly exceeding their target. It also introduced desktop reviews for some small practice units without any pre-determined risk factors with the aim of reducing the time it takes to review all practices. “As a result, we expect to be able to carry out more reviews in the years to come,” Elsa Ho, Director of the Quality Assurance Department, said in the report. However during the year, the QAD was disappointed to find that the deficiencies identified in the 2013 report are ongoing. In April 2014, the department issued a letter to all practices to highlight such deficiencies, known as the department’s Top Five Findings. These include: no or insufficient quality control policies and procedures; no During the year, the QAD was disappointed to find that the deficiencies identified in the 2013 report are ongoing. 4 April 2015 Quality Assurance Report 2014 or ineffective monitoring function; failure to carry out adequate audit procedures to satisfy requirements of auditing standards; lack of control over subcontractors’ work; and inappropriate use of modified opinion to circumvent necessary audit procedures. “To tackle this, we have taken further steps to make practices aware that we are prepared to take stronger actions against practices that are found to have no or insufficient effort to address deficiencies that have been widely communicated,” Ho stated in the report. For practices with listed clients, directly closed reviews have dropped from 57 percent in 2013 to 47 percent in 2014, while reviews requiring follow-up action have increased from 43 percent in 2013 to 47 percent in 2014. The report also notes that the most recent reviews of some practices resulted in the Practice Review Committee directing follow up actions and referrals to the Financial Reporting Council. A focus on the Top Five Findings will continue in 2015 for the QAD, which expects the number of cases referred to the Institute’s disciplinary system to increase this year if the same issues continue to occur. To improve practice review outcomes in the future, the QAD revealed in the report that it is also considering new initiatives that will be launched this year to help practices better prepare for a practice review. When it comes to the professional standards monitoring programme, the QAD reviewed 78 sets of published financial statements and followed up six cases brought forward from the previous year. It issued 38 enquiry letters about matters identified from reviews or making recommendations on improvements. Follow up action was not needed for the majority of financial statements reviewed in 2014. A greater proportion of financial statements reviewed in 2014 was for companies affected by new or revised standards. This was due to a number of new financial reporting standards that became effective for annual periods beginning on or after 1 January 2013. Practice review is a quality assurance programme that covers the provision of audit and other related assurance services by Hong Kong CPAs. The QAD reports to the Practice Review Committee, which makes decisions on the results of practice reviews. The professional standards monitoring programme aims to enhance the quality of financial reporting and the application of professional standards in Hong Kong. It monitors compliance with standards by members engaged in the audit of listed company financial statements. Disciplinary finding Lau Wai-yui, Jimmy, CPA CPA runners who took part in the Standard Chartered Marathon 2015, with their trophies. CPAs celebrate marathon success Outstanding CPA runners who took part in the Standard Chartered Marathon 2015 earlier this year, and the CPA marathon competition, received awards at the post-marathon drink on 24 March. On the same day, winners of the Standard Chartered’s Chairman Cup and Business Challenge Cup were awarded at a prize presentation ceremony. Institute sets up new whistleblowing policy The Institute is introducing a new whistleblowing policy to further strengthen its corporate governance framework. Reports on any suspected fraud, unlawful acts, impropriety and irregularity in matters related to the Institute can be submitted to a dedicated email or by post marked “Strictly Confidential” and addressed to Chairman of the Institute’s Audit Committee. Visit the Institute’s website for more details. Members to take a closer look at compliance The Institute’s Compliance Department has organized a forum for members, which will take place on 16 April. Members of the compliance team will explain the complaint and disciplinary processes and provide real case studies to demonstrate how members should effectively handle an enquiry from the department. Complaint: Failure or neglect to observe, maintain or otherwise apply paragraph 100.5 and section 110 “Integrity” of the Code of Ethics for Professional Accountants. The Institute received information about Lau having falsely claimed, on a number of public occasions, that he held a degree of Master of Professional Accounting awarded by a university in Hong Kong when in fact he was only a student of that programme at the relevant time. After considering the information available, the Institute lodged a complaint against Lau under section 34(1)(a)(vi) of the Professional Accountants Ordinance. Decision and reasons: Lau was reprimanded and ordered to pay a penalty of HK$10,000 to the Institute. In addition, he was ordered to pay costs of the disciplinary proceedings of HK$64,265. When making its decision, the Disciplinary Committee took into consideration the particulars in support of the complaint, Lau’s personal circumstances, and his conduct throughout the proceedings. Details of the disciplinary findings are available at the Institute’s website: www.hkicpa.org.hk. April 2015 5 NEWS ACCOUNTING BDO outpaces U.S. rivals in quest for new clients, revenue Research group shows mid-tier firms gaining engagements BDO outpaced its rivals in the United States last month in terms of garnering new audit clients and new revenue, according to research published last month. BDO won a net increase of 40 new clients, following a net gain of 57 in 2013. “BDO had another great year in terms of SEC audit clients,” says John Pakaluk, Product Manager at Audit Analytics, a public company research provider focused on the accounting, insurance, regulatory, legal and investment communities based near Boston. BDO Chief Executive Officer Wayne Berson told Accounting Today that only 15 of its 54 new clients were through the firm’s acquisition of rivals. “Even if you back out the expansion-related additions, we would have comfortably maintained our position,” he said. The firm topped the change-of-auditor fees table with US$36.2 million in new revenue, finishing ahead of KPMG (US$35.7 million), the only Big Four firm to win more new engagements than it lost in 2014. KPMG picked up 48 new clients and lost 33. Deloitte finished third in the new revenue table, with US$27.6 million in fees. However, it lost a net eight audit clients. Grant Thornton, fourth on the revenue table with US$13.5 million in new billings, gained a net of 12 new clients, while U.S. No. 15 firm Marcum (US$5 million) posted a net gain of 15 clients. New law to change path to auditing in South Africa South Africa’s parliament last month voted in favour of legislation to scrap the examination for admittance to the auditing profession in favour of a specialized training programme. The National Assembly unanimously backed the Auditing Profession Amendment Bill on 12 March. The new system would come into operation once President Jacob Zuma has signed the bill into law. The Independent Regulatory Board for Auditors welcomed the change. Building society sues Grant Thornton over audits A large British building society is suing Grant Thornton, alleging negligence over the accounting firm’s audits of its accounts between 2006 and 2013. A spokesman for the Manchester Building Society said that GT had provided incorrect advice on how to account for interest rate swaps. GT declined to comment, noting that the Financial Reporting Council is investigating the matter. 6 April 2015 Salford Quays, Manchester Wayne Berson India catches eyes of Big Four KPMG Chairman John Veihmeyer’s visit to India last month for a meeting of the network’s global board is indicative of increased interest by Big Four firms in the subcontinent, media reports suggested. More than 90 heads of KPMG network firms worldwide accompanied Veihmeyer, prompting Business Standard to note that India seems to be the flavour of the season for the Big Four. The newspaper reported that Deloitte also held a global partners’ meeting in India last month led by Global CEO Barry Salzberg. (Indianborn Punit Renjen replaces Salzberg as the firm’s Global CEO in June.) Mint, the business daily, noted that the meetings come in the wake of Mark Weinberger, EY Global Chairman and CEO, who visited key Indian clients and senior government officials in February. Indian court eases transfer-pricing rules for multinational companies An Indian court has clamped down on aggressive transfer-pricing liability calculations by the country’s revenue department, potentially slashing the tax obligations of multinational corporations. The Delhi High Court laid down principles governing taxation of advertising and marketing spending, overturning a ruling by the Income Tax Appellate Tribunal favouring income tax authorities, which had ordered multinational companies to pay taxes if such spending exceeded industry benchmarks. The companies disputed the benchmark principles on the grounds of inflexibility, arguing that some products may need to be advertised more heavily than others. The court, in a complex 142-page ruling, said advertising and marketing promotion transactions fall within the ambit of transfer pricing but cannot be computed according to tax authorities’ methodology. Big Four leaders to be called before Irish bank inquiry An inquiry into the collapse of Ireland’s banks in the early days of the global financial crisis will call current and former managing partners of the country’s Big Four audit firms as witnesses. The Irish Independent reported that those asked to appear before the Committee of Inquiry into the banking crisis include retired KPMG managing partner Terence O’Rourke. The firm audited the failed Irish Nationwide Building Society. PricewaterhouseCoopers Managing Partner Ronan Murphy has also been called to appear. PwC audited Bank of Ireland in the years prior to the financial crisis. In 2008, the bank lost more than 99 percent of its share value. Former EY managing partner Paul Smith has also been asked to testify in connection with the firm’s role as auditor for Anglo Irish Bank, which was nationalized in 2009. Pat Cullen, former managing partner of Deloitte, will appear too. The firm replaced EY as Anglo Irish auditor and still audits Ulster Bank, a lossmaking subsidiary of the Royal Bank of Scotland. Canadian school shuts down China campus over irregularities A Canadian school shut down its fledgling China operations after serious accounting and other irregularities were found, it was reported last month. CBC News reported that Medicine Hat College closed its operations in Qinghuangdao, Hebei province, in response to an audit report that found lax oversight, citing unexplained invoices, undocumented expenses and payments to unverifiable parties. Alberta Auditor-General Merwan Saher noted in his report that there was no evidence of criminal behaviour, but the college had put itself in a position that was “highly susceptible” to fraud. Hoogervorst calls for “reality” to aid investor decisions Accounting that reflects economic reality, even if it is uncomfortable reading, is essential for investors to make the best choices, according to International Accounting Standards Board Chairman Hans Hoogervorst. “It is hard to distinguish between what is a short-term blip from something that is the beginning of a long-term trend,” Hoogervorst told the United Kingdom’s National Association of Pension Funds in Edinburgh last month. “That is why, in accounting, providing current information – and not just historic cost – can be so important.” Hoogervorst observed that unconventional monetary policies, such as low interest rates, are detrimental to the business model of insurance companies and pension funds. “Both investors and managers are best served by accounting standards that reflect the economic reality, not by standards that create fake stability by smoothing out problems over the years.” International Financial Reporting Standards require companies to provide up-to-date and comparable information about their pension liabilities, Hoogervorst noted, allowing investors make informed decisions. April 2015 7 NEWS BUSINESS U.S. denies work visas of highly skilled professionals at higher rate Skilled Indians suffer most refusals since financial crisis Immigration authorities in the United States have been rejecting visa applications of professionals and highly skilled workers at an increasing rate over the past decade, government data suggest. The denial rate for L-1B petitions to transfer highly skilled employees into the U.S. rose to a record 35 percent in 2014, up from just 6 percent in 2006, according to U.S. Citizenship and Immigration Services records. The biggest increase in denials affected Indian nationals, who were denied visas in 56 percent of cases, the data show. Chinese citizens were denied visas in 22 percent of applications, comparable to nationals of Mexico (21 percent) and France (19 percent). Just 4 percent of Canadian citizens were refused L1-B visas. The National Foundation for American Policy, a U.S. immigration advocacy group, obtained the data through a freedom of information request. Foundation Executive Director Stuart Anderson told USA Today that a steady rise in denials started in 2008, when the global financial crisis began. He said denying visas to high-tech immigrants was a “misguided attempt” to protect U.S. workers. Beijing-led development bank to kick off with widespread support AFP Representatives of founding member countries at the signing ceremony of memorandum of understanding on establishing the AIIB on 24 October 2014. At least 34 countries joined the China-led Asian Infrastructure Investment Bank by the 31 March founding membership cut-off date. The United States pressured its allies to shun AIIB membership, portraying it as a potentially less well-governed rival to the World Bank and Asian Development Bank. Last month the United Kingdom announced it would be a founding member of the AIIB, joining other key U.S. allies such as France, Germany, Italy, Luxembourg and New Zealand. South Korea and Australia are reportedly wavering after initially declining to join. Japan is not expected to become a member but Finance Minister Taro Aso told media last month that it would be desirable for AIIB to cooperate with the ADB in meeting growing regional demand for infrastructure financing. GDP revision suggests Japan’s economy is further from rebound The Asian Development Bank last month forecast India’s gross domestic product growth for 2015-16 at 7.8 percent, surpassing that of China. The regional multilateral lender’s annual forecast, Asian Development Outlook, suggested that structural reform and improved external demand will boost the Indian economy. Japan’s economy grew at a slower pace than initially estimated in the final quarter of 2014, according to government data released last month. Gross domestic product grew by an annualized real 1.5 percent, downgraded from 2.2 percent, in the October-December quarter. Business investment eased Growth would accelerate further to 8.2 percent in 2016-17. The ADB projected China’s economic growth at 7.2 percent in 2015-16 and 7 percent the following year. The Indian government’s pro-investment attitude was cited as one of the factors making India attractive again to both domestic and foreign investors by ADB Chief Economist Shang-Jin Wei. AFP Indian GDP growth to overtake China’s next year, ADB forecasts 0.1 percent instead of growing 0.1 percent as earlier reported. Private consumption, accounting for 60 percent of GDP, was upgraded to growth of 0.5 percent instead of the earlier 0.3 percent. Chief Cabinet Secretary Yoshihide Suga was quoted by Yomiuri Shimbun as saying that the government believes its economic policy is working. April 2015 9 Germany’s trade surplus hits all-time record AFP markets, despite weak economies in some key European Union trading partners countries and sanctions limiting trade with Russia. Economists expect the trade surplus to continue to grow this year, given the cheaper euro, the financial daily Handelsblatt reported, saying gross domestic product growth should exceed 2 percent this year, compared with 1.5 percent in 2014. Mercedes-Benz emblems on an assembly line in Sindelfingen, Germany AFP Germany posted a trade surplus of €216.9 billion in 2014, breaking a seven-year-old record, the country’s Federal Statistics Office reported last month. The total value of exports amounted to €1.13 trillion, while imports were valued at €916.6 billion. The surplus underscored global demand for German vehicles, equipment and engineering products in export Zimbabwe plans to nationalize diamond mines The government of Zimbabwe announced last month it would seek to nationalize all diamond mines in the country by consolidating all the operators into one company in which the state would have a 50 percent stake. “The only way you can participate in diamond mining in Zimbabwe is by being in this company,” The Bulawayo Chronicle quoted Mines Minister Walter Chidhakwa as saying. The southern African nation has one of the largest diamond deposits in the world but the government misses out on billions of dollars in duties because of smuggling. In 2011, diamond revenue totaled just US$62 million against an expected US$174 million. Evergrande boss forced to sell Australian mansion for the Hong Kong-based Evergrande. The mansion, Villa del Mare, in the upscale suburb of Point Piper, is one of Sydney’s most famous homes. “Foreign