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aCCountant turneD novelist penny avis

walk the talk China Wireless Cfo Joanson Jiang Chao

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CN_cover.indd 1 07/02/2012 14:56

保时捷物料完稿单 Final Artwork for Porsche 上海互通文化传播有限公司制作 Produced by CEO Culture客户 Customer HK媒体 Media ACCA 版面 Page Layout Full Page 文件格式和精度 Type and resolution of files PDF 300dpi车型 Model Cayman R 中缝位 Slit Size 物料纸张 Paper of Materials尺寸 Material Size 260x192 HxW 出血 Bleed 各 3mm 网线 Screenline联系人 Contact Eric 136 1162 0080 制作员 Produced by 麦奇递交日期 Submission Date 2012.1.18

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20120118 ACCA 260x192 HxW 出血各3mm .indd 1 12-1-18 下午4:06

Lexis Asia Ads.indd 1 06/02/2012 15:29

SARBOX TURNS 10The controversial Sarbanes-Oxley Act turns 10 in July this year. We look at how it has impacted financial statements worldwide.Page 20

HEAD-TO-HEAD CFOs are playing an increasingly influential role in IT investments. How does this impact the relationship between CFOs and CIOs?Page 24

ACCA CAREERSCheck out thousands of jobs and expert careers advice at www.accacareers.com

VIRTUAL BRIEFING CENTRE

Attend live and on-demand audio and video webinars in the virtual theatre, chat with fellow delegates in the networking centre, and access the digital library.www2.accaglobal.com/ab_vbc

In this issue, we talk to China Wireless Technologies vice president and CFO Joanson Jiang Chao about how the fl edgling mobile phone company is keeping tough competition at bay by delivering must-have products for Chinese speakers. Page 12

A TAXING ISSUEOn 1 January 2012, the city of Shanghai rolled out a value added tax (VAT) pilot programme in a bid by the State Administration of Taxation (SAT) and Ministry of Finance (MOF) to overhaul China’s complex tax system for service providers. Under the oft-criticised former scheme, service providers pay both VAT and business tax (BT), often paying tax twice for the same service.

The new scheme essentially ensures that duplication of tax is eliminated by dispensing with the BT and setting a standard tax for a range of services. This heralds the introduction of a standardised tax regime in China; Shanghai is the test case.

In our main feature on page 16, we look at how businesses in Shanghai, including accountancy firms, will fare under the new system. Shifting over to VAT isn’t straightforward; VAT returns are complex forms and there are still uncertainties over processes and the regulations themselves, which were only issued in November last year.

As we went to press, Xinhua News Agency reported that approximately 120,000 enterprises have been recognised as new VAT payers since the VAT reform was introduced in Shanghai. The municipal finance and tax bureaus have offered fiscal support during the transition; some businesses whose tax burdens have increased under the new scheme may receive compensation. The expectation is that most businesses will benefit, along with the country, which sees VAT and BT contribute significantly to state coffers.

Once the initial glitches are ironed out and the results assessed by the SAT and MOF, the scheme will be rolled out nationwide within the next couple of years. Within a month of the scheme starting in Shanghai, Beijing submitted its application to start a VAT trial in its own backyard; a clear sign that VAT reform in China has been long overdue.

Colette Steckel, [email protected]

3Editor’s choice

CN_B_Edletter.indd 3 07/02/2012 14:52

Audit period July 2009 to June 2010138,255

Asia editor Colette [email protected] +44 (0)20 7059 5896

Editor-in-chief Chris [email protected] +44 (0)20 7059 5966

International editor Lesley [email protected] +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 [email protected] +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 [email protected] +44 (0)141 582 2000

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

The Council of ACCA and the publishers do not guarantee the accuracy of statements by contributors or advertisers, or accept responsibility for any statement that they may express in this publication.

Copyright ACCA 2012 Accounting and Business. No part of this publication may be reproduced, stored or distributed without the express written permission of ACCA.

Accounting and Business is published by Certifi ed Accountant (Publications) Ltd, a subsidiary of the Association of Chartered Certifi ed Accountants.

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www.accaglobal.com

Features12 Smooth operatorThe future looks bright for China’s homegrown communication companies, says China Wireless Technologies’ Joanson Jiang Chao FCCA

16 The VAT debate with VAT reforms being piloted in Shanghai, we look at the issues

20 SOX celebrates? The Sarbanes-Oxley Act has reached its 10th birthday, but the occasion is marked by mixed feelings

24 Lines of communication CFOs should collaborate with their IT counterparts, says a new report

28 Global concern What ACCA members think about economic conditions

30 Changing timesVietnam has embarked on a major overhaul of its VAT regime

VOLUME 15 ISSUE 3

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AB CHINA EDITIONCONTENTSMARCH 2012

CN_Contents.indd 4 08/02/2012 12:38

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

VIEWPOINT33 Errol Oh Amid talk of economic reforms, businesses must not lose sight of the bigger picture

34 Jane Fuller A proposed IASB revenue standard will not suit everyone

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: current or non-current liability? Understanding the impact of apparently simple rules is vital

51 Hong Kong’s Budget 2012–13 New measures aim to support SMEs counter the economic slowdown

54 Transfer pricing Considerations on indirect equity transfers of China tax resident enterprises by non-China tax resident enterprises

ACCA NEWS60 Diversity for growth An ACCA/ ESRC roundtable in Shanghai looks at why diversity is essential for business

62 CPD: coaching and mentoring How you support your colleagues can count towards your continuing professional development requirements

63 Dean Westcott The annual report has reached a crossroads, says the ACCA president

64 News Ad campaign hits Hong Kong; ACCA puts forward tax recommendations to the Hong Kong government; nominations open for the election to Council to be held at the 2012 AGM

Your sector35 CORPORATE35 The view from David Tam of China Railway Group, plus news in brief

36 Sharing the burden There are many challenges on the outsourcing journey, an ACCA survey fi nds

38 Tree of prosperity Former journalist Ho Kwon Ping now heads one of Asia’s top hospitality brands

41 PRACTICE41 The view from Irving Low of KPMG Singapore, plus news in brief

42 Emissions omissions Questions remain over a common accounting basis for carbon markets

ESRC ESRC ESRC ESRC ESRC ESRC

How How

The annual report has The annual report has reached a crossroads, says the ACCA presidentreached a crossroads, says the ACCA presidentreached a crossroads, says the ACCA presidentreached a crossroads, says the ACCA presidentreached a crossroads, says the ACCA presidentreached a crossroads, says the ACCA president

CAREERS57 Novel idea Former high-fl ying

corporate fi nance partner Penny Avis is now embarking on a writing career

CN_Contents.indd 5 08/02/2012 12:39

01 Four-hundred-and eighty-five

underprivileged children set a new world record for the largest gathering of people dressed as Mahatma Gandhi, in Kolkata, India

02 A model shows off a Qi Gang

creation during Hong Kong Fashion Week A/W 2012

03 Bodyguards and riot police

pull Australian PM Julia Gillard away from a mob of angry indigenous rights protesters. They had swarmed an awards ceremony in Canberra she was officiating

News in pictures6

AP_B_newsinpix.indd 6 07/02/2012 10:41

04 A striking advertising

campaign for ART Hong Kong 2012, which runs from 17-20 May, has already kicked off on the city’s tram system. In just four years ART HK (shown in 2011) has become the leading art fair in Asia

05 Thailand’s first female PM,

Yingluck Shinawatra, inspects the guard of honour during a ceremonial welcome at the Indian president’s residence in New Delhi. Shinawatra was in India on a two-day official visit

06 German chancellor

Angela Merkel visited Nanluoguxiang in Beijing, famous for its hutong (alleyways) and siheyuan (courtyards), as part of her state visit to China

07 Thousands gathered to catch

a glimpse of Nobel peace prizewinner and pro-democracy leader Aung San Suu Kyi on the campaign trail in Dawei, Myanmar. By-elections will be held on 1 April

7

AP_B_newsinpix.indd 7 07/02/2012 10:41

CURSE OF THE SKYSCRAPERSThere is an ‘unhealthy correlation’ between skyscraper construction and financial crashes, according to Barclays Capital. Investors should pay special attention to China, which is building 53% of all skyscrapers planned in the world over the next six years.

GLOBALISATION PICKS UP SPEEDForeign direct investment (FDI) to developing Asia (excluding West Asia) rose 11% in 2011, despite a slowdown in the latter part of the year, according to the UN. East Asia, South-East Asia and South Asia received inflows of around US$209bn, US$92bn and US$43bn respectively. With a 16% increase in FDI, South-East Asia continued to outperform East Asia, while South Asia saw its inflows rise by one-third after a slide in 2010. The good performance of South-East Asia was driven by particularly sharp increases of FDI inflow in Indonesia, Malaysia and Thailand.

DECLINE IN TRUSTThe public’s faith in government has dropped sharply around the world in the past year, according to the Edelman Trust Barometer. In Japan public trust reduced, but China topped the trust barometer while Singapore came third with 73%.

1930EMPIRE STATE

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50%The proportion of global CEOs expecting to raise headcount in 2012, according to PwC’s annual global CEO survey.

45%The number of Asian executives making plans to invest in European businesses in 2012 despite the eurozone crisis.

253MThe number of people handled at Hong Kong immigrant checkpoints in 2010.

47.2TR YUANValue of China’s 2011 GDP.

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India 37.9%Indonesia 48.2%Malaysia 27.6%Thailand 33.1%

KEY

Growth of global FDI since 2010 17.0%

US$124BN

US$78.4BN

US$41BN

US$34BN

US$19.7BN

US$11.6BN

US$7.7BN

News in graphics8

AP_B_graphics_08.indd 8 07/02/2012 17:43

US$137BN Combined revenue of

leading global accountancy

firms in 2011.

US$144BN Combined

revenue of global

accountancy firms in 2010.

168,710 Global

workforce of PwC, the firm

with biggest fee income.

86% Proportion of firms posting

revenue growth in

2011.

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$29,223MN

$28,800MN

$22,880MN

$22,710MN

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$3,899MN

$3,222MN

$2,895MN$2,621MN $3,788MN

The survey shows that 22 out of the 23 global accounting networks surveyed grew their revenue in 2011, a complete turnaround from 2010. Growth was reported by 86% of the participating networks and associations, while accounting associations grew by 8% – a strong performance compared with last year’s 2% drop.

In the survey’s first regional ranking, firms in India (24%), Brazil (16%), Turkey (14%) and China (10%) enjoyed the

strongest average growth in the past year as the networks invest heavily in these key emerging economies. Firms in the Netherlands (-6%), Germany (-4%) and the US (-2%) found it difficult to generate growth in the market.

The top 10 networks grew their audit revenues by an average of 5% and their advisory services by 14%. Tax services also performed strongly, with an increase in demand for internal tax and transfer pricing.

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BDO +7%

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BAKER TILLY +5%

CROWE HORWATH +6%

PKF +7%

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DELOITTE +8% DELOITTE +8% DELOITTE +8% DELOITTE +8% DELOITTE +8% DELOITTE +8%

www.InternationalAccountingBulletin.com

GLOBAL FIRMS BACK IN GROWTH MODEDespite continued widespread fee pressure and intense competition, global accounting firms are reporting growth across the industry and are planning to recruit in 2012.

According to the latest global survey of global accounting firms by International Accounting Bulletin, PwC takes back the top spot as the largest global network from Deloitte, which had pipped PwC to the post for the first time in 2010.

ERNST & YOUNG +8% ERNST & YOUNG +8% ERNST & YOUNG +8% ERNST & YOUNG +8% ERNST & YOUNG +8%

KPMG +10% KPMG +10% KPMG +10% KPMG +10%

BDO +7% BDO +7% BDO +7% BDO +7%

RSM +1% RSM +1% RSM +1% RSM +1% RSM +1%

GRANT THORNTON +3% GRANT THORNTON +3% GRANT THORNTON +3% GRANT THORNTON +3% GRANT THORNTON +3% GRANT THORNTON +3% GRANT THORNTON +3%

BAKER TILLY +5% BAKER TILLY +5% BAKER TILLY +5% BAKER TILLY +5% BAKER TILLY +5% BAKER TILLY +5%

CROWE HORWATH +6% CROWE HORWATH +6% CROWE HORWATH +6% CROWE HORWATH +6% CROWE HORWATH +6%

PKF +7% PKF +7% PKF +7% PKF +7% PKF +7% PKF +7%

9

INT_B_graphics_09.indd 9 07/02/2012 15:34

Prada listed in Hong Kong in 2011

DRAGON EATS BONUSES Banking and financial services were the only industries to report an obvious decrease in year-end bonuses this year, according to a report by human resources company Hudson. The firm surveyed 1,800 employers in December across major industries, including manufacturing, consumer and financial services in mainland China, Hong Kong and Singapore. It found that only 20% of banking and financial services employers planned to offer the traditional lunar new year bonuses, worth 20% of workers’ annual income or higher, compared with 39% in the first quarter of 2011.

GREAT EASTERN HOPE South-East Asia, with its large and growing consumer base, makes a strong showing in the 2012 AT Kearney FDI Confidence Index, confirming that the world economic pendulum is shifting from West to East. The index examines future prospects for foreign direct investment flows as the world seeks to recover from the global recession and continued economic uncertainty in Europe and the US.

China comes first in the ranking, followed by India, Brazil, the US, Germany, and Australia. Indonesia, Malaysia, Singapore, Thailand and Vietnam all hold high rankings.

