What lies ahead?

acca conferences: the economy discussed

Beating Burnout career tips on staying stress-free

Practice the lure of virtual firmsSolutionS accounting advice

introvertS not loud, just proud

CPdget verifiable cpd units by reading technical articles

shoW me the moneythe challenge of financing china’s film industry

al gore’s 2020 vision corporate reporting and sustainable capitalism

interview dr Xu yugao, cnooc Enertecheurozone assessing software risktechnical ifrs amendments

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the magazine for business and finance professionals accounting and business china 07/2012

CN_cover.indd 1 14/06/2012 18:29

ACCA (Trim:192x260mm/Bleed:198x266mm)Ads-JulyAug12.indd 4 12/06/2012 15:11 Ads-JulyAug12.indd 5 12/06/2012 15:11AP_covers_JulyAug12.indd 1 15/06/2012 12:37

TOWARDS TRUTHThe former US vice president, Al Gore, on ways to accelerate the transition towards sustainable capitalism by 2020.Page 24

DOMINO EFFECTA break-up of the eurozone could well have an impact on business systems – but with so much uncertainty risk-assessment is no easy feat. Page 28

ACCOUNTING FOR THE FUTURE

Join ACCA for a one-week live and on-demand event from 8 to 12 October. Topics will include sustainability, investors, corporate reporting and risk management. www.accaglobal.com/accountingforthefuture

BIG AMBITIONS?For your next move, go to www.accacareers.com/china-hong-kong

In order to create greater value across business, the fi nance professionals of the future must be equipped with a broader range of skills to enable their involvement in strategic decision-making. So says Dr Xu Yugao FCCA, CNOOC EnerTech’s CFO. Page 12

SCREEN SAVEROn the cover of this month’s issue is a scene from Avatar, the 2009 epic science-fiction film directed by Canadian-born director James Cameron. Avatar became the highest grossing film of all time, with worldwide box-office takings of US$2.8bn, while in China, screenings raked in almost US$85.6m in the first 15 days.

While on a visit to Beijing in April, Cameron remarked in an interview with Reuters that he is looking into co-production of films in China. Cameron isn’t the first Hollywood director to cosy up to China. According to Reuters, the next film in the Marvel comic-strip series Iron Man will be co-produced in China under a joint agreement between The Walt Disney Company, Marvel Studios and DMG Entertainment. Disney has also said it would work with China’s Ministry of Culture and Tencent Holdings to promote the animation industry in China.

This is gladdening news for China’s burgeoning film industry, which would benefit enormously from Hollywood know-how. Co-production isn’t a one-way street, though. Earlier this year, Chinese vice president Xi Jinping visited the US and agreed to a deal to increase the annual quota of foreign films to China from 20 to 34, raising the prospect of greater box-office takings for the Hollywood studios.

According to EntGroup, foreign films sold 1.4 billion yuan of tickets in April, compared with 180 million yuan for domestic films. How can the Chinese film industry possibly compete? More to the point, should it?

In May, China Daily reported that Chinese film authorities are considering returning their 5% cut of box-office takings – poured into the National Film Development Fund coffers – to cinemas that show more domestic films. This, along with loans, grants and tax breaks, aims to persuade filmmakers to up their game and offer local audiences domestic films to equal one of the most successful ‘made-in-China’ films, Crouching Tiger, Hidden Dragon. Now that would be something to rival the ubiquitous Hollywood blockbuster.

You can read more in our cover story on page 16.

Colette Steckel, colette.steckel@accaglobal.com

3Editor’s choice

CN_B_Edletter.indd 3 14/06/2012 18:30

Audit period July 2009 to June 2010138,255

Asia editor Colette Steckelcolette.steckel@accaglobal.com +44 (0)20 7059 5896

Editor-in-chief Chris Quickchris.quick@accaglobal.com +44 (0)20 7059 5966

International editor Lesley Boltonlesley.bolton@accaglobal.com +44 (0)20 7059 5965

Chief sub-editor Eva Peaty

Sub-editors Dean Gurden, Peter Kernan, Vivienne Riddoch

Design manager Jackie Dollar

Designers Robert Mills, Jane C Reid

Production manager Anthony Kay

Advertising Jennifer Lukjennifer.luk@LexisNexis.com +852 2965 1432

Head of publishing Adam Williams

Printing Times Printers

Pictures Corbis

Editorial board Rosanna Choi, Jimmy Chung, Andy Lam, Arthur Lee, Derek Poon, Anthony Tyen, Fergus Wong, Davy Yun

ACCAPresident Dean Westcott FCCADeputy president Barry Cooper FCCAVice president Martin Turner FCCAChief executive Helen Brand OBE

ACCA Connectmembers@accaglobal.com +44 (0)141 582 2000

Features12 Team playerDr Xu Yugao FCCA, CNOOC EnerTech’s CFO, describes his holistic approach

16 The bigger picture In order to succeed, China’s fi lm industry should stop playing safe

20 Long-distance eventInternational sports fi xtures can be lucrative for host nations – if they’re well organised

22 Costing the earth The recent Earth Summit in Rio highlighted the key role of business in sustainability

24 A question of integration Compulsory integrated reporting is vital for sustainable capitalism, says former US vice president Al Gore

28 Business as usual? The fate of the eurozone will have a major impact on business systems globally

VOLUME 15 ISSUE 7

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Accounting and Business is published 10 times per year. All views expressed within the title are those of the contributors.

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AB CHINA EDITIONCONTENTSJULY/AUGUST 2012

CN_Contents.indd 4 15/06/2012 14:42

BRIEFING06 News in pictures A different view of recent headlines

08 News in graphicsWe show a story as well as tell it using innovative graphs

10 News round-upA digest of all the latest news and developments

VIEWPOINT30 Errol Oh Three (quiet) cheers for introverts

32 Cesar Bacani Finance teams need to re-engage with their analytical skills

40 Dean Westcott It’s time the world woke up to Africa’s economy, says the ACCA president

Regulars

CPDAccounting and Business is a rich source of CPD. If you read it to keep yourself up to date, it will contribute to your non-verifi able CPD. If you read an article, learn something new and apply that learning in some way, it will contribute to your verifi able CPD. Each month, we also publish an article or two with related questions to answer. If they are relevant to your development needs, they can also contribute to your verifi able CPD. One hour of learning equates to one unit of CPD. For more, go to www.accaglobal.com/members/cpd

WorldwideThere are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab

TECHNICAL46 Update The latest from the standard-setters

48 CPD: IFRS amendments A guide to keeping on top of the changes

51 Accounting solutions PwC experts answer questions on business combinations, goodwill and related party disclosures

ACCA NEWS56 CPD Become a workplace mentor

57 Bernard Wu The ACCA Hong Kong chairman considers the future of the profession

58 News Conference roundup: all the news from Hong Kong, Guangzhou, Shanghai and Beijing

66 News Student numbers increase considerably, while online customer service satisfaction grows

Your sector33 CORPORATE33 The view from Marilyn Cheung of ikindof.com, plus news in brief

34 Taxing times A roundtable hosted by Accounting and Business and Thomson Reuters looks to the future

38 Fair share Companies are not making the most of what outsourcing has to offer

41 PRACTICE41 The view from Sajjad Akhtar of PKF-CAP, plus news in brief

42 Virtual reality The rise of the online accountant presents exciting opportunities

CAREERS52 Get happy! Feeling stressed? Help is at hand with our top tips

CN_Contents.indd 5 15/06/2012 14:52

01A bird flies past as Venus crosses

between the Earth and the Sun, viewed from Beijing on 6 June. The planetary transit will not occur again until 2117

02 CEO of new no-frills airline

Scoot, Campbell Wilson (right), poses with his team after announcing the launch of the company, a subsidiary of Singapore Airlines

03 Shanshan Feng of Guangzhou

became the first-ever golfer from mainland China to win a major event, after winning the the LPGA championship

News in pictures6

AP_B_newsinpix.indd 6 14/06/2012 14:55

04 Singapore’s iconic Merlion

went under wraps on 15 June to allow its 40th birthday makeover to take place. The statue will be unveiled on 15 September after a thorough clean-up

05 Rock star and human rights

campaigner Bono was due to present Myanmar opposition leader Aung San Suu Kyi with Amnesty International’s Ambassador of Conscience award on 18 June in Ireland, during her first international tour in 24 years

06 A £400m bid by Malaysian

companies SP Setia and Sime Darby beat off challenges from 14 other bidders, including Chelsea Football Club, for the rights to London’s Battersea Power Station

07 Protesters in Barcelona

used pots and pans to demonstrate against the Spanish government’s agreement of a €100bn bailout of its banks by other eurozone countries

7

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1,432411345270200

14.3%11.8%5.0%3.6%3.2%

HOPE GROWS THAT GOOD TIMES ARE IN SIGHTCFOs in Singapore are still cautiously optimistic about economic growth prospects, with nearly half (47%) of them saying they expect to see economic expansion in the city-state next year. Sentiment among CFOs in many other Asia Pacific countries was even more positive, according to Global Business and Spending Monitor 2012. This fifth instalment of American Express/CFO Research’s global survey captured the views of 541 senior finance executives. Three-quarters (74%) of Singapore CFOs say they anticipate Singapore probably returning to robust economic growth in the third and fourth quarters of 2012.

ASIA PACIFIC RICHER THAN EUROPE BY 2016By 2016, the Asia Pacific region (excluding Japan) should eclipse both Western and Eastern Europe combined in wealth terms, according to Boston Consulting Group’s (BCG) Global Wealth 2012 report. Wealth in the region is expected to continue growing by double digits annually, with a projected compound annual growth rate of 11.1%, reaching US$40.1 trillion by the end of 2016. These gains, according to the report, should be driven largely by sustained GDP growth in China and India and overall stronger stock market performance.

The growth in wealth is reflected in an increasing number of millionaires in the region. While the number of millionaire households decreased by a combined 182,000 in the US and Japan last year, globally the number grew by 175,000, predominantly in developing countries, and China and India in particular.

The total number of millionaire households reached 12.6 million by the end of 2011, making up about 0.9% of the households in the BCG sample.

Singaporeans are richer than Qataris or Swiss, in terms of millionaire density.

53%The number of CEOs who see lack of skills as a major challenge, according to a PwC talent survey.

14THMalaysia’s ranking in the league of most competitive economies in the world.

HK$15BNAnnual tax take generated by Hong Kong Jockey Club.

21.3%The month of May saw GM China post a new record rise in car sales.

Mon

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CHINAUKGERMANYITALYFRANCE

QATARKUWAITUAEISRAELBAHRAIN

HOUSEHOLDS (000s) HOUSEHOLDS (%)

MILLIONAIRE COUNT CONTINUES TO RISE

AUSTRALIA

SINGAPORE

JAPAN

U

NITED STA

TES

IN

DIA

36%

47%

69% 78%

86%

5,134

1,587

3224.3%

9.5%

8.8%

2.9%

3.2%

5,1345,134US

1,5871,5871,587Japan

322Switzerland

Singapore

3.2%Taiwan

8.8%8.8%8.8%8.8%8.8%8.8%Hong Kong

SingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingapore188

TaiwanTaiwan246

SingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingaporeSingapore

17.1%

Hong Kong212

News in graphics8

AP_B_graphics_08.indd 8 14/06/2012 14:55

81%Japan

23%China

49%United States

11%UnitedKingdom

25%Canada

35%Hong Kong

51%Bulgaria

2%Ireland

14%Czech

Republic

37%Singapore

50%Australia

34%Hungary

FISHING FOR TALENTAs the graphic shows, a substantial proportion of employers around the globe identify a lack of available skilled talent as a continuing drag on business performance. The global average is 34%.

According to ManpowerGroup’s 2012 talent shortage survey, shortages are most acute in Asia Pacific, particularly in Japan, where an ageing workforce exacerbates the problem. Surprisingly, despite the ongoing acute level of talent shortages, employers express notably less concern than they did last year about the impact that shortages have on key stakeholders such as customers and investors – perhaps representing a new normal. Accounting and finance staff ranked sixth in the top 10 jobs that employers are finding difficulty in filling.

Mon

th

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9

45%Almost half of financial institutions surveyed by consulting firm Protiviti say that extraterritorial compliance (such as FATCA, Dodd-Frank, Sarbanes-Oxley and Solvency II) now accounts for between 10% and 25% of their compliance budget.

WHO’S KING OF THE COMPETITIVE HEAP?IMD’s world competitiveness rankings for 2012 show the continuing power of the US, and success for the fiscally disciplined European economies of Switzerland, Sweden and Germany. Also clear is the inability of emerging economies to escape the turmoil elsewhere: mainland China, India and Brazil all fell back (to 23rd, 35th and 46th respectively), while Russia moved up just one place to 48th.

1 HONG KONG (1)

2 US (1)

3 SWITZERLAND (5)

4 SINGAPORE (3)

5 SWEDEN (4)

6 CANADA (7)

7 TAIWAN (6)

8 NORWAY (13)

9 GERMANY (10)

10 QATAR (8)

11 NETHERLANDS (14)

12 LUXEMBOURG (11)

13 DENMARK (12)

14 MALAYSIA (16)

15 AUSTRALIA (9)

16 UAE (28)

17 FINLAND (15)

18 UK (20)

INT_B_graphics_09.indd 9 14/06/2012 15:10

BRAKES ON ASIAN IPOS Motorsport company Formula One has delayed its Singapore initial public offering (IPO), worth up to US$3bn. This was the fifth big Asian IPO to be postponed or pulled in a week, as weak markets brought the global market for new listings to a halt. Worldwide, money raised from stock market flotations has slumped 46% so far this year compared with the same period in 2011, with investors wary of the eurozone crisis, China’s economic slowdown and the botched Facebook IPO.

NOT PLAYING BALLThe High Court has ordered Hong Kong businessman Carson Yeung Ka-sing, owner of England’s Birmingham City Football Club, to vacate and hand over a HK$300m property on The Peak to a bank within 56 days after he failed to repay a loan. The court heard the tycoon mortgaged his luxury house to Wing Hang Bank in 2010 for HK$50m – and was unable to repay the loan after his assets were frozen. Yeung, charged with involvement in a HK$700m money-laundering case, is due to appear in court in November, The Standard reported. Yeung’s lawyers have previously told media that their client intends to plead not guilty.

HK STUDENTS WIN KPMG TITLEA team of four students from The University of Hong Kong won the 2012 KPMG International Case Competition, beating teams from Spain, Sweden and Vietnam. It was the first time the event was hosted in Asia. The challenge, a global student recruitment initiative, drew some 6,000 students from over 300 universities in 24 countries to compete against each other, developing solutions to realistic business scenarios.

OLYMPICS PUTS UK ON MAPMiddle-class consumers from China and India are more likely to want to visit Britain as a result of publicity surrounding the Olympic Games, a Deloitte survey has found. More than 60% of respondents said they would buy more British products, and 77% want to learn more about the UK. Graham Pickett, head of travel, hospitality and leisure at Deloitte, said: ‘London 2012 clearly provides a direct opportunity for consumer businesses. However, the potential is there for a longer-term benefit too.’

LISTING RULES SET TO TIGHTENAfter completing their respective public opinion surveys on drafts of new delisting requirements, the Shanghai

and Shenzhen stock markets are due to enforce stricter rules for listed companies. The moves are aimed at improving market fairness. ‘The new rules aim to improve the quality of listed companies and strengthen protection for investors. But for them to be effective, there should be not only stricter supervision by the regulators, but also more supervision from the public and more involvement by the media,’ said Li Yongsen, a researcher at Renmin University of China’s Financial and Securities Institute.

MALAYSIA REINS IN DEBTMalaysia’s national debt will not exceed 55% of gross domestic product as part of prudent financial management policy, prime minister Najib Razak said at the opening of the Invest Malaysia 2012 conference. The government has also taken steps to reduce its fiscal debt in line with its commitment to ensure further growth, he said. Five new initiatives were announced to spearhead growth, especially in capital market development. The focus will be on small and medium-sized businesses, marketplace innovation and the development of new talent.

CHINA CONSIDERS GREEN POLICYChina is considering imposing a consumption tax on high-polluting, high-resource consuming products, according to sources close to the Ministry of Environment Protection. An unnamed official has told media that ‘green tax reform’ is one of eight measures being mooted during the 12th Five-Year Plan period (2011–15) to promote a greener economy. He said banks should also adopt a green credit policy to give favourable loans to green enterprises and limit credit access to high-polluting and high resource consuming enterprises.

AUSTRALIAN GROWTH RATE SOARSAustralia’s economy has ‘gone into overdrive’ as consumers spend large amounts on discounted retail goods and business investment soars. Treasurer Wayne Swan described the annual growth rate of 4.3%, the fastest

BIG FOUR UPBEAT ON CHINAPwC and Deloitte have reaffirmed their commitment to China. PwC chairman Dennis Nally said the firm will continue to expand its business in China, as it is positive about the country’s economic outlook.

‘We see two opportunities for PwC in China. One is to continue to help multinational companies to invest in China,’ Nally said. ‘Secondly, as Chinese companies continue to develop, helping them to go into new markets and understand local customs, rules, regulations.’

Deloitte CEO Barry Salzberg noted the ‘great opportunity’ China offers. Over the next three years, Deloitte is investing a fifth of its total expansion capital (US$750m) in China alone.

Deloitte CEO Barry Salzberg

10 News round-up

AP_B_newsroundup.indd 10 14/06/2012 14:54

P22

in four years, as ‘stunning’. ‘These figures send the loudest possible message to the world that Australia is the strongest performing developed economy, bar none,’ he said.

BANKS CALLED TO INNOVATEThe rapid growth of the Chinese banking industry may be hard to sustain due to the slowdown of the national economy, steady advances in market-oriented interest rate reform and tightened capital restrictions, an Ernst & Young report, 2011 Review of China’s Listed Banks and Outlook, has found. It concluded that Chinese banks must make it a top priority to change patterns of development, promote business transformation and offer diversified banking services to meet the needs of the real economy.

LAW SIGNALS END OF JVSGlobal audit firms in China would be required to take on more local hires under new regulation announced by the Ministry of Finance. The change means only partners with local qualifications will be eligible for top positions. The Big Four were among the first foreign accounting firms to set up joint ventures in China in 1992. Paul Gillis, an accounting professor at Peking University’s Guanghua School of Management, said that the phase-in period for the new rules (up to March 2018 in some cases) would give the firms plenty of time to adjust.

SECOND TAX PILOT ANNOUNCEDBeijing has announced a pilot programme to replace turnover tax with value added tax, to accelerate structural adjustments in the economy. The capital will be the second trial zone after Shanghai, and also focuses on the transport and service industries. A rate of 11% may be approved for the transport business while most modern service companies are likely to pay 6%. The government has vowed to accelerate the expansion of tax reform. So far, 10 provinces and cities have applied to do so, including Tianjin, Chongqing, Jiangsu and Fujian.

MORE WORKERS TO GO MOBILEForty per cent of the workforce in Asia Pacific excluding Japan (or 838.7 million employees), will be mobile workers by 2015, according to a report by the International Data Corporation. The report defines office-based mobile workers as those who spend most of their time in the company-provided office but who also sometimes work at home or in a third place. Tim Dillon,

IDC’s associate vice-president for Asia Pacific end-user and mobility research, said: ‘The convergence of devices, networks and applications has changed the expectation of any time, any device, anywhere.’

INVESTORS PART OF SUPER-RICHBusiness owners, real estate investors and professional investors are the wealthiest people in Shanghai, according to the Shanghai Wealth Report 2012, published by Hurun Report and the Australia-based independent financial adviser Gao Fu Wealth Management. The report found 370,000 people with 6 million

yuan (US$950,000) living in Shanghai today, or one in 65 people in a city with a population of 23 million. A total of 140,000 people in Shanghai have personal assets of 10 million yuan, an increase of 6.1% on last year, accounting for 13.7% of China’s high net worth individuals. Of the 8,200 ‘super-rich’ individuals in Shanghai, with assets worth 100 million yuan, 75% are business owners. Real-

estate investors account for 15%, and professional investors 10%.

CYBERCRIME ON THE RISECybercrime has risen over the last year to become the second most commonly reported economic crime affecting companies in the financial services sector, after asset misappropriation, which remains the most popular way of defrauding an organisation, according to PwC. ‘Recent cyber attacks have highlighted the risk to companies, with organisations having sensitive information assets damaged and/ or stolen,’ said Samuel Sinn, PwC China’s risk and controls solutions partner.