buyers are not allowed to purchase established property,” the Treasurer’s office told the Herald. AFP The Australian government has forced one of China’s richest men to sell a newly acquired mansion after the buyer violated foreign ownership laws. Treasurer Joe Hockey announced the compulsory sale of the A$39 million Sydney property after it was found to have been illegally purchased by Xu Jiayin, Chairman of Evergrande Real Estate Group. Although the purchase was in the name of an Australian company, Golden Fast Foods, a spokesman for the Treasurer told The Sydney Morning Herald that it had been discovered to be a shelf company CCTV, U.S. satellite broadcaster sue over set-top boxes China Central Television and Hong Kongbased TVB, along with a satellite broadcaster in the United States, last month filed a copyright infringement against a group of Chinese companies that produce a television set-top unit that streams programming online. The TV companies and Dish, the broadcaster, claim that the unit, known as TVpad, illegally streams CCTV and TVB content to which Dish has U.S. rights, from Asia to North America, according to the complaint filed in California. “[The defendants set up] a pirate network that… brazenly captures… programming from Asia and streams that programming over the Internet to [U.S.] users of the TVpad device,” the complaint reads, according to The Hollywood Reporter. The broadcasters have sued Create New Technology, Shenzhen GreatVision Network Technology and Hua Yang International Technology — the companies they claim are behind the TVpad — as well as several companies that distribute the unit in the U.S. Joe Hockey April 2015 11 NEWS COMPANIES Brazilian private equity firm acquires Kraft, merges it with Heinz 3G Capital in deal-making spree with Buffett’s Berkshire Hathaway An acquisitive Brazilian private equity firm and billionaire Warren Buffett acquired Kraft Foods Group of the United States for US$40 billion, it was reported last month. Buffett’s Berkshire Hathaway and 3G Capital also agreed to merge it with another iconic American food brand, H.J. Heinz, in a transaction with an enterprise value of US$100 billion. The deal will create the world’s fifth largest food and beverage company, according to media reports. “This is my kind of transaction, uniting two world-class organizations and delivering shareholder value,” Buffett was quoted as saying by The Guardian. “I’m excited by the opportunities for what this new combined organization will achieve.” In 2013, Berkshire Hathaway joined forces with 3G to acquire Heinz. Earlier this year, it helped finance 3G-owned Burger King Worldwide’s purchase of Canadian fast-food chain Tim Hortons. Hutchison Whampoa to buy O2 from Telefónica to sell off about a third of the combined entity to help finance the deal, and had held talks with sovereign wealth funds in Canada, Qatar and Singapore. The debt-ridden Telefónica had long been looking to exit the United Kingdom, The Times reported, and had commissioned UBS Group to explore options for O2, including a share sale to the public. Chinese mobile phone maker Xiaomi is expanding its connected wearables range by cooperating with sports apparel maker Li-Ning. The companies are developing a line of “smart” running shoes with microchips in their soles to track activity and progress, the technology website Engadget reported last month. Huami Technology, which helped Xiaomi develop its Mi range of products brand, is also involved in the shoe project. AFP Hong Kong-based Hutchison Whampoa is expected to pay about £10.5 billion to acquire British mobile telephone carrier O2 from Spain’s Telefónica, the Financial Times reported last month. O2 will subsequently be merged with Hutchison’s Three to create the largest British mobile network with more than 30 million subscribers. The FT reported that Hutchison, owned by Hong Kong billionaire Li Ka-shing, is planning Xiaomi, Li-Ning looking smart in new shoes Sotheby’s names arena company executive as new CEO 12 April 2015 In an interview with The Wall Street Journal, Smith admitted he knew little about art but declared himself an avid fan of Dutch old masters and contemporary artists Damien Hirst and Ai Weiwei. The MSG, the sports arena and entertainment promotion company, posted revenues of US$542.5 million in the quarter ended 31 December 2014, a 7 percent rise over the comparable period in 2013. AFP Auction house Sotheby’s last month chose a sports entertainment veteran as its new president and chief executive officer. Tad Smith, formerly president and CEO of The Madison Square Garden Co., started his new job on 31 March, replacing William Ruprecht, a 35-year veteran who was forced out in November 2014 by activist shareholders. Chinese company to buy Italian tyre maker Pirelli in €7.1 billion deal Shareholders in an Italian tyre maker voted to accept a €7.1 billion bid for the company by China National Tire & Rubber Co., a division of state-owned China National Chemical Corporation. Pirelli & C. posted sales revenue of €6.1 billion in 2013, the British magazine Auto- car noted. The company, based in Milan, makes tyres for cars, motorcycles, trucks, buses and agricultural equipment and is the tyre supplier to Formula 1 motor racing. Pirelli Chairman and Chief Executive Officer Marco Tronchetti Provera said the deal would ensure Pirelli, widely known for its racy calendars, maintained its premium image and Italian roots. “This makes Pirelli stronger,” Milan’s Corriere della Sera quoted Tronchetti Provera as saying. “We will continue to drive our development plans with no risk to employment in Italy or overseas.” AFP StanChart hires global team of financial crime fighters executive officer of the SWIFT financial institutions network. AFP Standard Chartered last month appointed three senior advisers to work with its board’s financial crime risk committee. The move follows the British bank’s runins with authorities in the United States and other countries in connection with violations of international sanctions against Iran. StanChart hired Frances M. Fragos Townsend, President of the Counter Extremism Project and a former U.S. presidential homeland security adviser; Khoo Boon Hui, Senior Deputy Secretary of Singapore’s Ministry of Home Affairs and a former Interpol president; and Lázaro Campos, former chief Pin this: Pinterest valued at US$11 billion after new round of financing AFP Pinterest, the online scrapbooking service, raised about US$367 million in a new round of financing, the company announced last month, valuing the company at about US$11 billion. A regulatory filing showed that Pinterest has raised more than US$1 billion in its five years of existence, The New York Times reported. Investors include the venture capital firms Andreessen Horowitz and Bessemer Venture Partners, and Rakuten, a Japanese online commerce company. First mine owned by Aboriginals given environmental approval An iron ore mine believed to be the first in Australia to be owned and operated by Aboriginal indigenous people last month received environmental approval, clearing a major hurdle to the start of operations. The Australian Aboriginal Mining Corporation hopes to start mining next year. It has developed an open-cut mine north-west of Newman in the Western Australia’s Pilbara region, about 1,200 kilometres north of Perth. The extension mine could eventually process up to 4 million tonnes of iron ore a year, Director Fergus Campbell told The West Australian. Extension is planned to be developed in close proximity to BHP Billiton’s Yandi mine, Fortescue Metals Group’s Cloudbreak operation and Rio Tinto’s proposed Koodaideri project. Campbell told ABC News in Perth that production could not start until the company has secured access to rail and port infrastructure. April 2015 13 Mainland enterprises FIXING CHINA’S SOEs 14 April 2015 A PLUS Unwieldy and unyielding, Mainland state-owned enterprises have long been urged to reform. With restructuring once again on the front burner, Jemelyn Yadao looks at the latest developments and how CPAs can contribute Illustrations by Jason Kofke C hina Ocean Shipping Company, the second largest container line in the world, is making a comeback. Once a byword for sluggish state-owned enterprises – it railed against its own inefficiencies in its 2012 annual report – it now teaches others how to be competitive. It recently launched a US$285 million programme to transform the struggling port of Piraeus in recession-bound Greece, to a significant international transhipment hub. COSCO previously launched a series of asset sales after racking up big losses and has become one of the many examples of market forces impinging on China’s SOEs. “We will work very hard to achieve a good result, but sometimes men need help from heaven,” Guo Huawei, China COSCO’s Board Secretary, told the Financial Times at one of the company’s low points. Many Chinese SOEs owned by the central and local governments are akin to COSCO – bleeding cash and losing ground to nimbler, more market-oriented private-sector com- “This is rather a process of economic transformation where they are actually intending to lift up the quality of management and efficiency of operations.” panies. But instead of seeking supernatural assistance, the Chinese government’s latest push to reform SOEs could be the answer to their prayers. The ultimate goals of SOE reform, according to analysts, is to improve the performance of SOEs through management restructuring, to ensure a level playing field in most industries for private firms, particularly in the service industries, and to improve the overall efficiency of the economy (see Four ways to reform a state-owned entity on page 18). “Compared to private companies, SOEs appear to be less efficient and effective in terms of operations and management,” says Derek Lai, Deloitte China’s Managing Partner for Southern Region and a member of the Hong Kong Institute of CPAs. Lai cites recent data by GaveKal Dragonomics, a Hong Kongbased research company, showing that since the global financial crisis, the productivity gap between SOEs and private companies has widened. The average return on assets for state entities is around 4.6 percent, compared with 9.1 percent for the private sector. SOE reform has often been promised but only ever partially delivered. The previous round of reform in the 1990s, under the leadership of then premier Zhu Rongji, resulted in a substantial decline in the number of SOEs as tens of thousands of weak SOEs were privatized or liquidated. However, the appetite for change appears to be greater since the Third Plenum of the Communist Party of China’s 18th Party Congress in November 2013. The meeting set out an agenda to reinvigorate and set ambitious goals, such as returning 30 percent of SOE profits to public finances by 2020, up from 5-15 percent at present, and increasing private stock holdings of SOEs. “Policymakers are not suggesting privatization of SOEs,” Lai stresses, at least not in a large-scale way as the State-owned Assets Supervision and Administration Commission said it would not transfer ownership from government to a privately-owned entity for SOEs in strategic sectors. “This is rather a process of economic transformation where they are actually intending to lift up the quality of management and efficiency of operations,” Lai says. Initial buzz Few experts doubt that SOE reform is necessary: In the first half of 2014, one third of central-government-owned SOEs and half of local equivalent enterprises experienced a decline in profits, according to DBS Bank. There is a consensus that SOEs need to focus on core competencies and sell off non-core subsidiaries to the private sector to increase efficiency and competitiveness. The buzz-phrase is “mixed ownership.” The Party plenum emphasized the importance of “promoting a modern corporate system for SOEs” and pledged to achieve this by developing a mixed-ownership economy. “This means restructuring the capital arrangement,” explains Mat Ng, Managing Director at JLA Asia in Hong Kong, a Hong Kong consultancy that specializes in turnarounds and restructuring, and an Institute member, “attracting private and foreign investors to the SOEs, and selling off part of their shares to those privately-owned investors with a view of making state-run companies run more efficiently.” April 2015 15 Mainland enterprises There have already been positive indications. Last year, Citic Group injected assets ranging from financial services to energy and property worth US$37 billion into Citic Pacific (renamed Citic), a Hong Kong-listed subsidiary, and issued US$6.8 billion in new shares. In doing so, all the assets of the conglomerate were listed in Hong Kong, which helps improve transparency of its management. In July last year, six large SOEs – China National Pharmaceutical Group Corporation (Sinopharm), China National Building Materials Group Corporation, China Energy Conservation and Environmental Protection Group, Xinxing Cathay International Group, China Grains and Oils Group Corporation (Cofco) and State Development and Investment Corporation – were identified for inclusion in a pilot programme by SASAC, which controls 113 central SOEs. The six will be reformed through mixed ownership, the appointment of a management board and the assignment of a “discipline inspection” team to oversee the process. Some SOEs outside the pilot scheme, like Sinopec, have decided to implement reform their own way. It announced last February that it would sell up to 30 percent of its marketing arm to private investors and social funds. As Ng points out, there is no one-sizefits-all strategy. “Different SOEs have been selected to try different reform approaches. [The province] Liaoning is one example and also [the city] Shanghai,” he adds. Shanghai says it will focus 80 percent of its stateowned assets in key industries, including advanced manufacturing, infrastructure and services. Another approach to the restructuring of SOEs is to merge them. “We expect [to see] consolidation of China market leaders in various sectors consistent with China’s globalization drive,” says Waikay Eik, Deals Markets Leader at PricewaterhouseCoopers China and Hong Kong. “Consolidation of local champions often allow them to pool resources and compete in global markets more effectively.” Waikay is also part of the firm’s SOE Reform Services Group, South China, which has played a role in reform discussions. 16 April 2015 Possible solutions The reform will present a mass of opportunities for accounting firms, and recent news reports indicate that this will manifest sooner than later. The SASAC said last month that it would launch a bidding process for accounting firms interested in carrying out an audit of state firms’ overseas units as part of Beijing’s anti-corruption campaign, of which SOEs are a primary target. Spurring the need for external auditors is the more than 4.3 trillion yuan worth of overseas assets accumulated by the end of 2013 that have had little scrutiny, according to news agency Xinhua. “... Hong Kong has operated for many years in a very competitive market, which is really the spirit of this reform.” Meanwhile, many observers are eagerly waiting for the release of the policy documents that will help clarify the direction of the reform. When that happens, SOEs will move into unfamiliar terrain. “Hong Kong CPAs should get themselves prepared in order to play a significant role in large Chinese corporate mergers and acquisitions,” says Waikay at PwC. Some SOEs may consider merging with other offshore corporations to expand their global presence as a way of restructuring. As SOE management will find the prospect of meeting efficiency targets and being competitive totally new horizons, professionals such as CPAs can help smoothen out the process. “It will take them out of their comfort zone,” says Bob Partridge, Asia-Pacific Private Equity Leader and Greater China Transaction Advisory Services Leader at EY. “They might say they know China but not Afghanistan or the United Kingdom so they need advisers that can help them understand those markets and how corporate governance and business practices differ.” Hong Kong CPAs in particular are well positioned to play a significant role in this reform, notes Waikay. “Culturally, we understand the China market, physically we are closer than any other Chinese-speaking region out there and, most importantly, Hong Kong has operated for many years in a very competitive market, which is really the spirit of this reform,” he says. “CPAs need to prepare themselves as true business advisers – that international business experience is going to be really sought after.” While fixing China’s SOEs is no easy task, Lai at Deloitte also highlights the areas where accounting firms can help make life a little easier for their SOE clients. The first step of course, he says, is to look at the individual challenges they are facing. “For example, their strategic positioning is one focus area as they need to strategically reposition themselves based on their business portfolio and competitive advantage and, at the same time, develop innovative ways to create enterprise value,” he says. “We can help them in transition and upgrade themselves and redesign their operations through our financial advisory and consulting services.” SOEs facing potential issues relating to mergers and acquisitions and restructuring can benefit from the experiences and knowledge of CPAs too. “They would need to pay attention to the regional framework and M&A deal process, as well as consider pre- and post-merger integration. We can help them with this and do commercial, financial and tax due diligence,” Lai says. When it comes to inviting overseas and domestic investment, CPAs can also help screen targets. Analysts say that investment from the private sector can help SOEs reach the objective of improving the efficiency as they will be less influenced by government objectives. “For private investors, their main objective is to make a profit, so that will force the company to rethink their operational