VAT REFORM LAUNCHEDA value added tax (VAT) reform pilot programme, launched in Shanghai in January, is China’s first step towards resolving the issue of duplicate taxation on goods and services. While in the existing Chinese taxation system most types of services (with the exception of processing, repair and replacement services) are subject to business tax (BT), the planned reform will mean that more services – mostly provided in Shanghai’s transport sector and several modern service sectors – become liable for VAT rather than BT. Details of the scheme have been circulated by the State Administration of Taxation and the Ministry of Finance. For more, see page 16.

APPLE HAS BITEApple chief executive Tim Cook has identified China as the market with the most potential for growth. The Financial

Times quoted Cook as saying that while the company was making some progress in Brazil, Russia and India, China, among the BRIC countries, was on a different level, with demand ‘staggering’ and ‘off the charts’. It also reported that sales of the iPhone 4S were suspended in China following a riot among black marketeers.

UNLUCKY FOR SOME One thing that can’t go down even in times of economic uncertainty is the sum of ‘lucky money’ given by adults to Chinese children during the Spring Festival (or lunar new year); 1,000 yuan is the norm. Huang Yijing, a nurse from Shanghai who spends more than 5,000 yuan on other people’s children, says the practice is a source of stress. ‘Unlike traditions tied with the Western festival of Christmas, which allows you to choose a relatively more expensive gift if it’s a good year and a cheaper one if it’s a bad year, the unwritten rule [in China] is that the amount of lucky money can either remain unchanged or go up, but it definitely won’t go down,’ she told China Daily USA.

TRADE WIN FOR WEST The January ruling by the World Trade Organisation’s Appellate Body, its highest tribunal, that China must dismantle its system of export taxes and quotas for nine widely used industrial materials, is ‘a major win for the US,’ James Bacchus, a former chairman and longtime member of the Appellate Body, told the New York Times. Trade experts said the decision could set a precedent for the West to challenge China’s export restrictions on other natural resources crucial to many modern technologies.

CHINA OVERTAKES JAPAN ON COAL China has become the world’s largest importer of coal, overtaking a position held by Japan since at least 1975. Customs data compiled by the International Energy Agency shows that strong domestic demand boosted China’s coal imports by 10.8% in 2011. Japan’s imports of the fossil fuel dropped by 5.1% over the same period,

HONG KONG TOP FOR IPOS Hong Kong remained the number-one listing hub in 2011, capping a decade of dominance among global initial public offering (IPO) markets, and PwC expects that trend to continue in 2012. The firm said that even though the 2011 result was 40% less than a year earlier, the nine foreign IPOs recorded is testament to Hong Kong’s increasing importance as the listing destination of choice for multinational corporations.

‘Global companies and luxury brands are increasingly looking to expand in the Asia-Pacific region, especially China,’ said Edmond Chan, PwC Capital Market Services Group partner. ‘To do so, these companies would need additional funds.’

Listing in the region is also a good way for these international companies to enhance their brand and image in markets where they’re not as well known, Chan added.

10 News round-up

CN_B_newsroundup.indd 10 06/02/2012 13:14

P20

due in part to last year’s devastating earthquake and tsunami.

BABY BOOM SET TO UP PRICESAn Asian baby boom in the auspicious Year of the Dragon is expected to push up prices on everything from medical care and infant formula to property prices. Couples planning to expand their family this year can expect to pay up to 50% more than for births in less favourable years. In Hong Kong, the government expects 5% more births in 2012, compared with 2011. Doctors and academics believe the figure may be as high as 10%.

THE PRICE OF SCANDALSMore than three-quarters of investment bankers surveyed by BDO USA indicated that Chinese accountancy scandals have led them to increase their due diligence when vetting China-based offerings. As a result, over half (57%) predict the scandals will curb the US appetite for such offerings, while 31% predicted that Chinese businesses would seek to avoid US regulations.

AIR QUALITY A TOP CONCERNAir pollution remains the top environmental concern of the Hong Kong business community, according to the Hong Kong General Chamber of Commerce annual business survey. Apart from being a health hazard, the chamber is concerned that poor air quality is affecting the city’s reputation as an international business and tourism centre, threatening its competitiveness. Chamber chairman Anthony Wu said businesses expect a clear timetable for achieving the government’s new air quality targets ‘so that they may plan for their investments and other required changes to their operations’. UNITED ON YUANHong Kong and Britain are securing London as a top spot as an offshore trading centre for the Chinese currency, as the UK aims to boost trade and investment ties with fast-growing Asian markets. ‘We can make Britain the home

of Asian investment and Asian finance in Europe,’ UK finance minister George Osborne said in a speech at the Asian Financial Forum in January. Britain won the Chinese government’s backing for London to become an offshore trading centre for the yuan last year.

ASIA ‘RESILIENT’ AMID TURMOILAsian economies remain ‘generally resilient’ in the face of global financial

turmoil and a growing debt crisis in the eurozone, according to the International Monetary Fund. It was concerned with possible spillover effects from the eurozone but Asian economies have room to take defensive fiscal measures if necessary, IMF director for Asia and the Pacific region, Anoop Singh said in an updated outlook for Asia. ‘In the event of a further slowdown in the global economy, our sense is that most economies in Asia have room for a strong policy response.’

CHINA DEBT ‘CONTROLLABLE’Chinese Premier Wen Jiabao said government debt was ‘overall safe and controllable’ and key projects would continue to receive funding to avoid ‘systemic risks’, state media reported. An explosion in lending has fuelled concerns that local governments, which borrowed heavily to build roads, bridges and luxury apartment buildings, will default as the world’s

second largest economy slows. China’s audit office in January warned that it had uncovered 530.9 billion yuan in misused funds involving local government debts. ‘We are taking the issue of managing local government debt very seriously. Through clean-ups and regulation, the trend of expanding investment vehicles has been effectively contained,’ Wen added. Policymakers have started to ease lending restrictions but have indicated they will move slowly to avoid reigniting inflation.

ASIA MUST STAND FIRMWhile Asia is on track to become the largest economic region in the world over the next two decades, it continues to rely too much on demand from the US and Europe, David Lipton, first deputy managing director of the International Monetary Fund, told the Asian Financial Forum in Hong Kong in January. ‘That is a vulnerability,’ he said. Asia’s strength, Lipton noted, stems in part from the reforms ‘introduced courageously, and not without painful consequences, when Asia faced its own crisis in the 90s’. With Europe in particular a risk to Asian prosperity, ‘Asia has a stake in seeing Europe solve its problems and even in playing a role in that process.’ Calling on policymakers to further shore up banks against international and external vulnerabilities, Lipton pledged IMF support.

11

Donald Tsang, chief executive of Hong Kong, opened the AFF

AnalysisUNHAPPY CELEBRATIONAs Sarbanes-Oxley heads towards its 10th birthday, it continues to divide financial experts. Despite being onerous, it does not appear to have been more effective than Europe’s rules or put an end to accounting irregularities.

CN_B_newsroundup.indd 11 06/02/2012 13:14

12 CFO interview

CN_F_JoansonJiang.indd 12 03/02/2012 14:34

Joanson Jiang Chao pulls out one of the Coolpad mobile phones that his company, China Wireless Technologies, makes

and traces a Chinese character on the screen. The character displays immediately in sharp colours and options to navigate appear. The Coolpad is a great phone for Chinese speakers because the operating system has been designed around the language, rather than tweaking an English-based interface to also work with characters.

It is an advantage that China Wireless has used to great success in the Chinese market. The company has grown from a startup in the mid-1990s to a listing in Hong Kong in 2004 and expected sales of 16 million units this year.

‘The China market is very interesting,’ says Jiang, vice president and CFO of China Wireless. ‘Many people don’t speak English. Our software is based on the Chinese language and customs so it is very [user] friendly.’

Founded in 1993 by its current chairman Guo Deying, the company managed to make it through the tough first years when funding was difficult to find and innovation hard to achieve. Jiang joined in 2002 after taking two other technology companies public in Hong Kong and the US. Within two years of his joining, China Wireless had issued an initial public offering (IPO) in Hong Kong.

Almost a decade later, China Wireless is no longer a startup but neither is it a fully developed

company. The listing in Hong Kong helped fund research, development and expansion. The introduction in 2007 of its top-of-the-line Coolpad brand helped give the company a more powerful wedge in the domestic and international markets. China Wireless also develops many low-end smart phones for the China market, distributed through operators such as China Telecom, China Mobile and China Unicom.

The company is now at that exciting phase of development in which growth can be fastest, says Jiang. China Wireless is the fourth largest

distributor of mobile phones in China behind Samsung, Nokia and Huawei and ahead of ZTE. Huawei and ZTE are the two domestic giants. By 2014, says Jiang, the company should be distributing its Coolpad phones in the US and sales should top 40 million units.

Smooth operatorBut Jiang does not work on the technical side of things. Rather, he is in charge of the finance and administrative functions, managing the finance functions with a team of about 90 people, out of a total staff of more than 6,000. It is his job to keep China Wireless running smoothly, well funded and up to

speed on China’s rapidly changing regulatory environment.

With more than two decades of experience and an ACCA accreditation behind him, Jiang says that the bigger challenges are not with the finance part of the job but rather with keeping up with the growth. ‘I have worked [in finance] for a very long time so the job is not very difficult,’ he says.

Soft-spoken and modest, Jiang does not immediately jump out as the CFO of one of the fastest growing mobile technology companies in China. He is not flashy but speaks matter-of-factly

about competing with global giants – and beating them. His phone, which is constantly ringing, is the most visible sign of how busy he actually is.

Jiang, who lives in Shenzhen with his wife and young daughter, visits Hong Kong often and travels at least once a year to the US and UK. The job of finding funding for growth is easier now that the company is listed and has solid growth momentum. That wasn’t always the case.

‘In the beginning, financing was very difficult because the company was small and it didn’t have much capital,’ he says.

The public listing in Hong Kong in 2004 was a turning point for the company. It gave China Wireless more

KEEPING HIS COOLChina Wireless Technologies is fast becoming a go-to brand for the mobile-savvy Chinese. We talk to Joanson Jiang Chao FCCA, the company’s vice president and CFO

‘MANY PEOPLE IN CHINA DON’T SPEAK ENGLISH.OUR SOFTWARE IS BASED ON THE CHINESE LANGUAGE SO IT IS VERY USER FRIENDLY’

13


Hong Kong calling: stable and predictable regulations in Hong Kong have enabled China Wireless to go public there with ease

The CVJoanson Jiang Chao graduated from Sun Yat-Sen University in the Chinese city of Guangzhou with a bachelor’s degree in economics in 1991.

His first job after university was with the State Audit Bureau, where he stayed until 1996. With financial assistance from the bureau, he studied accountancy in the UK and received his ACCA accreditation.

When he returned to China, he joined Shenzhen Zhongging Telecommunications Equipment Corporation, a company that would change its name to ZTE Corp, and become one of the largest telecommunications companies in China. ZTE listed in Shenzhen in 1997 and Hong Kong in 2004.

Jiang joined China Wireless in 2002, and is vice-president, CFO, company secretary and an executive director. He is responsible for the finance and administrative functions of the group and is the company’s second-largest shareholder.

Now married with a young daughter, he says: ‘This is going to be my last job.’

Hurdles to growthGoing public in mainland China, however, is more complicated and often more political, says Jiang. And, while he believes that the gap between Shanghai and centres such as Hong Kong and Singapore is closing, the latter are constantly evolving so it is important to stay abreast of developments and changing regulations. To that end, it helps to work with consultants whose job is to keep abreast of regulatory

change in order to avoid shocks. The bigger hurdle is ensuring

that the company has the resources to maintain its rapid growth. This includes attracting and retaining talent, a constant challenge that requires investment and good relationships with universities as well as donations (those donations amounted to over US$1m last year). The challenge is greater for qualified and talented technical staff than for finance or accountancy talent,

access to capital markets and funding to finance its expansion.

‘In Hong Kong, an IPO is not very difficult. In China, it is very difficult,’ says Jiang. There are fewer political issues and more stable and predictable regulations in Hong Kong. To go public in Hong Kong’s main board a company has to meet profitability requirements for three years and fulfil a number of other prerequisites that China Wireless easily met.

14


The tipsChina produces plenty of young talent to keep the finance departments of companies like China Wireless well staffed. In fact, it is easier to find finance staff than technical staff, says CFO Joanson Jiang Chao.

The challenge for all those young professionals is to get a diverse knowledge base and a wide range of experience so as to better compete for the best jobs. An accreditation, like the one that ACCA provides, is useful for young accountants and finance professionals in China to gain a competitive edge.

‘I require my employees to study for the ACCA [Qualification],’ says Jiang, who hires several young professionals every year.

Another good way to stay ahead of the competition is to know more than them.

‘Work hard in different activities like internal accounting, capital markets accounting and other sectors,’ says Jiang. ‘And read many different books. Get as much knowledge as possible.’

The basicsCHINA WIRELESSChina Wireless Technologies is involved in research and development, production and sales of mobile phones, as well as property investment in the Chinese market.

With some 6,000 staff, the company is competing against such giants as ZTE and Huawei and international competitors including Samsung and Nokia. Its focus is on developing products tailored at Chinese speakers.

The company focuses on dual-mode smartphones, including innovative products geared at the Chinese market.

China Wireless has earned multiple patents across a range of mobile communications technologies and its Coolpad brand, which the company introduced in 2007, is at the top end of its range.

Since it was founded in 1993, China Wireless has expanded rapidly both in China and, more recently, to other markets, often working in tandem with mobile communications service providers. Turnover in 2011 was just over HK$3bn.