TARGETS PUT ETHICS AT RISKPressure to meet revenue growth is undermining senior executives’ commitment to compliance with policies and laws, according to Ernst & Young’s 2012 Global Fraud Survey, Growing Beyond: A Place for Integrity.

Close to half (48%) of Singapore respondents said that entertainment can be justified to win or retain business – a sharp increase from the 2% in 2010. Other ‘worrying signs’ include an increase in the number who stated that cash payments (20%, up from 12% in 2010) and personal gifts (12%, up from 2% in 2010) can be justified to win or retain business.

And while bribery does not appear to be as widespread in Singapore as elsewhere, the willingness of respondents to pay bribes or misstate financial performance for their business to survive the economic downturn has increased since 2010.

11AnalysisCARNIVAL OF IDEASThe Earth Summit in Rio highlighted that a responsible approach to sustainability is in the long-term interests of companies and their shareholders – and integrating material sustainability information into corporate reports should be key.

AP_B_newsroundup.indd 11 14/06/2012 14:54

12 CFO interview

CN_F_XuYugao.indd 12 14/06/2012 14:57

Dr Xu Yugao is the executive vice president and CFO of China National Offshore Oil Corporation Energy

Technology & Services (CNOOC EnerTech). CNOOC is China’s largest producer of offshore crude oil and natural gas, and one of the largest independent oil and gas exploration and production companies in the world. Here he tells Accounting and Business how globalisation and the emergence of China as an economic power has impacted on his role.

Q What attributes do you feel are essential to be an effective and respected senior finance professional of such an organisation?A The CFO controls the lifeblood of the organisation and is the gatekeeper for outbound money so three attributes are key. The first is integrity and relative conservatism in order to know which road to pick when facing risks and attractive opportunities.

The second is a strong capability in coordination and communications. Nowadays, enterprises are operating in a more uncertain and complicated environment so the CFO needs to be good at traditional internal accountancy issues but must also tackle mounting outside pressures from policymakers, the media, investors or even non-governmental organisations.

The third attribute is the motivation to learn new things. We live in a fast-changing world due to new technology, geopolitical movement and demographic changes. To be a senior financial professional you have to understand the risks and opportunities brought about by such changes.

Of course, other attributes are also important but these three are the fundamentals.

Q What challenges do you face? A My company provides services and solutions to E&P [exploration and production] companies and also produces fine petrochemicals. While the majority of our business is located in China, we are starting to go into selective international markets.

The first challenge for me is in adapting the finance function to the changing business world. We operate in emerging markets where political, social and economic structures are experiencing major changes. Such macro-economic volatility poses great challenges for business – for example, compliance risks, incremental costs imposed by new laws and the like. The CFO needs to build a trusted financial system in order to maintain confidence in the integrity of financial reporting, controls and transaction processes.

The second challenge is talent development. Within my team of about 600 professionals, many of the older

members do not hold degrees but have been educated through practical experience, whereas the younger employees – who are often quicker to adapt to new rules, systems and technology – do not necessarily have a wide enough background to cope with the present business requirements.

In a context of uncertainty, the role of the financial department is becoming more and more prominent in strategic decision-making. You have to equip your financial employees with the broader range of skills to create greater values across business activities.

Q Are there any particular accountancy issues that are of significance within your organisation? How are you dealing with them? A Two things come to mind. The first is accounting for R&D [research and development] tax credits. In 2008 the government introduced a 150% pre-tax ‘superdeduction’ that can be claimed on qualifying R&D expenditure. However, there were issues over consistency across departments within the business, from R&D project approval and budgeting to project completion and accounting treatment.

I initiated a business process re-engineering team to streamline accounting activities that involved the R&D function, particularly tax crediting. This is just one integral

AN INTEGRATED APPROACHToday’s fi nance professional must be prepared to be involved in organisations’ strategic decision-making, explains Dr Xu Yugao, CNOOC EnerTech’s CFO

13

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Why do you think this, and how is CNOOC demonstrating its policy on environmental best practice?A Carbon accounting is a new topic for CFOs, even though 2012 is the last hope for reaching a new agreement to combat global warming following the Kyoto Protocol, and the carbon credit price is as low as three to six euros/ton CO2 equivalent (certified emission reductions) and six to 12 euros (European Union allowances).

The fact is that we have been consuming too much fossil fuel, giving rise to environmental pollution locally and globally. China has announced a voluntary commitment to lower the carbon intensity of its gross domestic product by 40% to 45% by 2020. Several regional environmental exchanges have begun to trade carbon credits in China, and the government is to launch a pilot carbon trading system in the power sector. Therefore, even without global agreement, environmental pressure has become a new driver for change in the business world.

CNOOC first identified the importance of carbon control over 10 years ago, and has been in constant dialogue with international peers. Internally, we have been developing new technology to improve energy efficiency and to operate flare gas recovery systems, a method of utilising waste gas. In the future, we will increase our less carbon-intensive business such as LNG [liquefied natural gas] and renewable energy.

Q You joined CNOOC in 2002. How have you and the company changed over the years? A Over the past 10 years I have witnessed my company going through a thorough transformation – from strategy to management philosophy, from talent structure to business lines. The company is diversified, covering catering, information technology,

The basics CNOOC Founded in 1982, state-owned China National Offshore Oil Corporation (CNOOC) is the largest offshore oil and gas producer in China. It has evolved from an upstream oil and gas exploration company into an energy group with six divisions: oil and gas exploration and development; professional and technical services; oil refining, chemicals, fertilisers and sales; natural gas and power generation; financial services; and new energy resources.

CNOOC Energy Technology & Services (CNOOC EnerTech) is one of three technical services subsidiaries and was founded in 2008 with a registered capital of 6 billion yuan. Formerly CNOOC Oil Base Group, the company consists of 11 specialised branch companies providing technical services for oil exploration and production, petrochemical and refining, natural gas power generation, liquefied natural gas and chemical derivative production.

In 2009, CNOOC EnerTech formed four core business segments: energy operations and maintenance services; energy comprehensive services; fine chemical products and healthcare; and environment protection services.

All 11 companies recorded profits of 100 million yuan in 2010, making an increasingly significant contribution to the differentialised, stable service, sustainable enterprise reform and economic growth synergy values of the group.

link in the process, contributing to the fulfillment of the next link. Every person cares about the company’s target, not just his own department’s, and this illustrates the seamless integration of business activities and accounting.

The second issue concerns cost accounting. Our previous accounting methodology was oriented towards budgeting and results and did not pay much attention to the process activities, so we didn’t undertake effective cost accounting for clients’ work. Therefore, when we tendered for projects, we did not know in advance whether we could make money or not. It was just like God’s dice.

To solve this problem, I launched a cost accounting project two years ago. My intention was to break down all business lines into the lowest level of units with an easily identified cost structure – an approach similar to the activity-based costing (ABC) model. Now that we have detailed information on our standard business units, we are becoming more confident when setting bid prices for contracts.

These two issues inspired me to move my attention to management integration. Nearly all accounting procedures start from the business activities and end at the financial department. Therefore, the CFO should adopt a holistic approach and keep their eyes on non-financial departments including engineering, design, project management and R&D management.

Q During a recent ACCA/KPMG roundtable on carbon accounting, you stated that carbon accounting should form part of corporate strategy.

THE CFO SHOULD ADOPT A HOLISTIC APPROACHAND KEEP THEIR EYES ON ENGINEERING, DESIGN, PROJECT MANAGEMENT AND R&D MANAGEMENT

14

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The CVBorn in 1969, Dr Xu Yugao graduated from Beijing’s Tsinghua University with a degree in engineering in 1993. In 1997, after completing a PhD in systems engineering focusing on global climate change policy and economics, he was employed as assistant professor at Tsinghua University’s Development Research Academy for the 21st Century, before moving to Massachusetts Institute of Technology in the US where he was awarded a Master’s degree in 2002.

In the same year Xu returned to China and joined CNOOC’s China Oilfield Services (COSL) company, and was responsible for media-related issues when COSL was preparing for an initial public offering on the Hong Kong Stock Exchange. In 2003 he became policy analysis manager in CNOOC’s development research office where he was involved in the restructuring strategy for unlisted assets of the logistic and onshore supporting business.

Xu became CFO of CNOOC Oil Base Group in 2004 and led the creation of a financial management system for the company, launching projects including cash pool and total budgeting systems. In 2008 he became executive vice president and CFO of the newly created CNOOC EnerTech, joining its executive board.

human resources, engineering, FPSO [floating production storage and offloading] and petrochemicals. However, four segments have grown the quickest and dominated business growth, namely operational services, specialised shipping, fine petrochemicals and logistics.

The financial performance of CNOOC EnerTech has also been enhanced. Annual compound growth of revenue is about 21%, growth of EBIT [earnings before interest and tax] is over 30%, and last year’s turnover amounted to nearly 30 billion yuan. During the same period, CNOOC became an increasingly integrated oil company and downstream revenue now exceeds upstream.

The LNG business started from scratch in 2003 and has grown into a pillar of the group. Last year CNOOC imported more than 10 million tons of LNG from international markets and was well positioned to compete in the market. While it has developed around offshore China, its operational area has extended to more than 10 countries and it is well equipped with technological capabilities to operate in deep-sea water. Accordingly, CNOOC has grown almost sixfold in terms of revenue in the past eight years and is

ranked 162nd in the Fortune Global 500; it was not even listed in 2002. In a nutshell, my company and CNOOC as a whole has benefited from the strong economic development of China and globalisation of capital and production.

Q You are clearly very busy with your career; how do you relax?A Even though my schedule is tight, I try to keep a balance between work and life. Basically, I would say I live a relatively regular and simple life. I usually go to sleep before 11pm and get up at 6.30am, and I’m in the office by eight.

In my spare time I love reading about the history of different countries. Reading can immerse you completely into the subject; you forget all the troubles of the moment.

The second way I relax is by practising Chinese calligraphy – a hobby I have enjoyed for nearly 30 years. The combinations of lines and dots are the symbols of the feeling of artists; its function is similar to that of tai chi and it is of great help to my health as well as my personality.

Dr Xu Yugao was interviewed by Colette Steckel, Asia editor, Accounting and Business

I TRY TO KEEP A BALANCE BETWEEN WORK ANDLIFE. I LOVE READING; READING CAN IMMERSE YOU,YOU FORGET ALL THE TROUBLES OF THE MOMENT

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Avatar, the Hollywood-made 3D extravaganza, was a huge hit in China in 2010, easily eclipsing the domestically

produced Confucius, a history of the towering figure of Chinese ideology, which premiered around the same time. While Avatar became China’s all-time top-grossing film, Confucius turned out to be a flop, underscoring the uniqueness of China’s film market.

China’s national news agency Xinhua reported at the time that Avatar made about US$100m in its first three weeks of release in China, about US$4.7m per day. Confucius, meanwhile, made about a third of that in its first three days and less afterwards.

‘They were selling tickets to Confucius, crossing out the name and writing ‘Avatar’ on it,’ says David Bandurski, a well-known China watcher who has produced three low-budget films in the country that have earned praise at top-tier international film festivals. The ticket-swapping was, he says, used to boost the recorded viewership numbers for the domestically made film.

Only a handful of made-in-China films have been huge blockbusters on the international market. In 2001, Crouching Tiger, Hidden Dragon did amazingly well. The vast majority, on the other hand, go mostly unnoticed. Nobody – literally – showed up to a recent screening in New York of the 2009 film The Founding of a Republic, an epic made to commemorate China’s 60th anniversary.

The difference in appeal underscores the unique nature of China’s film industry – one that is marked by a strange dichotomy. On the one hand, the industry is growing by leaps and bounds as the push to expand the country’s soft power steers more funds into films through loans, grants and tax breaks. On the other, it is sorely lacking in quality.

In 2011, China produced 385 animated films, up 28% from 2010, according to the State Administration of Radio, Film and Television (SARFT).

The recent rise is staggering. In 2005, box-office receipts in China were a mere US$230m. In 2010, they topped US$1.6bn, up 64% from 2009 but still a fraction of the US$10.6bn the industry generated in the US and Canada that year.

Chinese filmmakers no longer need Western audiences to turn a profit. A successful domestic film can do reasonably well financially. But then, it is all about how the bar is set. A film that earns US$15m is a massive hit, whereas it would likely be a flop in the much larger markets in the US and India.

‘There has been a lot of activity and a lot of interest recently but it is still a tough environment to work in,’ says Michael McDermott, a Hong Kong-based producer who works mostly in China. But the other side of

this coin is a regulatory minefield that stifles quality filmmaking and results in an onslaught of one-dimensional films approved by the government.

Quality or quantity?Producers say that the quality of films is not rising alongside the money, even as authorities make a big push for cultural development through tax incentives, loans and official backing for more theatres, more effective distribution and more movies, films and television dramas.

Perhaps the best gauge of how much the film industry in China is growing is the Shanghai International Film Festival (SIFF), held every year in June. This year was the 15th and at the time of writing, some 300 films were due to be shown in 33 theatres. The festival

Filmmaking in China has never been better supported fi nancially. But is the homegrown industry up to the job?

READY TO ROLL?

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Movie magic: the UK’s Royal Philharmonic Concert Orchestra performed music from the movie Avatar during the closing ceremony of the Beijing International Film Festival in April. In 2010 Avatar made about US$100m in its first three weeks of screening in China

has grown considerably but it still often goes unnoticed, and tight controls on what can be shown keep a number of international films away.

Creating the conditions for stronger service and cultural industries is at the heart of China’s ongoing tax restructuring, which directly impacts the domestic film industry. For the time being, taxes are higher in China than in the US. There are some preferential tax policies but, to date, they only seem to apply to state-owned companies, new theatres and rural film companies. Corporate income tax for most film companies can be as high as 25%.

Box-office earnings have to pay another 3% tax plus a 5% levy for the Film Development Fund.

On the other hand, ongoing tax restructuring may offer some relief for cultural and creative industries. A trial run for a value added tax (VAT)in Shanghai includes some breaks for service providers such as animators, and the tax should be rolled out nationwide in the near future; a trial for Beijing was due to start in July. And in January, the government said that it would continue with VAT refunds for the animation industry at least through 2012, part of an effort to

attract more outsourcing work from the larger studios.

In October 2011, central authorities adopted a set of guidelines urging the development of cultural industries. Companies that develop and make animation software products are currently liable for 17% VAT but the portion beyond a 3% passed on to consumers is still refundable, the Ministry of Finance said in a January statement.

An approving environmentA number of banks, such as Bank of Beijing, China Merchants Bank and Minsheng Bank, all provide loans for film projects but they typically only finance blockbusters with all the necessary government approvals, says Peng Kan, a graduate researcher at Hong Kong Baptist University. These include films such as Assembly, Thirteen Beauties and Flying Swords of Dragon Gate. Smaller film projects have far less access to financing.

Financing a film in China can be difficult, producers say. Beyond the difficulties of convincing investors to put money into a project that may ultimately generate no returns, the environment in China is highly politicised. ‘That is one of the things that make it complicated in China,’ says McDermott.

Films with a government seal of approval and the right to be distributed throughout local theatres can easily find funding. The challenges are on the distribution side. Steve Dickinson, a partner at law firm Harris & Moure in Shanghai and co-author of the authoritative China Law Blog, says that films have to go through a series of hoops before ever being shown in the

CHINESE FILMMAKERS NO LONGER NEED WESTERNAUDIENCES TO TURN A PROFIT. A SUCCESSFULDOMESTIC FILM CAN DO REASONABLY WELL

READY TO ROLL?

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country. Films produced in China first need a Film Production Licence, which requires script approval by SARFT. The same agency then reviews the film once it is complete before issuing a Film Public Screening Licence. Without such a licence, no film can be publicly shown.

A draft of a new Film Industry Promotion Law is currently being circulated for comments. The law keeps the same requirements in place.

On the other hand, there is enough funding around to support some

16 major studios and about 32 distribution companies, along with tens of thousands of smaller studios, animation houses, production houses and service providers.

The structure of financing has changed a lot in the last few years, says Margaret Pu, an assistant programme director at SIFF. Nowadays, up to five production companies are involved in a single film, compared to just one or two just a few years ago. At the same time, as few as 10% of some 500 films made in China every year

are ever released in theatres and only about half of these make money.

In the grand scheme of things, says producer Lorna Tee, there are a lot of opportunities in China to make movies. But funding depends on the packaging and the names attached to the project.

With new screens cropping up almost daily and hundreds of millions of people who will pay US prices to get into a movie, filmmaking in China is poised to grow – and grow fast.

Alfred Romann, journalist

Ironically, while box-office receipts are growing, the number of people going to see films at the theatre is fraction of what it was a couple of decades ago. There were some 29 billion cinema visits in 1977. The number now ranges between 250 and 350 million. But back then, there were no DVD players or even VCRs. Cinema theatres were small but popular and not high-tech. The story today is the exact opposite. Movie theatres are flashy, top-of-the-line multiplexes, and the largest operator in the world is now a Chinese company.

In May, real estate-to-entertainment conglomerate Dalian Wanda Group bought US theatre operator AMC for US$2.6bn in the largest acquisition in history of a US company by a Chinese group. Wanda now owns 86 theatres with 730 screens.

The acquisition also underscores a reality of filmmaking in China. There is no shortage of technology or places to show movies but content is often lacking. There are now 9,286 film screens in China, a 42% increase in 2011 alone,

according to the American Chamber of Commerce in China. Last year, regulators raised the number of foreign films

that could be imported and shown on domestic screens; imports were limited to 20 films that could be shown on a revenue-sharing basis and another 30 on a flat-fee basis. And in February, China agreed to allow another 14 films made in 3D and large formats like IMAX. The government also raised the maximum that foreign films could claim from domestic revenues to 25%, up from a maximum of 17.5%. The new rules, agreed with the US, also commit to allowing more independent films and allow new distributors to enter the market.

Only a few films are shown in theatres. Most are made by the China Film Group, a state-run company that produces about 30 cinema-release and 100 television films a year, plus 400 television plays. Most films go straight to DVD or are shown on a state-run television channel. China Film Group is the sole importer of films into the Chinese market.

*THE BIGGER PICTURE

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In 1851, when Prince Albert wanted to advertise the power of his wife’s empire, he decided to hold the Great Exhibition,

advertising it as displaying the works of industry of all nations. Culture featured as well, with Charlotte Brontë, Lewis Carroll, and George Eliot taking part, but there was no sport.

Today, a monarch’s spouse harbouring similar thoughts would almost definitely urge the government to bid for an Olympics or a World Cup. Indeed, as Queen Victoria’s great, great granddaughter celebrates her 60th year on the throne, it is debatable whether the events to mark that occasion will match those on display during the London 2012 Olympic and Paralympic Games.

Modern sporting events are seen by politicians as validating a nation, even one such as Britain. Former prime minister Tony Blair was only persuaded to back London’s 2012 bid when Tessa Jowell, culture secretary, told him that it would be a shame that Britain, with the then fourth largest economy in the world, could not bid for

the Games. Nelson Mandela felt South Africa had arrived when it became the first African country to stage the World Cup, and in Copenhagen in 2009, Brazilian president, Luiz Inácio Lula da Silva, shed tears after Rio won the right to stage the 2016 Olympics. As

he put it, ‘Everybody talks of Brazil as the country of tomorrow. Here in Copenhagen tomorrow has arrived.’

But while such sporting events may have taken over from expos, do they actually promote a nation’s trade? British politicians argue they do, and Britain is estimated to have won £2bn of business at the Beijing Olympics. Five years ago, Lord Tim Bell, Margaret Thatcher’s PR guru and chairman of Chime Communications, bought Fast Track, the sports firm set up by former Olympian, Alan Pascoe. Chime Sports Marketing is now the biggest sports business in

the UK and the fifth largest in the world. Lord Bell says: ‘Expos are old fashioned. Modern sporting events like the Olympics and World Cups do develop business. You only have to see what happened in Sydney or Beijing. Sports brings people together. Governments invest in

infrastructure, roads, transport links and all this contributes to a development of the business.’