procedures,” says Ng at JLA Asia. Ng agrees that while reforming the corporate governance system is the right way to go, so far the progress has been limited. “If you look at the Citic Group situation, they only A PLUS appointed one non-executive director and one independent non-executive director to the board. How influential that board member is very difficult to tell.” says Ng. “In future, if we can change the remuneration package to actually tie in with the performance with the compensation plan, this will hopefully change.” The real picture Many do not expect to witness a great deal of progress any time soon. “It’s an evolutionary process,” says Michael Cheng, Research Director, China and Hong Kong at the Asian Corporate Governance Association, pointing out that SOEs are historically not entirely concerned about generating shareholders’ return, but also about achieving political objectives. There may also be problems with the proposed solutions. Potential retrenchments of state employees would be highly controversial, although the workers laid off in the 1990s easily found private-sector employment amid rapid overall economic growth. The Chinese government has also vowed to curb excessive salaries of executives of pillar SOEs and financial institutions by as much as 70 percent as part of the reform. While this is a positive sign of progress on corporate governance in such companies, concerns were raised that this would result in an outflow of talent. Some analysts, however, say a talent drain following the pay cuts would be unlikely. “There are still huge growth opportunities within financial SOEs,” Kuang Xianming, Director of Research Center for Economy at the China Institute for Reform and Development, told the media. Also, to be fair, a few years ago, profits at SOEs were booming. By 2013, the profits of SASAC enterprises had quadrupled, given the monopolies they enjoy. “Some commentators tend to single out loss-making companies, but when you look at the whole pool of SOEs, we have a lot that are highly profitable,” says Waikay at PwC. “If they are loss-making, one of the many reasons is that the global market could be challenged,” he adds, pointing at those in commodities-related businesses. Furthermore, there is a limit on which sectors can be privatized. The state will almost certainly not relinquish control over what is deemed to be strategic sectors, such as energy, aviation and telecommunications, and those involved in national security considerations. Despite the constraints, foreign private equity investors are keenly watching developments, says Partridge at EY, especially as the so-called “overhang” of new investments compared to exits continues to present a challenge to the private equity industry. “In 201213, there were uncertainties of the market and it slowed down M&A and so private equity houses had a lot more companies in their “... When you look at the whole pool of SOEs, we have a lot that are highly profitable.” April 2015 17 Mainland enterprises Four ways to reform a state-owned entity Despite being a recurring buzz-phrase, “mixed-ownership” is merely one part of the reform of Chinese state-owned enterprises. With SOE reform declared a key priority by Beijing, many large entities – both centrally and locally managed – are considering ways to restructure their companies to improve operational efficiency and productivity. According to Mat Ng, Managing Director at JLA Asia and a member of the Hong Kong Institute of CPAs, there are four basic ways to do it: effect a merger, attract investors, sell assets or expand overseas. Merge A merger between two or more SOEs could help reduce excessive competition between large SOEs and cut waste. “These synergies will encourage the creation of huge corporations that could better compete against foreign companies,” says Ng. Li Jin, Deputy Head of the China Enterprise Reform and Development Society, said last month that state-dominated industries with problems of overcapacity would “face large scale mergers and restructuring.” The goal is to reduce excessive competition among the larger SOEs. Accountants would have a role in setting budgets, cutting waste, helping establish larger entities that can compete against foreign rivals, and design holding companies that focus purely on maximizing shareholder value. Attract Private-sector investors, either foreign or domestic, could be invited into SOEs as part of the formation of the mixed-ownership structure. Private stakeholders will be a counterbalance to the China government’s control over SOE decision-making and improve corporate governance. Last month, the world’s biggest cruise line, Carnival Corporation, and state-owned conglomerate China Merchants Group signed an agreement to establish a domestic cruise line. According to the U.S. China Business Council, a group for American companies, its members often find it easier to partner with local SOEs than central SOEs because of fewer political considerations. Sell SOEs may consider selling off assets. Recently, the government authorized the sale of minority stakes in several banks as well as energy, engineering and broadcasting companies. “[SOEs] may try to diversify and sell off some of the less profitable operations to make it more efficient as part of its internal restructuring,” says Ng. State Grid Corporation of China, the world’s largest utilities company, has recently sold off some of its high-voltage direct-current transmission, its electric-car charging network and other loss-making units. Go global Overseas merger and acquisitions is another way SOEs may explore to achieve their reform goals and expand their business to other countries. Since 2011, when new overseas investment rules were promulgated, it has been easier for SOEs to invest abroad. “China [has enabled] substantial outbound investment in a more transparent, flexible environment,” according to a recent report by Wang Yi, a Partner with the Norton Rose Fulbright law firm in Beijing. However, last month it emerged that China’s 4 trillion yuan of assets held overseas by SOEs are unaudited, sparking concerns over possible waste and corruption as well as flouting of risk control measures. 18 April 2015 “There’s a group of private investors and multinational companies, which are skeptical.” portfolio that they needed to clear. We call that ‘portfolio overhang’,” explains Partridge, adding that with private equity sitting on a substantial number of unrealized investments, mostly made during the boom years of 2005 to 2007, they will continue to actively pitch their portfolio of companies to Chinese buyers. “Nowadays, private equity houses are seeking these kinds of alliances where they can partner with SOEs to do deals.” Another hurdle is private investors’ hesitation to participate in the mixed ownership process as it is often unclear whether company ownership and control over management decisions go handin-hand. “There’s a group of private investors and multinational companies, which are skeptical because they are not sure whether this is just form over substance and what the real risks are,” says Waikay at PwC. “Private investors don’t like uncertainties. They want to see more successful examples of investors making money and then they’ll come.” Lai at Deloitte believes that the reform comes at a time when China needs to provide more opportunities for investment. “Individuals and private companies are rapidly accumulating their wealth, for example Alibaba, which is now looking to invest and diversify in new areas and expands overseas,” he says about the provider of the country’s largest online shopping services. “Mixed ownership, I think, will open up an alternative venue for domestic private enterprises for investment.” While taking a wait-and-see approach, many observers generally believe that China’s move to restart the overhaul of its SOEs is a positive one. “This is a wake up call for all SOEs that the previous dynamics are gone and that the name of the game right now is reform,” says Cheng at the ACGA. “It’s moving towards reduction of government control and a more market economy system.” A PLUS “Mixed ownership, I think, will open up an alternative venue for domestic private enterprises for investment.” April 2015 19 Restructuring Corporate MAKEOVERS Several high-profile corporate restructuring cases have hit headlines recently. George W. Russell finds out about the various reasons for reorganizations as Institute members brace for an expected upsurge in related work M 20 April 2015 Deloitte, Chugani mused, had been given a near-impossible mission: the broadcaster faced a severe cash shortfall and liquidation appeared to be the most likely scenario. “I thought ATV was counting its days,” says Chugani ruefully. “When Deloitte came in it aroused curiosity, but not a lot of hope.” It appears, as of press time, that ATV has a grim future as the government decided not to renew its broadcast licence. Yet, despite the disappointment, Deloitte’s Lai is expecting a boom in corporate reorganizations in Hong Kong and beyond. “Given the slowdown in certain economies, the number of corporate restructuring cases arising because of financial stress is expected to increase,” he says. ATV is not the only high-profile Hong Kong-connected company in financial straits. English Football League Championship club Birmingham City was put into receivership last month following the conviction of owner Carson Yeung for money laundering. David Yen, Restructuring Partner at EY and an Institute member who has been appointed Executive Director of Birmingham International Holdings, which owns the football club, says it is one of many restructuring engagements the firm has taken on recently. “We have been appointed provisional liquidator for a Cayman Islands entity and we’re quite busy with other companies in the pipeline.” AFP ichael Chugani, the veteran political commentator and former head of English news at Hong Kong television station ATV World, watched in dismay as the broadcaster buckled under mounting financial problems. ATV had been looking shaky since the middle of 2013, when its employee shuttle bus company sued the network for non-payment of bills. “I felt sorry and quite down about ATV having its problems,” says Chugani, who worked there for 20 years. His long-running current affairs programme, Newsline, was suspended in February due to budget cuts. Last year, the broadcaster’s financial situation worsened amid an escalating feud between its two largest shareholders, Wong Ching and Tsai Eng-meng. Soon, salaries were not being paid and there was talk of winding up the company. “Morale was quite low,” Chugani recalls. A light at the end of the tunnel emerged last month after Wong and Tsai went to court, when a judge appointed two Hong Kong Institute of CPAs members from Deloitte China, Southern Region Managing Partner Derek Lai and Restructuring Services Principal Darach Haughey, as joint managers tasked with selling some of the company’s shares and finding a “white knight” to save the troubled station. A PLUS April 2015 21 Restructuring Headline grabbers There are myriad reasons for what appears to be a recent slew of restructuring projects. “The major causes include market slowdowns, business performance issues leading to liquidity issues and potential or actual defaults,” says Oliver Stratton, Managing Director and Co-Head of the Asian Practice at Alvarez & Marsal, a global management advisory firm. “In many cases we are brought in by private equity investors to turn around operational performance.” Both the ATV and Birmingham City problems were caused by mismanagement or infighting, a scenario that affects many troubled companies, notes Ian Robinson, Managing Director of Robinson Management, a Hong Kong consulting firm, and an Institute member. “Usually the cause is bad management,” he says. “They, in effect, don’t understand how to run a business.” But even healthy, well-run companies can benefit from a major reorganization, a field that dominates the time of restructuring experts and attracts less attention. “Much of our work is working with various stakeholders to drive optimal outcomes,” says Stratton. Cheung Kong Group, the highly profitable business empire of the Asia-Pacific region’s richest man, Li Ka-shing, made a splash with its recent reorganization. Cheung Kong Hold22 April 2015 PHOTO: DELOITTE Derek Lai, Deloitte China’s Southern Region Managing Partner and a court-appointed manager of ATV, speaks at a press conference earlier this year, disclosing Deloitte’s plans to put up the now doomed company's stakes for tender. ings will buy out Hutchison Whampoa and spin off its property assets into a new holding company, called CK Hutchison Holdings, which will then buy out minority owners of Hutchison. The deal will create a more streamlined corporate structure that is designed to boost share value and allow investors to choose between a Hong Kong property business and a global conglomerate. “Companies that are healthy and profit-making are trying to maximize value to shareholders and their reorganizations don’t involve debt restructuring,” points out Yen at EY. In the case of troubled companies, speed is also crucial. “Timing is everything,” says Robinson, who was a central figure in one of the most famous restructuring cases of the modern era – that of the Carrian Group. (See Carrian: a landmark restructuring case on page 24.) While Carrian was an infamous blot on the corporate landscape for many reasons, some Hong Kong companies, say professionals, have their own inherent issues. “There is often a risk – especially in family-controlled companies – that senior management will take an overly optimistic view of market circumstances and try at all costs to avoid a restructuring, only to find it is unavoidable,” says Bertie Mehigan, a Partner at the Ashurst law firm in Hong Kong who specializes in restructuring. Cautious optimism Hong Kong remains an important centre for restructuring in Greater China and the Asia-Pacific region. (see Easing China economy creates conditions for restructuring on page 23.) “It is a jurisdiction where stakeholders are comfortable with the transparency and fairness of the court system, giving Hong Kong a competitive edge over China and Southeast Asian countries,” he adds. “It will always be a key location,” says Christopher So, Partner, Business Recovery Services, at PwC in Hong Kong and an Institute member. Furthermore, the Asia-Pacific sector has become a magnet for foreign direct investment, outstripping other major economic regions. “Inbound annual foreign direct investment has increased 65 percent in the past five years, compared with a 31 percent rise in the U.S. and a drop of 32 percent in the European Union,” says So. “The odds are that more problematic [restructuring] situations will crop up here.” Hong Kong also boasts some of the best restructuring professionals in the business. “Hong Kong has a long established community of restructuring professionals, financial and legal, so is well positioned, both geo- A PLUS “Stakeholders still choose to retain Hong Kong professionals to lead the restructuring efforts.” graphically and strategically, to capture [restructuring] opportunities,” says So. From an accounting perspective, Robinson of Robinson Management, for example, holds the Institute’s Specialist Designation in Insolvency, an accreditation achieved by some of the territory’s finest restructuring practitioners and held by 65 Institute members in Hong Kong. Such Institute members, Robinson notes, hold the key to successful transformations of companies by seeing beyond audit or accounting points of view. “Our members can be the catalyst for their clients to effect change by looking at those areas that would lead to change,” he says. “You come up with other ways of doing business.” There has been an increase in the number of cases where Hong Kong restructuring experts work on cases about companies that have little or no presence in Hong Kong. “Stakeholders, nevertheless, still choose to retain Hong Kong professionals to lead the restructuring efforts,” says Stratton at Alvarez & Marsal. “This includes companies based in India, Vietnam and Indonesia.” Meanwhile, restructuring advisers are boosting their headcounts in the region. In January, Alvarez & Marsal launched a transaction advisory group serving the Easing China economy creates conditions for restructuring AFP China is likely to emerge as a major destination for restructuring work due to increasing stress caused by the accumulation of debt from parties outside the Mainland, according to Bruno Arboit, Managing Partner of Zolfo Cooper and a Hong Kong Institute of CPAs member. “This leads us to believe that there is a good prospect for an increase in demand for restructuring work, but its actual extent will often depend upon the degree of support those distressed companies receive from the local authorities,” he says. A number of high-profile projects are already in the works, such as that of property developer Kaisa Group Holdings. Shenzhen-based Kaisa – which in January missed a bond coupon payment and announced it would hire a financial adviser – is expected to provide an example of how international creditors will be treated. The company is seeking concessions from the lenders, such as HSBC, of its US$2.5 billion in offshore debt. Bertie Mehigan, a Partner at the Ashurst law firm in Hong Kong, says the company has indicated that offshore creditors would be likely to collect no more than 2.4 cents in the dollar. However, local creditors would retain their existing collateral. The principal would not be forgiven but interest payments would be reduced to about 70 percent of the prevailing People’s Bank of China base rate and the tenor of the loan extended by between three and six years. “Kaisa will help clarify the extent of the offshore bondholders’ negotiating power in these scenarios,” says David Bennett, Managing Director of Restructuring in China for Grant Thornton, given the complicating factors of different treatment for different groups of creditors. “Tensions can