‘The company is growing very fast,’ says CFO Joanson Jiang Chao. ‘This year we will grow faster and sell 16 million units.’

By 2014, the company has plans to sell more than 40 million mobile phones and enter the US market.

because plenty of universities are pumping out young accountancy staff trained in the basics.

‘We give employees very good training and pay and continuous development, so people like working in our company,’ says Jiang.

The approach seems to be working, at least judging by the interest the company is generating among some investors. Although its share price is now relatively weak at HK$1.50,

Jiang says that aggressive expansion plans are in place. Perhaps one sign of success is the constant stream of investor roadshows for which the company hires staff from the US, UK, Hong Kong or Singapore with more fluent English.

‘We do six to eight a month,’ he says. ‘Many funds want to come and see our company.’

Alfred Romann, journalist

15


Building a nationwide logistics network in China is not easy. Although enormous and continuous investment

in infrastructure over the past three decades have radically facilitated the transport of goods, logistics providers still have to contend with a complex regulatory structure, get the right permits for the right cities, and deal with an incredibly complex tax system.

Most service providers in the country have to deal with a similar reality.

The result has been sluggish growth in an entire sector of the economy. Services account for less than 45% of gross domestic product (GDP) in China, compared with around 77% in the UK and US. In less industrialised India, services account for more than 55% of GDP.

One reason for this lacklustre performance is a complex tax structure that does little to facilitate the development of a service industry. Although China’s tax system deals with sales of goods in a relatively straightforward fashion, it is a nightmare for service providers. First, it almost penalises services providers by

limiting their ability to count the taxes they pay to their providers towards their overall tax bill. Second, there is often duplication as service providers pay the same tax over and over – paying it in costs to the suppliers and again to the government.

Elimination of double taxesAiming to eliminate all the duplication and spur its service industries along, China is now piloting reforms to its value added tax (VAT) in Shanghai. Businesses in China typically pay both a business tax (BT) and VAT. The programme sees the BT eliminated for a wide range of services; incorporating them instead under the VAT umbrella. The pilot started on 1 January, with the expectation that it will be expanded nationwide over the next couple of years.

The elimination of duplicate taxes is welcome, says Dominic Gates, general manager for China at Li & Fung Logistics, one of the largest third-party logistics providers in the country and part of the Li & Fung Group.

‘Any move towards standardising the tax system in China is good,’ says

Gates. ‘They started this process when they equalised the tax rates for foreign and domestic companies a few years ago.’

For several years now, China has been engaged in a large and comprehensive restructuring of its tax system. Reforming VAT, which accounts for more than one third of the country’s tax revenue, is a significant step in that direction. When added up, VAT and BT tax revenues account for more than half of the country’s total.

‘Trying to change this much tax with that much impact on your bottom line [takes time],’ says Robert Smith, Asia Pacific indirect tax leader at Ernst & Young in Shanghai. ‘There is a lot of detail around the pilot.’

In 2009, China rolled out a programme to allow for credits on VAT paid on fixed assets after doing a pilot in some provinces in the north-east of the country. In 2009 it also reformed the BT to include overseas companies billing Chinese customers.

The most recent of the government’s five-year plans that cover 2011–15 includes a sweeping reform of China’s indirect tax system. Late last year,

Shanghai has been piloting VAT reforms since 1 January, in a move aimed at boosting China’s service industry and going nationwide within the next two years

VALUE ADDED TAX GOES ON TRIAL

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CN_F_VAT.indd 16 03/02/2012 11:03

China expanded a trial resources tax nationwide. A couple of months later, it launched the trial VAT in Shanghai.

The State Council approved the pilot in Shanghai in October. As part of the same announcement, the Ministry of Finance also said it would scrap 22 separate administrative fees for small companies for three years, including registry fees and invoice purchases.

Two official circulars cover the pilot. The first is Circular 110, which deals with the framework for the VAT pilot. Circular 111 deals with details of the pilot in Shanghai.

It makes sense to test out the new tax in Shanghai, which is unique in that it has a single tax bureau for both the VAT and BT. In most cities, the local tax bureau deals with the BT and the state tax bureau deals with the VAT.

The new tax covers services that were previously taxed under the BT, including transportation and logistics, research and development, IT, cultural and creative services, property leasing and consulting. Its main feature is that it sets a standard tax for a range of services, eliminating some of the duplication and confusion that exists under the current system still in place nationwide.

The BT was included in the price of services that vendors charged their customers. The result was a cascading effect that led to higher prices for services provided in China as the amount of tax increased, and put the biggest onus on the final customer. Because of this cascading effect, the BT was generally seen as a barrier to the growth of the service industry, according to Ernst & Young,

Trio of changesThe firm, which worked with tax authorities in the development of the trial, says there are three groundbreaking changes included in the VAT pilot. The first is that technology transfer services and some intellectual property transfer services are now included. The second is the concept of VAT zero-rating and a refund mechanism and, while details

VALUE ADDED TAX GOES ON TRIAL

Accountancy firms provide a good example of how China’s reformed value-added tax (VAT) will affect businesses.

As a consulting company, Ernst & Young was registered as a business taxpayer, says Robert Smith, its Asia Pacific indirect tax leader. The Big Four firm now has to shift over to VAT.

‘We will have to fill out VAT returns, which are more complicated,’ says Smith. Still, while the operational details of the VAT may add a layer of complexity,

one aim of the current reform is to eliminate tax duplication. In this regard, the reform is long overdue.

The trial VAT system that started in Shanghai on 1 January breaks down the services industry into several categories and assigns them different tax rates.

The tax rate for leasing services of tangible movable property is now 17%. Transport services including land, waterway, air and pipeline transport services pay 11% and other modern services such as research and development, IT, cultural services, logistics support and authentication services pay 6%.

Small taxpayers are liable for a 3% tax on all VAT services. There are also two classes of VAT taxpayers. General taxpayers include

those with turnover of VAT-eligible services of more than 5 million yuan per year. Taxpayers who provide similar services but have a smaller turnover are considered small taxpayers. Smaller taxpayers may get a break. Businesses with annual sales of services that fall under the VAT of less than 5 million yuan may apply for general taxpayer status.

VAT registration is compulsory for companies with a turnover of 5 million yuan or more. This is good news for some small businesses. Traders have to register if their turnover is 800,000 yuan and manufacturers 500,000 yuan.

One visible benefit of the VAT is that taxpayers may be able to deduct the VAT that they pay to their vendors from their overall VAT bill.

‘For the majority of businesses, this is good news,’ says Smith.

*MODEL FOR CHANGE

are still sketchy, the idea of a zero-rating is welcome. The third is a hybrid computation method that combines calculations for the new VAT with those of the old BT to resolve conflict.

China’s VAT is unique and most foreign companies that will be affected are not entirely sure how to deal with it, says Smith. Although at an operational level the VAT is much more complex

A replica of the city at the Shanghai Urban Planning Exhibition Center

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Tax transfer: cultural and creative services, such as those provided by design studios (main picture, overleaf) and property leasing (left), are two of the industries that now come under the VAT umbrella

than the BT, service providers should see a benefit when they are able to credit their input VAT.

The VAT expands the number of services that will be taxed but also streamlines the taxation process, eliminating some duplications.

‘For some industries it was quite a serious issue,’ says Karmen Yeung, a tax partner at KPMG China. ‘There should have been no overlap.’

Overseas opportunitiesAlthough the tax rate under the VAT is typically higher than under the BT system, most export-oriented service industries are exempt or zero-rated under the new system. This should give China’s service providers some impetus to look for clients abroad.

There are some problems with the trial, however. The biggest is the grey areas that have yet to be clarified, although these are no surprise to Yeung. ‘It is quite fair to have grey areas,’ she says.

Another problem is simple ignorance, as the regulations on the tax came out only recently.

‘They have had a lot of discussion, so it seems people are ready but the rules only came out on 16 November,’ she adds.

Financial services are also not included. Consultants, like accountancy firms, are, but not banks. The question is whether the myriad consultancy services that banks provide will be

Overall, a number of service industries are likely to benefit once the new VAT is rolled out nationwide.

While logistics providers for example, will likely have a higher tax rate and incur higher administrative costs, the fact that they can count their input tax towards their tax bill should lower their overall liability and eliminate some of the duplicate taxes that they pay today.

If China continues true to form, the pilot is likely to be expanded fairly quickly. In October, the State Council noted that some industries could be used to test the VAT pilot nationwide.

‘There is pretty clear indication, because of the way the circulars were issued, that they will expand [the VAT] to other services and other locations,’ says Smith of EY. ‘They are going to be more careful with a VAT because it is such a big chunk of their revenue.’

Alfred Romann, journalist

liable for the new tax. For the time being, banks are not reacting, says Yeung, considering that they are not included in the list.

Other services that are considered ‘out of scope’ are rail transportation, post and communication, construction, culture and sports (except convention and exhibition services), entertainment, hotel, catering and the transfer and leasing of immovable property.

Although quite detailed, the regulations still have to be tweaked. For example, bookkeepers are not included in the detailed catalogue of businesses that have to start paying VAT.

If they don’t switch, they won’t be able to provide VAT receipts. In turn, if bookkeepers do not provide VAT receipts, customers that use their services and pay for them will not be able to claim those payments against their VAT tax bills.

*BEIJING SUBMITS APPLICATION FOR VAT REFORM

18

Following in Shanghai’s footsteps, Beijing has recently taken steps to initiate value-added tax reform by submitting its application to the Ministry of Finance and State Administration of Taxation to start a similar pilot project in the transportation industry and certain modern service industries.

The service industry contributes more than 75% of Beijing’s gross domestic product, the highest nationally. Implementation of a pilot programme will promote the optimisation of the structure, expand the scale, and improve the quality and prosperity of the service industry. This is expected to drive the development of the regional economy and, in turn, its participation in the global economy.

CN_F_VAT.indd 18 03/02/2012 11:03

If America’s businesses had to vote on their least favourite lawmakers of recent years two names would spring immediately

to mind: Paul Sarbanes and Michael Oxley. A decade ago this July these politicians gave their name to the Sarbanes-Oxley Act.

The 2002 law was intended to restore public faith in the trustworthiness of US firms’ financial reporting, which had been shaken by high-profile accounting scandals at Enron, Tyco International and WorldCom. But many executives have lambasted Sarbox, as it has become known, as an overreaction that has saddled US businesses with unnecessary costs. Several leading Republican presidential candidates have vowed to roll back some of the provisions of the act, at least for smaller businesses.

Meanwhile, the Securities and Exchange Commission (SEC), which polices the US securities market, has seemed reluctant to use the law to punish chief executives whose accounts don’t come up to scratch. More damaging still, the accounting failures that contributed to the 2008 financial meltdown are seen by many as a sign that Sarbox has failed even to fulfil its main aims.

So 10 years on, Americans are still hotly debating one key question: did the introduction of the controversial act protect investors without harming

businesses? Many argue that reforms to accounting rules in Europe, which was also shaken by the Enron collapse, provided investors with the same level of security but inflicted less damage on companies than Sarbox did.

Given how controversial Sarbox has become, it is easy to forget how popular it was in 2002. Lawmakers approved the measure with virtual unanimity. Only three members of the US Congress voted against the bill, with 423 in favour, while just one of the 99 senators refused to support it. President George W Bush, who prided himself on being a defender of entrepreneurs, declared: ‘The era of low standards and false profits is over; no boardroom in America is above or beyond the law.’

The buck stops at the topThe law was framed to achieve its objectives in several ways. For example, top executives had to attest personally to the reliability of financial reports. As well as being legally liable for failures, chief executives could have years of pay clawed back if profits turned out to have been illusory.

Since accounting firm Arthur Andersen had turned a blind eye to accounting irregularities at Enron, lawmakers moved to break up the cosy relationship between management and auditors. A new public body was set up to keep an eye on auditors – the Public Company Accounting Oversight Board

– and firms would have to rotate the accounting firms they used.

Most controversially of all, both companies and their accountants were forced to test internal controls to ensure their rigour – the notorious section 404.

Around the same time Europe was experimenting with a lighter version of similar policies. Enron had caused concern among regulators worldwide but it was only after the €13bn bankruptcy of Italian food and dairy firm Parmalat in 2003 that European regulators acted decisively. The Statutory Audit Directive of March 2004 was Europe’s answer to Sarbanes-Oxley; it upgraded audit committees and made it harder for executives to sway accountants.

Company chiefs were also subjected to a (less onerous) legal standard in terms of certifying the accuracy of the corporate accounts, and Europe’s new rules on testing internal controls were likewise less burdensome.

Peter Montagnon, senior investment adviser to the UK’s Financial Reporting Council, says: ‘There was a sense that Sarbox was too rigid and expensive and that the cost-benefit equation did not work. Europe opted for a more flexible code-based approach.’

With a decade of hindsight, this cost-benefit calculation is easier to make. Defenders of Sarbox point to several benefits from its tighter rules. For example, Carl Rosen, executive

UNHAPPY 10TH BIRTHDAYIt’s hard to credit now, but 10 years ago the Sarbanes-Oxley Act introduced a fi nancial reporting regime that met with near-universal approval in the US

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director of the International Corporate Governance Network, says: ‘There is little doubt that accounts are more reliable than before. Firms have beefed up their financial expertise, especially on audit committees, so problems are more likely to come to the attention of shareholders earlier.’