Lord Bell’s words are echoed by those who run the British firm PKL, which provides temporary kitchens. Its growth is a fascinating story of how Olympics in one country can develop business in another. For PKL, it all started in 1998. The organisers of the 2000 Sydney Games had come to London searching for firms to construct temporary kitchens. PKL was introduced to them by UK Trade and Investment and constructed a

PLAYING THE GAME

LONDON 2012 IS EXPECTED TO BRING £21BN OFBUSINESS TO BRITAIN. BUT TO BENEFIT, A COUNTRYMUST ORGANISE THIS EVENT WELL

Hosting a large sporting event like the Olympics is a coup for any country, but what are the real benefi ts for business, asks sports journalist Mihir Bose

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temporary kitchen at Sydney. Four years later in Athens, this went up to 30, followed by 26 for Beijing, although the number dropped to two for the 2010 Vancouver Winter Games, and one each for the Commonwealth Games in Delhi and the Youth Olympic Games in Singapore. But for London 2012, the firm is putting in 90 temporary kitchens.

Peter Schad, commercial director of PKL, says: ‘Major, modern, sporting events are the equivalent of the Victorian Crystal Palace exhibition, providing wonderful business opportunities.’

Many countries which have won the right to stage a major event have used it to publicise its expertise. Australia did that very well from the Sydney Games, but there is no evidence South Africa has received similar benefit from the 2010 World Cup.

Model countryBritain has arguably done the best following London’s success in winning 2012, particularly in the fields of public relations and marketing. Brazil, Qatar and South Korea used British know-how to construct their winning bids for the Olympics and World Cup.

One man who can speak with authority is Mike Lee, chairman of

Mihir Bose is an award-winning journalist, author and former BBC sports editor. He writes a weekly sports interview for the London Evening Standard and also writes and broadcasts on social and historical issues. His latest book is The Spirit of the Game: How Sport Made the Modern World. Bose, also a professional accountant, was consulted by ministers in the run-up to London’s bid for the 2012 Olympic Games. Follow him on Twitter @mihirbose

Vero Communications. He set up Vero following London’s 2012 bid, for which he was head of communications. An adviser to three winning bids – Rio 2016, Qatar 2022 and Pyeongchang 2018 – he says: ‘All of them are economically strong and see major sporting events as part of growth. But each of these countries has its own perspective. Qatar, having used its oil wealth to develop, sees the 2022 World Cup as part of economic diversification and to influence the worldwide community. South Korea wants to develop winter sports in the Pyeongchang region where there has also been much regional investment. Brazil, which is an emerging country and the sixth largest in the world, is expected to be the fourth largest by the time Rio hosts the 2016 Olympics. It sees the Olympics, and the World

Cup in 2014, as significant boosts to inward investment, growth of leisure and tourism and announcing to the world that the country has arrived at the top table.’

Brazilian estimates of the business these two major events might attract range from US$47bn to US$100bn. London 2012 is expected to bring £21bn of business to Britain.

But to benefit, a country must organise the event well, which the Indians failed to do with the Commonwealth Games in 2010.

Alan Pascoe, chairman of Chime Sports Marketing, says: ‘Had Scotland pulled out, there might have been a domino effect. In contrast, the Kuala Lumpur Games saw the Malaysian gross domestic product increase, and it provides a benchmark for what such events can do for a country.’

*ABOUT MIHIR BOSE

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The Earth Summit in Rio de Janeiro in June was even more of a focus for the world’s attention than the

first UN Conference on Sustainable Development held in the same city 20 years ago. For one thing, there are about 1.6 billion more people in the world today. For another, the environmental agenda has moved even further towards the centre stage of politics, society and the corporate world.

Moreover, the environmental argument being put forward by mainstream stakeholders now is less about forcing big business to comply with rules, regulations and targets. It is much more to do with making the case that taking a responsible approach to sustainability is, in fact, in the long-term interests of companies and their shareholders.

A group known as the Corporate Sustainability Reporting Coalition (CSRC) has called on countries which attended the so-called Rio+20 event to develop a UN convention. This would require the signatories to compel company boards to think about the sustainability issues that affect them and to report on them in their annual report and accounts.

Institutional fund management group Aviva Investors, the global asset management business of Aviva plc, led the formation of the CSRC, whose

membership includes ACCA. Steve Waygood, chief responsible investment officer at Aviva Investors, says: ‘What we want is the board’s thinking. What we don’t want is the boards to simply delegate to their compliance teams that they need to report information that might be absolutely meaningless to their business.’

Made up of more than 40 financial institutions, non-governmental organisations, professional bodies and investors, the CSRC is looking for an integrated report that brings together the financial and material non-financial information that investors need to get a more holistic picture of a company’s performance.

One of the draft clauses in the Rio+20 final agreement read: ‘We recognise the need for a global commitment on corporate sustainability reporting which promotes and encourages large private and public companies to take sustainability issues into account… and to integrate sustainability information within their reporting cycles.’ Waygood says that, although a step forward, this wording does not give a strong enough commitment to be truly effective.

But overall, what effect does all this have on how corporates treat sustainability reporting?

Rob Lake is director of strategic developments at the UN-backed

Principles for Responsible Investment (PRI), a body led predominantly by pension funds and their fund managers. He says: ‘Significantly better information from companies about their sustainability performance and sustainability risk exposure is absolutely crucial to what PRI investors are trying to do.’ The PRI’s role, Lake explains, is ‘to find new and more effective ways to bring together and support groups of investors who want to take energetic action to exercise influence over companies’.

Different criteriaThe Johannesburg Stock Exchange (JSE) launched a Socially Responsible Investment (SRI) index in 2004. The criteria encompass a range of environmental, social, economic and governance indicators. While recognising that banks are different from mining companies or retailers, the criteria are not themselves specific tonnage targets, for example. Rather, they demand reporting on issues such as commitment

BEATING THE DRUMWith commercially minded investors joining in with ever louder calls for organisations to address sustainability issues, the Earth Summit in Rio highlighted the subject’s growing importance to the business agenda

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Rio calling: countries that do not heed the message risk falling out of step with the latest thinking on integrated reporting.

to use targets, identification of significant impacts, and outlines of processes, responsibilities and action plans.

Corli le Roux, head of the SRI and sustainability at the JSE, notes that take-up from the investor community has to date been slow. ‘There was little understanding of how sustainability could be incorporated into investment decision-making,’ she says. She adds that PRI has helped.

However, le Roux points out: ‘The index has been mostly driven from the issuers’ perspective.’ Between 85% and 90% by market capitalisation of the top 100 JSE-listed companies meet the criteria. While the criteria are continuing to evolve, this figure suggests that companies still have some way to go – and research suggests that JSE companies, for the most part, have yet to take real action by reducing their greenhouse gas emissions, for example.

While sustainability has long-term implications, not every investor plays

the long game. Savvas Savouri, chief economist at London and Dubai-based hedge fund Toscafund, says: ‘You can have those indices until they’re coming out your ears. They will always underperform because you’re putting a constraint on things. If you restrict your [investment] choice set, it will be inferior to a more general choice set.’

Lake says it’s not about pulling out of investments that don’t at present comply, but ‘trying to stimulate a much more productive dialogue between companies and long-term investors so companies understand that they have long-term allies in long-term investors’.

In fact, the evidence is that companies that do well from a sustainability perspective also do well financially. Generation Investment Management, co-founded by former US vice president Al Gore, recently published a paper, Sustainable Capitalism (see page 24), which suggests that environmentally conscientious companies can reduce cost of debt and face lower

capital constraints.In the private equity sphere, a recent

paper by Doughty Hanson & Co and conservation group WWF points to other research that suggests businesses that are committed to environmental, social and governance issues earn higher market valuations. The paper, Private Equity and Responsible Investment: An Opportunity for Value Creation, addresses the chicken-and-the-egg syndrome: ‘Companies lament that investors do not value their sustainability efforts, while investors complain that companies do not report sustainability initiatives in terms that they can value.’

There is still a long way to go. But now, thanks to the CSRC, governments are being called on to do something about the issue.

Andrew Sawers, journalist

A report on the outcomes of the summit will be published in the September issue of Accounting and Business

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Significant progress has been made towards improving the reporting of sustainability metrics, such as the Carbon

Disclosure Project and the Global Reporting Initiative. However, most disclosure is still not conducive to mainstream use by investors, since it typically lacks clear links with the company’s financial performance and long-term prospects.

Moreover, some companies that can measure non-financial data (many already do so for internal purposes) hesitate to publish any information that goes beyond regulatory requirements for fear it may help their rivals or increase their exposure to lawsuits. This is one of many reasons that new regulation must be enacted to level the playing field.

Few fund managers have analysts with the skills needed to perform

VISIONCompulsory integrated reporting and an end to quarterly earnings guidance will help achieve sustainable capitalism by 2020, say Al Gore and David Blood

Generation Investment Management recently published Sustainable Capitalism, a white paper that highlights the need for a paradigm shift to a more sustainable capitalism. It makes the economic case for mainstreaming sustainable capitalism by highlighting the fact that sustainability does not represent a trade-off with profit maximisation, but actually fosters superior long-term value creation.

In this article, which is based on excerpts from the paper, the firm’s founders, Al Gore and David Blood, look at integrated reporting and the default practice of issuing quarterly earnings guidance. These themes embody two of the five key actions that the paper presents to accelerate the transition towards sustainable capitalism by 2020.

Other key actions include the alignment of pay structures with long-term sustainable performance, the encouragement of long-term investing with loyalty-driven schemes, and the identification/incorporation of risks from stranded assets.

The paper defines sustainable capitalism as a framework that seeks to maximise long-term value creation by reforming markets to address real needs, while considering all costs and stakeholders in a world facing such challenges as climate change, water scarcity, poverty, disease, growing income inequality and urbanisation.

You can read Sustainable Capitalism, which includes footnotes not shown in this article, at www.generationim.com

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Former US vice president Al Gore (left) is co-founder and chairman of Generation Investment Management, a partnership focused on a new approach to sustainable investing. He is also chairman of the Climate Reality Project and author of Earth in the Balance, An Inconvenient Truth, The Assault on Reason, and Our Choice: A Plan to Solve the Climate Crisis. He is co-recipient of the 2007 Nobel Peace Prize for ‘informing the world of the dangers posed by climate change’.

David Blood is co-founder and senior partner of Generation Investment Management. Previously, he spent 18 years at Goldman Sachs, and served as co-CEO and CEO of Goldman Sachs Asset Management from 1999–2003. He is on the boards of Harvest Power, New Forests, SHINE, Social Finance UK, Social Finance US and the Nature Conservancy.

Former US vice president Al Gore (left) is co-founder and chairman of Generation Investment Management, a partnership Former US vice president Al Gore (left) is co-founder and chairman of Generation Investment Management, a partnership

bottom-up analyses of non-financial metrics. Understandably, most therefore look to third-party rating agencies to analyse company sustainability disclosures and provide ratings for them to interpret.

With more than 100 rating agencies providing such advice, there is significant variation in the quality and value of rating systems. We applaud the commitment that some mainstream data companies, such as Bloomberg and Thomson Reuters,

have made toward sustainability and support their efforts to increase standardisation and improve quality.

However, we believe that the best-run companies are those that are not only already making the links between sustainability and financial performance internally, but are also sharing those links in their investor communications.

Integrated reporting provides the framework to ensure that a company has a sustainable strategy and can improve internal decision-making by exposing itself to the discipline of the market. A handful of companies have already begun to make the switch

WHILE THESE ACTORS ARE PLAYING A CRITICAL ROLE,SIGNIFICANT CHANGE WILL COME ABOUT ONLYWHEN INTEGRATED REPORTING IS MANDATED

to the integration of sustainability and financial metrics in their annual reports, explicitly showing the link between the two and, in the process, reinforcing the business case for sustainable capitalism.

Given that privately held companies have a greater degree of flexibility in reporting, they are in a position to provide leadership in developing integrated reports. Many leading global private equity funds, such as KKR and Doughty Hanson, have already

taken steps to invest in improving the sustainability of their portfolio companies and are reporting on sustainability metrics. Funds could go further and persuade those companies comfortable with reporting the financial benefits of these activities to do so prior to going public.

We support efforts by Professor Bob Eccles at the Harvard Business School, the International Integrated Reporting Council, and Aviva Investors, who collectively are pioneering the field of integrated reporting. Yet while these actors are playing a critical role in shaping this nascent idea and encouraging voluntary action by

companies, it is clear that significant, widespread change will come about only when integrated reporting is mandated.

Although this policy intervention will vary country by country, securities regulators and stock exchanges are well suited to oversee the requirement for integrated reporting. In South Africa, the Johannesburg Stock Exchange set an exemplary precedent in its 2011 decision to require all listed companies either to produce an integrated report or explain why they were not doing so. Even so, the mandating of integrated reporting is just the first step, as reporting standards around ESG (environmental, social and governance) information and its link to financial metrics will need to be refined continuously.

What is critical is that the information provided is material to investors and relevant to the specific sector and company. ‘Cookie-cutter’ forms that do not take into account variations in what is most relevant from one sector to another are not adequate. Accountants must also work to provide assurance on non-financial information that is comparable to what they provide on financial metrics, and provide integrated assurance on both.

We propose that integrated reporting should be mandated for publicly listed companies by the appropriate regulatory agencies and we encourage these companies to take voluntary

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Earth Hour: on 31 March, Hanoi in Vietnam (pictured at start of article) and Asuncion in Paraguay (above) were among the places that turned off the illumination of public buildings for an hour as part of a global campaign to draw attention to the need to save energy to reduce global warming gases

action in the short term to provide integrated reports until such regulation appears. We also encourage investors, including private equity investors, to ask for integrated reports from their portfolio companies and incorporate this in their investment decisions. We also support the growing commitment by privately held companies to produce integrated reports.

Quarterly earnings guidanceAnother key action that will accelerate the development of sustainable capitalism by 2020 is ending the default practice of issuing quarterly earnings guidance.

In the modern world, we often appear virtually hypnotised by the short term in our politics, our culture, business and well beyond. In business specifically, the vast majority of managers are now clearly choosing short-term profits over sustainable long-term growth. We have long known that an important part of the reason for this distortion is that executives are encouraged – by investor behaviour, incentives and business cultures – to focus on the business’s short-term earnings.

Investors have become increasingly impatient with the CEOs of publicly listed companies who focus on longer-term value creation, and are too quick to penalise stocks for short-term underperformance, even if that occurs in the context of a long-term investment plan.

it leaves public companies less able to exploit new business opportunities.

Not providing quarterly earnings guidance would help some companies alleviate the pressure on managers to meet financial expectations on a quarterly basis, and allow them to focus on building the business for long-term profitability.

However, because most public companies provide quarterly earnings guidance, there is a ‘collective action’ problem for CEOs and boards that wish to end the practice. We applaud the few CEOs who, despite criticism, have decided to end earnings guidance and have talked openly about what investors should expect from the management time horizon. For other companies, quarterly guidance may be appropriate, but the decision to offer it ought to be part of a well-justified strategy and not simply an unthinking response to the prevailing habits of the market.

We propose bringing together a significant group of CEOs who have already stopped providing quarterly earnings guidance with others who pledge to stop doing so as a catalyst for change around this practice.

In many cases, a company’s ability to meet quarterly earnings guidance trumps the long-term performance incentives for CEOs and makes it much harder for them to focus investors on the long-term strategy.

An empirical investigation conducted by Murad Antia, Christos Pantzalis and Jung Chul Park reveals that shorter CEO decision horizons are in fact ‘associated with more agency costs, lower firm valuation, and higher levels of information risk’.

Research by John Graham, Campbell Harvey and Shiva Rajgopal shows that 78% of managers will reject a project with a positive NPV (net present value) if it lowers quarterly earnings below consensus expectations. And an astonishing 80% would focus on this recurring, short-term metric – at the expense of building long-term shareholder value – by making cuts in discretionary spending, including R&D and advertising. This kind of practice is managing for the short term, not managing sustainably.

Work by John Asker, Joan Farre-Mensa and Alexander Ljungqvist reveals that this value-destroying habit is clearly manifested in data showing publicly held companies invest at half the rate of privately held companies when the gains from such investments will not be realised on a quarterly basis. They also show that this applies when an individual company switches between public and private ownership. And they make the obvious point that

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AP_F_Gore.indd 26 13/06/2012 11:15

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Ads-JulyAug12.indd 2 12/06/2012 15:10

Predicting the future is a risky business, but it seems safe to state that the eurozone of the future will not be

like the eurozone of the past. How different it will be remains to be seen: Greece may yet leave, in an orderly or disorderly fashion; a €19bn bailout has been requested for the fourth largest bank in Spain, and its central bank has identified about €300bn in problem loans across the nation’s banks; a two-tier eurozone could emerge along with a super-euro currency; and the euro could collapse and push the world into years of depression and economic turmoil. The possibilities, it seems, are limited only by your imagination, or lack of it.

If the unthinkable does happen, it could be bad news for businesses inside and outside the eurozone, as various types of contagion seem likely to spread far and wide, and the accountancy profession will have its work cut out dealing with the fallout.

Tip of the iceberg‘Regulators and businesses will need to take a pragmatic approach,’ suggests Chas Roy-Chowdhury, head of taxation at ACCA. He says that even if just one country departs the currency bloc (arguably the least-worst scenario), then changes could be needed to statutory rules for accounting and tax, along with the many computer systems which reflect them; obvious challenges such as revaluing and repricing stock would be just the tip of the iceberg.

As a provider of financial products and services, Friends Life has to be particularly diligent when it comes to risk assessment, and it has already considered the implications that many

possible euro scenarios could have for its business systems. ‘We have reviewed customers in the eurozone and looked at the policy administration systems that feed into finance, because we knew that this was an area where developments could create a lot of work for us internally,’ says Will James, the accountant who is head of finance systems at Friends Life. But various other systems could be impacted too.

Which software and systems feel the impact depends on business sector and structure, geographical location, exposure to foreign exchange transactions, and the flexibility, sophistication and multicurrency capabilities of the software and systems in place. The list of possibilities includes accounts production, analytics, bookkeeping, business intelligence, customer relationship management, document management, e-commerce, finance, payroll, project management, treasury, tax and myriad spreadsheets – and not just inside your own business, but elsewhere in the supply chain too.

Friends Life has established that some of the systems that could be

NIGHTMARE OF UNCERTAINTYWhatever happens to the eurozone, one thing is certain: any changes will have a huge impact on business systems

*DON’T IGNORE THE RISKS‘Companies must not ignore worst-case scenarios, which, though unlikely, could be devastating,’ warns Nuno Fernandes, professor of finance at the International Institute for Management Development in Lausanne, Switzerland. He says that ‘business leaders must realise that there is a threat of the euro breaking up and of several eurozone countries reverting back to their former currencies’, and then consider both the direct and indirect potential impact.

Fernandes suggests a seven-step process as the basis for contingency plans (at http://tinyurl.com/6rfbsps), and he also has advice for accountants: ‘Assess the impact on the value chain, and develop a scenario analysis of how payment systems, internal control systems, etc, should function. Not having a contingency plan is bad risk management.’

28

AP_F_eurosoftware.indd 28 13/06/2012 11:13

NIGHTMARE OF UNCERTAINTYaffected are internal and some are not. ‘We have a lot of price feeds from external providers, and these are outside our control,’ explains James.

Risk-assessing software within the business is easier. Take finance. ‘We have worked with our software provider to look at areas such as the purchase ledger and expenses, and if we need to add or remove a currency, or cancel an original entry and then revalue it, we can do this fairly easily,’ James says. But that doesn’t mean everything could be done overnight.

Dean Dickinson, managing director for public sector and enterprise at Advanced Business Software (ABS), explains: ‘Once we know what the tax and accounting rules would be, we could probably make the necessary changes to our software and create the currency conversion tools for our customers within a week.’ That would at least allow the transition process to get under way. ‘After this, customers would need to test all their base data and feeder systems,’ says Dickinson, which could take longer. ‘In some businesses, you could be looking at two

or three months’ work,’ he says. There could be more

software challenges going forward too, relating

to historical information. ‘Outstanding

debts in euros may need changing to a new currency and then reconciling, and bank payments systems will have to change to cater for multiple currencies,’ says Stuart Anderson, director of sales and marketing at Pegasus Software.

