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.