The rules have even had a spin-off benefit for companies, according to Paul Hodgson, senior researcher at the Corporate Library, which studies governance issues. Upgrading internal controls has given executives a better understanding of what is going on in their business, which should improve decision-making. Even more importantly, an MIT study suggested that complying with the rules appeared to have lowered the cost of capital for businesses by as much as 150 basis points, mainly by giving bond investors greater confidence.

Of course, the rules have been far from watertight. Although the 2008 financial meltdown in the US was not primarily caused by weak accounting,

such abuses did contribute to the collapse. A few cases of egregious bookkeeping stand out, says Mark Calabria, a fellow at the Cato Institute in Washington. Insurance company AIG, which had to be rescued by the US government after making huge derivative losses, turned out to have extremely weak internal controls, Calabria says.

The woes of mega-banks like Citigroup were also exacerbated by accounting flaws. Sarbox was intended to put an end to the kind of off-balance sheet accounting that allowed Enron to hide losses or debts, but in 2004 financial regulators exempted banks from that rule. This allowed Citigroup to set up special investment vehicles into which it loaded mortgage assets. ‘If the banks hadn’t been allowed to do this they would probably have had an extra US$60bn to US$100bn in capital during the financial crisis,’ Calabria says. The demise of stockbroker MF Global has provided a more recent example of failed internal controls.

Despite such failures, US watchdog the SEC has a poor record of clawing back undeserved pay from executives. Over the past decade it has filed cases against just 31 senior managers at 20 companies, recouping only trivial sums.

The burden of complianceThen there is the cost to businesses. Scott McNealy, founder of IT giant Sun Microsystems, once described Sarbox as ‘buckets of sand in the gears of the market economy’.

A host of studies have made clear the substantial costs of compliance. A 2009 SEC study estimated the average company’s cost of compliance at US$2.3m a year. More recent studies have produced a lower figure. In 2011 risk and business consultancy Protiviti calculated that after four years of compliance few companies were spending more than $1m a year on Sarbox compliance. But even this is far from small change. Assume a price-earnings ratio of 20 times, says Bob Litan, a fellow at the

SUN MICROSYSTEMS FOUNDER SCOTT MCNEALY ONCE DESCRIBED SARBOX AS ‘BUCKETS OF SAND IN THE GEARS OF THE MARKET ECONOMY’

Enron’s massaging of its financial figures to deceive investors triggered a wave of public outrage that fed anti-capitalism sentiment, such as this protest against the World Economic Forum

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The high-profile corporate scandals that set Sarbox in motion:

EnronA string of court cases led to the conviction of the energy company’s former CEO Jeff Skilling, who is currently serving a 24-year jail sentence for fraud and insider dealing; he still asserts his innocence. Ken Lay, former Enron CEO and chairman, was convicted of fraud and conspiracy but, following his death from a heart attack in 2006, had his guilty verdict wiped out as he hadn’t been able to challenge the conviction. Former Enron CFO Andrew Fastow was released after serving a six-year jail sentence for his part in the scandal. The scandal, which was revealed in 2001, also resulted in the demise of Enron’s auditor, Arthur Andersen, one of the Big Five accountancy firms.

Tyco InternationalTwo former executives of Tyco International, former CEO Dennis Kozlowski and his second in command, Mark Swartz, were both sentenced in 2005 to between eight and 25 years in prison for stealing hundreds of millions of dollars from the manufacturing company. The scandal came to light in 2002.

WorldComThe US telecoms giant admitted a US$11bn accounting fraud in July 2002. Bernie Ebbers, former CEO, was convicted of fraud and conspiracy and given a 25-year prison sentence. The company filed the largest ever bankruptcy.

*ROGUES GALLERY

At present any public company with a market value above US$75m has to comply. Republican senators Jim DeMint and John Barrosso want to allow companies smaller than $1bn to opt out provided they clearly disclose this to investors.

‘It would be good to give firms more flexibility,’ says Alex Pollock, a fellow at the American Enterprise Institute. Many opponents of Sarbox believe

that European regulations – with which Britain complies – provide a similar level of investor protection at lower cost. Montagnon also believes that the US could relax Sarbox if it enhanced the rights of shareholders, which are much weaker than in Europe.

As Sarbanes-Oxley heads towards its 10th birthday it continues to divide politicians and financial experts. The act does not appear to have been notably more effective than the less onerous rules that apply in Europe. There is also reasonable evidence that it has discouraged young businesses from seeking money through a stock market listing.

Even the act’s most ardent defenders do not claim it has put an end to accounting trickery or abuse. The 2008 financial crisis uncovered gaps that Sarbox failed to fully close, along with patchy compliance.

Yet the act has not been a total failure. Surveys of business executives suggest a grudging acceptance that today’s corporate accounts are more reliable, although most believe this could have been achieved at lower cost.

Perhaps the greatest compliment for the act, says Rosen, is that it has made life harder for corporate crooks. ‘There will always be people who can manipulate the system,’ he points out, ‘but it is much tougher now.’

Christopher Alkan, journalist based in New York

Kaufman Foundation for enterprise in Washington, and Sarbox lops US$20m off a company’s market capitalisation.

Critics say such costs help explain why fewer start-ups are raising money on the stock exchange. During much of the 1990s around 80% of businesses listing in the US had market values of less than US$50m. Now such small businesses account for 20% or less of public offerings in most years.

For this reason many US politicians – including most Republican presidential hopefuls – want to modify or repeal Sarbox. Outright repeal still seems extremely unlikely but a watering down of the act’s provisions is possible.

SURVEYS OF BUSINESS EXECUTIVES SUGGEST A GRUDGING ACCCEPTANCE THAT TODAY’S CORPORATE ACCOUNTS ARE MORE RELIABLE

Dennis Kozlowski collected US$81m in unauthorised bonuses from Tyco

A massive accounting fraud by Bernie Ebbers brought WorldCom down

Jeff Skilling kept Enron’s failing financial health secret from shareholders

AP_F_Enron.indd 22 03/02/2012 10:59

Driven by business productivity and efficiency gains, information technology (IT) has secured a foothold in

organisations, both large and small, and so have the executives that run these departments. Over the past decade, IT heads or chief information

officers (CIOs) have become more influential and taken a central role in decision-making, with some even having been elevated to the C-level suite.

However, the CIO’s clout in making IT-related investment decisions appears to have been increasingly clipped by

CFOs, according to the findings of a recent report by technology research and analyst firm Gartner.

The report suggests that close to half of IT organisations report directly to CFOs, with 33% reporting directly to the CEO. The report, CFO Update: The Top 10 Technology Priorities, notes that

HEAD TO HEAD?A recent Gartner survey suggests that CFOs have more clout than CIOs in making IT spending decisions, but collaboration is the key to success, say commentators

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26% of IT investments in the past year have been authorised by CFOs alone, up from 18% in the previous year.

And in 51% of cases, the decision is being made either by the CFO alone, or by the CFO in a collaboration with the CIO, up from 45% in the previous year. The study also shows that the CIO makes the investment call alone only 5% of the time, down from 11% in 2010.

Ng Wai Heng, executive director of PwC Advisory Services, says CFOs will continue to make IT decisions in areas that are directly under their sphere of influence, notably, in the finance function of the company.

‘In such cases, finance also equates to the business and as a user, the

CFO will have a strong influence over the type of solutions [obtained] and how these are to be implemented,’ he explains.

Ng says some examples of these solutions include enterprise resource planning (ERP), management reporting and financial analytics, as well as specific IT software solutions designed to meet accounting standards such as International Financial Reporting Standard (IFRS) 139.

However, Ng points out that it’s ‘not good practice’ for CFOs to be unilaterally making IT investments.

Ng also says the survey results must be put into context as organisations may dictate that the IT investment decision, or any investment decision, lies with the CFO as the authority overseeing an organisation’s finances.

‘The key question here is whether the investment decisions were made with guidance and input from both the business and IT [departments]. If a CFO acted unilaterally in making IT investment decisions, then this trend is not in keeping with good practice.’

From PwC’s advisory experience,

Ng notes that IT investments are often made by a forum comprising IT, business and finance executives, typically in an IT steering committee. The CFO may have the final sign-off authority but the decisions are made by consensus, backed by a robust business case, he adds.

Susanna Lim, partner at Ernst & Young Advisory Services, concurs but adds that the reporting structure between the CIO and CFO is not as important as how the two work together. ‘To me, the more important factor is the team dynamics and whether the two C-level executives are connected and can work together. In the final analysis, it’s about managing the IT agenda at the C-level for the company.

Lim says the goal of IT is to create value, be able to manage risk and rationalise cost. These factors are what makes an organisation successful, and not so much the kind of reporting structure it has, she adds.

She points out that the way an organisation is set up also influences the reporting structure; in this case, whether a CIO reports to a CFO or not. ‘Where investments involve applications which are business-driven, such as that of ERP, a CFO will drive the project together with the business process owners,’ she explains.

‘On the network and infrastructure side, CIOs tend to drive these areas as they are more technical in nature,’ adding that in her experience, CFOs tend to leave it to the experts and will only get involved when it comes to final approvals.

Working togetherFinance professionals acknowledge that while there may be a rising trend in CIOs reporting to CFOs, the situation doesn’t have to lead to conflict, as the two roles may

complement one another.Noorliza Abu Bakar, CFO of IBM

Malaysia, believes that in practice, there are no hard and fast rules as to whether a CIO should report to a CFO, or to other C-level executives within a company. ‘Whether a CIO/IT organisation head should report to the CFO depends on a company’s organisation structure, business objective and strategy,’ she says.

Noorliza says that when IBM is doing its annual planning, the CFO and CIO will meet and look at business objectives, issues, challenges and opportunities together. ‘We will discuss what is the best approach or solution to adopt, in helping to improve operational and business performance,’ she explains. ‘We have open communications and involve the CEO/MD and the management/leadership team as well.’

Crucial expertiseNoorliza says CFOs may understand that technology can help advance the company or propel the company to the next level – whether in terms of cost savings, improved productivity or efficiency – but they may not have a deep understanding of IT and the actual value it offers. Therefore, CIOs still have their vital role and scope, and will remain crucial for the next few years, she says.

Ravi Navaratnam, executive vice-president of corporate finance at engineering and project management company Mind Consult, says one should not read too much into the Garter survey. He believes how the two roles are organised is down to how each company prefers to draw their reporting lines and splits the running of the company.

He notes that CFOs are likely to authorise normal operational and capital investments, such as core IT platforms, by way of renewal or replacement or hardware and software, which are required to keep a company running.

‘As for the case of new technology or IT infrastructure, these are likely to be

‘THE IMPORTANT FACTOR IS THE TEAM DYNAMICSAND WHETHER THE TWO C-LEVEL EXECUTIVES ARECONNECTED AND CAN WORK TOGETHER’

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‘WE EXPECT THERE WILL CONSTANTLY BE FRICTION,NOT JUST BETWEEN THE CFO AND THE CIO, BUTALSO WITH [OTHER] BUSINESS LEADERS’

identified by the CIO in collaboration with the CEO/CFO in order to meet the future needs of the company, and keep them ahead of the game.’

Siva Prakash, finance manager at Eversendai (see box), says that the two roles may appear to be at odds because typically, business and IT priorities have always been considered by management to be vastly different from one another.

‘It is rare for executives outside of the CFO office to focus on the strategic management of IT,’ he says. So, creating a strategic and long-term connection between the corporation’s business needs and IT returns can be firmly established by the active involvement of the CFO in the IT governance process, he adds.

Business-IT alignment CFOs can still play an active role in an organisation by helping it achieve greater business-IT alignment and bring the IT function to the mainstream by personally assisting with the definition of the IT vision, Siva says.

PwC’s Ng believes that, ultimately, for an organisation to function in today’s competitive world, the CFO should work in collaboration with the CIO for the sake of organisational alignment.

‘We expect there will constantly be friction, not just between the CFO and the CIO, but also with [other] business leaders as balancing business needs and priorities against ever-present financial constraints will always be difficult,’ he explains.

To manage this, Ng suggests that a collaborative working relationship be built through frequent, honest, and open communication. ‘An important mechanism to achieve alignment, collaboration and communication is through a forum such as an IT steering committee – it brings together management, IT, finance and business functions to deliberate IT issues and investment decisions.’

Edwin Yapp, journalist

According to Siva Prakash, finance manager at Eversendai, the company needed to review the requirement of an enterprise resource planning (ERP) system to replace the current one. The CFO took the lead to review the company’s requirements and developed a requirements plan that best matched the overall organisation’s strategic business objectives. Once developed, Eversendai called several tier-1 ERP system vendors to present their proposals.

The final recommendation on the selected ERP solution was made by the CFO to executive management for approval. It was eventually awarded to the vendor which was able to match the requirements of Eversendai, a leading Malaysian construction and engineering company.

The involvement of the CFO did not stop at this stage. He was involved in the project in its entirety including the development, prototyping, training, implementation, user acceptance, data cut-over, reporting and post-implementation maintenance and support.

While the CFO was part of the executive management, Eversendai did not ignore the IT heads and had a very close working relationship with them. By making the right investments in IT, with measurable outcomes, Eversendai was able to stand out in a crowded and competitive marketplace, balancing this with strong near-term financial management and governance that created an unbeatable business-IT alignment over time.