Like ABS, Pegasus has plans to support its user base. ‘We would have to work with our customers to develop utilities to allow them to continue to trade, which could become a complex area to develop,’ says Anderson.

For businesses using a system without multicurrency features, it could all be a lot more challenging. There are plenty of programs (and gazillions of spreadsheets) that were never intended to deal with more than one currency. So single-currency software could create problems for businesses inside any country that leaves the eurozone, and for some of their customers and suppliers in other eurozone countries. ‘If you have opted for a self-build website or

low-cost e-commerce option, as a lot of small businesses have, you may not be able to do multicurrency price lists or sales,’ warns Mike Risley, commercial director at Nolan Business Solutions.

Payroll problemsEven software and systems that can deal with multiple currencies, their conversions and any complex triangulation involved may face challenges in areas such as payroll.

‘The conversion of currencies isn’t intrinsically a problem,’ says Iain Moffat, international director of MidlandHR, but ensuring the transparency and fairness of the conversion rates for affected employees could be. ‘A lot of payroll calculations are determined by retrospective detail, such as pay awards,’ he explains, ‘and this is an area that could drive some

significant change programmes.’ Software that saw you through the euro’s birth will probably

get you through its death, but Gary Turner, managing director of New Zealand software developer Xero, warns: ‘That was an orderly change and both currencies were retained in parallel for a period after the euro’s introduction to assist in

the transfer.’ This may not be possible going forward, and who knows how far the contagion might spread?

‘We have scenario plans in place for most eventualities, but

no matter what we do a risk will remain,’ says James,

‘because there are too many uncertainties.’

Lesley Meall, journalist

29

AP_F_eurosoftware.indd 29 13/06/2012 11:13

Comment

It is a popular notion that most accountants are introverts. Naturally, just about every list of the top jobs deemed suitable for introverts includes accountants and auditors. After all, how many extroverts are likely to fancy the idea of spending hours crunching numbers, preparing reports, analysing trends, poring through financial statements and running simulations?

And when you are an introvert, it is easy to be stuck with labels such as dull, quiet, unsociable, nerdy and shy. This is unfair, of course, but is what happens when people misunderstand introversion.

That may well be changing. A book titled Quiet: The Power of Introverts in a World That Can’t Stop Talking, came out in the US in January, and has become a bestseller.

The media has picked up on the buzz and the nature of introverts has become a subject of public discussion. Time magazine, for example, published a story that drew significantly from the book. That same issue also featured an essay by the book’s author, Susan Cain, a former corporate lawyer and negotiations consultant.

A video of Cain’s talk at the TED conference in February has received almost 2.3 million hits since it was posted in early March.

In an interview with CBS News, Cain explained that she was moved to write Quiet by the same mix of emotions – passion

In praise of quiet[Many introverts feel they must act like extroverts in order to gain validation, says Errol Oh, but thanks to a

new book by Susan Cain, this misunderstood personality type is fi nally getting the recognition it deserves

and indignation – she imagines drove Betty Friedan to write The Feminine Mystique, published in 1963.

Cain added: ‘Introverts are to extroverts what women were to men at that time – second-class citizens with gigantic amounts of untapped talent. Our schools, workplaces, and religious institutions are designed for extroverts, and many introverts believe that there is something wrong with them and that they should try to ‘pass’ as extroverts. The bias against introversion leads to

a colossal waste of talent, energy, and happiness.’

In other words, there is no need to

apologise for being an introvert. Introverts are not inferior to extroverts; they just function differently.

An extrovert is energised by interaction with others. On the other hand, to be at his best, an introvert typically needs to be alone with his thoughts every now and then. It is not that introverts are socially inept; they can give solid presentations, engage in public speaking and hold their own in conversations, but not on a sustained basis like many extroverts can.

However, there is a tendency for society to pay more attention to extroverts, and indeed, to be impressed by them. The failure to

appreciate the strengths of introverts can be costly. Their potential and contribution are often underestimated, and pressuring introverts to be more outgoing and collaborative may do more harm than good. Furthermore, the dominance of extroverts can lead to poor results because

extroversion at its extreme is characterised

by impulsiveness and recklessness.

It is all about balance. In her essay in Time, Cain points out that we would not want to live in a world entirely populated

by bold extroverts or cautious introverts. ‘The two types need each other. Many ventures are the result of

effective partnerships between introverts and extroverts,’ she says.

Errol Oh is executive editor of The Star

30

AP_COM_Errol.indd 30 13/06/2012 11:12

Ads-JulyAug12.indd 3 12/06/2012 15:10

Comment

I’ve had financial planning and analysis (FP&A) on my mind lately. In various interactions with CFOs, the conversation sooner or later touches on FP&A teams and how they are – or more often not – meeting new demands for insights from finance and the rest of the business.

The board and management want to know how the problems in Europe will affect the company’s bottom line, whether the firm is strong enough to withstand disruptive industry and technology trends, and what can be done to strengthen the financial supply chain in anticipation of more economic turmoil.

It’s a novel experience for FP&A teams used to primarily data-related requests, such as historical pricing data and analysis of variances in sales and profitability.

‘Finance professionals are being increasingly asked to deliver insights, not just data, but most FP&A teams tell us they don’t feel fully prepared,’ Michael Griffin told me. He is head of global research for the finance and strategy division of US advisory firm Corporate Executive Board (CEB).

The CEB recently completed a study on FP&A across the globe, including Asia. Among the key findings were:

*Only 5% of FP&A teams surveyed think they are effective in conducting analysis to support decisions that need substantial application of judgment.

*Only 5% believe they are effective in creating analysis that provides comfort about the relevance of long-term

strategy in light of market changes, and that inform decision-makers about emerging opportunities.

*FP&A performs well enough in most data-driven tasks, but it is under-delivering in judgment-based analysis, such as business unit scenario planning and risk-based forecasting.

According to the report, ‘Most FP&A teams are unprepared to shift

from core forecasting and budgeting roles to solving complex problems and influencing their companies’ revenue and profitability trajectories.’ Few have successfully transitioned from being a ‘source of trusted information’ to a ‘source of business insight’.

What can companies do? ‘The thing you really want to think about as CFO is how to create priority around the roles and expectations of your team,’ says Griffin. ‘Often what we find is that there isn’t a great deal of clarity around what skills we need to be

successful for FP&A, specifically.’It is more productive for CFOs

to improve training and recruitment in

subject areas such as macro and micro-indicator

selection, business unit scenario planning,

risk-based forecasting and long-range planning. FP&A teams must

also be given the tools to make judgment-based analysis.The CEB research also found that

effective FP&A teams ask questions that lead to deeper insight into business problems, determine what data is necessary before beginning a project, develop hypothesis about business problems to test through analysis, and prioritise timely analysis over ‘perfect’ analysis.

The effective team also identifies important insights in the data, summarises findings, makes practical recommendations and communicates the ‘narrative behind the numbers’.

‘It is time to put back the A – analysis – to FP&A,’ says Griffin.

CFOS everywhere could not agree more.

Cesar Bacani is editor-in-chief of CFO Innovation Asia

[Finance professionals must focus on judgment-based analysis and clear communication, says Cesar Bacani, but teams need help to become trusted sources of business insight rather than just information

Putting back the ‘A’ in FP&A

32

AP_COM_Cesar.indd 32 13/06/2012 11:12

CLASS ACTIONS PROPOSED Hong Kong’s Law Reform Commission has recommended that the city introduces class action lawsuits in a phased approach. On 28 May, the commission proposed a law to allow a group with the same complaint to sue through a representative. The commission suggested the system be initially applied to product liability and consumer fraud cases, before extending it to buyers of company shares and other securities. It also recommended an opt-out approach where those defined by a court to belong to the same class would be bound by the class action unless they opted out. The Department of Justice said it would take six months to assess the report and decide what to do.

FOOTBALL TYCOON TO LIST STMA Kuala Lumpur tycoon is set to list Malaysia’s lottery operator Sports Toto Malaysia (STM) on Singapore’s stock exchange. Vincent Tan, owner of the English football club Cardiff City, indirectly controls Berjaya Sports Toto (BToto) that owns the lottery operator via his flagship Berjaya Corp. STM is likely to be listed in November this year with a business trust structure, and could raise about US$1.89bn. Malaysia lacks a legal framework to support business trusts, but these were introduced in Singapore in 2004. A BToto executive director, Freddie Pang, said the business trust structure would allow STM to distribute surplus cash flows as dividends regardless of profits and there would be no gearing limits.

The view from: Hong Kong: Marilyn Cheung, founder, ikindof.com

Q What are your business challenges and opportunities in the coming one to two years? A We only soft launched our website in November 2011, so people haven’t heard much about what we are offering. We need to build this awareness from scratch. Nevertheless, we are confident that our online shopping business will do well – as an internet business with great potential.

Q What projects are currently in your inbox? A I am working with a medical doctor on developing our own brand of supplements and personal care products. I am promoting our website through networking, attending exhibitions and road shows. I am also working with some other companies and institutions to promote the green concept.

Q What are your skills in managing staff and managing your daily work? A I don’t really ‘manage staff’; I work with them. We have a daily briefing in the morning, then they go off to do what needs to be done. There will always be more work to do than one wants to accomplish, so I prioritise.

Q What do you enjoy about your work? A I like the exploratory and creative nature of this business. While working, I am incorporating my belief system and what I have been practising in my personal life.

Q What do you do outside work to de-stress? A Since I enjoy what I do, I don’t find it stressful! Every morning I practise healing and some kind of exercise, including stretching or jogging.

FAST FACTSHQ location: Hong KongFavourite book: Where Are You Going? by Swami Muktananda

33 Corporate The view from Marilyn Cheung of ikindof.com; tax roundtable on outsourcing; ACCA research on untapped outsourcing opportunites

41 Practice The view from Sajjad Akhtar of PKF-CAP; how accountants in the UK are cashing in on the trend

for online solutions

33Corporate

AP_YCORP_intro.indd 33 15/06/2012 16:35

Tax is top of the political agenda. Revenue-starved governments around the world are struggling to grab their ‘fair share’ of the total tax pot in an increasingly globalised and connected world, in which technology plays an ever greater role. Politicians, tax authorities and the media are all focusing on this hugely complex subject, driving change that is fast and sometimes unpredictable. The lines between planning, avoidance and evasion are consequently becoming more blurred. Caught in the crossfire is the tax director, who has to balance the competing demands of managing a company’s effective tax rate while ensuring compliance and managing tax risk – and with an eye fixed ever more firmly on PR.

Accounting and Business (AB), in association with Thomson Reuters, brought together a group of tax experts to pull together these developments and predict how these will affect the tax director of the future.

ABIt feels as if governments have declared war on companies

over their tax affairs. With attitudes of governments around the world to tax avoidance hardening, what impact will this have on tax directors?

CRC People and businesses are trying to navigate their way

through very difficult systems. But at the same time governments are saying: ‘Well, actually you should pay more.’ However, the reality is that the public and business are paying quite a lot more than governments think they do.

TWO I think that’s a good point. I’m not sure government

attitudes to tax avoidance have shifted, in that most governments have always said people should pay their fair share.

The tax director of tomorrowA daunting cocktail of complexity, challenge and risk is putting corporate tax departments under more pressure than ever, according to experts at a recent roundtable hosted by Accounting and Business and Thomson Reuters

I think that what has changed is the line. Things that historically might have been considered as tax planning are now considered as avoidance.

TWA Governments increasingly view tax planning as tax

avoidance. More importantly, the public is increasingly taking the same view. Even though companies may have a perfectly legal and defensible position under their right to minimise tax as much as possible, they are taking a public relations hit over it.

TD Companies are seeking to minimise their tax position

because they are competing in a global economy against other companies. But public outcry following the financial crisis gives permission to governments to increase regulation, including retrospective legislation. We have seen this recently with the banks and there was hardly any outcry.

GH The most interesting point about navigating this path is whether

the CFO’s view of the tax department will change. Most CFOs measure the tax department’s effectiveness through the lens of the effective tax rate (ETR) and in many respects by reducing it. This may well change to one of maintaining an acceptable ETR or to shift the focus to other measures altogether and perhaps looking at the management of taxes more widely.

SG I also think that the job spec of the tax director will change.

You assume that the tax director is

competent in assessing tax risk, but this has now moved on to reputational risk.

AL Tax directors are used to looking at technical risk. In addition to

reputational risk I think there is an operational risk. In order to manage reputational and operational risk, tax directors need to be more commercial. There is competition among governments to get their fair share of revenue and this is why transfer pricing (TP), for example, is increasing in prominence. This is a very challenging thing to tackle operationally. TP is embedded throughout the business units, so how do tax directors control that? They have to talk to the business units. They have to be ahead of transactions, which is not something the tax director has traditionally needed to look at.

TWATax positions used to be operated in a silo,

but you are now having to share data through transfer pricing, and you are now having to reconcile tax positions of multiple different regions in your operations. You have got to be able to have some visibility to be able to say you have the legitimate tax positions. I think that technology has to play a massive part in that. You need to dig down deeper into the data levels so that you have the visibility to make further reconciliations.

ABWhat will be the impact on tax directors as tax authorities

begin to reach beyond their borders, such as with FATCA (Foreign Account

‘THE REALITY IS THAT THE PUBLIC AND BUSINESS ARE PAYING QUITE A LOT MORE THAN GOVERNMENTS THINK THEY DO’

34 Corporate

AP_INT_YCORP_Roundtable.indd 34 14/06/2012 17:52

Chris Quick, chairman

TOM DUFFY (TD) Member of ACCA’s Global Forum for Taxation and a consultant at management consultancy Affecton. He spent 28 years with Shell, including a spell as head of UK tax from 1999 to 2005.

SIMON GODLEY (SG) Director at specialist tax recruitment consultancy Talentpool Selection. He trained with Arthur Andersen, and specialised in tax before moving into recruitment in 1996.

GARY HARLEY (GH) Head of indirect tax at KPMG, he set up the firm’s process and technology team five years ago. He had been with HMRC and Ernst & Young before he joined KPMG in 1999.

ALBERT LEE (AL) Leader of Ernst & Young’s EMEIA Tax Performance Advisory business. He has over 20 years of international tax experience spanning industry and the profession.

CHAS ROY-CHOWDHURY (CRC) ACCA’s head of taxation. He worked in public practice before joining ACCA’s technical department.

KINGSLEY SANSOM (KS) Head of operations for AIMS Accountants for Business. He has worked with the AIMS franchise network since it was launched in 1992.

TOM WALSH (TWA)Managing director and senior vice president of Tax & Accounting EMEA, Thomson Reuters, where he leads a team of 200 tax and accounting specialists throughout EMEA.

TIM WOODTHORPE (TWO) UK tax counsel at GlaxoSmithKline. He qualified as a solicitor at Slaughter and May before joining GSK as the global tax team’s in-house lawyer.

CHAIRMAN: CHRIS QUICK (AB) Editor-in-chief of Accounting and Business. He trained as an accountant at Arthur Andersen before entering journalism in the late 1990s.

*THE PARTICIPANTS

Tax Compliance Act) from the US, as governments struggle at a national level to deal with a globalised world?

CRC We have already seen global audits and one of the things

with transfer pricing, which we have always known, is that you never say one thing in one jurisdiction and something else in another. The two things must tie up. Sooner or later, one part of the world will catch up with another. You will need to be careful about how you provide information to any one tax authority because this could be shared globally. This will be much more the case going forward.

TWO Multinational groups are interconnected and global.

Tax authorities are increasingly dealing at that level as well, and not just those in the historically more developed countries. I think that developing countries are getting more sophisticated in understanding a lot of the more global issues.

TD A global company that operates on a global and local basis keys

into these authorities and their emerging views. Multinationals may have tax departments around the world, but they may not put a lot of effort into lobbying locally. Once they are part of a global tax department, if the centre says this is important they should allocate resources towards it.

35

AP_INT_YCORP_Roundtable.indd 35 14/06/2012 17:52

Albert Lee, Ernst & Young

Chas Roy-Chowdhury, ACCA

Tom Duffy, Affecton Kingsley Sansom, AIMS

TWA The technology ramification is that it needs

to be on similar data elements, on similar taxonomies, similar technology. This means tax directors need to change their reporting systems and processes because they are going to be sharing data with other countries.

TWO At GSK we found a lot of people in the business were

‘doing tax’, so we now have a global tax team that brings individuals into the tax reporting line rather than a local reporting line. We now have much more visibility locally and this allows us to standardise our approach much more.

ALWe’ve seen information exchange around the EU for a

while – for example, European Commission sales lists – but what about other jurisdictions?

GH I think there’s a desire but no mechanism at the moment,

although it’s not that far away. But it’s a one-sided equation at the moment – tax authorities are going after avoidance and treating avoidance as evasion, but there is not much simplification for business. I feel quite sorry for tax directors at the moment.

They are under siege and have to fight their corner while the organisations that could help more are not helping.

ABDoes this mean tax functions are becoming more expensive?

ALThat’s a good question. One of the skills some tax directors

have to learn is how to do more with less and build business cases. They know they need a more systematic and standardised approach, but feel helpless in trying to get a budget for this.

CRC Tax departments may be getting bigger, but I’m not

sure they’re getting more expensive – they could be outsourcing. There might be an expansion in the function but that does not necessarily go hand in hand with more cost. But sooner or later that increase in cost will come through as developing countries catch up and start becoming expensive.

AB A lot of debate focuses on large multinationals, but what

about SMEs? What pressures are they feeling in terms of aggression from tax authorities and the changing challenges of managing their tax?

KS Essentially, these are people who are just trying to make a

living. If they know the rules, they will pay their tax. But certainty has disappeared. My clients will sit there and see all the things that the multinationals are doing and ask why they are being hounded for a £5,000 VAT bill while an international company has paid hardly any tax in the UK.

GH Companies big and small face some of the same issues, it’s

just a matter of scale. It’s about understanding the rules. There’s a real challenge around keeping current with the rules and rates, not just in the UK but around the world.

CRC This is also a technology issue. For instance, in the UK

there is real-time information (RTI) coming in, which will also happen in other countries, and I just wonder if SMEs are willing or prepared or have started investing in RTI systems.

ABWhich brings us neatly to the next subject. How will the tax

director of the future be impacted by

36 Corporate

AP_INT_YCORP_Roundtable.indd 36 14/06/2012 17:53

caption style

Tim Woodthorpe, GlaxoSmithKlineTom Walsh, Thomson Reuters

Simon Godley, Talentpool Selection

technology, including XBRL, and does this add to the potential offered by outsourcing and shared services?

SGIf you’d suggested a career move into tax software 10 years

ago to a tax person, they would have asked: ‘Why would I do that?’ It seemed a very narrow niche area, but that has quickly changed. Tax directors now realise they have to seriously consider implementing better tax compliance systems, especially in big multinationals, systems for data collection, and streamlining the whole tax compliance process.

GHYes, but what surprises me is that you have global businesses

with global tax directors who are accountable for the tax worldwide yet have little or no visibility in the centre of what is happening on the ground across the taxes. I’ve seen some organisations go for the technology with all the bells and whistles yet as a starting point just basic visibility is the key to them really reaching out to the organisation to manage taxes effectively.

TWA Another slant on this is that a lot of organisations

have focused on ‘good enough’ tactics for technology for a long time. I just don’t think that cuts it any more, there’s too much change. It’s about getting the right technology.

CRC I think there are dangers in tax being hived off to shared

service centres. It is a cost saving, but perhaps businesses need to recognise it is a dis-saving because you could end

up with additional internal issues which may not be addressed. You might not have people within your business who can tell you exactly where you stand from a compliance point of view, articulating why you have got certain tax numbers, working out business-specific issues that affect your tax position. The finance director of the future needs to be careful and retain a significant part of the tax function within the business.

AB As well as being technology experts, do tax directors have

to be PR experts too? What happens when you have protests outside your offices or your shops?

CRC In some ways I think it would be good where you’ve got an

organisation such as UK Uncut protesting about an issue for the tax director to stand up and defuse the situation. But I’m not sure that there are many tax directors willing to do that. However, I think that is going to be forced on them in the future because they need to be able to get the information out to wider audiences. It could make the job more interesting.

GH There are some sectors such as oil and mining that I think are

very good at articulating their total tax contribution in their annual reports. I think that the tax director has got to be on the front foot with the board in terms of getting their message out to the public.