sometimes be acute between local onshore creditors and offshore creditors,” says Mehigan. “Issues of structural subordination and different creditor motives and perspectives may make it challenging for Kaisa to develop a plan that satisfies all constituencies.” Other Mainland companies facing restructuring include Rongsheng, a shipbuilding group hit by massive losses and Qingdao Port International, which faces losses of up to US$1 billion in connection with metals-financing fraud. “Going forward, there is a general expectation that there will be some further debt defaults and as such, investors are on high alert for further cases,” says Bennett. Christopher So, Partner, Business Recovery Services, at PwC and an Institute member who advises on multi-jurisdictional debt restructurings, does not expect there will be a flood of restructurings taking place any time soon. “But,” he adds, “business failures and company restructurings will be allowed to occur under government supervision.” Restructuring will also be boosted by the on-going reform of China’s state-owned enterprises. “I think in the next one or two years we will see that some SOEs might go down,” forecasts David Yen, Restructuring Partner at EY and an Institute member. “The [government] cannot bail them out forever.” April 2015 23 Restructuring Carrian: a landmark restructuring case 24 April 2015 Asia-Pacific region. “It is critical to have local onshore restructuring resources wherever the business is operating and also to use local advisers who understand how to get things done in the local environment,” says Stratton. Legal minefield The importance of Hong Kong as a restructuring centre is despite, not because of, its insolvency legislation, covered by the Companies (Winding Up and Miscellaneous Provisions) Ordinance, which remains imperfect in the opinion of turnaround specialists. “What we want here is the situation in the United States,” says Robinson, “with Chapter 11 [of the U.S. Bankruptcy Code] under which you can get a moratorium on your debts.” The Hong Kong government has no plans to introduce an equivalent of that chapter in the U.S. Bankruptcy Code, under which a company’s existing management remains in control, despite evidence that the provisions have saved many large companies. “Look at airlines that have undergone Chapter 11 – they’re performing very well,” says Tony Tyler, Chief Executive Officer of the International Air Transport Association and a former CEO of Cathay Pacific Airways, citing American and Delta as examples. Instead, the government is conducting a consultation over provisional supervision, under which management is transferred to a CPA or solicitor, who ensures the interests of the creditors are properly protected. Provisional supervision is designed to provide a distressed company with viable options for turning itself around rather than face liquidation. AFP In the 1980s, as an auditor with Arthur Young & Co. (now EY), Ian Robinson wound up the infamous Carrian Group, a short-lived Hong Kong conglomerate that collapsed leaving debts in excess of US$1 billion and unveiling the murder of an auditor, the suicide of a legal adviser and the accidental death of a judge. The messy tale, which involved mysterious bankers and Malaysian politicians, is the subject of Hong Kong Institute of CPAs member Ian Robinson’s recent book, The Joker’s Downfall: A True Story of Murder, Mystery and Mayhem, which traces the rise and fall of George Tan, a charismatic yet shadowy Singaporean civil engineer who moved to Hong Kong with ambitions to join the upper echelons of business. Using the one-time pest control company Carrian as his principal vehicle, the self-confident Tan was able to convince bankers, accountants and lawyers that he was a shrewd operator. Many lives and reputations were ruined when Tan’s empire was revealed as a house of cards that collapsed in a tangled web of fraudulent deals. Too many of what Robinson calls “hidden factors” made a rescue of Carrian impossible. “One of the major factors was that Bumiputra Malaysia Finance, a subsidiary of Bank Bumiputra Malaysia, lent Carrian more than US$1 billion unsecured. Who in their right mind would do that?” Quite why BMF was allowed to lend so much to Carrian, its only client, has never been satisfactorily explained. Those who might have known either died or have remained silent on the matter. Such a lack of data has been a source of frustration to any restructuring expert. When Robinson was appointed as a receiver of Carrian Group, he had recently arrived in Hong Kong from Australia, where he had been a member of a small community of forensic accountants. Hong Kong was hit by a series of corporate collapses from 1982, and Robinson’s experience meant he shouldered much of the responsibility. “There wasn’t any scheme under the Companies Ordinance to enable a rescue in a manner to which I used in Australia,” he recalls. One successful restructuring was that of the Emperor Group, a profitable jewellery retailing business that had expanded heavily into property when the market collapsed. “I cut out loss-making operations and got rid of old stock. The third thing was giving an incentive to the people running the shops. Cost cutting can help but sometimes you need to spend money.” Robinson says it is vital to apply forensic accounting principles during a restructuring, a factor that particularly applied in the Carrian case. “The first task is to acquire all the company’s data, which means take possession of the computers, systems and other retrieval platforms,” he says. In the pre-Internet 1980s, Robinson discovered that most of the important paper files were missing, but he unearthed much data using an old forensic auditors’ trick. “Emails are key now but in the old days it was the secretaries’ shorthand books,” he says with a chuckle. “No one had thought about those at Carrian.” While the books revealed much about the company’s meetings that Tan and other Carrian principals had sought to suppress, the case was never satisfactorily concluded. Tan, the “joker” of Robinson’s title, served three years in jail and now lives in Hong Kong in relative seclusion. Cheung Kong Group, controlled by Tycoon Li Ka-shing (right), recently announced its plans to reorganize group companies as two new Hong Kong-listed entities. A PLUS The administration hopes that the draft of the provisional supervision provisions will be presented to Legislative Council this year. Until then, Yen at EY describes the lack of a provisional supervision as “a major hurdle for Hong Kong.” As a result, the city’s highly regarded position as a restructuring centre is not assured. “It is only one of a number of jurisdictions that must be considered,” warns David Bennett, Managing Director of Restructuring in China for Grant Thornton. “Much of the funding being invested into Asia Pacific is typically structured through offshore financial centres,” Bennett points out, citing jurisdictions such as the Cayman Islands, British Virgin Islands, Bermuda, Jersey, Guernsey and Mauritius. “Funds invested from the offshore financial centres then flow through Hong Kong holding companies. As such, restructurings need to consider AFP Birmingham City Owner Carson Yeung leaves the Wanchai district court in April 2013. Yeung pleaded not guilty to money-laundering charges in court at the start of his trial. The English Football League Championship club was put into receivership last month. these jurisdictions.” Such offshore centres have become particularly important to China-invested companies that use special purpose vehicles as holding companies. LDK Solar Co., a manufacturer of photovoltaic products based in Mahong, Jiangsu province, recently underwent a restructuring involving schemes of arrangement approved by the Hong Kong and Cayman Islands courts, with recognition in the U.S. for plans of reorganization for subsidiaries. “The LDK restructuring is believed to be the first judicially approved, multi-jurisdictional debt restructuring for a Mainland-based entity,” says Bruno Arboit, Managing Partner of Zolfo Cooper in Hong Kong and an Institute member who worked on the project. Restructuring professionals might not have helped ATV, but there are plenty of projects ahead for them to act as saviours. “It is critical to have local onshore restructuring resources wherever the business is operating and also to use local advisers who understand how to get things done in the local environment.” April 2015 25 GAA leadership profile A s the lead-up to Scotland’s independence referendum last year became increasingly emotional and partisan, Anton Colella saw a valuable role for the country’s leading accounting institute: as a source of useful but apolitical information. Drawing on the expertise of its 19,000-strong membership, as well as specialist committees and technical staff, the Institute of Chartered Accountants of Scotland initiated discussion in a wide range of financial and economic policy areas. “It was pleasing to see the way ICAS played its role in informing the debate while maintaining political neutrality,” Colella, who is Chief Executive of ICAS, tells A Plus. ICAS expressed concerns over a perceived lack of details in the pro-independence camp’s tax policies as well as worries over the future of pensions in an independent Scotland. However, Colella says he is open-minded about Scotland having more influence over its domestic concerns. “I’ve seen the benefits of devolution since it began in 1999,” he acknowledges, referring to the steady decentralization of power from London to Edinburgh. The vote in September 2014 favoured a continuation of Scotland’s existence within the United Kingdom, but the significant support for pro-independence – 45 percent of votes cast – signalled a continuation of “devolution.” That means ICAS, which did not issue a vote recommendation, will continue to examine fiscal policy issued from Holyrood, the seat of Scotland’s legislature. “The view of ICAS is that with more powers come more accountability and the Scottish parliament will have to adapt to ensure there is suffi- 26 April 2015 A PLUS SCOTTISH ACCENT Anton Colella, Chief Executive of the Institute of Chartered Accountants of Scotland, explains the importance of staying globally relevant amid a changing international regulatory landscape to George W. Russell Photography by Marcus Oleniuk April 2015 27 GAA leadership profile 28 April 2015 A PLUS cient scrutiny of the use of those powers in the stewardship of the country’s finances.” Colella sees ICAS’s remit as a continuation of the part it has played since 1854, when two of its predecessor organizations, the Edinburgh Society of Accountants and the Glasgow Institute of Accountants and Actuaries, were founded. “Our overall role is to build the profession and to maintain its professionalism in the eyes of the business community, regulators and the public at large,” he says. Headquartered in a country of just 5.3 million people, ICAS could be forgiven for concentrating its efforts on local Scottish issues. “We are a relatively small institute,” Colella acknowledges, yet half the organization’s members work outside Scotland. “Our aim is to be one institute, serving the needs of its members wherever they are in the world,” he says. Global footprint That aim is central to the strategy to create a virtual ICAS, what Colella calls a “digitally connected institute,” that would move as much as possible of its current activities online for a potential global audience. From this vantage point, ICAS hopes to address a dynamic worldwide professional accounting community. “Regardless of where our members are located, relevance and professionalism are two key themes that transcend the globe.” ICAS is already a prominent voice of accounting throughout the U.K., Europe and globally. “Historically, we have played a leading role in the development of many national institutes and we continue to do this, particularly in Africa,” says Colella. “As the oldest and first institute, we always feel a certain responsibility to share what we have learned and support the growth of the profession, especially in emerging economies.” Colella says a key strand of the ICAS strategy is the ability to exert influence. “It is not just about [being able to] critique,” he says. “It’s about providing solutions and innovative ideas to support the development of government policy and accounting and auditing standards. Additionally, we seek to influence the key global standard-setting bodies, and we are firm proponents of the need for global standards in our profession.” Many senior accountants in Hong Kong’s history have been members of ICAS, which has existed under its present name since 1951, and were major influences on the formation and development of what is now the Hong Kong Institute of CPAs. Strong links “ICAS members are very active and influential in Hong Kong and we are delighted with the very close relationship we enjoy with the Hong Kong institute.” continue, Colella notes. “ICAS members are very active and influential in Hong Kong and we are delighted with the very close relationship we enjoy with the Hong Kong institute,” he says. “We are very respectful of the Hong Kong institute’s achievements and we hold its members in high esteem.” In his previous post as CEO of the Scottish Qualifications Authority, Colella established an office in China. While that is not on the current ICAS agenda, Colella says he respects the pace of the accounting profession’s development in China. “We have collaborated very closely with Chinese authorities on initiatives in recent years,” he says. Like its Hong Kong counterpart, ICAS is a founding member of the Global Accounting Alliance. “The GAA is a very positive partnership, particularly in the exchange of information and sharing of expertise,” says Colella. “Increasingly, with the mobility of professional accountants, members are experiencing the benefits of accessing services available from the GAA member institutes.” Learning from mistakes Colella is not always upbeat. In October 2014, he marked ICAS’s 160th anniversary with a warning, expressing continuing concerns over corporate governance, suggesting a post-global-financial-crisis return to profit would encourage British business to “brush some of the systemic cultural issues under the carpet.” Six months later, Colella laments that he continues to see examples where corporate governance has failed. “This is a very significant responsibility and a very challenging one,” he says. “Corporate governance is about setting the tone and protecting the value of the company for its shareholders.” Directors, he adds, must ensure that an ethical culture is embedded within their company. There have been constructive conclusions drawn from the global financial crisis, Colella points out. “Our members have learned different lessons, depending on their roles, but one thing is clear: the profession must continue to be vigilant and identify all risks that can reasonably be determined.” The crisis, he adds, illustrated the interconnectivity of the world’s economy and the need for global standards. While the role of national standard-setters has decreased in recent years, Colella believes that they still have a vital role to play. “National standard-setters are best placed to help support the work of the International Accounting Standards Board and to create standards for entities which are not required to use full IFRS,” he says. “And they are best placed to know the needs of the local business and wider stakeholder environment.” As an oversight body, professional institution, advocacy group and an association that acts in the public interest, ICAS has a complex mandate. “By necessity, professional institutes fulfil a number of key functions, both statutory and also in relation to their purpose of building the profession,” says Colella. “These are not mutually exclusive and are not, in my view, in conflict,” he adds. “Attention to each enhances the standing of the members.” April 2015 29 A PLUS The Scottish institute is a recognized supervisory body under the U.K.’s Companies Act for the registration and supervision of auditors (Scotland, as part of the U.K., follows standards set by the Financial Reporting Council). “We do maintain an element of self-regulation, which we take very seriously,” says Colella. Regulatory changes The EU continues to be a force for change in the U.K. audit sector: Britain is in the process of implementing the requirements of EU audit legislation finalized in May 2014, which introduces mandatory audit firm rotation and greater restrictions on the types of non-audit services that audit firms can provide to their public-interest-entity audit clients. “Such changes will undoubtedly have an impact on the structure of the audit market, but we would hope that they will not adversely impact audit quality,” says Colella. He believes the overall standard of U.K. financial reporting is very high but acknowledges that issues remain. “There is a lingering challenge about the accessibility of accounts and their wider relevance to cant audit judgments made by auditors,” he says, adding that the institute also praised recent revisions to International Standard on Auditing 700, which, he notes, contains similar provisions as in the U.K.’s audit reporting standards. Despite all the best efforts of organizations such as regulators, professional bodies and companies, whether national or multilateral, Colella believes ultimate responsibility rests with individuals. “The future of the profession depends on young men and women who see accounting as part of their identity and their responsibility for the rest of their lives. “Only if this is the case can we ensure our proper place in society,” he insists. “People can know that there are men and women whose primary purpose is to seek Audit quality is also high in the U.K., the truth – quaere verum, the motto of ICAS. Colella insists. “However, we are not com- Only by doing so can we rebuild trust in placent and have focused our attention on business.” where we believe auditors