*CASE STUDY: EVERSENDAI

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ACCA – The global body for professional accountants

+44 (0)141 582 2000 [email protected] www.accaglobal.com

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365 days of the year

In his regular quarterly report, ACCA’s Manos Schizas looks at what ACCA members around the world are saying about the global economy – and it doesn’t make for happy reading

For a year and a half, ACCA’s Global Economic Conditions Survey (GECS), now carried out in association with the Institute of Management Accountants, has recorded the slowdown in the global economic recovery. However, over the last half of 2011, the global economy has taken a marked turn for the worse, led by a substantial fall in international trade.

While the negative trend in global business confidence eased in late 2011 compared to the third quarter, and there are encouraging signs from resilient new orders, the damage done to global demand over the last year has been substantial. As a result, small and very open economies have been hit hard, recording levels of business confidence usually seen in the troubled economies of western Europe.

The cumulative effect of three consecutive quarters of weakening demand is beginning to take its toll on business. A detailed analysis of the GECS findings suggests that falling revenues are the strongest contributor to falling business confidence, followed by the deteriorating global economic outlook and continuing weakness in new orders. Once these, as well as the

THE CUMULATIVE EFFECT OF THREE CONSECUTIVE QUARTERS OF WEAKENING DEMAND IS BEGINNING TO TAKE ITS TOLL ON BUSINESS. FALLING REVENUES ARE THE STRONGEST CONTRIBUTOR TO FALLING BUSINESS CONFIDENCE

*THE VIEW FROM ASIA PACIFICThe findings of the survey suggest that the trend in business confidence has actually improved slightly in Asia Pacific.

Eleven per cent of respondents said they were more confident in the prospects of their organisations than they had been three months earlier, against 53% who reported a loss of confidence.

In mainland China and Australia, 15% and 13% of respective respondents were more confident, while 49% and 50% were less confident.

The greatest losses of confidence were in Singapore (67%) and Hong Kong (65%). Just 9% and 6% respectively were more confident. In Malaysia, 50% were less confident and 8% were more confident.

As with previous quarters, inflationary pressures have remained high on repondents’ list of concerns, especially in Malaysia and Hong Kong, two of the worst-affected countries in Asia Pacific.

rising incidence of late payment and business failures are taken into account, the effect of tightening credit is only negligible. Still, with banks facing an uphill climb towards capital adequacy, tightening finance must soon add to the challenge of a flagging recovery. The result is a deteriorating outlook for business cashflow around the world which may be driving a rise in business failures. Consequently inflationary pressures, which built up steadily over the past two years, are now easing.

In line with this deteriorating outlook, our findings point to weakening trends in employment and investment globally. This is particularly worrying as these two indicators have remained weak throughout the last three years and are crucial to any kind of sustainable recovery.

Finally, our findings suggest that governments have to perform a tough balancing act in coming years if they are to support a flagging economic recovery. Sustainable fiscal stimulus is a luxury that not all governments can afford, especially among developed nations, while austerity is proving hard to reconcile with sustained growth, unless perhaps as a response to exogenous shocks. As a result, government approval levels are at a record low, just when they are most likely to influence business confidence.

Manos Schizas is ACCA’s senior policy adviser

*THE VIEW FROM *THE VIEW FROM *

28 Taking the pulse of the global economy

AP_F_gec.indd 28 08/02/2012 12:37

-13THE DANGER DOWNPOINT

THE ACCA GLOBAL ECONOMIC CONDITIONS SURVEY – HOW TO TAKE PART

-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13-13THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER THE DANGER DOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINTDOWNPOINT

GLO

BAL

-30

AFR

ICA

-13

MID

DLE

EA

ST -1

7 PA

KIS

TAN

-25

MA

INLA

ND

CH

INA

-34

UK

-40

IREL

AN

D -4

0 M

ALA

YSIA

-42

EAST

ERN

EU

ROPE

-47

SIN

GA

PORE

-58

HO

NG

KO

NG

-59

The views of ACCA members are highly valued and receive widespread media coverage. The Q4 2011 survey was quoted in the press around the

world more than 300 times. So why not have your say when the next quarterly survey opens on 17 February? Everyone can participate – simply look for the

link in AB Direct. If you have a story to tell, you can also join our panel of commentators by emailing [email protected]

SAU

DI A

RABI

A 6

8.8

-9.3

MA

INLA

ND

52.

8CH

INA

29.

1H

ON

G K

ON

G 5

2.4

-31.

3 UA

E 14

.8 -39

USA

11.

358

.5AU

STRA

LIA

-25

-40.

4

UK

-38.

3-1

7.5

IREL

AN

D -9

0.6

-27.

1

BALANCING PUBLIC FINANCES

302010

0-10-20-30-40-50-60-70-80

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011

3020100

-10-20-30-40-50-60-70-80

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011

1007550250

-25-50-75

-100

THE ACCA CONFIDENCE INDEXBusiness confi dence remains in negative territory. The graphics show the percentage of respondents saying they have gained business confi dence, minus those who have lost it.

The ACCA Confidence Index correlates strongly with economic growth globally. A reading of below -13 suggests the economies of the developed world are contracting and the global economy is slowing to a halt.

TAKING THE GLOBAL TEMPERATUREBreaking down the ACCA Confidence Index geographically reveals some striking variations, with members in Africa showing most confidence.

The towers show how members think public spending will change in the medium term (increases shown in black), while the cakes show whether members see this level of public spending as excessive (above the line) or insufficient.

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

GLO

BAL

-30

-30

-30

-30

-30

-30

-30

-30

-30

GLO

BAL

-30

GLO

BAL

GLO

BAL

-30

GLO

BAL

GLO

BAL

-30

GLO

BAL

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

AFR

ICA

-13

-13

-13

-13

-13

-13

-13

-13

-13

AFR

ICA

-13

AFR

ICA

AFR

ICA

-13

AFR

ICA

AFR

ICA

-13

AFR

ICA

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

MID

DLE

EA

STM

IDD

LE E

AST

-17

-17

-17

-17

-17

-17

-17

-17

-17

-17

MID

DLE

EA

ST -1

7 M

IDD

LE E

AST

MID

DLE

EA

ST -1

7 M

IDD

LE E

AST

MID

DLE

EA

ST -1

7 M

IDD

LE E

AST

MID

DLE

EA

ST -1

7 M

IDD

LE E

AST

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

PAK

ISTA

NPA

KIS

TAN

-25

-25

-25

-25

-25

-25

-25

-25

-25

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

-34

-34

-34

-34

-34

-34

-34

-34

-34

-34

MA

INLA

ND

CH

INA

-34

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

-34

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

-34

MA

INLA

ND

CH

INA

MA

INLA

ND

CH

INA

-34

MA

INLA

ND

CH

INA

UK

UK

UK

UK

UK

UK

UK

UK

UK

UK

-40

-40

-40

-40

-40

-40

-40

-40

-40

UK

-40

UK

UK

-40

UK

UK

-40

UK

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

IREL

AN

DIR

ELA

ND

-40

-40

-40

-40

-40

-40

-40

-40

-40

-40

IREL

AN

D -4

0 IR

ELA

ND

IREL

AN

D -4

0 IR

ELA

ND

IREL

AN

D -4

0 IR

ELA

ND

IREL

AN

D -4

0 IR

ELA

ND

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IAM

ALA

YSIA

MA

LAYS

IA -4

2 -4

2 -4

2 -4

2 -4

2 -4

2 -4

2 -4

2 -4

2 M

ALA

YSIA

-42

MA

LAYS

IAM

ALA

YSIA

-42

MA

LAYS

IAM

ALA

YSIA

-42

MA

LAYS

IAEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PEEA

STER

N E

URO

PE -4

7 -4

7 -4

7 -4

7 -4

7 -4

7 -4

7 -4

7 -4

7 EA

STER

N E

URO

PE -4

7 EA

STER

N E

URO

PEEA

STER

N E

URO

PE -4

7 EA

STER

N E

URO

PEEA

STER

N E

URO

PE -4

7 EA

STER

N E

URO

PESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RESI

NG

APO

RE -5

8 -5

8 -5

8 -5

8 -5

8 -5

8 -5

8 -5

8 -5

8 SI

NG

APO

RE -5

8 SI

NG

APO

RESI

NG

APO

RE -5

8 SI

NG

APO

RESI

NG

APO

RE -5

8 SI

NG

APO

REH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

GH

ON

G K

ON

G -5

9 -5

9 -5

9 -5

9 -5

9 -5

9 -5

9 -5

9 -5

9 -5

90000

-10-10-20-20-30-30-30-30-30-30-40-40-50-50-60-60-60-60-60-60-70-70

TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE TAKING THE GLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBALGLOBAL TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATURE TEMPERATUREGLOBAL TEMPERATUREGLOBALGLOBAL TEMPERATUREGLOBALGLOBAL TEMPERATUREGLOBALGLOBAL TEMPERATUREGLOBALGLOBAL TEMPERATUREGLOBALGLOBAL TEMPERATUREGLOBALBreaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index Breaking down the ACCA Confidence Index geographically reveals some striking variations, with geographically reveals some striking variations, with geographically reveals some striking variations, with geographically reveals some striking variations, with geographically reveals some striking variations, with geographically reveals some striking variations, with geographically reveals some striking variations, with geographically reveals some striking variations, with 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Sample: 2,186 ACCA members around the world

SAU

DI A

RABI

ASA

UD

I ARA

BIA

SAU

DI A

RABI

ASA

UD

I ARA

BIA

SAU

DI A

RABI

ASA

UD

I ARA

BIA

SAU

DI A

RABI

ASA

UD

I ARA

BIA

SAU

DI A

RABI

ASA

UD

I ARA

BIA

SAU

DI A

RABI

ASA

UD

I ARA

BIA

SAU

DI A

RABI

ASA

UD

I ARA

BIA

68.8

68.8

68.8

68.8

68.8

68.8

68.8

68.8

-9.3

-9.3

-9.3

-9.3

-9.3

-9.3

-9.3

-9.3

-9.3

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D

MA

INLA

ND

M

AIN

LAN

D 5

2.8

52.8

52.8

52.8

52.8

52.8

52.8

52.8

52.8

52.8

52.8

52.8

52.8

52.8

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

A29

.129

.129

.129

.129

.129

.1H

ON

G K

ON

G

HO

NG

KO

NG

H

ON

G K

ON

G

HO

NG

KO

NG

H

ON

G K

ON

G

HO

NG

KO

NG

H

ON

G K

ON

G

HO

NG

KO

NG

H

ON

G K

ON

G

HO

NG

KO

NG

H

ON

G K

ON

G

HO

NG

KO

NG

52.

452

.452

.452

.452

.452

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READ THE FULL REPORT AT: www.accaglobal.com/en/press/gecs-2011q4.html READ THE FULL REPORT AT: www.accaglobal.com/en/press/gecs-2011q4.html www.accaglobal.com/en/press/gecs-2011q4.html www.accaglobal.com/en/press/gecs-2011q4.html www.accaglobal.com/en/press/gecs-2011q4.html www.accaglobal.com/en/press/gecs-2011q4.html www.accaglobal.com/en/press/gecs-2011q4.html

29Taking the pulse of the global economy

AP_F_gec.indd 29 08/02/2012 12:37

RELIEF IN SIGHT?

As Vietnam goes through a rapid period of social and economic change, so do the nation’s laws. Tax governance

and policy reform are crucial for the development of the tax sector as well as the economy, and they are a rising priority for both local and foreign businesses in the country. But, as lawmakers have set and amended tax law in the country, it has become more complex, particularly for corporates.

Vietnam is the second fastest growing economy in Asia, and over the past two decades Vietnam’s tax framework has had to work fast to keep pace with development, while also maintaining budget revenue for the state. Currently, Vietnam relies

heavily on indirect tax as a key source of revenue.

Vietnam’s value-added tax (VAT) system is one of the most complicated, if not the most, in the region. Unlike New Zealand’s goods and services tax (GST), which is considered one of the simplest in the world, Vietnam’s has two methods of declaration: a tax credit method applied to corporates; and a direct method applied to individuals and households.

‘VAT is applied either to actual or presumed turnover. This has a cascading effect as VAT is not able to be claimed as an input,’ according to Tom McClelland, partner and tax leader at Deloitte Vietnam. McClelland has been heavily involved in tax policy

since he arrived in the country in 1998 and contributes to the development of Vietnam’s tax regime.

Traditional tradingAround 76.5% of Vietnam’s 90 million people live in rural Vietnam; and 62.5% of the country’s entire gross domestic product comes from rural areas. Until now, the biggest Vietnamese and foreign companies have been in the biggest six cities: Ho Chi Minh, Hanoi, Nha Trang, Da Nang, Hai Phong and Can Tho.

Types of industry and business vary but there are countless family run stores and small businesses both in cities and rural areas. In the big six cities there are around 90,000

Vietnam has reached a crucial stage in reducing government bureaucracy, according to the OECD, but it remains to be seen whether simplifi cation of its VAT system will follow

30

AP_F_VATVietnam.indd 30 08/02/2012 12:30

Uniform change: Vietnam’s General Department of Taxation wants 90% of enterprises to use e-tax services

traditional grocery stores, according to Nielsen Vietnam’s 2010 census. Despite rapid changes in the retail landscape with the introduction of modern trade and supermarkets, traditional trade is still predominant. And while the use of debit and credits cards has increased significantly over the past five years (8% of bank account holders had a debit card in 2006 v 43% in 2010 according to Nielsen), Vietnamese people still use cash for purchases. That’s often

because they have to – it isn’t possible to pay for fresh food from a street stall or market with a debit card.

Hoang Vu is a tax consultant with Ernst & Young in Hanoi. He says one of the reasons for the complicated system is the vast use of cash, together with the underdeveloped banking system.