TWO We’ve also seen a trend of public relations being done

collectively, such as through the CBI. The challenge in making the proactive case is that a lot of tax issues are difficult to understand and convey. When the press is seeking to deliver a particular message, it is difficult to get across the detail. It is a challenge for the tax director to articulate and make the point while it’s a lot easier to attack something.

Philip Smith, journalist

Gary Harley, KPMG

37

AP_INT_YCORP_Roundtable.indd 37 14/06/2012 17:53

Today’s CFO operates in a challenging and complex environment. With continuing uncertainty on the horizon of the global economy, more than ever the CFO is in the spotlight to transform the finance function so it can support the business more effectively. But how successful are current transformation activities, and are shared services and outsourcing really living up to the promise?

A recent study from ACCA, Finance leaders on sourcing success, suggests that many opportunities remain untapped. Uniquely, the survey focused on how CFOs themselves viewed the success or otherwise of shared service and outsourcing (SSO) strategies, outlining the drivers behind SSO adoption and gauging how the business outcomes that were initially sought have shifted. Almost 500 CFOs and other finance leaders across the world participated in the study, which was complemented by in-depth interviews with leading brands such as Microsoft, GE and AOL. The outcomes make compelling reading

First it is important to note that not everyone has adopted SSO, even for transactional finance activities. Twenty-eight per cent of respondents

to the survey said they had not yet taken the plunge with remote delivery of some finance operations. For those CFOs that have, the survey suggests that shared services and hybrid models are the significant preference.

Partial penetration In many senses SSO has been an overwhelming success, particularly around transactional finance activities. Leading brands around the world have tapped into a compelling labour arbitrage and used SSO to drive process standardisation. But the survey also sounds a note of caution and suggests there is much more to do. Many CFOs are still not using remote delivery for transactional finance activities, and the promise of shifting the ‘higher value’ finance activity out remains just that, a promise, even with the largest businesses. Around 60% of respondents still keep higher value activities in-house.

The good news is that these findings don’t appear to detract from the attraction of SSO for CFOs. In fact, quite the opposite. The survey suggests most finance leaders have very high aspirations for the business outcomes that SSO can deliver, and – guess what? – these aspirations are getting higher.

CFOs cite the usual trifecta of business outcomes – cost reduction, efficiency and finance capability – as reasons for undertaking the journey in the first place but as they progress through the journey new priorities come onstream. Quality, scalability, transformation and talent quickly rise up the agenda as sought-after outcomes too. No pressure then?

As aspirations rise, the key question is whether CFOs believe SSO can deliver the outcomes desired. Here is the stumbling block – this survey suggests not quite. So this is a story of growing expectations not quite being matched. It’s a challenging picture with a consensus that effectiveness needs to improve. Not surprisingly, however, this survey suggests that it is those businesses with more longevity in their SSO relationships that typically see greater effectiveness.

The shape of successOf course, one of the critical questions in the adoption of SSO is what success actually looks like. There is much talk about going beyond cost reduction as the barometer of success, yet this survey suggests that measures of success remain in their infancy. Overwhelmingly businesses remain focused on measuring success through

Sourcing successCFOs have high and rising expectations of shared services and outsourcing, but new research shows many are not making the most of remote delivery, says ACCA’s Jamie Lyon

*WHAT DOES THE FUTURE HOLD?

* More CFOs aspire to implement SSO models

* Outsourcing of higher value finance activities is still untapped

* Efficiency, cost and capability are the initial drivers for adoption

* Model maturity drives effectiveness

* Cost won’t always be the highest priority for CFOs

* Focus of SSO is on quality, scalability, transformation and talent

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two methods – cost reduction and the achievement of service level agreement. Fewer than one in six businesses adopt broader measures of success such as return on investment targets, profit contribution targets and net promoter scores. Just 5% of businesses attempt to link their SSO investment to shareholder value. Perhaps this is part of the problem.

Poorly monitored Unsurprisingly, these findings also correlate with the use of monitoring tools, which remain in their infancy. According to the survey, only 31% of businesses use finance dashboards to monitor the programmes, and even fewer use internal/external benchmarking or tools such as six sigma and lean processes.

These findings are consistent with ACCA’s previous study on SSO at the start of the year, which was reported in the February and March issues of Accounting and Business. That study concluded much more could be done to embrace remote delivery and capitalise on the benefits promised; change management and service experience in particular were cited as key challenges.

So where next? Well, it’s not all bad news. CFO aspirations remain positive 28%

Have not yet implemented SSO

40%Have had their current finance delivery model in place for more than five years

3/5CFOs use shared services or a hybrid of SSO models

50%Still keep their transactional finance activities in-house

*HOW ARE CFOs USING SSO MODELS?

and this is reflected in the desire for future investment in SSO, according to the survey. Put simply, those CFOs who have already invested in SSO expect to continue to add significantly to their investment. In contrast, those who haven’t adopted remote delivery as part of the finance solution are seen to be less bullish about investing in their current finance delivery model.

These findings should be seen as a wake-up call to those people involved in SSO delivery on a daily basis. The reality is that SSO won’t always be at

the forefont of the CFO’s mind, and won’t always be given the focus and priority it perhaps deserves.

There is no doubt that SSO has delivered significant cost reduction, improved finance processes and helped drive control transparency. Leaders in the SSO space need to continually restate and remind businesses and finance chiefs, and not just themselves, of the significant benefits already achieved. This is particularly true when making the business case for transitioning higher value finance activities and unlocking the value that SSO can deliver. Our survey suggests that some CFOs may need a little bit more convincing.

Jamie Lyon, head of corporate sector, ACCA

If you are a CFO or FD interested in this area and want to contribute to ACCA’s programme, please email jamie.lyon@accaglobal.com

TO READ THE ACCA REPORT GO TO www.accaglobal.com/transformation

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Roar power

[The emergence of Africa’s ‘lion markets’ sets another big cat loose in the global economy, says ACCA president Dean Westcott

For many years there was a favourite business saying that the African economy was a sleeping lion and the world would know when it finally woke up.

It may now be time for the rest of the world to wake up. The phenomenal growth in the continent over the past decade has outstripped that of East Asia, with the World Bank reporting that sub-Saharan African economies have been growing at rates that match or surpass the rest of the world. As a result many countries in Africa have earned the nickname of ‘lion markets’, putting them alongside the ‘Asian tigers’ and ‘Latin pumas’ as fast-growth economies.

The growth has led to many international agencies investing more in emerging African economies, which have defied the global economic recession and are providing some of the highest rates of return on investment in the developing world.

Through its long association with Africa – many of our African country offices were set up more than 50 years ago – ACCA has had a front row seat when it comes to the development of economies and the accounting profession on the continent. ACCA has 10,500 members and nearly 83,000 students in sub-Saharan Africa.

This is why we felt it was important this year to hold ACCA’s annual Council meeting in Nairobi, Kenya, due to take place as Accounting and Business goes to press. It will give Council members a better understanding of developments in Africa and how these impact accountants, and let them see what ACCA can do to support them.

Council will not only meet with ACCA members in Kenya, but see – through visits to Tanzania, Uganda and Ethiopia – how members in East Africa are contributing to the economy and profession in their respective countries. It will help Council to connect with ACCA’s partners, the profession and policymakers in the region, and to show how ACCA’s work is bringing value to employment markets.

Many stakeholders have told us that for Africa’s economic potential to be fully realised, strong national professions are essential. ACCA aims to continue to contribute to the development of national professions, working through its members to ensure that the lion markets continue to roar.

Dean Westcott is interim CFO, West Essex Clinical Commissioning Group, UK

Comment40

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Q What is your outlook for the second half of 2012? A It will be difficult; the economic contagion in Europe and the continuing weak recovery in the US show no signs of ending. On top of that, China and India are both experiencing a sort of slowdown which may or may not be prolonged. It is not

possible for Asian economies to be immune from the slowdown’s impact.

Q What is your top priority this year? A In April, we merged our practice with HT Khoo & Associates PAC. We now have the challenge of integrating the two firms, ideally achieving complete integration by year-end.

Q What is one issue that you feel will be of concern to businesses this year? A Singapore has over the past few years become quite an expensive place to do business. For the past year, the inflation rate has hovered between 4% to 5%; and the Singapore dollar has been appreciating against the US dollar and pegged currencies, as well as other Asian currencies. Higher wages and salaries, transportation costs and a drop in relative productivity are all contributing to this.

Q Will anything offset this? A There are some signs the government is becoming more alert to the risks facing Singapore with a new focus on innovation. Incentives are being offered to encourage these aspects of business activity. There is also a boom in tourist arrivals and continued healthy foreign direct investment.

Q What’s new with the PKF International network? A PKFI is providing greater resources for member firms worldwide. We are quite excited about this plan, which includes the establishment of centres of excellence in many countries.

FIRM FACTSFirm structure: PartnershipNumber of partners: Three

PWC PAKISTAN MAY FACE CLAIMThe likelihood of PwC’s Pakistan branch being sued by the Afghan government increased following the leak of a report critical of the firm’s actions as auditor of Kabul Bank. The report, by security consultancy Kroll, points towards what Afghanistan’s finance minister Hazrat Omar Zakhilwal describes as at least ‘serious negligence’ by PwC firm AF Ferguson & Co, according to The Independent newspaper. Kabul Bank collapsed amid allegations of fraud in which US$900m went missing. The Kroll report also describes failings by the Afghan government’s Central Bank. AF Ferguson & Co reportedly responded to the allegations in a statement by saying the firm was not in a position to comment, ‘as we have not been involved in the investigation and are not privy to its findings’.

DELOITTE SET TO EXPANDDeloitte has announced plans to spend US$400m to hire more staff, deploy talent and expand its services in Asia over the next three years. The funds will be directed to expansion in China, India, Japan, South Korea and South-East Asia. In total, the Big Four firm has pledged to invest US$750m between 2013 and 2015 in 11 regional and national markets around the world, following its 2010–12 strategic market investment programme in which US$500m was committed. The other markets in which Deloitte plans to invest in between 2013 and 2015 are: Africa; Brazil; the Commonwealth of Independent States; Germany; the Middle East; and Turkey.

The view from: Singapore: Sajjad Akhtar, managing partner, PKF-CAP

41 Practice The view from Sajjad Akhtar of PKF-CAP; how accountants in the UK are cashing in on the trend for online solutions

33 Corporate The view from Marilyn Cheung of ikindof.com; tax roundtable on outsourcing; ACCA research on untapped outsourcing opportunites

41Practice

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‘FOR THE GENERATION OF ENTREPRENEURSBROUGHT UP WITH GOOGLE, APPLE, AMAZONAND FACEBOOK, SHARING INFORMATION ONLINEWITH THEIR ACCOUNTANT IS AS NATURAL AS ONLINE BANKING, AND THERE IS A SIGNIFICANTOPPORTUNITY FOR ACCOUNTANTS’

Starting any new business in the current economy, let alone an accountancy firm, is a challenge. But three years ago, having sold his digital marketing agency Pure360, this is just what Darren Fell did – although Crunch is not typical.

A team of 50 physically located in Brighton on the south coast, Crunch describes itself as ‘the whole accountancy solution online’ that has ‘shaken up the dusty old world’ of traditional accounting. It has amassed 2,200 clients – freelancers, contractors, small web and PR agencies, locum doctors and other micro-businesses – since its launch in April 2009. For a monthly fee of £59.50 plus VAT, they get unlimited access to bespoke software and, via email, telephone or Skype, to an administrator and an account manager – the kind of human support Fell says you do not get from a regular accounting software provider.

They also get access to an accountant who oversees completion and filing of their company tax returns, accounts and annual returns. What they do not get is face-to-face contact but, according to Fell, this is the whole point. ‘Crunch replaces the pain of dealing with traditional accountants,’ says Fell. ‘Gone are the days of the dreadfully costly meetings.’

How does it work in practice? The idea is that they can create invoices, manage their expenses and calculate a real-time view of their business,

including what and how they pay themselves, from anywhere connected to the internet. ‘I can log in wherever I am and fire off an invoice,’ says Tim Spilman, director of TRS Technical and a Crunch client, who works in the events and entertainment industry and is ‘on the road’ two-thirds of the year. And what happens when clients have accountancy questions? ‘They ring up their account manager who books them in for a Skype, video- or tele-meeting with one of the accountants,’ says Fell.

Growing interest Spilman is among the new breed of entrepreneurs. A survey by international market research agency YouGov found last year that over a third of small businesses were ‘in the cloud’, using at least one internet-based application (excluding email), and a new survey from software company Sage has found that 42% of accountants say there is growing interest from clients in online collaboration. ‘For the generation of entrepreneurs brought up with Google, Apple, Amazon and Facebook, sharing information online with their accountant is as natural as online banking, and there is a significant opportunity for accountants here,’ says Jim Scott, managing director of Sage’s Accountants’ Division.

There is no doubt about it – the low-cost, volume-driven online accountancy marketplace is becoming

Being a virtual accountantWhile yet to take root in Asia, online accountancy solutions are growing in popularity in the UK. We look at how accountants there are cashing in on the trend

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big business and everyone wants a piece of the action. According to the research from Sage, nearly three-quarters of accountants predict that online services will represent the biggest shift in their working practices over the next three years and 41% say online will be a new offering for the next 12 months, with bookkeeping, final accounts and monthly management accounting as the top three services offered online.

London-based firm Goodman Jones seized the online opportunity five years ago, when it started to offer online bookkeeping as a ‘supplement’ to its advisory and tax planning services. ‘The tools have been around for a while, but it’s the growing awareness of cloud computing that makes it easier to introduce online accounting to our clients,’ says partner Philip Woodgate. ‘Five years ago we were having conversations just explaining what it was.’

The amount and type of online a practice can offer depends on its market positioning. ‘To supplement’ as opposed to ‘everything online’ is therefore what Goodman Jones does. ‘Our clients are large, so their needs are different and our approach is people rather than factory-based,’ says Woodgate. ‘Occasionally, you do need to sit down in a meeting and discuss risks and implications.’

So, if you service micro-businesses solely online, do you, in a perverse sort of way, almost wish your clients did not prosper? Perhaps, because otherwise, ‘As your clients and their needs grow and become more complex [think tax planning], what are you going

to do?’ asks Woodgate.There are tax-planning and tax-saving

opportunities with small businesses, too, but this is not something online accountants, on the whole, cater for. ‘It’s important that clients understand what they’re getting as part of the deal,’ says Woodgate.

Could the personal touch be missing when clients are serviced solely online? Fell disagrees. ‘It is the traditional accountant who is often not very good at customer service,’ he says. ‘They’re doing the technical work, the meetings, trying to win new business – they’re doing too much and are not very fast at getting back to clients. Our model separates these functions and makes the best use of everyone’s time.’

Human touchBesides, not all online accountants are the same. ‘It’s not enough to buy a piece of software and give it to your customers,’ says Fell. ‘You also need that human factor and the customer service that comes with it – it’s the “humans and software” business model of bringing people and software together that allows us to deliver good service at a fixed price.’

SJD Accountancy – which claims to be the UK’s largest specialist provider of fixed-fee accountancy services to contractors – is in a similar market but unlike Crunch, it operates firmly on the high street. But why should someone pay £110 a month (SJD price) when they can get the same service for £60? ‘It’s not the same because we do not operate from a call centre environment and you get to meet your accountant,’ says SJD managing director Simon

Dolan. ‘People don’t go to accountants to be told to do their own bookkeeping – they go for advice and to pay as little tax as possible.’

And does it even work that well? ‘Say, you’re sitting on a train on your way home and want to do your bookkeeping. You get halfway through, then go through a tunnel and you lose everything because there’s no Wi-Fi or the 3G is down. Or their site is down,’ says Dolan. ‘Because everything’s online, people have naturally assumed that it’d be great to get bookkeeping

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Clockwise from left: Rob Baldwin, KPMG; Darren Fell, Crunch; and Simon Dolan, SJD

online too, but it’s just the next spin.’The biggest worry, however, is the

security and integrity of the client data. ‘Online accountants tell you they can’t possibly get hacked. But if governments can get hacked, small private companies can too,’ says Dolan. ‘Bearing in mind the information they keep online – dates of birth, national insurance numbers, company names, home addresses, copies of bank statements – the hackers get everything they need to clone you with.’

What about anti-money laundering checks? ‘If you accept businesses that contact you by email, and if there’s no physical human contact and all you say is “pay us X and here’s the access code to our software”, then clearly there’s a risk,’ says Perry Burton, assurance partner at Grant Thornton. Fell disagrees: ‘Using every conceivable database, in about 25 minutes we collect 30 to 50 different pieces of information and compare it back to the potential client’s address – a far more detailed approach and way beyond what traditional accountants do.’

Global e-ccountantsWhile it is clear that online as the whole accountancy solution is currently limited to servicing small businesses and has bookkeeping at its core, bigger firms nevertheless also reap the rewards online can bring to their service offering. ‘We utilise the internet in the area of global compliance service,’ says Burton. ‘Multinational clients provide us with, and draw from us, information over the web.’ In effect, the central server works as an information exchange and documents repository – there is no software processing involved, he adds. ‘The clients use the server to electronically deposit information with us – as PDFs or spreadsheets – instead of sending it by email. And they can see online, in real time, where we are with the work.’

The real-time visibility is also key for KPMG, which introduced a web-enabled collaboration space to their clients nine years ago. ‘The number of users has doubled every year since 2006 and we now have over 12,000 in 140

countries,’ says Rob Baldwin, director of Global Compliance Management Services at KPMG. ‘What we do is far more complex than what Crunch does, but the principles are similar – we use the internet technology to get information from clients and to support the delivery of services.’ There has been a big shift in the recent years, especially in global tax compliance. ‘Heads of tax are not now just interested in fancy tax planning schemes – they’re more interested in what might come out of left field to upset the overall tax position of the group. They want and need the information at their fingertips to be able to plan ahead,’ says Baldwin.

Where are we heading to with online? ‘Smaller firms need to think how they can best use the tools to help their clients,’ says Woodgate. ‘The tools can be about much more than just data crunching and bread-and-butter work – they can be the basis for data analysis, for sharing information with clients, and this applies to working with larger businesses too.’

There is a growing emphasis on good compliance and non-financial reporting too – social responsibility or ethical reporting, especially in extraction industries like mining. ‘The press and the government cast some multinationals as evil organisations that aim to pay the least amount of tax, but most multinationals are actually keen to get it right and to be seen to be getting it right,’ says Baldwin. ‘So there will be more emphasis on systems, processes, adequate controls and transparency, and on being able to demonstrate that businesses are doing the right thing – online technologies can help with this.’

And what about Crunch? ‘By the end of the year we’ll have hired another 60 people and have 4,500 to 5,000 customers,’ says Fell. ‘In five year’s time, we want to be number one in the UK’s micro-business market with 12,000 to 15,000 customers, and will have gone into at least two other English-speaking countries.’

Iwona Tokc-Wilde, journalist

*FUTURE

73%Percentage of accountants who say use of online services will represent the biggest shift in their working practices over the next three years.

41%Percentage of accountants identifying online accountancy services as a new offering for the next 12 months.

Source: Sage survey

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Ads-JulyAug12.indd 1 12/06/2012 15:10

MALAYSIA

NEW PROJECTS ANNOUNCEDOn 29 May 2012, prime minister Najib Razak announced 21 new projects under seven National Key Economic Areas (NKEAs), expected to boost gross national income by RM4.59bn and create 39,918 highly skilled jobs.

Key updates on the progress made under the strategic reform initiatives (SRIs) include:

* Human Capital Development SRI: The recently gazetted Minimum Wage Act.

* Human Capital Development SRI: The addition of five more partners to the MyProCert Programme, aimed at upskilling Malaysians with professional certifications in ICT, to international standards.

* Competition, Standards and Liberalisation SRI: Establishment of the Competition Appeal Tribunal, with the exclusive jurisdiction to hear appeals regarding decisions made by the Malaysian Competition Commission.

* Competition, Standards and Liberalisation SRI: The development of 12 standards relating to light-emitting diodes were fast-tracked following the ban on incandescent lightbulbs beginning January 2014.

* Competition, Standards and Liberalisation SRI: Effected liberalisation

of nine services sub-sectors – accountancy/taxation services, courier services, departmental and speciality stores, incineration services, private hospital services, skills training services, telecommunications and technical and vocational schools – allowing up to 100% foreign equity with entry of foreign professionals permitted.