could provide greater insights into an organization,” he says. Colella welcomes the introduction of exThe Global Accounting Alliance facilitates cooperation panded audit reports. “They have certainly among 11 of the world's leading professional accounting provided greater insights into the signifi- organizations, including ICAS and the HKICPA. investors and shareholders. Unfortunately, transparency to some extent is being camouflaged by the detail,” he says, referring to a “voluminous level of disclosure” that ICAS has actively sought to reduce. “There is a lingering challenge about the accessibility of accounts and their wider relevance to investors and shareholders.” April 2015 31 Success ingredient Francis Kwok, Managing Director, Liebherr (Hong Kong) 32 April 2015 A PLUS CONSTRUCTIVE THINKING Francis Kwok, Managing Director of German construction equipment manufacturer Liebherr (Hong Kong), explains to George W. Russell how accurate data analysis and forecasting are crucial to ensuring long-term profitability and the management of risks Photography by Marcus Oleniuk April 2015 33 H Success ingredient ong Kong’s construction industry did not look its best in 2006. Dealt a double blow from the 1997-99 Asian financial crisis and the 200204 outbreak of severe acute respiratory syndrome, the sector had lost about a third of its value from a decade earlier with no recovery in sight. Property, Hong Kong’s backbone, was in a general decline as public housing and infrastructure were scaled back and private 34 April 2015 developers put projects on hold. Weaker construction companies were failing, while larger ones were downsizing, consolidating and outsourcing. That was the grim scene that Francis Kwok surveyed just as he joined the Hong Kong office of Liebherr, a German (though Swiss-headquartered) maker of heavy construction equipment such as cranes. But instead of gloom, Kwok saw potential through his trained accountant’s eyes. There was no local market for the expensive yellow machinery sold by Liebherr. So the company picked up used machines, re- furbished them and sold them abroad. Not only did Liebherr make money, it kept its workers in jobs at a time when many employers were retrenching. Moreover, Kwok figured the downturn could last only so long and the Hong Kong government would have to act. “I utilized my knowledge of accounting to make a forecast and feed it into a model,” he recalls. “We knew there would be a point where the market would be booming and Hong Kong would be short of machines. So we were one step ahead and well prepared.” In October 2007, Hong Kong’s then chief A PLUS executive, Donald Tsang, announced 10 major infrastructure projects to promote economic development and create employment opportunities, such as the Hong Kong-Zhuhai-Macau Bridge, the Mass Transit Railway South Island Line and the West Kowloon Cultural District (see The Big 10 on page 36). That was a turning point for Liebherr: it was decided that cranes should not just be sold in Hong Kong but also assembled here. “[Previously,] if you ordered a crane, they needed to build it in Europe then ship it to Hong Kong,” says Kwok. With local assembly, it could be delivered more quickly and cheaply. Liebherr decided to assemble two cranes a month in Hong Kong. He sent key people such as technicians, welders and painters to the main Liebherr crane factory in Nenzing, Austria. “They stayed there for a month, or two if necessary, to learn the skills, then they came back,” says Kwok. “It became a great success. After 200708, our turnover and net profit jumped substantially.” Cross-culture experiences The crane assembly line wasn’t the first time that planning ahead paid off for Kwok. Born and raised in Hong Kong until the age of 18, Kwok completed his education in the United States. He obtained a degree in real estate and land use affairs from a university in California, expecting to return to Hong Kong to work in the growing property market. However, while studying, he met the woman who would become his wife, another Hongkonger who had moved there as a child. “I had to make a decision,” Kwok recalls, “If I stayed in America for her, a major in land use was not very practical, at least in Stockton, California. So I got a second degree, in accounting, and that was a good decision.” Kwok spent more than a decade in the U.S., working first as a tax auditor for the Board of Equalization, a California authority that administers the state’s taxes on sales, fuel, alcohol, tobacco, and collects fees and revenue that fund specific programmes. “Afterwards I started my own business,” he says. While Kwok was running his business advisory firm, he encountered a group of Australian expatriates from Hong Kong who told him they needed tax advice of a similar complexity to what U.S. citizens required. That coincided with Kwok’s plans to return to Hong Kong to give his daughter a chance to experience the culture and language of her heritage. He established a tax and business advi- sory service in Hong Kong with a business partner, specializing in helping companies find a foothold in China. “The Mainland was opening up, so I became an adviser to foreigners, mainly Westerners but sometimes Koreans and Japanese, doing feasibility studies and setting up businesses and factories.” Although the pace was relatively slow at first, the Mainland economy soon accelerated quickly and Kwok found he could communicate effectively. “I didn’t have a chance to learn Putonghua at school, but when I was in the U.S., I loved to talk with different people and I met people from Taiwan, Singapore and Indonesia, so I pretty much picked it up.” Kwok travelled around frequently, mainly in Guangdong province but also to Beijing, Shanghai, Nanjing and other cities. After several years, Kwok was asked to take a fulltime job, running a toy factory in Dongguan. “I decided that would be interesting,” he says. “I learned a lot: how to manage more than 3,000 people, production management, just-in-time manufacturing and other sorts of skills.” “I utilized my knowledge of accounting to make a forecast... We knew there would be a point where the market would be booming and Hong Kong would be short of machines.” Cooperative management The adventure in Dongguan ended when his business partner left for Canada ahead of the Hong Kong handover. At the same time, Kwok decided he wanted to spend less time in the Mainland and see his family more often. It was a decision that would lead him to his first stint at Liebherr. “I started in 1996 as a finance and administration manager and then left the company in 2000,” Kwok recalls. The Mainland soon lured him back – but he took on a vastly different role. “I kind of slacked off,” he says with a smile. “I became involved in a lot of charity work in China.” For six years, Kwok worked with those he describes as “forgotten” people. “They were minorities who lived in places so reDecember April 2014 2015 35 Success ingredient THE BIG 10 The Hong Kong government’s 2007-08 policy address announced 10 major infrastructure projects to promote economic development in Hong Kong and create employment opportunities. They are: 1. M TR South Island Line: Construction should be completed this year 2. Sha Tin to Central Link: Work began in 2012 with phased commissioning scheduled for 2019-2021 3. Tuen Mun-Chek Lap Kok Link and Tuen Mun Western Bypass: The first phase was completed in 2011 4. Guangzhou- Shenzhen-Hong Kong Express Rail Link Hong Kong Section: Scheduled to open in 2017 5. H ong Kong-Zhuhai-Macau Bridge: Construction began in 2009 and completion is scheduled for 2016 6. Hong Kong International AirportShenzhen Bao’an International Airport Link: Scheduled to open in 2017 “We are a very strongly Europeanoriented company and when we talk to finance directors there about IFRS, we have a common language.” 7. L ok Ma Chau Loop: Planning and engineering study completed in 2013 8. West Kowloon Cultural District: First phase opened this year, second phase scheduled for opening in 2026 9. Kai Tak Development: Phased opening since 2013 10. N orth East New Territories New Development Areas and Hung Shui Kiu New Development Area: Under development 36 April 2015 mote they were not being reached by the authorities or the nongovernment organizations. I spent a few years in different places in Guizhou, Guangxi and even Guangdong.” In 2006, Kwok was ready to step back into the corporate world, having felt his philanthropic aims had been achieved. “It was time for me to change again because the work was done and was organized. You make it self-sufficient. Liebherr was good enough to invite me back after six years so I rejoined,” he says. “Their Asia-Pacific operation was growing.” Today, Kwok is one of two managing directors. Colleague Andreas Ganahl, an Austrian engineer, is in charge of sales, says Kwok, waving at a tall, jeans-clad man in a neighbouring office. “I’m the guy who takes care of financial management and human resources. We work together to foresee our market situation, what should be done, how we proceed in future and how we overcome all the difficulties.” Kwok says his CPA certification is an important part of keeping abreast. “You need to look at things from different per- A PLUS spectives, staying aware of internal control responsibilities, maintaining alertness to business risks, and forecasting and projecting in a scientific and objective manner what will happen in the future.” The Institute, he adds, helps enable him to operate in an international manner. “We are a very strongly European-oriented company and when we talk to finance directors there about International Financial Reporting Standards, we have a common language,” he says. “Of course, you must know what you’re talking about. The Insti- tute keeps my knowledge updated and offers short courses with which I can sharpen my tools and ensures I am informed about China.” Packed with orders As a manager, Kwok sees his main task as ensuring the wellbeing of his staff. “By that I mean in the sense that they are happy with their jobs, that they are concerned for our customers and their own safety, that they receive good training and they are updated on the latest information about our products.” Over the past few years, Liebherr has diversified its range from cranes to loaders, concrete mixers and small excavators. “We have different business segments,” he explains, including crawler cranes – large equipment that are used to build foundations – as well as mobile cranes and cranes used on ships and offshore platforms. The Hong Kong office also oversees the Macau, Japan and Korea markets and is responsible for the representative office in Shanghai. “We have been very busy to this moment, packed with orders to assemble and commission.” The future, Kwok foresees, will involve further adaptation. “We are quality orientated and customer orientated, and we have been fortunate enough to be able to kind of forecast the needs of the customers, even though they have been changing all the time,” he says. The 10 infrastructure projects that Hong Kong is building have provided new challenges as well as opportunities to show off new equipment such as a crawler excavator, which is ideally suited to tunnelling in Hong Kong, as well as able to negotiate the tight constraints of the city’s construction sites. Liebherr has also been working on fuel efficiency, atmospheric emission controls and noise abatement. Using his CPA skills, Kwok has applied cost-management measures that affect the entire company. Training Hong Kong personnel in Austria was not a cost-effective option and few local construction workers were sufficiently proficient in English, let alone German. So Kwok established an Asia-Pacific training centre in Hong Kong that serves customers as far away as Australia. “It became an immediate success,” he says. Kwok also keeps a firm hand on the local operations. “We have a very good after-sales team and a very good workshop team, but we make sure there are no bottlenecks in terms of which parts are needed,” he says. “We have a good database and we review it more than once a month.” Though Liebherr is riding high amid a construction boom, Kwok knows forecasting is the key. “In Hong Kong, you have to be very careful as things can change quickly.” April 2015 37 Media portrayals FOR YOUNG CPAs W indmills, helmets and flashes of business attire against the Hong Kong skyscrapers set the scene for the fast-paced and spirited television series Young Charioteers(衝線), the latest modern romantic drama aired by Hong Kong’s most popular broadcaster, TVB. The show, which debuted last month, depicts young professionals crossing finishing lines on the biking trail and chasing deadlines in an accounting firm, and stars actors Him Law as Jedi Yau and Sammy Sum as Fighting Yip, two accountants who are high school friends as well as rivals in work, love and bicycle racing. This uncommon highlighting of accounting in an entertainment show sparked discussion among CPAs who are keen to see their work lives represented on screen. The 1993 TVB sitcom Mind Our Own Business (開心華之里) is one of the few predecessors in the genre, with actors Danny Summer and Waise Lee playing the role of partners of an accounting firm. Young Charioteers takes the audience into the workings of a firm, exploring the professional life of CPAs by following a cast of young and ambitious employees as they strive to make achievements in their careers and maintain a work-life balance. Although accounting has rarely been a part of the major plot lines, CPAs have seen their fair share of airtime in Hong Kong films: From a supporting character aiding an antagonist in money laundering before being written off (Divergence (三岔口), 2005) to one in constant pursuit of tax evaders (The Magic Touch (神算), 1992). Webster Ng, Founder of CPA firm Webster Ng & Co. and a member of the Hong 38 April 2015 Kong Institute of CPAs, is optimistic that Young Charioteers can help change the community’s perception. “Most of the general public don’t know what a CPA does exactly, but I believe they view us as a professional in our work ethic and mannerisms,” he says. “But young CPAs need to go through many challenges, such as heavy workloads, achieving promotions, integrating into a company’s culture, and it’s good that this drama is bringing that to the public’s attention, not just portraying accountants who assist bad guys to launder money all the time.” A social conversation Ng administers the Hong Kong Gossip Accountants Association Facebook group, where Institute members gather to discuss news that is relevant to firms and the profession overall. Some members use the online platform to share their thoughts on the show, comparing a Young Charioteers episode to an indulgent snack to enjoy after work. Some lament the differences between the drama’s office scenes to their own working environments, while others are happy to see the show reflecting the dynamic and charming side of the profession. “When we watch TVB, we’re always seeing themes that relate to lawyers, policemen, teachers or even pilots,” says Ng. “The reason why Young Charioteers is creating such a buzz is simply because we are in the same field. I have personally been eager to see more spotlight on accounting in the media since I joined the profession back in 1994.” Louis Chow, Managing Director of Legal and Compliance at a Chinese investment bank who also administers the Facebook group, agrees that the series is interesting A PLUS The recent TVB drama Young Charioteers put young accountants in the spotlight as a new generation of energetic and goal-focused professionals. Tigger Chaturabul talks to Institute members about how they perceive the show and finds out how the image of accountants in the media has evolved Young Charioteers takes the Hong Kong audience into the lives of young CPAs PHOTO: TVB April 2015 39 Media portrayals for anyone within the field. The Institute member stresses the fact that TV programmes need dramatic elements and must exaggerate certain situations to attract the attention of the general audience. “You can find office politics anywhere honestly, and although I don’t agree with the way TVB made certain tactics seem typical within a CPA firm, such as women using their bodies to get a promotion, I understand they do it for the theatrical value,” says Chow. As for Ng, the drama is quite energetic because it shows CPAs biking and having plenty of free time. “It’s definitely a positive image from my perspective, although parts of it are definitely an exaggeration.” Real or not real? Employees wearing loud shirts and short skirts, managers with their own private offices and a WhatsApp-based internal messaging system used for gossip are among the Young Charioteers plots that have spurred online debate. In a poll on the popular forum site Discuss.com.hk, contributors, including Institute members, voted and commented on how realistic these scenarios are according to their experience as CPAs. While members agreed that WhatsApp groups do exist (but are not checked during work hours), they pointed out that managers rarely have their own rooms and most employees follow an office dress code. To be accurate, some members said certain accounting terminology was misapplied – such as referring to a “reason40 April 2015 PHOTO: TVB Swapping suits for Spandex, accountants in Young Charioteers cycle together ableness test” of financial information as a “re-work.” Working hard and playing hard is the ethos of young CPAs but one dramatic scene showing some of them having a party at a client’s office, getting drunk and posting about it on Facebook is definitely not a professional accountant will do. “If that were to actually happen in real life, it would be an absolute phenomenon,” says Philip Kan, Audit Manager at Grant Thornton and an Institute member. Despite working in a demanding profession, today’s young CPAs, a major force of the profession (44 percent are under 40), are always eager to find ways to strike a work-life balance. Cristine Pang, Audit and Assurance Manager at Mazars and Institute