‘Cash is still the most popular means of payment, which means it is easy for suppliers to under-declare VAT-taxable revenue by not issuing invoices to consumers,’ he explains.

‘This causes a lot of difficulties for the government in trying to collect taxes, with complicated mechanisms aimed at controlling and monitoring the output and input invoices.’

The direct method of VAT is complicated and has caused issues for banks and businesses alike, but there was a reason it was introduced.

‘The direct method was no doubt introduced to accommodate the large number of individual, and particularly household businesses, in Vietnam,’ says McClelland.

‘The Vietnam VAT system has been adapted to the local business environment and structure, for example the various VAT rates and the unique

direct VAT method.’VAT was introduced in 1999 and

initially levied at four different rates: 0%, 5%, 10% and 20%, with many discretionary exemptions. It has undergone minor surgery since then, with the government reducing the number of tax rates to three (0%, 5% and 10%) and decreasing the number of discretionary exemptions. But accountants still find the system overly complicated and call for further simplification.

Loc Huu Phan, chief accountant for shipbuilding company Strategic Marine Vietnam, thinks Vietnam’s VAT system must be simplified further: ‘Vietnamese law changes so often, we are very confused about how to apply VAT law. The government tried to overhaul it, but even now the VAT regime is still complicated.’

It’s commonly agreed that complicated tax systems impact the economy negatively. But are there any benefits?

‘There are no advantages in complexity, however there are advantages in more detailed tax legislation where it gives taxpayers more certainty,’ say McClelland.

‘A harmonisation of the VAT rates to one rate (other than 0%) should also be an objective and the government is working towards this. Moving to a threshold system where only taxpayers having turnover over a certain threshold are required to register for VAT as in several other countries, eg Singapore, may be preferable. The New Zealand GST system is probably the purest in the world with one rate and minimal exceptions.’

Less reliance on cashHoang also agrees more needs to be done. He says a more effective solution would be to encourage the use of electronic payment in transactions and from there, more effectively control transactions in the economy, reducing the complexity in the VAT system.

‘The introduction of the 20 million dong limit for cash settlement with one supplier in one day is the first step,

VAT applies to goods and services consumed in Vietnam. The standard VAT rate is 10% and a lower rate of 5% is applicable to provision of essential goods and services. For exported goods and services, the rate is 0%.

‘A HARMONISATION OF THE VAT RATES TO ONERATE SHOULD ALSO BE AN OBJECTIVE AND THEGOVERNMENT IS WORKING TOWARDS THIS’

*VAT AT A GLANCE

31


Untraceable: while the use of debit cards has risen, cash is a must to buy from markets

lack of efficiency in the public service sectors, including in taxation. But since the end of the war in 1975, Vietnam has overhauled its centrally planned economy to a mixed one. More recently, it has instituted radical simplification of the entire public sector along with tax reform. In 2007, the government

launched Project 30, which planned to cut administrative bureaucracy by 30%. As of December 2011 that goal had not been reached, but it has reached what the Organisation for Economic Co-operation and Development (OECD) calls a ‘crucial stage’ in attempting to implement its radical cuts.

The OECD believes that one of the keys to Vietnam’s success is having a strong coordinating unit at the centre of government, with backing from senior politicians. Nguyen Xuan Phuc, the minister who led the reforms, is now deputy prime minister.

Whether Vietnam will succeed in reducing red tape or further simplify its VAT is yet to be seen.

Whether it’s ready to undergo further changes at this pace is another issue altogether.

Asha Phillips, journalist

Activities exempt from VAT include:

* The transfer of land use right.

* Certain credit services, loans, finance leasing, investment fund, capital assignment and securities trading.

* Medical examination and treatment services.

* Public passenger transportation by bus.

* Teaching and training.

* Life insurance, student insurance, livestock insurance, and types of non-commercial insurance activities.

* Certain agricultural production.

* Imports for humanitarian and non-refundable aid.

* Transfer of technology and computer software.

* Post, telecommunication and internet services under government programmes.

* Machinery and equipment and special means of transport which are not yet produced in Vietnam and which are imported by a foreign-invested enterprise (FIE) or business cooperation contract (BCC) parties as fixed assets of the enterprises (see below).

* Construction materials not yet domestically produced and imported to form fixed assets of a FIE or to carry out a BCC.

* Goods and services of business with income below a certain threshold.

* Materials of a FIE or BCC imported to produce products to supply to an enterprise which directly produces products for export.

*EXEMPTIONS

but this needs much further progress,’ he adds.

Australia’s Monash University recently took up the challenge of trying to simplify the system. James Giesecke and Tran Hoang Nhi of the Centre of Policy Studies managed to create a model which kept tax revenues for the

government at the same level, but with reduced tax collection costs. It was based on a core VAT simplification that removed all discretionary exemptions and all VAT rates on non-exports equalised at a single revenue-neutral rate – 8.3%.

Leading the wayMeanwhile, the General Department of Taxation (GDT) is in the process of reforming the tax system, and is slated to finish in 2020. Ultimately, it aims to improve administrative procedures to the point where Vietnam is a leading South-East Asian country in terms of its tax system. The GDT hopes to have at least 90% of all enterprises using e-tax services; 65% carrying out tax registration and declaration via the internet; and perhaps the most difficult task – 80% of taxpayers satisfied with services provided by tax offices.

Vietnam is often criticised for its

‘ONE OF THE KEYS TO SUCCESS IS HAVING ASTRONG COORDINATING AND AUTHORITARIANUNIT AT THE CENTRE OF GOVERNMENT’

32


Comment

Whether as individuals, businesses or special interest groups, we often miss the big picture when reacting to proposed changes in economic policies. It is only human nature to first focus on the immediate and obvious impact on us, but it is also human folly to overlook their intended long-range effects on the overall economy. This is especially true when the policy changes are likely to inflict short-term pain on certain parties.

For example, the idea of setting minimum wages in Malaysia naturally did not go down well with employers when it was first floated by the unions in 2000. The main arguments against such a move were that it would create inflationary pressure and erode the country’s competitiveness.

Similarly, when workers began lobbying for the retirement age to be raised in the private sector, the business community quickly countered that this would increase labour costs.

Of course, the concerns expressed tend to be one-sided. After all, the businesses are protecting their interests.

However, it would be wrong to ignore the potential of the minimum wage as a way to reduce poverty, improve productivity and spur economic growth. And is it wise for an ageing society with a weakening talent pool to compel people to retire when they still have a lot more to contribute?

In any case, the objections are now moot. One of the

Keep the bigger picture in mind[Business might feel a natural resistance to economic policies such as introducing a minimum wage or

raising the retirement age. But we should not lose sight of the potential benefi ts, says Errol Oh

Malaysian Government’s six Strategic Reform Initiatives (part of the Economic Transformation Programme or ETP) centres on human capital development. The Performance Management & Delivery Unit (Pemandu), the government body that drives the ETP, says on its website: ‘Extending the retirement age, adopting a minimum wage as well as the introduction of unemployment insurance are some of the steps that the government will take to guide Malaysia in the direction

of maintaining a high-income economy that is sustainable and inclusive.’

Businesses are not the only ones guilty of myopia and self-centredness when evaluating the country’s economic manoeuvres. It is almost automatic for people all over the world to protest when governments roll back subsidies and impose new taxes, even when such actions are well-justified. Although perfectly understandable, this mindset impedes economic progress. Subsidies, particularly those that are scattershot, only lead to inefficiency and an unhealthy dependence.

As much as we all dislike taxes, they are meant to redistribute wealth. A broad-based consumption tax like the proposed (but deferred) goods and

services tax addresses the need to narrow the deficit and to plug leakages in the tax system.

It is the government’s responsibility to ensure that there is adequate and earnest dissemination of information ahead of major changes in economic policies.

At the same time, people should have at

least a basic grasp of why such changes are necessary. Otherwise, the country will be held back by short-termism and self-interest.

A high-income economy operates on a reasonable level of

trust in the system and a belief in the greater good. But there is a proviso: this

has to be matched with competent and clean leadership across all parts of society.

Errol Oh is executive editor ofThe Star

33

AP_COM_EO.indd 33 08/02/2012 12:29

It feels like a breath of fresh air for the new year: an accounting standard for all sectors, not just banks, and one that deals with the income statement rather than the balance sheet.

Not only that, the final Revenue from Contracts with Customers exposure draft from the International Accounting Standards Board (IASB) represents an increasingly rare success for the project to converge International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP). The proposals are principles-based – the transfer of goods/services to the customer marks a sale – and replace industry-specific guidelines.

A top-down answer never suits all, however. The construction industry and other long-term contractors have kicked up a fuss over the proposed switch away from a percentage-of-completion approach. And the telecoms sector, that home of product packages, dislikes the idea of unbundling handset sales from provision of the network service. Companies always prefer producer-led approaches, while users prefer economic reality and transparency.

The concerns of mobile phone companies throw up some key issues. The first is that recognising revenue from selling a handset at the start of a contract does not match the pattern of receiving a monthly cash payment over the following, say, 24 months.

The idea that the income statement should better reflect cashflows is a seductive one but cash receipts can be a poor measure of sales that are longer term and more complicated than the ker-ching of a checkout till. In contracting, the problem for users of accounts is the opposite of the mobile phone giveaway issue. Money is received in advance, which temporarily looks good on the balance sheet,

The awkward wad

Comment

[The IASB’s proposed principles-based standard for revenue recognition has no truck with special sector cases, but, as Jane Fuller points out, cash receipts aren’t always the most accurate measure of sales

but booking it as revenue before the company has performed would not be right. So why apply the cash principle when the divergence goes the other way, when a good has been supplied but payment is delayed?

Telcos might also feel self-righteous because existing US-based standards that cap ‘contingent revenue’ counter an abuse thrown up in the technology bubble: recording too much revenue too soon. Indeed, they may regard

themselves as being conservative in booking a day-one loss because of giving away the handset, but accounting is supposed to be neutral.

For users, unbundling different business activities is always helpful. The trend for companies to classify as much business as possible as a service has aggregated too many lines.

The telcos have so far been overruled, but they might take heart from the compromises made by the standard setters to assist construction companies. These include allowing the bundling of ‘highly inter-related’ goods and services, the recognition of revenue on a straight-line basis if the effort is expended evenly, and the use of costs incurred as a measure of revenue. All this still sounds rather producer-led. Indeed, Thomas J Linsmeier, of the Financial Accounting Standards Board (FASB), in an alternative view says that ‘the proposed model has introduced exceptions that permit revenue to be recognised in a manner that is inconsistent with the core principle’.

A key safeguard is the testing for onerous performance obligations – when does the company confess that the costs exceed the price? Again, the latest exposure draft modifies earlier proposals, but let’s hope that what remains is tighter than the old rules.

The ‘onerous’ issue is a reminder that there is only so much that can be achieved by one standard. Companies whose transactions are anything other than short term run all sorts of cashflow and balance sheet risks. Even with non-financial companies, there is no substitute for looking well beyond the top line of the income statement.

Jane Fuller is former financial editor of the Financial Times and co-director of the Centre for the Study of Financial Innovation think-tank

34

AP_COM_fuller.indd 34 08/02/2012 12:30

Q What is currently at the top of your to-do list? A Corporate governance, for sure. We are fully aware of the increasing importance of corporate governance to investors, governing bodies and the company. Good practices can increase operational efficiency and profitability in the long run.

Q China Railway Group is one of the largest construction companies in the world. How do you keep track? A The group has a sophisticated and comprehensive reporting system. Apart from a monthly overview on operational and financial data, urgent matters are communicated as need arises.

Q What corporate governance initiatives are you working on at the moment? A In order to keep pace with recent developments in the economy and the industry, the company is conducting a thorough review of internal control policies and procedures. It will review and revise practices to comply with the updated requirements of the Hong Kong and Shanghai stock exchanges.

Q How does your accounting background assist your work as a company secretary? A My accounting knowledge not only helps assure that the financial data disclosed complies with accounting standards, but more importantly, helps me to analyse and present the data that is meaningful and useful to stakeholders.

Q What do you like to do away from work? A I like to play football with friends and watch my favourite team.

FAST FACTSCompany headquarters: Beijing, ChinaNumber of employees (30 June 2011): 283,006Revenue (2010): 456.1 billion yuanFavourite book or movie: Liverpool FC is more important than any book or movie

MANUFACTURERS GLOOMY Singapore manufacturers remain downcast about business prospects for the first half of 2012, given the continued uncertainty over the global economy. According to a survey by the Economic Development Board, only 7% of manufacturers expect business conditions to improve by the end of the first half, while 18% say things will get worse. Overall, compared with the fourth quarter of 2011, a net weighted balance of 11% of manufacturers expects a less favourable business situation from now until June. Electronics and precision engineering manufacturers were the most pessimistic, with a net weighted balance of 22% forecasting less favourable business conditions. A net weighted balance of 7% of manufacturers surveyed expected output to fall in the first quarter.

CHINA OPENS UP LISTINGSChina will allow smaller Chinese companies to list in Hong Kong by reducing the regulated threshold, according to Yao Gang, vice chairman of the China Securities Regulatory Commission (CSRC). Speaking at the Asian Financial Forum in Hong Kong, Yao added the CSRC will allow qualified foreign institutional investors greater access to renminbi to invest in Chinese companies on the domestic market. He also reiterated promises that China will consider introducing Hong Kong-listed exchange-traded fund products to track the domestic A-shares index and allow more renminbi-denominated bonds and shares in Hong Kong.