* Public Finance SRI: The Inland Revenue Board (IRB) and Royal Malaysian Customs Department implemented initiatives to improve tax administration and compliance. This resulted in tax revenue for the first quarter of 2012 of RM192.8m.

For more, go to http://etp.pemandu.gov.my

NATIONAL MINIMUM WAGEOn 1 May 2012, prime minister Najib Razak announced a minimum wage of RM900 a month for private-sector workers in Peninsular Malaysia and RM800 a month for those in East Malaysia. The wage applies to all sectors except the domestic sector. MASB ISSUES ED 76On 30 April 2012, the Malaysian Accounting Standards Board (MASB) issued Exposure Draft (ED) 76, Management Commentary (Guidance), for comments.

The aim of ED 76 is to provide a broad, non-binding framework for the presentation of

management commentary that relates to financial statements that have been prepared in accordance with Malaysian Financial Reporting Standards (MFRS). The deadline for comments is 30 July 2012.

For more, go to www.masb.org.my

PUBLIC RULINGS ISSUEDOn 3 May 2012, the Inland Revenue Board (IRB) issued Public Ruling (PR) No. 2/2012, Foreign Nationals Working in Malaysia – Tax Treaty Relief. This explains the application of tax treaty relief to foreign nationals from treaty countries seconded to Malaysia by non-Malaysian resident employers.

On 4 May 2012, the IRB issued PR No. 3/2012, Appeal Against an Assessment. This explains the procedure in respect of appeals against assessments made or deemed made and the requirements to be complied with when making appeals.

For more on PR No. 2, go to www.hasil.gov.my/pdf/pdfam/PR2_2012.pdf. For more on PR No. 3, go to www.hasil.gov.my/pdf/pdfam/PR3_2012.pdf

Vilashini Ganespathy, head – technical and professional development, ACCA Malaysia

SINGAPORE

ACRA SEEKS COMMENTThe Accounting and Corporate Regulatory Authority (ACRA) is seeking public feedback

on proposed amendments to the Accountants Act. A consultation paper, summarising the proposed changes, was issued on 24 May. The consultation ends on 4 July 2012.

ACRA developed the proposed amendments in consultation with public accountants, audit firms, professional accountancy bodies, aspiring public accountants, universities and audit committee members.

The proposals aim to:

* Ensure good quality-control frameworks for the audit and review of entities that have a significant public interest.

* Enhance ACRA’s ability to inspect audit quality controls and policies of audit firms and require audit firms to improve, where necessary.

* Make practical experience in key audit functions a core requirement for registration as a public accountant.

* Clarify the scope of ACRA’s regulation.

* Enhance ACRA’s ability to respond swiftly to protect public interest and uphold public confidence, through the establishment of a special investigation process.

More details can be found at www.acra.gov.sg

SQP CONSULTATION PAPERThe Pro-Tem Singapore Accountancy Council (SAC)issued the Singapore Qualification Programme (SQP) discussion paper on

A monthly round-up of the latest from the standard-setters

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18 May 2012. The paper sets out the pathway to becoming a Singapore professional accountant, and the Pro-Tem SAC invited all interested parties to contribute feedback towards the shaping and design of the SQP. The consultation ended on 15 June 2012.

The paper outlines each specific component underpinning the SQP framework and highlights particular areas. The paper also touches on important issues currently bring deliberated by the Pro-Tem SAC, including global recognition, international portability and the SQP administrator.

More details can be found at www.singaporeqp.com

XBRL FILING REQUIREMENTSOn 11 May, the Accounting and Corporate Regulatory Authority (ACRA) invited the public to give feedback and suggestions on proposed revisions to XBRL filing requirements and Exposure Draft (ED), ACRA Taxonomy 2012. The consultation ended on 11 June 2012.

ACRA implemented the filing of financial statements in XBRL in 2007 as part of the move towards enhanced business reporting and information flow. Today, close to 60,000 corporate financial statements are filed in XBRL annually.

The proposed revisions are therefore part of ACRA’s continual efforts to promote an environment of high-quality financial reporting and help strengthen Singapore’s position as a

trusted business hub.Earlier this year, ACRA

sought feedback from 80 organisations involved in the financial reporting supply chain to develop the proposed revisions. Through this revamp exercise, ACRA seeks to facilitate the preparation and filing of XBRL financial statements, and add further value to the flow of financial information by increasing the breadth and depth of XBRL data gathered. The public consultation paper covered two key areas:

* Proposed revisions to XBRL filing requirements to better meet the needs of preparers and consumers of financial statements.

* ED, ACRA Taxanomy 2012, in meeting the various disclosure requirements in Singapore Financial Reporting Standards (SFRS).

The proposed revisions are due to be implemented in the second quarter of 2013.

More details can be found at www.acra.gov.sg

Joseph Alfred, policy and technical adviser, ACCA Singapore

HONG KONG

FRAMEWORK FOR TIEASThe Financial Services and the Treasury Bureau has sought views on whether Hong Kong should amend the Inland Revenue Ordinance to provide a legal framework for entering into Tax Information Exchange

Agreements (TIEAs) with other jurisdictions.

Unlike Comprehensive Avoidance of Double Taxation Agreements (CDTAs), TIEAs are standalone agreements providing for exchange of information (EoI) in the absence of double taxation relief or other tax benefits such as lowering of withholding tax rates.

The legal framework for entering into TIEAs was recommended by the Global Forum of Transparency and Exchange of Information for Tax Purposes formed under the auspices of the Organisation for Economic Co-operation and Development (OECD). The proposal was made following the first phase peer review to evaluate jurisdictions’ compliance with the international EoI standard.

The consultation ended on 29 June 2012.

REGULATION OF SPONSORSThe Securities and Futures Commission (SFC) is inviting comments on its proposals regarding the regulation of sponsors, which proposed consolidating all key sponsor obligations in the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct), including due diligence, reliance on experts and non-expert third parties, provision of information to regulators, record keeping and so on, as well as to clarify sponsors’ prospectus liability.

Comments are invited by 6 July 2012. The

consultation document can be found at www.sfc.hk

Sonia Khao, head of technical services, ACCA Hong Kong

CHINA

BUSINESS TAX TO VATThe leaders of the Department of Taxation of Ministry of Finance and the Department of Goods and Services Tax of the State Administration of Taxation have clarified the pilot scheme on switching business tax to VAT.

The leaders said that the pilot work in Shanghai was of national significance, as Beijing and other regions have also applied to take part in the trial. The departments will keep track of the pilot work in Shanghai, gradually expand the scope of the pilot and strive to achieve nationwide roll-out during the 12th Five-Year Plan.

They added that the current business tax exemption policy will partly remain valid, and will partly be replaced by the policy of refunding on collection once VAT is collected. This transitional policy offers support for sectors with a noticeable tax increase.

More than 170 countries which have adopted VAT have single tax rates and multiple tax rates. The pilot scheme will adjust the present two-grade tax rate to the four-grade rate. In the future, grades will be simplified.

Sophia Zhao, technical manager, ACCA Beijing

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ENTITIES SHOULD ENSURE THAT THE AMENDMENTSTO INTERNATIONAL FINANCIAL REPORTINGSTANDARDS DO NOT SLIP UNDER THEIR RADAR

The International Accounting Standards Board (IASB) is developing a group of projects that are likely to affect financial statements ending in 2015. However, in the meantime, there have been some amendments to International Financial Reporting Standards (IFRS) which affect year ends in 2012 and others that come into effect from 1 January 2013. Although these amendments have been in existence for a while, entities should ensure that the amendments do not slip under their corporate reporting radar.

There are amendments which relate to December 2012 year ends. For example, an amendment to IFRS 1, First-time Adoption of International Financial Reporting Standards, eliminates the need for companies adopting IFRS for the first time to restate de-recognition transactions that occurred before the date of transition to IFRS and provides guidance on how an entity should resume presenting financial statements in accordance with IFRS after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. An amendment to IFRS 7, Financial Instruments: Disclosures, introduces some additional disclosures that apply on the transfer of financial assets. The amendments allow users of financial statements to improve their understanding of transfer transactions of financial assets, for example, securitisations, including understanding the possible effects of any risks that may remain with the

entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.

IAS 12, Income Taxes, requires an entity to measure the deferred tax

relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be subjective when assessing whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, Investment Property. The amendment provides a solution to the problem by introducing a presumption that recovery of the carrying amount will normally be through sale.

In addition, there is an amendment to IAS 1, Presentation of Financial Statements, which applies from 1 July 2012. The amendments to IAS 1 retain the ‘one or two statement’ approach at the option of the entity and only revise the way other comprehensive income (OCI) is presented, requiring separate subtotals for those elements which may be ‘recycled’ (for example, cashflow hedging and foreign currency

translation) and those elements that will not (for example, fair value through OCI items under IFRS 9, Financial Instruments).

The revisions made to IAS 19, Employee Benefits, are significant, and will impact most entities. They come into effect from 1 January 2013. The

revisions change the recognition and measurement of defined benefit pensions expense and termination benefits and the disclosures required. In particular, actuarial gains and losses can no longer be deferred using the corridor approach.

New and revised standards on group accounting were published in 2011. IFRS 10, Consolidated Financial Statements, replaces IAS 27, Consolidated and Separate Financial Statements and SIC-12, Consolidation — Special Purpose Entities and sets out a single consolidation model that identifies control as the basis for consolidation for all types of entities. IFRS 11, Joint Arrangements, establishes principles for the financial reporting by parties to a joint arrangement, and replaces IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities, Non-monetary Contributions by Venturers. IFRS 11 reduces the types of

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Preparing for changeDon’t let recent International Financial Reporting Standards amendments both current and future slip beneath your corporate radar, warns Graham Holt

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joint arrangement to joint operations and joint ventures, and prohibits the use of proportional consolidation. IFRS 12, Disclosure of Interests in Other Entities, combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities.

In addition, IAS 27, Separate Financial Statements, now has the objective of setting standards to be applied in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulation, to present separate (non-consolidated) financial statements. Financial statements in which the equity method is applied are not separate financial statements. IAS 28, Investments in Associates and Joint Ventures, covers equity accounting for joint ventures as well as associates. IAS 28’s objective is to prescribe the accounting for investments in associates and set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

All of the new group accounting standards have to be implemented together and apply from 1 January 2013. They can be adopted with immediate effect (subject to EU endorsement for European entities), but only if they are all applied at the same time. The European Financial Reporting Advisory Group (EFRAG) supports the adoption of the standards and

recommends their endorsement. However, it does not support the mandatory effective date of 1 January 2013; the field-tests it has conducted provided evidence that some financial institutions would need more time to implement IFRS 10, IFRS 11 and IFRS 12 in a manner that brings reliable financial reporting to capital markets. EFRAG recommends the mandatory effective date of the standards to be 1 January 2014.

A number of current IFRSs require entities to measure or disclose the fair value of assets, liabilities or their own equity instruments. The fair value measurement requirements and the disclosures about fair value in those standards do not always give a clear measurement or disclosure objective. IFRS 13, Fair Value Measurement, published in May 2011, deals with this issue. The new requirements apply from 1 January 2013, but can be adopted with immediate effect, again subject to EU endorsement for European entities.

In addition to the changes which will have an immediate impact, there is potential for significant change in practice because of current exposure drafts. The comment period for the updated exposure draft, Revenue From Contracts With Customers, closed recently. Most respondents agreed with many of the proposals, but some expressed concerns over the lack of clarity on how to identify separate performance obligations, the performing of the onerous assessment

TO GET THE QUESTIONS GO TO www.accaglobal.com/ cpd/fi nancialreporting

TO GET THE QUESTIONS GO TO cpd/fi nancialreporting

ACCA Engage September 2012

Submit your question and get an answer from the top!

Helen BrandChief executiveACCA

Dean WestcottPresidentACCA

AP_T_HoltCPD.indd 49 14/06/2012 18:46

CPDunits on the web

at the performance obligation level, and the volume of disclosures. The IASB and US Financial Accounting Standards Board (FASB) are beginning revisions and have indicated the effective date will be no earlier than 2015.

The FASB and IASB are proposing to fundamentally change the accounting for leases and are attempting to issue a second exposure draft by the end of 2012. The boards are proposing a ‘right-of-use model’ for lessees in which all leases are recognised on the statement of financial position at the commencement of the lease. A lessee would recognise an asset for the right to use the underlying asset and a liability to make lease payments.

The two key factors in initially measuring the right-of-use asset and lease liability are the lease term and lease payments. The lease term is to be the non-cancellable lease period, plus any renewal periods for which there is a significant economic incentive for the lessee to exercise the renewal option. Similarly, a lessor accounting model is proposed. Under this method, a lessor would derecognise the underlying asset leased and recognise a lease receivable measured as the present value of the future lease payments and residual asset measured on an allocated-cost basis. A lessor’s lease of investment property would utilise existing operating lease accounting but this is still in discussion by the Boards.

IFRS 9, Financial Instruments, is being developed in three phases: classification

and measurement, impairment and hedging. The IASB agreed in late 2011 to look at limited modifications to IFRS 9 for classification and measurement. This arose because of application issues with IFRS 9 – the need to consider the interaction between IFRS 9 and the decisions being made on the insurance project, and consistency with the FASB’s model on the classification and measurement of financial instruments. In December 2011 the IASB issued Mandatory Effective Date of IFRS 9 and Transition Disclosures, which amends IFRS 9 to require application for annual periods beginning on or after 1 January 2015, rather than 1 January 2013. Early application of IFRS 9 is still permitted. IFRS 9 is also amended so that it does not require the restatement of comparative period financial statements for the initial application of the classification and measurement requirements of IFRS 9, but instead requires modified disclosures on transition to IFRS 9.

Amortised costTo date, the Boards have decided that an entity should assess the cashflow characteristics of financial assets and its business model to determine which financial assets should be classified and measured at amortised cost. If the business model’s objective is to hold the assets in order to collect contractual cashflows, then amortised cost is used.

All financial instruments are initially measured at fair value plus or minus, in

the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs. A measurement category other than fair value through profit or loss can be used if the contractual terms of the financial asset result in cashflows that are solely payments of principal and interest on the principal amounts outstanding. The existing requirement under IFRS 9 that prevents the splitting of embedded derivatives from financial assets is to be retained. The IASB intends to expand IFRS 9 to add new requirements for impairment of financial assets measured at amortised cost, and hedge accounting. The Boards are continuing their discussions on development of the three-bucket expected credit loss impairment model. The IASB expects to publish an exposure draft in the second half of 2012.

It can be seen that when reviewing and preparing financial statements, difficulties arise in ensuring compliance with all of the various amendments being issued, deciding whether to adopt a standard early and determining whether the jurisdiction has actually approved the standard for use.

Graham Holt is an examiner for ACCA, and associate dean and head of the accounting, finance and economics department at Manchester Metropolitan University Business School

CPDunits on the web

50 Technical

AP_T_HoltCPD.indd 50 15/06/2012 15:15

51Technical

Accounting solutionsIn this month’s column, PwC authors answer technical questions on business combinations and the recognition of goodwill; and on related party disclosures

Q Entity A acquired entity B some time ago and recognised goodwill on that business combination. The goodwill

was then allocated to entity B’s two cash-generating units (CGU Y and CGU Z) based on the synergies that were expected to be derived from the acquisition. During the current year, entity A announced a restructuring plan of its global operations. The restructuring will result in most of CGU Z’s assets being transferred into a new division that is separate from entity B. CGU Z’s remaining assets do not support the originally allocated goodwill; management is therefore considering impairment. Is management’s thinking right?

A Not necessarily. IAS 36, Impairment of Assets, requires reallocation of purchased goodwill when an entity

reorganises its reporting structure, and that reorganisation changes the composition of one or more cash-generating units. The reallocation should be based on a ‘relative value approach’ unless management can demonstrate some other method that better reflects the goodwill associated with the reorganised units.

The restructuring of the CGU Z appears to be a reasonable trigger for entity A’s management to consider the reallocation of goodwill. The standard is not prescriptive about how this reallocation should be performed. If entity A’s management chooses the ‘relative value approach’ because there is no better method available, it must establish a reasonable method

Q XYZ Ltd has entered into an arrangement with its finance director in the year ended 31 December 2011. The entity is

in the process of relocating its head office and requires the FD to move to another location. It has agreed that it will purchase the FD’s residential property from her in the event that she is unable to find a buyer for it before 31 June 2012. XYZ Ltd is preparing its accounts for the year ended 31 December 2011. Is disclosure of this agreement required in the financial statements?

A IAS 24, Related Party Disclosures, includes members of key management personnel within the definition of related

parties. The standard also notes that ‘key management personnel’ includes all directors of the entity (whether executive or otherwise). So the FD is a related party of XYZ Ltd, and the agreement between the two parties should be disclosed in XYZ Ltd’s financial statements if it meets the definition of a related-party transaction.

IAS 24 was amended for annual periods commencing on or after 1 January 2011. As part of this amendment, a requirement was added for an entity to disclose commitments with related parties, including ‘a commitment to do something if a particular event occurs or does not occur in the future’. The arrangement for XYZ Ltd to purchase the property from the FD if she is not able to sell it should therefore be disclosed in the accounts under this requirement, even though the actual purchase of the property has not occurred during the financial year.

This month’s solutions were compiled by Imre Guba, Richard Tattershall and Iain Selfridge of PwC’s Accounting Consulting Services

for determining relative value. The reallocation might be performed, for example, based on relative ‘value in use’ or ‘fair value less costs to sell’ measures or even on the existing carrying values of the two cash-generating units. It is likely that some – possibly all – of the goodwill in CGU Z should be transferred to the new division.

Keep up to date with the latest IFRS developments through PwC’s twice-monthly email update. It provides you with a summary of the latest issues and links to further guidance. To subscribe, email corporatereporting@uk.pwc.com requesting ‘subscription to mailshot’. Or sign up for the IFRS RSS feed at pwc.com/ifrs

CN_T_accsolutions.indd 51 13/06/2012 11:05

How to beat burnout[Stress at work can be demoralising, damaging – and even deadly. But by putting the right conditions in

place, fi nance professionals can help themselves to alleviate the dangers, as our panel of experts explain

According to at least one expert who deals with executive stress in Hong Kong, Lloyds Bank chief executive António Horta-Osório’s public admission of professional exhaustion late last year was a brave one.

The board held an ‘emergency meeting’. Share prices plummeted. But guess what? The world didn’t end, and in early January Horta-Osório returned to work, declaring that he had made a ‘full recovery’.

We’re overworking to our detriment, recent research suggests. China Entrepreneur Survey System’s most recent annual report indicates that more than 80% of respondents experience feelings of major work-related pressure. At the same time, entrepreneurs’ general feelings of wellbeing in their personal lives, recorded on a five-point-scale happiness index, also fell from 3.76 in 2005 to 3.64 points in 2009, with a further dip to 3.6 points in 2008 as the global financial crisis took hold. In particular, the survey found, respondents from mid-sized companies reported feeling the greatest level of stress.

In Hong Kong, workers routinely stay at the office late and then take work home. A survey last year by flexible workspace provider Regus found that pressure on working hours in the city had increased because of slow economic recovery in mature economies and, conversely, very rapid growth in emerging ones.

Yet if we are tired or stressed, few will admit it, says Pete Gable, a Hong Kong-based business coach and hypnotherapist. ‘Horta-Osório’s public admission is unfortunately very rare and most do not have the courage to admit publicly what is happening to them. In fact, in some professions an admission of this sort would find them

being suspended, sidelined or being let go – hardly an incentive to seek help through the organisation or use their healthcare insurance for treatment. Of course, the fear of this outcome merely increases the pressure.’

The higher up the ladder, the greater the pressure, says Conrad Schmidt, global research officer at Corporate Executive Board: ‘Executive management is Asia is, quite simply, hard. Beyond having to deal with an inadequate supply of talent, the business challenges are often viewed as more complex than in the past, with unpredictable economic conditions in major markets, rising regulatory uncertainty, dispersed and virtual organisations, and the need to grow while increasing profitability.’