member cautions that it would be a challenge to master the lifestyle depicted in the show, especially during the peak season. She, however, still enjoys the programme: “It’s interesting to see your work life on TV and be able to share it with my family.” The work-life balance suggested by Young Charioteers is a step towards reflecting the trend of firms offering extracurricular activities for their employees. Characters in the show swap their suits for tight Spandex and get together in the evenings or on the weekends, training to beat their personal bests on the track. “They’re trying to portray teamwork, which I really appreciate,” says Kan. “We bond better when we play football or basketball together, which is what they’re showing when the characters take time to cycle together.” The hierarchy present within the CHUR accounting firm in the show echoes with Ng’s views. The first episode begins with three young accountants envisioning to becoming a partner and seeing the many career rungs they need to climb. “The drama also plays on the requirements that come with each level, such as taking the responsibility for a subordinate who doesn’t perform well,” he says. “These are very real situations that TVB chose to include.” By doing so, the general public is given a window into accountants’ daily working environment. The weight of drama When HK$3 million goes missing in a company account, the auditors in the TV show take the matter into their hands by following the company owner’s wife, only to catch her having an affair with a sales manager. With enough photographic evidence, they are able to discreetly persuade her to return the money. “That’s basically a criminal offence,” says Daniel Lin, Managing Partner at Grant Thornton and an Institute member. “We don’t blackmail or follow people around.” Lin has high hopes for the media to deconstruct the traditional image of accountants as busy and boring people and instead build upon their honesty, impartiality and integrity. However, he says a TV show cannot compare with a real-world audit failure when it comes to having a lasting effect on the profession’s image. Real-life financial scandals such as Enron are what Pang at Mazars would like to see dramatized in a TV series. “It would educate the public about the challenges and legal liabilities accountants have to face, and help them understand our roles better,” she says. As for attracting potential new entrants to the profession, it would be difficult for a TV series to truly change a candidate’s mind. “Most applicants who are serious about accounting have already done their research and have prior work experience,” says Lin. “They already know what they’re getting into.” TV tips Lin adds that the show has alerted him to the possibility that younger CPAs see their lives quite differently from those of his generation. A PLUS The Shawshank Redemption Schindler’s List The Other Guys “As I watched the drama, I thought to myself that they behaved very differently from the time I was a junior, which made me realize I see things from another perspective now,” he says. There are still lessons to be learned from the different perspective TVB takes on the profession. The accountants in the show often travel to Taiwan for work, enjoying local sights and food together between meetings. “Although it’s unrealistic for a CPA to have so much free time on a work-related trip, the way that the characters take the opportunity to go sightseeing shows that a work-life balance can be achieved if you really want to do something,” says Lin. Whether it’s two hours or 45 minutes, Lin believes in learning how to spare time to enjoy yourself in order to sustain a long career. “I’m not saying put leisure before work, but we should communicate the importance of being interested in where you’re going,” he says. “It’s good of them to feature that, even if it was a bit exaggerated.” Red carpet CPAs Over the years, accountants play a variety of roles on the big screen in Hollywood that involve them in intricate plots on both ends of the good versus evil spectrum: • Schindler’s List (1993) – Oskar Schindler (Liam Neeson) builds a munitions factory during World War II in Nazi-ruled Germany. With the aid of Itzhak Stern (Ben Kingsley), the factory’s accountant, they manage to secretly liberate more than 1,000 Polish-Jewish refugees by transferring them to the factory instead of to the Auschwitz death camp. • The Shawshank Redemption (1994) – Successful banker Andy Dufresne (Tim Robbins) is sentenced to life in jail where he meets a warden, Samuel Norton (Bob Gunton), and assists him in exploiting prison labour to launder money in order to plan his prison escape. • Hitch (2005) – The awkwardly bumbling Albert Brennaman (Kevin James) is financial adviser to Allegra Cole (Amber Valletta), the woman of his dreams. He enlists the help of Alex “Hitch” Hitchens (Will Smith), a successful “date doctor,” to help him woo her. • Stranger than Fiction (2006) – Harold Crick (Will Ferrell) is assigned to audit the tax-delinquent baker Ana Pascal (Maggie Gyllenhaal) before he starts to hear a voice that narrates his life. The tale takes a turn when Harold falls in love with Ana while searching for the voice in his head. • The Other Guys (2010) – Allen Gamble (Will Ferrell) is a New York cop and forensic accountant. He and his partner Terry Hoitz (Mark Wahlberg) investigate a plot to cover up losses by a billionaire (Steve Coogan) who intends to transfer money from the police pension fund to his investors. April 2015 41 Mainland tax New rules governing taxation of offshore indirect transfers Matthew Y. Lau and Paul D. McKenzie summarize and discuss SAT’s Public Notice 7 and its expanded scope with regard to transfers to Mainland entities or properties by offshore investors O n 3 February, China’s State Administration of Taxation released its Public Notice of SAT Concerning Several Matters Relating to Corporate Income Tax on Indirect Transfer of Properties by Non-tax Resident Enterprises, Public Notice [2015] No. 7. This so-called Public Notice 7, which became effective that day, largely replaces the previous guidance in the Circular of SAT on Reinforcing the Administration of CIT collection on Income Derived from Equity Transfer by Non-TREs, known as Circular 698. It also applies to transactions that took place before 3 February but for which the relevant tax has not yet been settled. Public Notice 7 introduces significant changes to the scope of indirect transfer transactions subject to tax and the reporting and withholding obligations of the parties to an indirect transfer transaction. Application of Public Notice 7 Circular 698 applied only to the indirect transfer of equity interests in Mainland entities. Public Notice 7 expands the scope of indirect transfers to include transfers of (i) property rights of an “establishment or site” (which is similar to the concept of a “permanent establishment”) in China, (ii) real property in China, and (iii) equity investments in Chinese resident enterprises. These are collectively considered taxable property. Thus, Public Notice 7 captures not only share or other equity transfers as Circular 698 did, but also transfers of other forms of interest. An indirect transfer of taxable 42 April 2015 property under Public Notice 7 is defined as a transfer by a non-resident company of an equity interest or other similar right or interest in another offshore enterprise that in turn directly or indirectly holds taxable property, which effectively has the same or a similar effect to a direct transfer of such taxable property. Reasonable commercial purpose Under Public Notice 7, an indirect transfer is regarded as a direct transfer of taxable property and subject to tax if, among other things, the transfer lacks “a reasonable commercial purpose.” While Public Notice 7 provides that the tax authorities should take into account all relevant arrangements in connection with an indirect transfer of taxable property in determining whether the transfer lacks a reasonable commercial purpose, it specifically highlights a list of factors that would be “comprehensively analysed,” including: • W hether the value of target is mainly derived (directly or indirectly) from taxable property; • W hether the assets of the target mainly consist of direct or indirect investments situated in China, and whether its revenue is mainly sourced directly or indirectly from China; • W hether the actual functions performed and risks assumed by the seller (and its affiliates that directly or indirectly hold taxable property, i.e. target) could demonstrate that the enterprise structure has economic substance; • H ow long the shareholders, operation model and relevant corporation structures of the target have been in existence; • W hether the indirect transfer is taxable in the offshore jurisdictions and the relevant tax liabilities; • T he substitutability of indirect investment or indirect transfer of taxable property, and direct investment or direct transfer of taxable property; • H ow a tax convention or arrangement of china will apply to such indirect transfer of taxable property; and • O ther relevant factors. While these factors appear to still heavily focus on the substance of the offshore enterprise, certain factors such as the substitutability of indirect transfer and direct transfer seem to look beyond the operations of the offshore enterprise to the commercial reasons behind the entire corporate structure. Public Notice 7 also specifies the conditions under which a transaction will be deemed to lack a reasonable commercial purpose and grants a safe harbor under certain qualifying circumstances, including transfers in the public securities market and certain intragroup restructuring transactions. Reporting the transaction Under Circular 698, the seller is required to submit a report of an indirect transfer transaction to the appropriate tax authority. Under Public Notice 7, reporting is voluntary rather than mandatory. Presumably, a party will elect not to report only if it is confident that there will be no taxes payable under Public Notice 7. In addition, under Public Notice 7, the buyer of an equity interest in the target, the seller or the underlying Mainland subsidiaries may submit a report. From the buyer’s perspective, there should be an incentive to report the transaction under Public Notice 7 since this mitigates their risk of being subject to penal- A PLUS ties for not withholding or under-withholding taxes on the transaction, as described below. Withholding the payment of taxes Under Circular 698, there was no requirement for the buyer to withhold any taxes, or for seller to remit any taxes to the Mainland tax authority. Generally, taxes were only due on an audit or examination. Under Public Notice 7, the tax liability arises on the relevant date, which is defined as when the equity transfer contract or agreement takes effect and the transfer of equity interest in target is completed. Under Public Notice 7, the buyer is required to withhold the applicable taxes and submit them to the Mainland tax authority. Public Notice 7 does not specify exactly when the buyer must submit the withholding taxes, although presumably it must be done shortly after the relevant date (e.g. seven days after the relevant date – see seller’s obligations below). If the buyer does not withhold (or underwithholds), then the seller is required to report the transaction to the tax authority and pay the applicable taxes within seven days from the relevant date. The seller must also submit documents showing the calcula- tion of the sales proceeds and the amount of taxes payable. Further, if seller fails to pay tax in full within the prescribed time limit, it is subject to late payment interest calculated daily, applying the benchmark rate published by the People’s Bank of China if the seller has reported the transaction within 30 days after the signing date of the transaction document. If the seller has not so reported, the daily interest rate is the benchmark rate plus 5 percent. If the buyer does not withhold (or underwithholds), and the seller fails to pay the tax, then the tax authority may impose penalties on the buyer. Generally, the penalties range from 50 percent to 300 percent of the unpaid taxes. However, Public Notice 7 states that if the buyer has reported the transaction within 30 days after the signing date of the transaction agreement, the buyer may be exempted from or receive reduced penalties. ferred equity or property. Although Public Notice 7 requires the buyer to withhold the applicable taxes, it does not specify how the buyer must obtain the information necessary to calculate the applicable taxes or whether the buyer is allowed to rely on information provided by the seller. For example, if the seller fails to disclose pertinent information to buyer for the purpose of calculating the applicable taxes, would the buyer still be subject to penalties for any under-withholding of taxes? In addition, what if the parties disagree on whether the transaction is subject to taxation under Public Notice 7? These questions remain unanswered, and it will be interesting to see how SAT will address them in implementing Public Notice 7 and in subsequent guidance. Things to watch for Generally, the applicable taxes on an indirect transfer amount to 10 percent of the capital gains on the transaction. Capital gains are generally calculated as (i) the sales proceeds minus (ii) the seller’s tax basis in the trans- Matthew Y. Lau is a Tax Attorney in the Hong Kong office and Paul D. McKenzie is Managing Partner of the Beijing office of the Morrison and Foerster international law firm. Shanghai Resident Partner Gregory Sin Oon Tan and Shanghai Associate Raphael Li also contributed to this article. April 2015 43 Mainland taxation 演藝人員和運動員如何納稅 《稅收安排》話你知 Tax arrangement for artists and athletes 廣東省地方稅務局 梁若蓮、趙永清、周子灩 香 港是亞洲演藝之都,中國是世界 司或演出團體等收取,都將按收入來源繳納 形式的演藝人員從事的活動、為企業拍攝廣 體育強國,兩地強強聯手,造就 稅款。 告和具有娛樂性質及涉及政治、社會、宗教 或慈善的活動。 了今天內地與香港文化藝術領域 合作的新高峰,港星北上發展一再刷新了中 「特許權使用費」專項規定 廣東省地稅局國際稅務管理處負責人特 國商業大片的票房紀錄;內地著名運動員 知識產權保護在促進文化繁榮方面發揮越 別提醒香港藝人注意,「演藝人員」的範圍 南下延續運動生涯,亦讓香港羽毛球、乒乓 來越重要的作用,知名藝人和著名運動員擁 不包括隨行的行政、後勤人員,如攝影師、 球擠身世界一流強隊之列。在這個過程中, 有更多的跨境收入來源,除了直接獲取的出 製片人、導演、舞蹈設計人員、技術人員以及 《稅收安排》起到了強大的推動作用,使中 場費外,「特許權使用費」亦成為他們重要 流動演出團隊的運送人員等。 港文化藝術體育等領域的交流更繁盛且更 的收入來源。廣東省地稅局國際稅務管理處 此 外,南 下的「 運 動 員 」範 圍 除 包 括 為順暢。 負責人表示,對從表演活動的錄製影音製品 田徑、游泳、籃球、足球、網球等傳統體育項 及出售所產生的所得中分配給演藝人員或 目,還包括高爾夫球、賽馬、板球、賽車、拳 收入來源地徵稅 運動員的(權利)所得,或與演藝人員和運 擊,以及具有娛樂性質的運動,如桌球、棋 知名藝人和著名運動員是內地與香港跨境工 動員有關的其他版權的所得,應適用於《稅 藝、橋牌甚至高空走鋼線等。 作的高收入群體,他們從事表演活動,往往 收安排》第12條「特許權使用費」條款的有 會獲得動輒數萬、十萬,以至百萬元的酬勞, 關規定。 然而過往曾傳出香港藝人在內地登台時的欠 稅糾紛,則為兩地文化交流蒙上陰影。 當他們跨境表演而獲得贊助費或廣告費 的收入時,上述官員指出,贊助費和廣告費不 對於香港藝人北上表演中居於重要角色 的經理人,所取得的所得不適用於本條規 定,但其代表上述演藝人員或運動員收取的 所得應適用於本條規定。 《稅收安排》的出台,為中港藝術文化人士 屬於特許權使用費的範疇,如果贊助費和廣 的跨境活動提供了明確的稅收政策,向誰交 告費等所得與該人進行表演或出場等活動有 北上港人強積金內地徵個稅 稅、誰可享受政策優惠都有了清晰的指引。 直接或間接聯繫,則適用於演藝人員和運動 內地與香港跨境工作和生活便利化時代的 廣東省地稅局國際稅務管理處負責人明 員條款的規定;與表演或出場等活動沒有聯 來臨,使跨境所得也更為多樣化。《稅收安 確表示,《稅收安排》對演藝人員和運動員取 繫的類似所得,應視情況適用《稅收安排》 排》作為一個規範中港兩地跨境工作、生活 得所得的徵稅原則是由來源地獨佔稅權。 第14條「受僱所得」等條款的規定。 的稅收事項的完善政策,其對勞務所得除公 具體而言,就是締約一方居民作為演藝人 眾所熟知的工資、薪酬、董事費、演藝人員 員或運動員在締約另一方取得的所得,由其 「演藝人員和運動員」僅限本人 和運動員所得報酬的規定外,還對包括退休 從事個人活動的締約國一方徵稅,而不論其 香港藝人北上發展,攜同經理人、助手等組 金、政府服務所得、學生所得有著清晰的政 所從事的活動是獨立還是非獨立性質,也不 成團隊成為慣例,但在《稅收安排》中,卻明 策規定。 論在內地與香港停留時間是否超過183天。 確規定對表演活動所得承擔跨境納稅義務 上述官員特別強調,不管演藝人員和運 的「演藝人員和運動員」僅限本人。 退休金是每一個跨境工作的內地與香港 人都擁有的社會保障。廣東省地稅局國際稅 動員的收入是由本人收取,還是由演出公 根據國稅發〔2010〕75號的規定,演藝人 務管理處負責人表示,香港退休保障體系主 司、交響樂團、俱樂部、演出經理人、明星公 員的活動包括舞台、影視、音樂等各種藝術 要由綜合社會保障援助計劃、強積金計劃、 44 April 2015 職業退休計劃組成。其中,綜援屬於社會援 地辦事處,在這些辦事處工作的香港籍員工 助性質,個人無須供款,不涉及內地稅收問 取得的工資薪金所得和退休金均應由香港徵 題;至於強積金和職業退休計劃,根據國家 稅,而為該辦事處工作的內地員工取得的工 稅務總局的規定,從2011年1月起,北上港人 的強積金及職業退休計劃供款均應按現行個 人所得稅有關規定,全額歸入當月工資薪金 所得以計徵個人所得稅。此外,自2011年7月 1日起,港人可以參加內地的社會保障。根據 內地個人所得稅法及其實施條例規定,對公 司為港人繳付的「三險一金」可以從其應納 稅所得額中扣除。 《稅收安排》的出台,為 中港藝術文化人士的跨 資薪金所得和退休金則均應由內地徵稅。 對於當前活躍於內地與香港的跨境學生 境活動提供了明確的稅 而言,《稅收安排》出於促進人才培訓、照顧 收政策,向誰交稅、誰可 學生的基本生活需要下,允許在限定條件滿 足後給予免稅待遇,即必須同時符合以下三 享受政策優惠都有了清 個條件:該學生在到達締約一方之前必須是 晰的指引。 締約另一方的居民;所得是為了維持生活、接 受教育或培訓的目的;所得是從該締約一方 《稅收安排》對政府服務也有專項的徵稅 境外收到的款項。故此,如內地學生到香港 原則,廣東省地稅局國際稅務負責人明確表 大學就讀,香港不得對其父母從內地匯到香 示,為政府服務所取得的報酬和退休金由得 港用於其學習和生活的款項徵稅。 到服務的國家或地區享有徵稅權,但不包括 締約另一方的國民並且為其居民的個人向締 約一方提供服務取得的所得。 