The view from: Hong Kong: David Tam, joint company secretary, China Railway Group

35 Corporate The view from David Tam of China Railway Group; the challenges of shared services and outsourcing; Ho Kwon Ping, the accidental businessman

41 Practice The view from Irving Low of KPMG Singapore; how to account for carbon markets

35Corporate

AP_YCORP_intro.indd 35 08/02/2012 12:58

Shared finance services and outsourcing have been a significant success, driving down the cost of finance operations through labour arbitrage, stimulating processing efficiency and ticking the finance standardisation box. They have also helped to ensure consistency and to leverage IT to deliver benefits.

But, according to professionals working in the field, finance transformation through shared services and outsourcing has not yet had a significant impact on broader business performance, and there is much untapped potential.

These are some of the findings in ACCA’s recent report, Finance Transformation: Expert Insights on Shared Services and Outsourcing, which features commentary from 20 world-leading experts in the shared services and outsourcing space.

It considers fundamental questions about how CFOs and finance leaders are evolving the finance function to drive down its cost and improve efficiencies, and, critically, how they are seeking to raise the effectiveness of finance as a partner to the business.

Other advantages of shared services and outsourcing cited in the report include better governance and control as improved standardisation has delivered greater levels of transparency over finance operations. Our experts agreed that headway had also been made in getting better information

Getting into gearIn the second part of his series, ACCA’s Jamie Lyon says that more ambition and better change management are needed to fulfi l the potential of shared services and outsourcing

THE ISSUE OF CAPABILITY IS AT THE HEART OF THIS PROBLEM. THE NEW ROLE FOR THE RETAINED TEAMDRIVES A COMPLETELY NEW SKILL REQUIREMENT

Shared finance services and outsourcing have been a significant success, driving down the cost of finance operations through labour arbitrage, stimulating processing efficiency and ticking the finance standardisation box. They have also helped to ensure consistency and to leverage IT to deliver benefits.

But, according to professionals working in the field, finance transformation through

outsourcing has not yet had a significant impact

performance, and there is much untapped potential.

These are some of the findings in ACCA’s recent

Finance Transformation: Expert Insights on Shared Services and Outsourcing, which features commentary from 20 world-leading experts in the shared services and

It considers fundamental questions about how CFOs and finance leaders are evolving the finance function to drive down its cost and improve efficiencies, and, critically, how they are seeking to raise the effectiveness of finance as a partner to the business.

Other advantages of shared services

change management are needed to fulfi l the potential of shared services and outsourcing

across the business to help decision-making and performance measurement.

In many respects, the tactical aspects of finance shared services and outsourcing are now well established

and delivered. The model has continued to evolve with the emergence of centres of excellence to house typically specialist finance responsibilities such as tax and treasury, complemented by an overarching governance-type function which brings together the constituent parts of the finance model to make it

all tick along nicely – in theory.So far, so good, but the

conclusion from the report is that much more can be done. Much more value could be added by

evolving the finance function further and optimising its structure to

unleash new levels of business benefits and make an impact on broader business performance.

So why is it that transformation initiatives to date have not always delivered on their promises?

First, the report suggests that it is about the ambition of finance leaders and the capability of organisations to successfully deliver on the enormous change programme that is required.

Levels of transformation ambition vary. Some finance leaders see finance transformation as a means to transform the business too, rather than simply stopping at a better finance function. Other finance leaders take a slightly different perspective, seeing transformation through shared finance services or outsourcing primarily as a ‘functional finance’ fix. To this end clients differentiate between the capability of providers, seeing some as well placed to help drive business and not just finance solutions.

At the heart of transformation success, however, is change management. The so-called ‘softer stuff’ continues to be the greatest impediment to achieving the goals of finance transformation through shared services and outsourcing.

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Graham Russell, director of business process outsourcing at WPP Group, says: ‘In all these finance transformation journeys, the hardest part is always change management. People don’t know what they don’t know. And it’s never easy to take people on this journey when they don’t know where they are going, and they are not quite convinced because the function works today and has worked for a long time. There’s a natural pushback to change.’

Many of the experts contributing to the report acknowledged concerns about the capability of organisations to manage the change process effectively.

Another key problem with transformation programmes to date has not, perversely, been to do with optimising the remote delivery operations, whether through shared services or outsourcing, at all. Rather, it is that too little attention has been paid to the role and purpose of the retained finance function.

This is ironic, because a key driver behind finance transformation is to free valuable finance staff at the centre or embedded in the business units from finance processing so they can concentrate on higher value insight to support commercial decision-making.

Logically this means that many businesses are not tapping into and exploiting as much value as they could be. The retained finance function has been underutilised and its purpose lacks articulation.

Anoop Sagoo, senior executive for business process outsourcing at Accenture, summarises the problem: ‘It’s difficult to conceive when you’re designing a shared service model that you can get a finance and accounting operation to the right level of efficiency and effectiveness without considering the retained finance function.’

In ACCA’s report, both leaders and providers cite the lack of focus on the retained team as a major obstacle to transformation success when adopting shared services and outsourcing.

Often the retained team’s roles and responsibilities are not well articulated in the haste to implement, resulting in overstaffing and the formation of a shadow organisation. A key impetus for shared service and outsourcing implementations is that the transaction processing activities are removed from the business, leaving the high-value business partnering activities at its heart.

However, many businesses struggle to define business partnering roles clearly and to communicate the transition properly. The result of this can be accountability confusion, skill gaps in the retained team, loss of trust by the business and unclear career paths.

To address these challenges, businesses need to define clearly what is expected of the retained organisation, to conduct a skills assessment and train the team, as well as to ensure that career paths are developed and transparent.

TO READ ACCA’S REPORT ON HOW ORGANISATIONS ARE TRANSFORMING THE FINANCE FUNCTION, VISIT www.accaglobal.com/transformation

LAST MONTH HOW SHARED SERVICES

AND OUTSOURCING INCREASINGLY

DRIVE PERFORMANCE

TO READ ACCA’S REPORT ON HOW ORGANISATIONS ARE TRANSFORMING THE FINANCE FUNCTION, VISIT www.accaglobal.com/transformationwww.accaglobal.com/transformationwww.accaglobal.com/transformationwww.accaglobal.com/transformation

Learning curveOnce more, it is the issue of capability that is fundamentally at the heart of this problem. The new role for the retained finance team drives a completely new skill requirement. It moves responsibility away from delivering many traditional finance responsibilities and towards sometimes managing governance and service delivery, or becoming a much more valued partner to the business. Commerciality, depth of business understanding, communication and influencing skills are now key.

It also calls into play new behaviours. John Ashworth, global head of business process outsourcing at Pearson, says: ‘It requires a certain sort of behaviour, which is to embrace the change and look for opportunities to push deeper and create purpose for the retained function.’

To get this right is a big call. Great change management capability is key to success. Mastering the ability to effectively make the change to the new model will be a critical skill.

Jamie Lyon is head of employer services at ACCA

* If you are a CFO or FD interested in finance transformation, shared services or outsourcing and want to contribute to ACCA’s programme, contact [email protected], +44 (0)20 7059 5513

*VIEW FROM EY: JAMES MEADER, PARTNER

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I THOUGHT I WAS THIS HOT-SHOT BUSINESS GUYAND MY FATHER WASN’T. BUT HE WAS BETTER THAN ME BECAUSE HE KNEW WHEN TO GET OUT’

Ho Kwon Ping, now the executive chairman and CEO of Banyan Tree Holdings, did not intend to become a businessman. But while he was working as a journalist in Hong Kong, his father, head of the Wah Chang Group, suffered several strokes. As the eldest son, Ho decided he should join the family firm, giving up plans to move to France to pursue research studies at INSEAD.

Ho recalls being thrown in at the deep end of life at the diversified conglomerate, which his grandfather founded. His father had further developed the company with various contract manufacturing operations in South-East Asia, producing products such as TV sets for Samsung and Panasonic and shoes for Nike.

‘There was no time for a learning curve,’ Ho explains. ‘Though, when I first joined in 1981, my father was still able to walk and talk. He was very Chinese, saying: “OK, here you are, do whatever you want to do.” So I did,’ Ho recalls.

Back in the 1980s, Asia’s young tiger economies, which offered cheap contract labour to Western companies, were developing very quickly.

‘My father’s business was broadly divided into two types: the ones he had set up at the end of the second world war, dealing in agricultural processing and food stuff manufacturing in Thailand, and then various contract manufacturing and trading companies in Singapore, Malaysian and Taiwan. This was the model for growth, but I gradually came to realise that contract manufacturing was not sustainable.

You get squeezed out because the next guy will always start producing cheaper than you,’ Ho explains.

Lessons in businessFree to move the company in any direction he wished, Ho made some early mistakes. ‘I was this impudent young man wanting to do his own business,’ he recalls. Ho set up an offshore drilling rig building business in China, but the business floundered after a deal with the Chinese authorities went sour and the rig, which the Chinese was supposed to buy, had no buyer in a suddenly over-supplied rig market. ‘It almost bankrupted us,’ he says.

‘I thought I was this hot-shot business guy and my father wasn’t. But my father basically was a lot better than me because he knew when to cut losses and get out, while I just wanted to hang in there. I learnt two lessons, which have nothing to do with business school: First, you very often need to know when to cut your losses, never indulge in self-deception and never have this gambler kind of attitude. My father knew that because he had been trading in commodities his whole life and he’d lost a lot and made a lot.

‘The second lesson is that you should never calculate how much you might make. Instead you should calculate how much you might lose and whether it can bring you down or not,’ he adds.

In the early 1990s, after he had to close down a contract manufacturing business in Thailand within a year because it was facing too strong competition from a cheaper manufacturer in Indonesia, Ho realised he needed to find a proprietary advantage for his company.

‘A proprietary advantage is something you own. A cost advantage

Tree of prosperityFormer journalist Ho Kwon Ping ended up in business by accident. But now he leads one of Asia’s top hospitality brands, which now has hotels, resorts and spas in 27 countries

The tips*Every industry, no matter how mature or sluggish, will have its high-growth star performers, often those who use innovation and technology as strategic advantages.

*Game-changing innovations are not just pie-in-the-sky ideas; they are responses to real problems. All of us can turn our problems into game-changing innovations.

*Even the most radical innovation becomes obsolete over time, so we need to inculcate a culture of continual innovation in a company.

*There is the opportunity and challenge for any company located in Asia to be high-growth, and this is something which every entrepreneur must seize.

38 Corporate

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is when you happen to be cheaper than the next guy. But when the next guy is cheaper than you, he’s got that advantage. A proprietary advantage can be technology, like a patent, or if you have a brand. And that’s what led me to set up Banyan Tree. The hotel was a vehicle to building a brand,’ he says.

Ho had already built four hotels in Phuket on land he had bought with his brother, an architect. The 600 or so acres of land they were slowly developing were within an abandoned tin mine on the island’s west coast. The four hotels were managed by established brands like Sheraton and Thai group Dusit, but no one was interested in taking up the contract to manage the fifth hotel plot because it had no access to the beach. Undeterred, Ho decided to set up a new company to operate a hotel on this ‘unappealing’ site.

Unique conceptsTo compensate for the lack of beach access, Ho dreamt up two hotel concepts that were very innovative at the time: the pool villa and the tropical garden spa. The Banyan Tree brand was born. While the innovations came out of necessity, their development underscored Ho’s business belief that innovation should play a strategic

role in any business development by helping to set the ‘terms of engagement’ with competitors.

He points to his decision to ignore spa consultants who urged him to create a European-styled, air-conditioned environment, and how he instead decided to embrace the tropical greenery and humidity. The lesson learnt, he says, is never try to copy or be a poorer version of what others have, but instead turn a weakness or constraint in your favour.

The gamble paid off. Since the launch of its first resort in Phuket in 1994, Banyan Tree has become synonymous with luxurious pool villas and the hotel management company has steadily built a strong brand firmly associated with ‘the romance of travel’, with 30 hotels and resorts, more than 60 spas, three golf courses and 80 retail galleries.

After a slow start, the group has in recent years started to quickly expand and spread its roots around the globe. Banyan Tree now has resorts in China, Mexico, the Maldives, and even operates a one-of-a kind luxurious desert resort in Ras Al Khaimah in the United Arab Emirates. And Ho continues to have big ambitions, with an impressive pipeline of new properties due to open in the next two

years in India, Vietnam, Morocco and Greece.

‘Now that we have built the brand and it can continue in the hospitality space on its own, my next big task is to extend the Banyan Tree brand in other areas, while somebody takes over from me to manage the hospitality business,’ Ho says.

Ho says he is especially interested in moving into brand-related property development. ‘We’ve started but we could do a lot more in it,’ he says.

Family owned, professionally runThough his family still controls 50% of the company and several of his family members work for the company, such as his brother, his wife and his 29-year old-son (who works in China), Ho doesn’t consider Banyan Tree to be a family business.

‘Neither my brother nor my wife are key managers. Banyan Tree is run by professional managers: it’s not a family running a business, but you do have one dominant shareholder who cares more for the long-term interest of the company and its stakeholders than the immediate short-term earnings. We are a dominant-shareholder driven company,’ he says.

Ho wants his family to remain a dominant shareholder in the company.

39


‘If the whole industry changes so that the company’s future is better if it is sold, then of course we would consider that. If we were in the electronics business where scalability is everything, then we would have sold or it would have started to go down. By remaining independent, we’re able to scale up faster,’ he notes.

Ho is also thinking about succession and says steps are under way.