The good news is that workers and employers are beginning to heed the warnings. Regus’s most recent survey, published in May, revealed a 3% rise in a positive work/life balance in China between 2010 and 2012 and a 6% rise over the same period in Hong Kong. But while 72% of those surveyed in Hong Kong said that they enjoyed work more than they used to, the problem of presenteeism is still prevalent, notes Robin Bishop, CEO at Community Business, an organisation that focuses on corporate social responsibility issues in Asia. ‘While it is great to see this research demonstrating improvements, we believe that companies in Hong Kong can still do more,’ he says.

So how to beat the burnout before it gets to you? Here are some tips from the experts.

1 Relax moreGable routinely helps executives presenting with the same extreme fatigue suffered by Horta-Osório. ‘I have found that the relaxation one

can find using hypnosis, plus anchoring techniques from NLP [neuro linguistic programming], can help people overcome highly distressing situations which, if left, can have a damaging effect on their family lives and their personal self-confidence,’ he says.

2 Be a team playerSustainable stress reduction can only occur when executives adjust their management styles and philosophies, says Schmidt. ‘Our research shows that the highest performing executives focus on achieving group success, not just individual success and/or career progression. These executives are highly effective at using their teams to get work done. They empower and stretch their employees into key roles – creating more leverage for themselves. While often viewed as risky, it is the most effective way to build skills and ability in a team.’

3 Create a networkEffective executives develop and use a broad network of peers, both inside and outside their organisations, to provide information, support, advice and guidance in their jobs, says Schmidt. ‘Executives who empower their team, influence others and rely on broad-based support networks are not only higher performing but are more engaged with their job, more satisfied with their career path and likely to feel a lot less stressed.’

4 Go softlyMainland China’s culture of decision-making being confined to leaders is problematic, according to Stephen Murphy, managing director at the Academy of Executive Coaching, China. His advice is to have senior management learn to coach rather than direct their subordinates. ‘This

52 Careers

CN_C_burnout.indd 52 14/06/2012 14:58

follow any thoughts that can be generated by the feeling or the situation responsible for triggering the feeling.’

8 Think positiveDon’t let the superficial chaos of the world get you down; be your own person, advises Kelly Services, a consultancy with offices in Hong Kong. Make time every day to close your eyes and imagine the things that give you pleasure. Don’t underestimate the importance of laughter, either; this relaxes facial muscles and is one of the best safety valves for strained nerves. Try to be optimistic, particularly last thing at night and first thing in the morning. For many people negative thinking becomes a habit and a very bad one; try to break the mould and take control of your own thoughts.

9 Schedule down timeConstantly playing catch-up, rather than staying ahead of the game, is a

surefire formula for stress. Setting a schedule that allows some flexibility for unexpected emergencies goes a long way to avoiding this, says executiveblueprints.com. The website further advises scheduling periods for managing workplace pressure and allowing periods for cooling down, being creative or relaxing.

10 DelegateJust about every advice column on managing workplace stress states the importance of acknowledging that you can’t do everything. Delegate to someone who is capable of completing the task and make sure that they have the resources to do so effectively. This can be amazingly liberating: even Horta-Osório returned from his hiatus promising to delegate more, having recognised a need to ‘rebalance’ his life.

Peta Tomlinson, journalist

involves a step-change in trust and communication,’ he says. ‘Suddenly, middle management starts to understand that they can influence and make things happen.’ More motivation equals less stress, he asserts.

5 Be specificHold individuals accountable for outcomes, not for time spent at their desks, says Murphy. ‘Spend time clarifying expectations and objectives. Focusing on results, rather than process, passes a clear message to the organisation and changes the culture over time – reducing stress from burnout and time at the desk.’

6 Take regular breaksCareer and executive coach Angela Spaxman believes that too much multi-tasking and insufficient breaks cause fatigue in her Hong Kong clients. ‘My first tip is to begin mindfulness practices – to spend time every day living in the present moment,’ Spaxman says. The easiest way to do this is to start bringing attention onto breathing several times every day between tasks. This can be achieved by building in one-minute breaks throughout the day, as well as focusing while walking, exercising, riding or during other daily activities.

7 Get in touch with your feelings Unwanted feelings such as anger, nervousness, frustration, jealousy or defensiveness can get in the way of the executive’s ability to think clearly and act constructively, says Spaxman. If you sense problematic situations coming on, simply turn your attention to the physical feeling associated with the emotion that is unhelpful to you, she advises. ‘It is important to keep the attention fully on the physical aspect of the feeling, not allowing yourself to

‘FOCUSING ON RESULTS, RATHER THAN PROCESS, PASSES A CLEAR MESSAGE TO THE ORGANISATION AND CHANGES THE CULTURE OVER TIME’

53

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Do you remember the days when you were an ACCA student or affiliate, looking for support to help you gain the practical experience requirement (PER) of the ACCA Qualification and sign off your achievements? Now ACCA trainees are asked to find a workplace mentor – an individual who can verify their experience but also act as a guide to help them plan how they will achieve competences and to generally motivate and offer support.

At ACCA, we believe that members are our greatest asset and that mentoring is the best mechanism to ensure that the quality of our membership base in the future remains as high as it is today. We therefore put a lot of resource into making sure that members who act as workplace mentors are supported by ACCA.

Why become a mentor?Becoming a workplace mentor can have many benefits for you:

* coaching and mentoring can count towards your annual CPD requirement if you are learning relevant new skills that you can apply in the workplace

* you will reap the benefits of working with junior colleagues, who will become more able, enthusiastic and develop a better rapport with you

* you’ll develop the characteristics and behaviours required of today’s rounded business professionals and develop a wide range of transferable skills to use in your career

* from preparing for coaching or mentoring, through the session itself to your post-session review, you’ll improve both self-awareness and the ability to identify your own areas for development

* the achievements of your trainees will reflect well on your own leadership ability and potential.

What’s involved?The workplace mentor supports the trainee’s development in the workplace and reviews their progress and achievements at work.

As the workplace mentor, you should:

* help trainees identify which performance objectives to target

* advise trainees about performance targets to achieve and the date by which they should achieve them

* evaluate trainee progress on a regular basis

* review the answers given to challenge questions

* sign off experience and the performance objective if you agree that the standard required has been met.

Already a workplace mentor?If you’re already a mentor, signing off your trainees’ experience is now easier and simpler than before:

* the look and feel of the tool will be slightly different for you, but the process you follow in signing off PER will remain exactly the same

* access to My Experience is through myACCA just like before; and any information you and your trainee may have already entered has been transferred to the enhanced tool.

We will remind trainees regularly to update My Experience. Please help us reinforce this message by explaining to your ACCA trainee(s) that they should use My Experience to log regular updates. For

example, they can use the tool to log some months of relevant experience with an employer, even if they have not yet achieved any Performance Objectives.

For more information please visit www.accaglobal.com/wpm

Motivate, guide, supportIs it time for you to give something back to the profession by supporting an ACCA trainee as a workplace mentor? It’s easier than ever and can contribute to your own CPD

Do you remember the days when you were an ACCA student or affiliate, looking for support to help you gain the practical experience requirement (PER) of the ACCA Qualification and sign off your achievements? Now ACCA trainees are asked to find a workplace mentor – an individual who can verify their experience but also act as a guide to help them plan how they will achieve competences and to generally motivate and offer support.

At ACCA, we believe that members are our greatest asset and that mentoring is the best mechanism to ensure that the quality of our membership base in the future remains as high as it is today. We therefore put a lot of resource into making sure that members who act as workplace mentors are supported by ACCA.

Why become a mentor?Becoming a workplace mentor can have many benefits for you:

* coaching and mentoring can count towards your annual CPD requirement if you are learning relevant new skills that you can apply in the workplace

* you will reap the benefits of working with junior colleagues, who will become more able, enthusiastic and develop a better rapport with you

* you’ll develop the characteristics and behaviours required of today’s rounded business professionals and develop a wide range of transferable skills to use in your career

* from preparing for coaching or mentoring, through the session itself to your post-session review, you’ll improve both self-awareness and the ability to identify your own areas for development

* the achievements of your trainees will reflect well on your own leadership ability and potential.

MEMBERS ARE OUR GREATEST ASSET AND MENTORING IS THE BEST MECHANISM TO ENSURETHAT MEMBERSHIP QUALITY REMAINS HIGH

56 ACCA

CN_A_CPD.indd 56 14/06/2012 15:00

All change at the top

By the time you read this, Hong Kong will have a new chief executive. CY Leung will have replaced incumbent Donald Tsang, who stepped down on 30 June after seven years in post.

It is difficult to predict what this may mean for the financial landscape of the city, or indeed its accountancy profession. For decades, Hong Kong has been responsive to the needs of global business, providing high-level expertise in financial and legal services, with accountancy professionals long been called on to ensure the development of a financially robust corporate sector, and ACCA Hong Kong will respond to and support any initiatives to further the development of the profession and its membership.

Hong Kong is in a unique position to assist mainland China, which is in the throes of modernisation and reform as it encourages local business to ‘go international’. Accountancy professionals from Hong Kong are already playing an essential role in mainland China’s transformation and will continue to offer support.

Other countries too are experiencing a new direction in leadership. In the US, the presidential elections are about to warm up as Mitt Romney won the Republican nomination in May and will face president Barack Obama in November’s elections. In Europe, the election of a socialist, anti-austerity president, François Hollande, will herald a sea change in how the country supports attempts to strengthen the euro, while the second round of the Greek presidential elections, due as we go to press, could determine whether Greece remains wedded to the currency or reverts to the Greek drachma, with

[As Hong Kong welcomes a new chief executive, outgoing ACCA Hong Kong chairman Bernard Wu considers the future of the profession against a backdrop of continued global economic uncertainty

potentially devastating consequences.While Asia has been watching

economic events unfolding with unease, there still are reasons to be optimistic as Hong Kong gradually emerges from the global crisis with a sound manufacturing industry and strong financial sector. Indeed, Hong Kong has just been ranked the world’s most competitive economy for the second consecutive year by the International Institute for Management Development, while from 2009 to 2011 the Hong Kong Stock Exchange ranked number one in the world for initial public offering funds raised.

This was the theme of ACCA Hong Kong’s annual conference. Entitled Embracing the Economic Landscape

– 2012 and Beyond, the conference considered the opportunities, issues and challenges facing Hong Kong. There, ACCA president Dean Westcott pointed out that ACCA’s most recent Global Economic Conditions Survey, which gathers the views of more than 2,000 finance professionals worldwide, revealed an increase in business dynamism in the Americas and Asia Pacific as businesses secure more orders and boost staff headcount.

According to the survey, 34% of respondents in the Asia Pacific region felt that the global economy was improving, up from 19% in late 2011.

Despite concerns over Europe and the US, the survey indicated a growing optimism in the global economy. But Westcott stressed the need for better corporate governance, risk management and internal controls, which have become more important than ever. You can read more about the conference overleaf.

I began by talking about a change of leadership and so I end with more of the same. I’d like to say what an honour it has been to serve as chairman of ACCA Hong Kong. I have had the pleasure of meeting and

speaking with many ACCA members since I took up my post in

September 2011. As a new chairman is elected for a new term starting in September, ACCA Hong Kong will continue to do what it does best – support its membership and the accountancy profession as both evolve and rise to the challenges of a world that is ever changing. It will be both interesting and exciting to see

what lies ahead.

Bernard Wu is chairman of ACCA Hong Kong

ACCA 57

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Hong Kong has an optimistic economic outlook despite the weak US economy and unresolved eurozone debt crisis, delegates at the ACCA Hong Kong Annual Conference 2012 heard.

Speakers highlighted a series of positive factors supporting Hong Kong’s economic growth, ranging from the gradual recovery from the global crisis and strong support from China, to signs of a revival of Hong Kong’s manufacturing industry. But the city is also faced with a number of challenges – high rents, inflation, and the lack of manpower.

Held at the Hong Kong Convention and Exhibition Centre on 5 May, this year’s conference had the theme: Embracing The Economic Landscape – 2012 and Beyond.

Delivering the opening address, guest of honour, Dr Eddy Fong, chairman of the Securities and Futures Commission, paid tribute to ACCA for helping to develop the accountancy profession in Hong Kong.

‘When I first returned to Hong Kong to work as an accountant in 1973, the Hong Kong Society of Accountants (HKSA) [later the HKICPA] was still in its infancy. Many members [who] applied to become members of HKSA were members of ACCA. The earlier professional examinations set by HKSA also owed their origin to the model adopted by ACCA,’ Fong said.

Fong was one of over 20 distinguished speakers from regulatory bodies and the commercial and academic sectors who spoke on the challenges and opportunities that Hong Kong faces, arising from economic instability in financial services, real estate, manufacturing and retail.

In his welcome address, ACCA president Dean Westcott gave an overview of the global economy based on ACCA’s most recent Global Economic Conditions Survey, which suggests that the global economy recovered substantially in early 2012.

‘The survey reports increasing business dynamism, mostly in the Americas and Asia Pacific, with

POSITIVE OUTLOOK FOR HONG KONG

businesses securing new orders where previously they would not have and responding with increased investment and hiring,’ Westcott said.

The survey, he said, showed an increased optimism about the global economy: 34% of respondents in Asia Pacific felt it was improving or about to, up from 19% in late 2011.

Speakers shared the optimism. Nicholas Kwan, an independent economist and former head of research for Asia at Standard Chartered Bank, said: ‘As long as mainland China continues to develop and to connect its financial industry to international markets, Hong Kong will continue to have businesses.’

Ongoing growthStanley Wong, former executive director and deputy general manager of Industrial and Commercial Bank of China (Asia), predicted that mainland China will record an 8% to 8.5% gross domestic product (GDP) growth in 2012, despite the fact that growth slowed to 8.1% in the first quarter of this year, the lowest quarterly rise in nearly three years.

His confidence was based on the fact that China has registered good growth in exports and domestic consumption for the first quarter. Many mainland cities have predicted double-digit economic growth, he added.

Despite the global financial instability, Stephen Cheung, dean of the school of business and chair

professor of finance at Hong Kong Baptist University’s School of Business, said renminbi internationalisation is helping to boost Hong Kong’s economy.

‘Over the past 10 years, we couldn’t develop the bond market. But since RMB bonds started, Hong Kong’s bond market has sped up,’ said Cheung.

But he noted that the US policy of quantitative easing (QE), will continue to pose challenges to Hong Kong’s economy by causing a property boom and a widening poverty gap.

‘The asset prices will become higher and higher. If you have assets, your wealth will get bigger and bigger. But if you have no assets, you will get poorer,’ said Cheung.

Derek Cheung, founder and chief investment officer of Neutron INV Partners, also said a property boom was related to QE. ‘There is too much money in the market, housing supply is limited and the interest rate is low,’ he said, adding that property prices will rise in the long term.

Justin Chiu, executive director of Cheung Kong (Holdings), also said property prices will increase further. ‘Many dare not to invest heavily in the stock market at the moment. And there is the myth in Asia that many want to own properties,’ Chiu said.

According to Joseph Chu, executive director of Prince Jewellery & Watch Co, the US and Europe crisis has benefited luxury watch retailers in Hong Kong in one way or the other.

ACCA news58

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POSITIVE OUTLOOK FOR HONG KONG

‘Ninety per cent of our customers are mainland Chinese. To us, the biggest problem is that we have clients, but there is no product. But after the Europe and US crisis, brands have enlarged their distributions to us. Now Hong Kong imports of Swiss watches double that of the US,’ Chu said.

But speakers said the big threat to businesses were high rents, with many shops closing as a result. Chu said his rent in Causeway Bay increased from HK$800,000 to HK$2.5m.

Speakers said that apart from high rentals, inflation and manpower shortages were also making it difficult for both the catering and retail industries to operate.

‘In the past two to three years, our food cost has had a double-digit rise,’ said Eric Leung, CEO of Tao Heung Group, which runs a Chinese restaurant chain in Hong Kong.

‘With high inflation, people shop less,’ said Caroline Mak, chairman of the Hong Kong Retail Management Association.

Reflecting the manpower shortage, Mak said its survey of 6,000 shops showed that 8.8% of retail vacancies remained vacant on a long-term basis. She urged the government to attract low-skilled female workers to the industry by providing them with enhanced child-care support. Mak also suggested the government build more shopping malls to lower rents.

Flint Chan Dit-lung, honorary president and chief executive adviser

of the Hong Kong Brands Protection Alliance, pointed out that the opportunities in China and new economies have triggered more manufacturers to return to Hong Kong in recent years.

He said Hong Kong used to rely on exports and over 80% of the city’s exports were made to the US. But he pointed out that the situation has changed. ‘Now it is the BRICS countries which are saving the world, not Europe and the US,’ said Chan, also managing director of Wellknown Plastic Material.

Chan added that local manufacturers who have changed their markets to mainland China and new economies are doing well, as reflected by some very crowded exhibitions recently – with some exhibitors even saying that they had too many orders.

He urged Hong Kong’s businesses not to wait for the revival of US and Europe, which may take a long time. Instead they should target mainland China’s markets.

‘Before, mainland clients would bargain in our exhibitions. But now people want to improve their quality of life and want to buy high-end products,’ he said.

He added that US customers were starting to reappear at local exhibitions, although their European counterparts had yet to follow.

For Hong Kong’s watchmakers, all US, European and Japan orders have died out, Chan said. ‘Watch manufacturers changed their markets

to ASEAN, India, the Middle East, Russia, South Africa, and South America, and some cannot finish their orders,’ Chan said.

‘China is now boosting internal consumption. All the world wants to go there to share the pie, do we still wait for exports?’ Chan said.

He suggested businesses not to target the low-end market. ‘If we want to compete on price, how can we compete with Indonesia, Thailand, Malaysia, Bangladesh and Vietnam? In Indonesia, workers are paid just HK$200 a month. Hong Kong must develop its own products,’ he said.

But Chan said that the manufacturing trade faced the shortage of industrial talents, and urged the government to nurture more talents through university education.

Other speakers agreed, saying Hong Kong should develop more industries.

Priscilla Lau, a Hong Kong deputy to China’s National People’s Congress, said the government should help develop the local manufacturing industry – saying that the mainland government offers incentives such as cheap rents and office spaces to support manufacturing entrepreneurs.

Moderator Paul Chan, a legislator for the accountancy constituency, agreed: ‘Look at Taiwan, if the government hadn’t supported its electronic industry, it would not have gained its achievements today.’

Sherry Lee, journalist

Far left (from left): Derek Cheung, Justin Chiu, George Hongchoy, Shih Wing Ching and Paul Chan

Left: ACCA Hong Kong chairman Bernard Wu

Right: Dr Eddy Fong

Far right: Dean Westcott

59

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China can no longer rely on its exports to lift gross domestic product (GDP) growth and must look for other ways to boost its economy, a renowned Chinese economist told the ACCA South China Annual Conference 2012. Delivering his keynote speech, Dr Li Qi, Dean of Peking University’s Guanghua School of Management, Shenzhen campus, was one of four distinguished speakers to offer insights on how to tackle challenges as China undergoes an economic transition from foreign trade to domestic consumption.

Held in May in Guangzhou, the conference had the theme of Lean Management under Economic Transition and attracted 270 business leaders, CFOs and financial professionals – the largest number of delegates since it was established in 2010. The dinner reception was attended by many high-profile executives, including: Jiang Jianping, secretary general of the Guangzhou Institute of Certified Public Accountants (GZICPA) and Chen Haifang and Jiang Hongfeng, deputy presidents of the GZICPA; Clement Hung, audit leader at Deloitte Southern China; and 70 other senior managers and family members.

Li said that in the past 30 years, China’s economic growth had relied on strong foreign demand for the country’s competitively priced goods.

But the export-dependent economic growth model was no longer sustainable and he predicted that the percentage of exports in China’s GDP would reduce more and more because of the poor global economy. China’s GDP growth slowed to 8.1% in the first quarter this year, the lowest quarterly rise in nearly three years. The market predicts that global demand for China’s exports may remain sluggish into mid-year because of the recession in the eurozone and weak US economic recovery. ‘After the 2008 global economic crisis, people in China started to realise that foreign demand-led economic growth would gradually end, knowing that we must find new paths to boost GDP,’ Li said.

China’s economic transition involves using domestic consumption to replace foreign demand to drive economic growth of the world’s second largest economy, which has more than 1.3 billion people. In the US, 70% of GDP comes from consumption. Li said that the consumption level of a country was largely determined by income level.