舉例說,香港政府在內地開設許多駐內 This article is contributed by the Guangdong Provincial Local Taxation Bureau. April 2015 45 Technical update Amendments to HKFRS to improve the presentation and disclosure in financial reports and introduce minor clarifications to requirements for accounting for investment entities Disclosure Initiative (amendments to HKAS 1 Presentation of Financial Statements) The amendments to HKAS 1 are designed to further encourage companies to apply professional judgment in determining what information to disclose in financial statements, which include narrow-focus improvements to the following areas: ing immaterial information, because such a requirement would not be operational; however, the amendments emphasize that disclosure should not result in material information being obscured. Disaggregation and subtotals The amendments clarify that line items in the statement of financial position and the statement(s) of profit or loss and other comprehensive income should be disaggregated Materiality and aggregation if this is relevant to an understanding of the The amendments clarify the materiality entity’s financial position and performance. guidance in HKAS 1 that it applies to the financial statements as a whole even if those When an entity presents subtotals to disclosures are required as “a minimum” enable better understanding of the entity’s by a particular standard (i.e. an entity does financial position and financial performance, not have to disclose information required by the amendments require those subtotals to: a standard if that information would not be i) B e comprised of line items made up of material). amounts recognized and measured in On the other hand, the amendments also accordance with HKFRS; clarify that an entity should make additional ii) Be presented and labelled in a manner disclosures when compliance with the specifthat makes the line items that constitute ic requirements in the Hong Kong Financial the subtotal clear and understandable; Reporting Standards is insufficient to enable iii) Be consistent from period to period; and users of financial statements to understand iv) N ot be displayed with more prominence the impact of particular transactions, other than the subtotals and totals required in events and conditions on the entity’s finanHKFRS. cial position and financial performance. A new requirement has been added Subtotals presented in the statement(s) to HKAS 1 to highlight that when an entity of profit or loss and other comprehensive decides how it aggregates information in income should reconcile back to the line the financial statements, it should take into items required by HKFRS. consideration all relevant facts and circumstances. This requirement emphasizes that Notes structure an entity should not reduce the understand- Paragraph 114 of HKAS 1 states that “an entity ability of its financial statements by providing normally presents notes in the following immaterial information that obscures the order” and then lists a particular order for material information in financial statements the notes. However, some constituents are of or by aggregating material items that have the view that the use of “normally” makes it different natures or functions. difficult for an entity to vary the order of the Obscuring material information with im- notes. material information in financial statements As a result, paragraph 114 has been makes the material information less visible amended to clarify that the order listed is an and therefore makes the financial statements example, and entities have flexibility as to less understandable. The amendments do the order in which they present the notes. not actually prohibit entities from disclosHowever, entities should also consider the 46 April 2015 effect on understandability and comparability when considering how the notes could be presented in a systematic manner. Examples of systematic ordering or grouping of the notes include: i) Giving prominence to the areas of its activities that the entity considers to be most relevant to an understanding of its financial performance and financial position, such as grouping together information about particular operating activities; ii) Grouping together information about items measured similarly such as assets measured at fair value; or iii) Following the order of the line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position, which is similar to the order listed in the extant paragraph 114. Disclosure of accounting policies HKAS 1 requires significant accounting policies to be disclosed and gives guidance about what a significant accounting policy could be. The existing guidance includes, as The amendments do not actually prohibit entities from disclosing immaterial information... however, the amendments emphasize that disclosure should not result in material information being obscured. A PLUS examples of significant accounting policies, the income tax accounting policy and the foreign currency accounting policy. However, it has come to the attention of the International Accounting Standards Board that it is not helpful to provide the income tax accounting policy as an example. Being liable to income taxes is typical for many entities and it was not clear, from the example, what aspect of the entity’s operations would make a user of financial statements expect an accounting policy on income taxes to be disclosed. Consequently, the existing example does not illustrate why such an accounting policy is significant. This line of thinking is also extended to the foreign currency accounting policy example. As a result, the income taxes and foreign currency examples have been deleted as part of the amendments to HKAS 1. Presentation of items of other comprehensive income arising from equity accounted investments HKAS 1 has been amended to clarify that entities should present the share of other comprehensive income of associates and joint ventures accounted for using the equity method, separated into the share of items that: i) Will not be reclassified subsequently to profit or loss; and ii) W ill be reclassified subsequently to profit or loss when specific conditions are met. with HKFRS or IFRS. In addition, HKFRS 10 prohibits parent entities that are investment entities from preparing consolidated financial statements and instead, requires them to measure their investment in a subsidiary at fair value through profit or loss. The issue was whether the consolidation exemption applies to a parent entity that is a subsidiary of an ultimate or any intermediate “investment entity” parent that does not consolidate its subsidiaries but measures them at fair value through profit or loss, assuming the other consolidation exemption conditions are met. The implementation guidance has also been amended to reflect this clarification. As a result, HKFRS 10 has been amended to confirm that the exemption from preparing consolidated financial statements in HKFRS 10 Investment Entities: Applying the applies to a parent entity that is a subsidiary Consolidation Exception (amendof an investment entity, even though the ments to HKFRS 10 Consolidated investment entity measures all its subsidiarFinancial Statements, HKFRS 12 ies at fair value through profit or loss. Disclosure of Interests in Other As HKAS 28 uses the same exemption Entities and HKAS 28 Investments in criteria as HKFRS 10 to provide an exemption Associates and Joint Ventures) from applying the equity method for entities HKFRS 10 exempts parent entities from preparing consolidated financial statements. that are subsidiaries and that hold interests in associates and joint ventures, consequenOne of the exemption criteria is that the tial amendments as a result of the amendentity’s ultimate or any intermediate parent ments to HKFRS 10 have also been made to produces consolidated financial statements HKAS 28. that are available for public use and comply The amendments to HKFRS 10 also include a clarification to the consolidation exemption. If a subsidiary that is not itself an investment entity and whose main purpose is to provide investment-related services or activities that relate to the “investment entity” parent, that investment entity parent is required to consolidate that subsidiary. If the subsidiary that provides investment-related services or activities is itself an investment entity, the investment entity parent shall measure that subsidiary at fair value through profit or loss. Amendments have also been made to HKFRS 12 to clarify that the investment entity shall present the disclosures relating to investment entities required by HKFRS 12. The amendments to HKAS 1, HKFRS 10, HKFRS 12 and HKAS 28 can be applied immediately and become mandatory for annual periods beginning on or after 1 January 2016. This article is contributed by the Institute’s Standard Setting Department. April 2015 47 149 TechWatch The latest standards and technical developments Members’ handbook combination of rights and obligations that arise in defined rate regulations. The Institute supported the board’s focus Handbook update no. 166 on a defined type of rate regulation as a first Update no. 166 contains editorial and step of the research project to provide a formatting changes to Hong Kong Quality Control, Auditing, Review, Other Assurance, common starting point before moving to the next stage of the project, which hopefully, and Related Services Pronouncements would be able to determine whether rights and amendments to Practice Note 810.2 (Revised) The Duties of Auditor of an Insurer and obligations exist in the context of a Authorized under the Insurance Companies broader regulated environment. Ordinance. The Institute suggested the IASB conduct a full analysis of the rights and obligations arising from rate regulation and whether Financial reporting they can meet the definitions of assets and liabilities contained in the Conceptual Invitation to comment on IASB Framework, which is currently under exposure draft revision, before moving to the next stage of The Institute has issued an invitation to the project. Otherwise, the lack of conceptual comment on International Accounting basis for the recognition of regulatory deferral Standards Board exposure draft of accounts as assets or liabilities might lead to Classification of Liabilities (proposed amendments to IAS 1 Presentation of Financial creating exceptions to International Financial Reporting Standards. Statements), with comments requested by 8 May. If the IASB concluded that the regulatory The proposed amendments aim to clarify assets and liabilities meet the definition of the criteria for the classification of a liability assets and liabilities, the Institute would as either current or non-current, particularly support the approach of developing specific when it is coming up for renewal. In particular, IFRS guidance or requirements for ratethe proposed amendments aim to: regulated activities. • Clarify that the classification of a liability as either current or non-current is based on Ethics the entity’s rights at the end of the reporting period; and Institute comments on IESBA • Make clear the link between the settlement consultation paper of the liability and the outflow of resources The Institute commented on International Ethics Standards Board for Accountants from the entity. consultation paper on Improving the Structure of the Code of Ethics for Professional Institute comments on IASB Accountants. discussion paper on Reporting the Financial Effects of Rate Regulation The Institute has concerns about the The Institute welcomed the IASB’s example in paragraph 33 of the consultacomprehensive project on rate-regulated tion paper on who may be the “responsible activities and supported the board in individual within a firm for taking appropriate considering the need for specific accounting action in accordance with the requirements of guidance or requirements to account for the the code.” The Institute considers that every 48 April 2015 member within a firm has specific contributions to the firm’s compliance with the code. The proposed drafting may create an impression that the personnel quoted in the example would be required to bear the responsibility for breaches of the code that may be committed by other members of the firm, which the Institute considers to be inappropriate. The Institute recommended that IESBA reconsider the proposal with caution to ensure that fair and equitable outcomes would be achieved. In relation to the timeline of the project, the Institute noted that there is a strong demand from practitioners as well as regulators for IESBA to complete this project promptly. The proposed effective date of the restructured code by early 2018 (at the earliest) would not be helpful to practitioners and may undermine the perceived effectiveness in standard setting by IESBA. The Institute urged IESBA to prioritize the completion of this project over other projects. Corporate finance Consultation conclusions on review of Listing Rules on disclosure of financial information and minor or housekeeping rule amendments On 6 February, Hong Kong Exchanges and Clearing published consultation conclusions related to review of listing rules on disclosure of financial information with reference to the new Companies Ordinance (Cap. 622) and Hong Kong Financial Reporting Standards and proposed minor or housekeeping rule amendments. Amendments relating to the disclosure of financial information, which apply to accounting periods ending on or after 31 December, include: • A ligning the requirements for disclosure of financial information in the listing rules A PLUS with reference to the disclosure provisions in the new ordinance; • S treamlining the disclosure requirements and removing duplications with HKFRS; and • Introducing new requirements for listed companies that revise their published financial reports or results announcements (include prior period adjustments due to correction of material errors). voluntary, and to operate on a “comply-orexplain” basis, ask investors to: • E stablish and report to their stakeholders their policies for discharging their ownership responsibilities; • M onitor and engage with their investee companies; • E stablish clear policies on when to escalate their engagement activities; • Have clear policies on voting; • B e willing to act collectively with other Amendments unrelated to the disclosure investors when appropriate; of financial information, which will come into • R eport to their stakeholders on how they effect on 1 April, include: have discharged their ownership responsibilities, and • C onsequential changes due to the enactment of the new ordinance; and • Have policies on managing conflicts of • Minor and housekeeping amendments interests (when investing on behalf of clients). that involve no change in policy direction. The amendments to the Main Board Listing Rules and GEM Listing Rules and related frequently asked questions can be downloaded from the HKEx website. SFC consultation on principles of responsible ownership The Securities and Futures Commission has launched a three-month consultation on proposed Principles of Responsible Ownership, which provide guidance on how investors should fulfil their ownership responsibilities in relation to their investment in a listed company. Comments are requested by 2 June. The seven proposed principles, which are intended to be non-binding and Accounting date Extended due date Further extended due date (if opting for e- filing) “N” code 4 May 18 May (no extension) “D” code 17 Aug 31 Aug “M” code 16 Nov 30 Nov “M” code (Current year loss cases) 1 Feb 2016 1 Feb 2016 (Same as paper returns) Legislation and other initiatives Companies Registry launches full-scale electronic filing service The Companies Registry launched a full-scale electronic filing service @ e-Registry on 3 March to cover 84 specified forms. A list of all specified forms is available at the registry’s Members who wish to submit views on this consultation via the Institute, please send website. With immediate effect, users may submit them to [email protected] all forms specified under the new Companies before 15 May. Ordinance and the Companies (Winding Up and Miscellaneous Provisions) Ordinance and Taxation related documents to the registry for registration through the e-Registry portal around the Annual meeting with the Inland Revenue clock. Department Read the registry’s external circular no. The annual meeting between representatives 1/2015 for details. of the Institute’s Taxation Faculty Executive Committee and the Inland Revenue Department took place on 6 February. At the meeting, the IRD confirmed the due dates for lodging profits tax returns for the year of Please refer to the full version of TechWatch 149, assessment 2014-15. These are highlighted for available as a PDF on the Institute’s website: members’ attention: www.hkicpa.org.hk April 2015 49 Events Your guide to courses, workshops and member activities Accounting and financial reporting Management, leadership and soft skills Introduction to intangible assets valuation aims to explain commonly observed intangible asset types and commonly adopted valuation methodologies, with the use of practical examples to facilitate understanding of the subject. CPD hours: 2 Language: English Date: 24 April Time: 6:30 – 8:30 p.m. 360° coaching, part of the 360° leadership skills series, is a half-day workshop that presents the leadership skills for team leaders to improve staff performance. They will learn to apply four levels of coaching to delegate duties and responsibilities, and reinforce desirable behaviours by giving effective performance feedback. CPD hours: 3.5 Language: Cantonese Date: 9 May Time: 9:30 a.m. – 1:00 p.m. HKFRS for Private Entities workshops is a three-day series, which will be broken down into a number of sessions. Each session will include plenary instruction followed by group breakout exercises and feedback. The agenda is based largely on International Accounting Standards Board training materials with practical guidance on application of all sections of the standard. CPD hours: 21 Language: Cantonese Dates: 24, 28 and 30 April Time: 9:00 a.m. – 5:00 p.m. Corporate governance Environmental, social and governance reporting – does it affect the value of the company? will discuss how proper sustainability reporting can assist companies to build their reputation and enhance analyst and investor confidence. CPD hours: 1.5 Language: English Date: 5 May Time: 7:00 – 8:30 p.m. Risk management Risk management is a three-day workshop organized with the Chartered Institute of Management Accountants, which will evaluate and advise on management and internal control systems for a range of risks. It will also help participants plan a review process, including an internal audit, of such systems. CPD hours: 21 Language: English Dates: 3, 17 and 31 May Times: 9:30 a.m. – 5:30 p.m. Information security management with ISO 2700x will provide an overview of how to set up and apply information security management according to the ISO 2700x. It will also give practical examples on how to implement the most important security measures in the context of a small- and medium-sized enterprise. CPD hours: 2 Language: English Date: 21 April Time: 6:30 – 8:30 p.m. Taxation Updates on anti-tax avoidance will cover the relevant sections of the Inland Revenue Ordinance to deal with tax avoidance, as well as court cases analysis and their tax implications. CPD hours: 1.5 Language: English Date: 21 April Time: 7:00 – 8:30 p.m. Visit the Institute’s website for other programmes and to enrol and pay online: www.hkicpa.org.hk April 2015 51 Business travel Lively Lima Peru’s sprawling capital, once a mere stopover on the way to Machu Picchu and the Sacred Valley of the Incas, has become a destination in its own right, says Honnus Cheung, CFO of Travelzoo Asia-Pacific and an Institute member N early 500 years old and home to one in three Peruvians, the city of Lima is one of the