‘When there is income, there is demand. Once there is demand, there will be production. Once there is production, there will be income and the cycle continues,’ he said, adding that increasing domestic consumption can attract foreign investment in China, in turn driving economic growth.

The alternative is to increase the

proportion of income that people use for consumption. To do that, Li said that the country needed to increase its medical and social welfare.

Faith in the futureThe logic lies in the fact that a strong social security system can increase people’s faith about their future. ‘Once they have faith in their future, they can spend,’ Li said. ‘If you keep asking people to consume and consume, they will not do it as they think: “Who cares for me when I am sick or get old?” But if the government will cover their medical insurance, everybody will consume.’

He added that the Chinese government should not wait for the country to become rich to implement social security. ‘If you launch a social security system when you are poor, you can create demand and lead GDP growth,’ he said.

The Chinese government, he said, can also boost GDP growth through building transportation systems,

ACCA news60

TRANSFORMATIONAL CHALLENGES

Above: ACCA president Dean Westcott. Left: Dr Li Qi, Dean of Peking University’s Guanghua School of Management, Shenzhen campus

CN_A_Guangzhouconf.indd 60 13/06/2012 15:22

including airports, highways and underground lines, as well as through urbanisation. He added that the government should modernise all mainland cities and towns to the same level as New York, London and Paris, as well as Shanghai and Guangzhou. ‘In China, the difference of facilities between first-tier and third-tier cities is so big,’ he said.

Li said that China’s economy would continue to be strong and that corporates should adopt ‘lean management’ to reduce costs to get through this year’s economic difficulties.

In fact, according to Phoebe Yu Hao – chairman of ACCA South China steering team and a member of the compliance and advisory panel of the International Federation of Accountants – more corporate financial departments are operating in a ‘lean’ way. ‘To provide more value to business, finance professionals need to team together with colleagues in sales, marketing, production and HR. The finance and accounting function is not back office anymore and needs to be more lean and flexible in daily management,’ said Yu.

Delivering his welcome address, ACCA president Dean Westcott said that accountants played an increasingly important role during China’s economic transformation. Apart from having to provide sound advice to help entrepreneurs to switch to the new business model, accountants would need to sustain businesses through better corporate governance, risk management and internal control. These functions, Westcott added, have become ‘increasingly important’ following the global financial crisis.

Another conference highlight was a panel discussion on lean management under economic transition from the perspective of CFOs. Three speakers from the commercial sector offered first-hand strategies. Facilitator Jeremy Zhang FCCA, director of ZTE Capital Management Company of Shenzhen, said that the European and US economic crises had largely impacted

on foreign trade enterprises and coastal areas that focused on foreign trade. ‘After 30 years of speedy GDP growth, our economic growth rate is now dropping drastically,’ Zhang said.

Under pressureHe added that both foreign trade enterprises and companies that focus on China’s domestic market need transformation. But it is not an easy task. According to Michael Wan FCCA, financial controller of Asia Pacific at Franke (China) Kitchen System Co, the economic transition has put mainland enterprises under pressure.

‘China’s market is different to what many imagine. Many people just see that there are a lot of chances in China, but they haven’t seen the long-term competition here,’ he said. ‘Abroad, each new industry has fewer than three fierce competitors. But in China, there are tens to more than a hundred known competitors. There are even more hidden competitors.’

Wan said that financial professionals could lead businesses through the transition. They can help corporates by analysing competitors, industry trends and internal efficiency, as well as finding out the key problems that the firm faces.

Joanson Jiang FCCA, vice president and CFO of Yulong Computer Telecommunication Scientific (Shenzhen) Co, said that he has launched a series of lean financial

management strategies to help his firm stay competitive during the economic transition. A key strategy is to increase market share by cost cutting; to do this it set a high sales target and are thus able to reduce its purchase costs. It introduced production methodologies to reduce waste and shortened the time required to invent a new mobile phone to reduce research and development costs. ‘We also carry out in-depth analysis on the costs of our competitors,’ he added.

Another tactic is to prepare sufficient funds for immediate needs and future development; in January the firm raised more than 700 million yuan from the public. ‘The capital allows us to make big developments for the company,’ Jiang said. ‘Apart from our two other competitors, most of the other mobile phone producers are financially stressed. Our firm’s finances are resourceful. No matter how the market changes, we have a good financial foundation to tackle them,’ Jiang said.

Wan said that previous studies of successful enterprises showed that if companies could always make the right business decision, they would not face any pressure during economic transition. He suggested that companies keep healthy financial management and sustainable growth to succeed in the economic transformation.

Sherry Lee, journalist

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TIME TO EMBRACE PRUDENT RISKIt is said that in life there is no reward without risk. For CFOs operating in the volatile financial markets of 2012 this holds particular resonance. Yet despite uncertainty, accountants who take prudent risks can reap significant reward in the coming years, concluded finance specialists gathered at the ACCA Annual Conference in May in Shanghai.

Although world markets are showing timid signs of recovery, it is undoubtedly a precarious moment. This year world output is projected to grow 3.5%, according to the latest forecast from the International Monetary Fund (IMF), released in April. At the same time, the IMF has predicted that 2012 will be characterised by high risk. A lull in emerging markets, coupled with instability in Europe, means that worldwide growth is expected to be weak. Greece’s exit from the euro seems possible, while Wall Street stocks languish in negative territory thanks to concern about the global economy following a slowdown in some important territories, including China.

Although China’s economy is still growing, it is doing so with reduced velocity. China’s growth in the second quarter fell by 7.9%, the first dip below 8% since 2009. Growth is especially slowing in the manufacturing sector, something that is causing anxiety for financiers worldwide. In June, HSBC released data showing the seventh consecutive month of contraction in manufacturing. China’s purchasing managers index for May stood at 48.4, compared with 49.3 in April, as demand slowed in both the domestic market and abroad.

With this unstable environment as a backdrop, risk and how best to manage it is at the forefront of many CFOs’ minds. ‘I think risk is a bit like a virus;

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it evolves and can be a different beast tomorrow,’ says Aaron Au FCCA, CFO of UCCAL Fashion Group. ‘So the most important thing is to make risk management a part of a company’s culture; every employee should have a sense of how to manage risk.’

Accurate and relevantA fundamental part of accountancy is to provide accurate and relevant financial information with which the right decision can be taken. ‘Accountants are already risk people; they understand risk and embrace the norms of risk management,’ ACCA president Dean Westcott told the conference. ‘They understand that it is better to explain a range of possible outcomes from a course of action than to detail the most likely outcome. This

is the essence of risk management.’

Yet since the financial crisis, Westcott says, many CFOs have been playing it safer, avoiding decisions that could expose the company to unnecessary risk. ‘It is clear that the global attitude towards risk management has changed dramatically in the last three years’, said Westcott. ‘That has resulted from increasingly stringent regulatory controls, along with the development of sophisticated financial modelling.’

This timid approach to risk-taking can have a negative impact on a company’s growth. By avoiding risks, CFOs may miss opportunities. ‘As CFOs our natural declination is to minimise risk’, said Luke A Kelly, CFO of Corning China. ‘But risk does present advantages and we see lots of examples of companies or individuals generating huge profits doing things that go against what everyone else is doing.’ Taking a long-term view, Kelly says, is

vital for CFOs during times of economic instability. ‘When we look at these macro events in the short to medium term there may be some stress,’ he says. ‘But if you take the long-term view and you have a culture that allows you to take advantage of risk, then you can do so from a position of relative strength.

‘A specific example was in late 2008 to early 2009,’ Kelly continued. ‘There was a major crisis but economic activity continued, things chugged along. A lot of us would like to go back then and invest in companies like HSBC or Wells Fargo who saw their earnings rebound. They weathered the storm and have emerged stronger and diversified.’

The importance of a robust risk management strategy should not be

Finance professionals must use evidence rather than following orders unquestioningly or being motivated by self-interest, Dean Westcott told delegates

ACCA news62

CN_A_ShanghaiConf.indd 62 14/06/2012 15:37

‘if you have a culture that allows you to take advantage of risk, then you can do so from a position of relative strength’

underestimated. Yet achieving effective risk management isn’t easy. It stretches beyond the role of the finance department into the organisation’s core culture, whether there is an integrated approach that incorporates risk management into general practices. ‘The company is on the front line of risk, while the CFO is the second-level order of risk management’, says David Cavanna, CFO at HSBC Bank China. ‘You need to be very clear in informing other employees about what it is they need to look for in order to mitigate and manage those risks.’

Victor Lam, CFO at The Linde Group, detailed different ways that a CFO

could manage risk: ‘First, [CFOs] can avoid risk. Second, we can share the risk with others within our organisation. Then there is risk reduction through risk management. Finally, there is risk acceptance; some risks are unavoidable, such as those arising from economics and politics. Both China and America are accustomed to such risks.’

Human factorUltimately, however, there is one variable that even a comprehensive risk management strategy cannot control: the human factor. Just 4% of respondents to the ACCA study believed that dysfunctional behaviour – such as

allowing personal bias or political power battles to influence risk decisions – didn’t happen in their organisation. Yet at the heart of good risk management are sound ethical practices.

‘Are accountants only instruments of the CEO?’ asked Westcott. ‘Are they there to report the popular figure that the CEO would want them to report? Or are they interested in promoting honesty, objectivity and the thoughtful use of evidence?’ Accountants should base conclusions on evidence rather than personal bias or opinion not substantiated by evidence, conference attendees were told.

Westcott outlined six key areas in which CFOs can minimise dysfunctional

behaviour: questioning proposals regardless of seniority; being able to recognise, measure and manage uncertainties; making unbiased decisions; acting ethically; acting legally; and thinking carefully and using applicable quanitative techniques.

‘Decision-making based on these six practices will always be superior to those that are based on consensus, short-term self-interest, unsubstantiated opinion or following orders without question’ said Westcott. ‘Many believe that these behaviours were the root cause of the financial crisis.’

Nicola Davison, journalist

ACCA successfully co-organised a seminar with Shenzhen Municipal Government State-owned Assets Supervision and Administration Commission (Shenzhen SASAC) in May, focusing on the topic of shared services centres (SSC). More than 60 guests attended.

Chen Hu, vice president of ZTE Corporation, one of China’s most successful multinational companies, and Bonnie Peng, a member of ACCA South China’s steering team and an expert on SSC, gave presentations.

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CN_A_ShanghaiConf.indd 63 14/06/2012 15:37

China’s rapid development ensures that it is a country in perpetual flux. Perhaps the biggest shift this year has been in the economy as the super-charged pace of the past has given way to a slower growth environment. As a result, a combination of market forces and political will has led to a repositioning of many industries.

Coping with this cycle of transformation and understanding where it will lead is a challenge for even the most seasoned professional, and it was with this in mind that 150 members and guests of ACCA Beijing gathered for their annual conference, Facing Economic Transition: Are You Ready?

The topic under discussion for the 2012 conference was economic transition – both global and in China – and what it means for businesses and the accountants who oversee them.

As China and the rest of the world move forward from the lasting impact of the financial crisis, the message put

Dr Chen Yugui, vice president and secretary general of the CICPA

BEIJING ANNUAL CONFERENCEforward by ACCA president Dean Westcott to the members assembled at the China World Summit Wing on 11 May was: ‘We need to get into the mindset that tomorrow will be very different from today and we need processes in place to cope with that.’

Preparing for change – whatever that change may be – is easier said than done, Westcott acknowledged. But he urged organisations to focus on two key points when thinking about how to prepare for the future: effective talent management and embracing diversity.

‘In terms of finding the right talent, we need accountants with a range of different experience. We need to seek the right individuals from the widest talent pool possible. The accountancy profession cannot serve business properly if all accountants have the same background,’ he said.

Among the other distinguished keynote speakers at the event were The Economist Group’s chief representative in China, Xu Sitao, who was invited to

speak about China’s shifting economy, and Dr Chen Yugui, vice president and secretary general of the Chinese Institute of Certified Public Accountants (CICPA), who spoke about the impact of economic transition on China’s accountancy profession, looking at both the challenges and the opportunities it presents.

Chen, as head of the leading accountancy body in China, admitted that recruitment in the profession remains a key stumbling block to raising the standards inside China.

‘The CICPA needs to focus on the next step. In order to attract a higher quality of work, we need to have the right people. But our industry faces a problem: many of the most talented minds in China choose to work for corporations or for the government. It is detrimental to our profession that a lot of the talent goes to other sectors.

‘But ultimately it is my aim to make the accountancy profession one that is the envy of others around the world. For this, the role of ACCA is key. ACCA helps to produce more talent in China. It helps with the development and training of the profession. That is why the CICPA does not think of ACCA as a competitor, but instead as a brother,’ Chen said.

As the pace and shape of the Chinese economy changes, Chen went on to point out that this has also created some opportunities for accountants.

‘Over the past few years we have been looking closely at the opportunities the changing country – the state and society – offer to CPAs. During this period of transition, we have initiated a new business development strategy which looks at broadening the scope of audit. As well as auditing companies, we also plan to provide audit services to non-profit organisations, government agencies, universities and, for example the Red Cross. This is part of the development of our industry as well as of Chinese society,’ he said.

Among Chen’s other stated aims for the accountancy profession in China is

*ACCA SPEAKS AT BEIJING FAIR

ACCA news64

CN_A_BeijingConf.indd 64 13/06/2012 15:08

From left: Junfeng Zheng, CCTV News (moderator); Ken Lee; Justin Ting; Zhang Lianqi; and Julia Zhang

the development of non-audit services which, he said, ‘cost less and generate more income’.

When outlining the economic transition currently taking place in China, Chen pointed in particular to the shift towards higher-tech industries and away from lower level manufacturing. Within manufacturing he said there was a real need for better automation, to make the sector less human resources heavy. He also commented that China needs to develop carbon trading – and accounting – as it seeks to curb coal consumption and he underlined that clean energy is a sector of the future.

Taking to the stage, Xu outlined his expectations for the Chinese economy in the year ahead and the factors that are likely to have the biggest impact on business.

He suggested that an optimal gross domestic product (GDP) growth rate for China is around 6% and added that China’s days of rapid growth are behind

it for now. He also flagged up areas of concern in the economy such as inflation, the high cost of energy and the mushrooming real estate sector. He further commented that the Chinese government’s 4 trillion yuan stimulus package of 2008 to 2009 was unlikely to be repeated and that the state is still trying to deal with the negative effects of the injection of money.

‘I think the government is doing the right thing at the moment. They are simultaneously trying to reduce expectations about GDP growth and increase expectations for higher inflation,’ he said.

Westcott also made similarly sanguine comments about the overall health of the global economy.

He said that for the past two years ACCA has been taking the temperature of the global economy via the Global Economic Conditions Survey of members. He said that it was clear the economy had ‘gained back some of its dynamism’, although more than half of the members (including those in the

US who partnered ACCA for the survey) said that they felt the economy was stagnating or worse. In Asia, 23% of members said that business confidence was rising.

As for the future, Westcott outlined several examples of where global changes are likely have an impact on the accountancy profession. In particular he pointed to growing fears about resource scarcity.

‘Fresh water, for example, at the moment is taken for granted. But it’s one of many sustainability issues arising around the world. That is one reason that CSR [corporate social responsibility] engagement among enterprises is rising and consumers are starting to avoid products they consider irresponsibly made. A company’s social image is increasingly a factor in consumer decision-making.

‘Accountants need to support this pressure to improve professional conduct. ACCA, for example, wants to make CSR reporting a requirement of all large firms. We want to drive change via the organisations where we work, wherever they are based around the world,’ he said.

The conference concluded with a question-and-answer session about the need for and risks of corporate change with panellists including: Zhang Lianqi, a senior partner at local CPA firm RSM; Julia Zhang, EAP partner at Siemens, China; Justin Ting, manager of the Beijing branch of HSBC Bank (China); Ken Lee, partner at Lee & Lee; and Frank Zhang, North Asia financial controller at G4S.

Tessa Thorniley, journalist

During a recent trip to Beijing, Gillian Fawcett, head of public sector at ACCA, attended an event organised by the Chinese Institute of Certified Public Accountants (CICPA) and delivered a speech entitled Audit for a Change to more than 60 guests.

This was followed by a presentation at a session on internationalisation and cooperation at the accounting forum of the first Beijing Fair in June. The event, which was sponsored by CICPA, was attended by about 100 participants from government agencies, enterprises, universities, accountancy firms, overseas accountancy bodies and the Confederation of Asian and Pacific Accountants.

Fawcett was joined by May Law, ACCA director – Asia Pacific. Dr Chen Yugui, vice president and secretary general at CICPA, acknowledged ACCA’s support of CICPA and attributed the event’s success to the assistance from professional accountancy bodies outside China.

*ACCA SPEAKS AT BEIJING FAIR

65

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58 News Conference roundup: all the news from Hong Kong, Guangzhou, Shanghai and Beijing

57 Bernard Wu The ACCA Hong Kong chairman considers the future of the profession

56 CPD Become a workplace mentor

Inside ACCA

ACCA has announced a significant rise in both its new student numbers and online service customer satisfaction at the end of the 2011–12 operating year.

Total increase in membership in 2011–12 has been 7,000 (up 4.8%) and over 70,000 new students have started studying for the ACCA Qualification.

ACCA now has 154,000 members and 432,000 students in 170 countries.

Sustained investment in customer service over the past 12 months has seen targets hit and an improvement in the online customer experience. There has also been a significant rise in satisfaction with the public value created through ACCA’s global policy positions and activities.

Helen Brand, ACCA’s chief executive, says: ‘ACCA’s results show that we continue to deliver towards our goal to be the leading global professional accountancy body in reputation, influence and size. We’ve seen strong demand for the ACCA Qualification, with significant growth in established markets – such as China, Singapore, Malaysia, the Caribbean and the UK – and in new markets too.

‘Members and students are now starting to see the benefits of investments made in recent years. This has included our customer contact centre, ACCA Connect, now open 24/7, 365 days a year.’

Key indicators include:

* 75% of students and 70% of members now say ACCA is easy to do business with online

* 85% of exam entries are now made through the ACCA website

* 90% of online student registrations are now completed within seven days.

Brand adds: ‘This is a good outcome. We know we need to go further to improve satisfaction ratings even more and have plans to increase our performance around service delivery. I am particularly pleased to see that we are enhancing our global reputation through our policy and technical work. Council is clear that we must demonstrate public value in all that we do.’

ACCA reviews performanceMore students, more members and more online customer satisfaction

FREE TAX ADVICE FOR HKMore than 110 members of ACCA Hong Kong staffed a phone hotline between 23 May and 1 June to offer free advice to the general public on completing their income tax returns.

A face-to-face consultation counter was also set up at Maritime Square on 26 and 27 May. This is the 14th year that this community service has been offered, with the support of the Inland Revenue Department.

ACCA STUDENTS GO ONLINEACCA is launching a web-based system for exam results and other student services.

The fully online service for exam registration, entry, dockets, results and certificates will increase speed and reliability.

From 1 August 2012, these services will be provided exclusively online and will no longer be available via paper-based documents in China, South Africa, Russia, Romania, Poland, the Czech Republic, Slovakia, Malta and the UAE.

The June 2012 exam results will be made available for students to view online and sent by email or SMS from 8 August 2012. ACCA has also introduced a service that lets students print out their results via the ACCA student portal, myACCA.

Students in all countries can print an official notification of their results via myACCA. Paper copies of exam results will not be issued to students in the locations listed above.

COUNCIL NAIROBI-BOUND Economic growth and business opportunities and challenges faced in Africa and globally will be the central theme of ACCA’s Council meeting, to be held in Nairobi this month.

ACCA’s 36-member-strong Council is basing its biennial meeting in Nairobi before ACCA’s president, vice president and deputy president make additional visits in the region with ACCA senior staff, including chief executive Helen Brand.

Ethiopia, Tanzania and Uganda will be among the countries visited.See Roar Power, page 40.

ACCA has announced a significant rise in both its new student numbers and online service customer satisfaction at the end of the 2011–12 operating year.

Total increase in membership in 2011–12 has been 7,000 (up 4.8%) and over 70,000 new students have started studying for the ACCA Qualification.

ACCA now has 154,000 members and 432,000

66 ACCA news

CN_A_backpage.indd 66 15/06/2012 11:41

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