underrated treasures of South America. A generation ago, the city was little more than a stopover point for travellers to the ancient archaeological trails to Machu Picchu, Cuzco and other destinations in the Andes. However, two decades of surging economic growth, much improved safety and a global fascination for Peruvian cuisine has seen the city step out into the tourism limelight. There has also been widespread interest in the city’s heritage since the centre of the city – known in Spanish as Cercado de Lima – was declared a UNESCO World Heritage Site in 1988. Most visitors will focus on the Cercado district – Lima is not so much a city as a collection of 43 distinct and sometimes squabbling 52 April 2015 districts – and the upscale San Isidro and Miraflores districts to its south. In 1535, the Spanish conquistador Francisco Pizarro founded the city after having defeated the Incas at Cuzco, about 1,000 kilometres to the east – and ordering the execution of their emperor, Atahualpa. Pizarro regarded the city as his greatest achievement. The centrepiece, as set out by Pizarro, is Plaza Mayor, the main square known until 1990 as the Plaza de Armas. The buildings around the square include the presidential palace, various ministries and the municipal headquarters. On the eastern side of the square is the neoclassical Cathedral of Lima. Beyond the cathedral are the Basilica de San Francisco, the city’s second most important church, and the adjoining Museo del Convento de San Francisco, regarded as one of the most imposing examples of Spanish colonial architecture in South America. Not far from Plaza Mayor is Casa de Aliaga, the oldest Colonial mansion in Lima. Another superb building is the nearby Palacio de Torre Tagle, built in 1730 by a nobleman who was treasurer of the Spanish armada, or navy. Further south, beyond the Sheraton Hotel, is a complex of parks that is an oasis of green in Lima, one of the driest cities on the continent. The Museo de Arte Italiano, opened in 1923, showcases European art while the Museum of Art in Lima, known as MALI, features 3,000 years of mostly Peruvian cultural endeavours. The Museo Metropolitano de Lima highlights the city’s history. The southernmost green space is the Parque de la Reserva, a greensward opened in 1929 and today best known for the Circuito Previous page: Cathedral of Lima and Plaza Mayor. This page (clockwise from above): Parque del Amor (Love Park) in the district of Miraflores; ceviche (marinated fish dish); the Basilica de San Francisco. Mágico del Agua (Magic Water Circuit), a water-and-light show that is one of the city’s best-loved attractions. Beyond, the largely undeveloped Lince district boasts the most extensive Art Deco architecture in the Americas outside of Miami and connects the old city with the popular district of San Isidro, which combines its role as the city’s financial district with that of a burgeoning artists’ colony. The Wak’a Wallamarka is a pre-Inca burial place dating back more than 1,500 years and is now used for concerts and exhibitions. The adjoining district of Miraflores is known for shopping and its beaches. While the most interesting goods and best bargains can be found from small crafts and back street boutiques, the Hong Kong shopping experience is most closely reproduced in Larcomar, a multilevel retail complex adjacent to the beach. In the adjacent Surquillo district, the city administration has established a popular food street, turning a traditional farmers’ market into a pedestrian mall to showcase the fresh ingredients used in Peruvian cooking. (A food festival is held each September). Peruvian cuisine is perhaps best known for its use of cuy, or cavies, the guinea pigs widely kept as pets by children in the West. More a rural dish, cuy are roasted or barbecued and taste similar to rabbit. Other specialties include ceviche (marinated fish dish), causa (potatoes), aji de gallina (a mildly peppered chicken stew), anticuchos (kebabs) and alpaca (a llama-like animal). Peru is a crossroads of culinary influences, including Chinese: stir frying is a popular cooking method. Peruvian cuisine should be washed down with Pisco, a grape brandy that is the main ingredient in the national drink, Pisco sour, made with lemon juice, sugar syrup and egg white. Like Lima itself, it packs a memorable punch. Where to eat • E l AlmaZen Standout vegetarian fare. Calle Recavarren 298 (Miraflores). 243-0474. •A strid & Gastón Gastón Acurio’s homage to Peruvian specialties. Paz Soldán 290 (San Isidro). 442-2774. • Central Audaciously innovative local cuisine. Calle Santa Isabel 376 (Miraflores). 242-8515. •C hez Wong Javier Wong’s legendary ceviche house. Calle Enrique León García 114 (La Victoria). 470-6217. • Malabar Restaurante & Bar A celebration of Amazonian produce. Camino Real 101 (San Isidro). 440-5300. Where to stay •B elmond Miraflores Park Grand all-suite edifice by the sea. Malecón de la Reserva 1035 (Miraflores). 610-4000. •C ountry Club Lima Hotel Tranquil opulence from the 1920s. Los Eucaliptos 590 (San Isidro). 611-9000. • J W Marriott Hotel Lima Sweeping bay views. Malecón de la Reserva 615 (Miraflores). 217-7000. •S wissôtel Lima Modern business luxury downtown. Av Santo Toribio 173-Via Central 150 (San Isidro). 421-4400. What to see •C asa de Aliaga Venerable mansion with tours at 24 hours’ notice. Jirón de la Unión 224 (Cercado). 427-7736. •C athedral of Lima Neoclassical landmark with adjoining museum. Jirón Carabaya (Cercado). 427-9647. •C ircuito Mágico del Agua Entertaining light-and-water show. Madre de Dios (Lince). 331-0353. •P alacio Torre de Tagle Harmonious blend of Andalusian, Moorish and Creole architecture. Jirón Ucayali 363 (Cercado). 311-2400. April 2015 53 After hours Uncorking innovation Technology is changing the way wine is made, aged and even drunk, says George W. Russell W inemaking seems such a timeless endeavour. The terminology, especially French terms such as terroir and assemblage, are redolent of mediaeval pastoral life, while the surviving bottles of 17th century claret seem not too different to their modern-day equivalents. However, the art and science of the vintner has been transformed over the decades by innovation. Powdered woods add the ability to adjust tannins, while cold vacuum evaporation changes the carbohydrate levels of the sap in the grapevines. Vineyard practices continue to evolve, raising yields and lowering environmental impact while “green” wine has become increasingly popular. “There are three categories within green wine: sustainable, organic, and biodynamic,” says Jessica LaBounty, Senior Director, Marketing at Benziger Family Winery in Glen Ellen, California. Sustainable practices are increasingly championed. Willamette Valley Vineyards in Turner, Oregon, became a zero-carbon emitter in 2010. Its technicians later invented a sustainable wine cask that enables the equivalent of up to 26 bottles to be served by the glass without the wine losing its character. The Bio-cask works with sensitive Pinot Noir and Pinot Gris wines for which the vineyard is famous. Hong Kong consumers will have to get by with regular bottles, such as the Willamette Valley Vineyards Pinot Gris (HK$189, Golden Gate Wine Company, Sheung Wan). The benefits of sustainable and organic winemaking may be self-evident, but biodynamic is controversial. While some meth- 54 April 2015 The Coravin 1000 Wine Access System enables users to pour a glass of wine without pulling the cork. ods are unscientific – the use of astrological and homeopathic aspects, for example – many biodynamic wineries practice lowimpact agriculture and view the vineyard as an ecosystem in itself. There maybe an emphasis on biodiversity, with other crops or animals grown or raised in the vineyard, and a premium is put on self-sufficiency. External inputs, such as fertilizers and chemicals, are excluded or minimized. To be sure, Benziger’s practices result in some excellent wines, such as the Benziger Sonoma County Cabernet Sauvignon 2008 (HK$208, Ponti Wine Cellars, Central). Most such developments are largely invisible to the average consumer, to whom the most recent innovations are the wine cask and the screw-top cap. For wine drinkers, one of the most perplexing issues about a bottle of wine is that once opened, it needs to be drunk relatively rapidly. That was an issue that concerned Greg Lambrecht, a medical doctor and wine lover from Boston. “You have to commit to a whole bottle of wine by its very nature,” Lambrecht tells A Plus on a recent visit to Hong Kong. “And because of the way bottles are designed, you have to consume wine in a series, not in parallel.” Drawing on his experience with medical devices such as infusion and heart-valve replacement technology, Lambrecht solved the problem by inventing a device that extracts wine from a bottle without damaging the cork. That means even the most delicate or expensive vintages can be enjoyed a glass – or less – at a time and savoured over a long period. His Coravin 1000 Wine Access System (HK$2,400, Watson’s Wine Cellar, Central) is a steel and zinc clamp that grips the bottleneck and inserts a Teflon-coated steel needle in the cork. A jet of argon is used to force the wine up the needle, while withdrawal allows the cork to expand into its original shape, preventing air from entering the bottle. “Cork is a naturally elastic material and it reseals, while argon gas is nonreactive and inert,” Lambrecht, also the Chief Executive Officer of Coravin, points out. Although manufactured in China by Hong Kong-based Simatelex Manufactory, a specialized maker of household electric and electronic appliances and accessories, the Coravin 1000 didn’t arrive in Hong Kong retail outlets until December 2014. It was launched in the United States in 2013 and Europe in October of last year. Lambrecht’s own studies show that the taste of the wine has been unaffected for up to nine years. While the device does work with synthetic corks, the polyethylene terephthalate used to make them is less elastic than regular corks and the wine in those bottles lasts only a month in original condition. Where Silicon Valley meets Switzerland Watchmakers embrace new technology at Baselworld 2015, Jemelyn Yadao reports I t is considered the epicentre of classic technology giants watchmaking, yet this year’s Basel- Google and Intel, world prompted extensive media was announced. attention around the theme of wearable The timepiece is technology. said to be the most Just a week before the biggest watch obvious answer to the Apple Watch. On the show of the year kicked off, Apple captured inside is Google’s Android Wear operatthe world’s attention by revealing its highly ing system and an Intel chip powering the anticipated timepiece. The rapid develop- watch. On the outside is a look and feel ment of smartwatches is thought to be a that complements the intricate mechanical concern for watch brands steeped in Swiss timepieces that TAG Heuer is known for. tradition, however, there were a number of Of course, not all of the favourite smartwatch announcements against a Baselworld releases are part of the backdrop of opulence. smartwatch story. English watch At Baselworld, which took makers Arnold & Son unveiled place from 19-26 March in Basel, its TBTE (True Beat Tourbillon Switzerland, around 150,000 Escapement) Tourbillon, an people came to see the latest exceptional timepiece that offerings of 1,500 brands combines classic styling with from around the world. leading-edge technology. It Organizers of the event, boasts not only a tourbilhowever, reported that lon but also a True Beat the number of buyers second mechanism in at the show declined which the second hand 3 percent compared with ticks like a quartz, giving last year. a more precise reading. One of most spotlighted Like other Arnold & Son pieces unveiled at the event timepieces, all movement parts, was Frederique Constant’s such as the open-worked main Horological Smartwatch, spring barrel and tourbillon, is in which combines a classic anafull sight. Crafted from 18-karat logue dial and handmade Swiss red gold, the 46mm watch houses construction with step and Arnold & Son’s in-house Calibre sleep-tracking functions thanks Frederique Constant A&S5119 and comes in a limited Horological to the Geneva-based watchmaker edition of 28 pieces. Smartwatch fully integrating MotionX – a colAnother collaboration to watch lection of firmware, smartphone applica- at the trade fair was that of Breitling and tions and cloud infrastructure – into the Bentley. The Breitling for Bentley GMT Light timepiece. Body B04 Midnight Carbon follows on from On the second day, the launch of a smart- earlier iterations of the GMT range, this time watch by TAG Heuer, in partnership with featuring a 49mm black titanium case. Its Baselworld 2015 in Basel, Switzerland design features asymmetrical lugs, a black rubber strap, and a bezel with a knurled motif inspired by the famous Bentley radiator grilles. It also includes a Breitling B04 certified chronometer movement with more than 70 hours of power reserve. Offerings packed with luxurious style were also witnessed at the event. For instance, Bulgari celebrated the 40th anniversary of the iconic Bulgari Roma by introducing the ultra-thin Bulgari Roma Finissimo. Inspired by ancient roman coins, it is the world’s thinnest tourbillon movement of only 1.95mm. The understated design is enriched by the brand’s own ultra-thin mechanical handwound movement. It reveals a small seconds subdial at seven o’clock, while a 65-hour power-reserve display can be seen on the back. This 41mm watch is available in pink gold, steel and a yellow gold limited edition version, which captures the original codes of the first Bulgari Roma watch created in 1975. The Italian luxury brand is also countering the entry of Apple into the luxury watch market as it showcased its Diagono Magnesium at the event. The Magnesium is a Swiss-made, selfwinding mechanical watch yet presents a cryptographic near field communication chip, allowing users to make contactless payments, access personal data, unlock doors and perform other functions. Like so many of the brands present at the show, Bulgari demonstated how it is fiercely pushing the boundaries of watchmaking. April 2015 55 Let’s get fiscal Get your daily dose of Nury’s humour at www.mrjam.org The need to count intangibles Putting a value on everything can be an invaluable lesson, according to Nury Vittachi T he other day I sat in a motivational seminar where the speaker kept saying: “Accept who you are.” Fine with me, but the guy next to me was a serial killer for sure. Wish she’d given him different advice. The invasion of touchy-feely spiritual types into the hardheaded corporate world is a good thing in general, but there are limits. For example, a Financial Times feature in front of me says accountants in the United Kingdom are now poetically valuing nonstandard items such as the flora and fauna of the natural world. “The National Audit Office estimated the value of bees’ service to the British economy at £200 million,” wrote columnist Gillian Tett. Of course we’re all thrilled that the value of bees’ hard work has finally been recognized, but what are insects going to do with pay packets? (I suggest the money be diverted to other low-level, underpaid, invertebrate toilers. I’m free.) But you know what? This writer and any readers who have reached adulthood (at least physically) know that this idea comes up every few years. About five or six years ago a report from the Centre for Science and the Environment in India said that a single hamburger with all associated non-tangible costs included would be US$200. I think we were supposed to be amazed by this, but it just reminded me of my Saturday visits to ParknShop, where I wouldn’t be surprised to pay that for a frozen burger. In the United States, the Center for Investigative Reporting said that if you 56 April 2015 included all the associated costs of getting petrol into your car, the cost should be US$15 a gallon (about HK$30 per litre). But I’m sure they failed to include wars, in which case the cost should be US$15 billion a gallon. Which again takes me back to Saturdays at ParknShop, only this time buying cartons of milk, which are roughly that price. Anyone remember the U.K. Department for Transport financial chart that included “the real value of time”? If time can be shown to have a specific value, I wouldn’t mind buying a couple of extra centuries (with my bee money), as I’ve always fancied being an Immortal. But the desire to count non-tangibles is human nature. I’m sure when Asia invented double-entry bookkeeping 2000 years ago (it was called Bahi-khata then), someone would have suggested that accountants include the number of clouds drifting by or the exact measure of the radiance of the empress’ smile, etc. And while it’s true that financial professionals have always focused on counting stuff that can be counted, we still agree with the famous statement by American sociologist William Bruce Cameron in 1963: “Not everything that counts can be counted.” Now before you write to correct me, I know full well that much of the Internet attributes this quote to Albert Einstein. But you should never make the mistake of believing anything that you read on the Internet, unless you are reading this on the Internet, in which case, this sentence is the sole exception. “About five or six years ago a report from the Centre for Science and the Environment in India said that a single hamburger with all associated non-tangible costs included would be US$200.” Still, business types should listen to artistic individuals, for their offbeat, creative ideas. Case in point: U.S. comedian Stephen Wright asked, “If all the nations in the world are in debt, where did all the money go?” I have no idea, but total world debt is currently US$233 trillion, so it has to be in a really big isolated space, like the middle of Australia. When my bee money arrives, a shovel and a ticket to Alice Springs might be a good investment. 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.