Without revealing details which will be announced in April, he says the plan is that ‘where before I was the CEO of an integrated company, I may well become now the CEO and chairman of a holding company, which have subsidiaries that are headed by their own CEOs.’

The restructuring, he says, will free him up to concentrate on new projects.

Ho also acknowledges that his company will slowly have to move towards a separation of powers between the CEO and the executive chairman positions. ‘When it’s a founder-entrepreneur’s company there needs to be a period of time where a company goes through a single founder with his vision, then at some point in

The CV1977

Detained for two months under Singapore’s Internal Security Act while working as a journalist for the Far Eastern Economic Review, for writing pro-communist articles. Placed in solitary confinement.

1981Joins the family’s Wah Chang Group.

1984Buys around 600 acres of land within an abandoned tin mine and develops the Laguna Phuket.

1994Founds Banyan Tree Hotels and Resorts and launches its first property, Banyan Tree Phuket.

2006Lists Banyan Tree on the Singapore Exchange.

2011Banyan Tree completes its first renminbi-denominated private equity fund in China, the Banyan Tree China Hospitality Fund, with a total capital commitment of 1.07 billion yen.

time the company should make that transition. I do not see that after me the next position should be joined, and I would hope to move into that direction within my own period of time,’ he says.

Cash-rich businessWith banks around the world weakened by the worsening of the sovereign debt crisis in the eurozone, credit liquidity has significantly tightened in recent months, posing headaches for many companies in Asia, which are doing well but still need to refinance ongoing projects. Credit is becoming scarcer and more expensive, as it did in 2008 after the collapse of Lehman Brothers.

Having been nearly caught in the post-Lehman liquidity crunch, Ho has readied his company in recent years by, for example, divesting some of its properties. Today, the Banyan Tree is cash rich. ‘Even if we were to look at a liquidity crisis several times worse, we don’t even have to think about financing for a few years,’ Ho says.

As he’s weathered several other crises, from the Asian financial crisis in 1997 to the aftermath of the 2004 tsunami, Ho says he has become very

cognisant of global macro trends. ‘Right now, fortunately, I’ve learned enough lessons from the previous financial crises. Maybe the downside is that I’m too cautious, but if 2012–13 is worse than 2008–09, we would feel it of course in our profits, but we wouldn’t feel it significantly in terms of our survivability, because we’re in a relatively comfortable position.’

Sonia Kolesnikov-Jessop, journalist

40 Corporate


Q How is 2012 shaping up so far? A 2012 will be a challenging year. Due to the uncertainty facing the business community ahead, many are preparing for the worst.

Q What’s the one blind spot companies tend to have? A Not knowing what their blind spots are. This is a situation of ‘you don’t know what you don’t know’. Most companies will tell you that they have been in business for many years and have survived, and they have seen everything there is to see. But the world in which we live today is very different from the world of 10 or even five years ago. Complexity coupled with technology has transformed the way we transact and conduct business.

Q Do you see your job getting harder? A Our job will invariably get harder. The complexity in the business environment will require that we, as service providers, stay ahead of the knowledge curve. Clients are a lot more sophisticated and naturally demand more from their service providers. We have to continuously embrace new ideas and knowledge to innovate better solutions.

Q What do you like best about your work? A Everything! My job allows me to make a difference for our clients, our staff and our organisation. I believe we are entrusted with a role and responsibility which allows us to influence others in a positive manner. From a personal perspective, job satisfaction is beyond the monetary benefits derived.

FIRM FACTSFirm structure: PartnershipEmployees: Eighty partners and 2,257 staff (as of 31 Dec) Job description: Anything and everything – within my authority, of course

FIRMS’ HEADCOUNT UP ON UK China’s headcount at the top accountancy firms is about to overtake the UK for second place in the world behind the US, according to a recent report by the Financial Times. At KPMG, for instance, the firm now has about 9,000 staff in mainland China and Hong Kong and 11,000 in the UK. Alan Buckle, the firm’s global deputy chairman, predicts the UK will be overtaken by the end of 2013. At Ernst & Young, after quadrupling its workforce in mainland China and Hong Kong over the last 10 years, it now employs 10,000 there compared with 11,200 in the UK. At PwC and Deloitte, the British headcount is larger but the gaps may also be eaten away during the coming years at those firms, the report speculates.

KPMG AND EY IN THE CLEARAccounting firms KPMG and Ernst & Young have been cleared of responsibility for a US$1.7bn accountancy fraud at camera-maker Olympus by an unofficial panel of experts. However, the firms’ roles still remain under review by Japan’s financial regulator and accountancy body. The two audit firms’ roles came under scrutiny after signing off on Olympus’s accounts before the 13–year fraud was discovered in October 2011. A panel of lawyers set up by Olympus said neither of the two firms violated their legal duties. However, they said five individual auditors were responsible for 8.4 billion yen (US$109m) in damages. Olympus later said it is suing the five individuals for one billion yen.

The view from: Singapore: Irving Low, head of Risk Consulting, KPMG Singapore

41 Practice The view from Irving Low of KPMG Singapore; how to account for carbon markets

35 Corporate The view from David Tam of China Railway Group; the challenges of shared services and outsourcing;

Ho Kwon Ping, the accidental

businessman

41Practice

AP_YPRAC_intro.indd 41 08/02/2012 12:34

Riding the revolution: cyclists power lights on an installation depicting a baobab tree on Durban’s beachfront

Practice

Accounting for emission omissionsThe marathon UN climate talks in South Africa last December achieved a last-minute deal, but big questions remain over a common accounting basis for carbon markets

The marathon United Nations climate talks in Durban, South Africa, resulted in agreement to start a fresh round of negotiations to secure a new treaty on global carbon emissions and will spark a host of critical accounting and auditing questions. Delegates said the new treaty would replace the Kyoto Protocol and come into effect by 2020 at the latest. However, despite the renewed political will, serious question marks remain over how emissions can be properly monitored and accounted for and how that will affect the health of carbon markets.

Under the existing UN clean development mechanism (CDM), emission reduction projects in developing countries can earn certified emission reduction (CER) credits. These saleable credits can be bought by industrialised countries to help meet their emission reduction targets under the Kyoto Protocol, which will now be extended until at least 2017 under the Durban pact.

But the accounting basis of the CDM and CER framework remains unclear or at best ambiguous in parts. The UN’s climate governing body in Durban agreed only to review the basis of CDM and CER at its next meeting in Qatar in November 2012. Still outstanding is the finalisation of the design of the extended Kyoto emissions commitments to ensure effective operation of emissions trading, ‘taking into account relevant rules, modalities, guidelines and procedures for measuring, reporting, verification and compliance of the CDM process’.

The CDM’s executive board has also asked market participants to suggest draft data quality guidelines to use in standardised baselines for emission calculation models. The current lack of a common accounting system to monitor emissions under the UN

climate convention could further complicate efforts to achieve accurate monitoring – which is a necessary underpinning for carbon markets.

Niklas Höhne, director of energy and climate policy at Germany-based energy consultancy Ecofys, says: ‘The fragmentation of emission accounting rules will make it very difficult for scientific comparison of pledges and decrease the transparency of government actions. Pledges [of emissions cuts] are based on different assumptions, conditions and implied rules. This complexity is increasing

since some parties are using Kyoto Protocol rules for counting their pledge and others aren’t. This, in turn, will increase the level of uncertainty in evaluating the global emissions we really have now and where they are headed.’

The complexities inherent in the system have been highlighted by Australia’s emissions policy. Australia pledged to cut emissions by 5% from the levels it produced in 2000 but the industrial sector levels incorporated into the Kyoto Protocol would in theory allow Australia to increase its emissions by as much as 26% over 1990 levels.

These apparent contradictions emerge because Australia calculated its emission reduction target for 2020 on the basis of the sectors listed in the Annex A of the Kyoto Protocol – namely, energy, industrial

and agricultural emissions – plus the emissions from afforestation, reforestation and deforestation, based on another Kyoto clause. As emissions from afforestation, reforestation and deforestation are projected to be much lower in 2020 than in 1990,

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AP_YPRAC_COP17.indd 42 08/02/2012 12:33

Feel the heat: supporters of southern African grouping the Rural Women’s Assembly raise awareness at Durban of the impact of climate change on ordinary people

emissions of all other sectors can be higher, according to environmental consultancy Climate Analytics.

‘A set of common rules would ensure a higher level of transparency, ensure comparability and build confidence,’ Höhne says.

The European Union, long Kyoto’s most significant supporter, reaffirmed in November 2011 that timely and accurate figures on emissions are vital and has proposed legislation to boost monitoring and reporting of emissions, especially for the period 2013 to 2020. The legislation also aims to cover reported emissions from land use, land use change and forestry, aviation and maritime transport among other sectors. Its main objectives include measures to improve the quality of data reported and to ensure that EU states comply with current and future international monitoring and reporting obligations and commitments.

The UN climate body is also trying to iron out problems but negotiations will take at least a year. A decision over establishing a CDM appeals process was deferred to the Qatar meeting after delegates in Durban failed to agree on how appeals would operate.

Materiality thresholdA separate provision for a ‘materiality threshold’ under the CDM was agreed in Durban, and emissions reporting errors too small to have any significant impact will in future be disregarded. Information relating to a CDM project will be considered material if its omission, misstatement or non-compliance with a requirement results in an overestimation – above a certain allowable level – of total emission reductions achieved. Large projects are allowed a smaller margin of error than small ones. In the case of projects that offset more than 500,000 tonnes of carbon dioxide equivalent (CO2e) a year, total emission reductions may not be overestimated by more than 0.5%.

Meanwhile, the deal reached in Durban should be a boost for the EU’s own emissions trading scheme (ETS) carbon market. Without Kyoto and its commitments from mainly EU countries to cap their greenhouse gas emissions, the ETS would have been under threat. The EU pledged in Durban to cut its emissions by 30% by 2020 compared with 1990 levels. The EU ETS covers some 11,000 power stations and industrial plants in 30

countries and will extend to the civil aviation sector from January 2012.

But the ETS has not had an easy ride since its inception in 2005. Carbon prices have slumped to around €7 a tonne CO2e, far below record highs of around €30/t CO2e and well below the minimum of €20/t CO2e seen as needed to attract investment in new clean technologies.

The euro crisis, the grim global economic outlook and an oversupply of allowances issued by polluters that expect their power stations and other facilities to pump less in the downturn have pulled down allowance prices on the ETS. Banking group UBS has been highly critical of ETS, arguing it has cost EU consumers almost US$290bn for ‘almost zero impact’ in cutting emissions. UBS has also warned that ETS prices will crash in 2012.

The ETS is trying to recover its reputation after a series of high-profile theft and fraud scandals which has knocked confidence in the scheme. ‘Clearly, the market is in a dark place, being awash with supply and facing big European macroeconomic risks,’ a spokesman for British banking group Barclays said.

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AP_YPRAC_COP17.indd 43 08/02/2012 12:33

Delegates at the UN Climate Change Conference in Durban

A new report from ACCA, COP 17 and Accountants: Where Next?, makes it clear that business and climate change experts believe accountants have the technical skills and expertise to make a real difference to climate change mitigation activities.

However, the experts also believe that the profession needs to develop its knowledge and mechanisms to meet new demands, and to reshape its training and skills courses to provide the necessary confidence and trust in accountants’ capabilities and integrity.

Rachel Jackson, ACCA’s head of sustainability, says: ‘The profession has work to do to get to where it needs to be on sustainability accounting, but it has been flexible in the past and should rise to this new challenge. The fight against climate change is going to be a collaborative effort. Accountants, countries, and private enterprise and finance will all have a role to play.’

View the report at www2.accaglobal.com/cop_17

*A KEY ROLE

US investment bank Goldman Sachs has even warned that EU politicians may be tempted to intervene in the ETS to prevent allowance prices falling even more. ‘We see a potential catalyst for carbon prices from political intervention, either through a tightening of the scheme or from a carbon floor price,’ said a Goldman Sachs spokesperson. ‘We believe the significant influence of green party agendas across Europe, combined with the potential revenue for cash-strapped governments, is the basis for risks of intervention in the carbon markets.’

EU ready to actDenmark, which took over the EU presidency for six months starting in January 2012, is seen as sympathetic to EU action in the market. In a further sign of EU intervention in the carbon market, there are plans to ensure EU spot carbon permits are regulated by the European Commission under the Markets in Financial Instruments Directive (MiFID).

MiFID may ensure that future carbon registry account holders in the ETS will be restricted to prevent fraud. At the start of 2011, a total of 4m tonnes CO2e of EU ETS allowances (EUAs) was stolen by hackers who accessed online registry systems of the ETS.

‘While it is impossible to fully legislate against theft, the question remains as to why we continue to facilitate access to our market to the criminal element by allowing almost anyone to open up a registry account,’ said a carbon market analyst at Deutsche Bank.

With Europe in a funk, the biggest potential boost to carbon markets may come with its development in China and Australia. China, the world’s biggest emitter of greenhouse gases used the UN climate talks in Durban to confirm it was aiming to launch a working carbon market which would act as a market-based mechanism to incentivise its main polluters to reduce emissions. ‘We will actively develop the market mechanism of carbon trading pilot projects to

explore the establishment of carbon trading markets,’ China’s top climate negotiator Xie Zhenhua said in Durban.

China’s Industrial Bank and the Shanghai Environment Energy Exchange in November signed an agreement to test an emissions trading scheme in Shanghai. China’s economic planners want similar exchanges in Beijing, Guangdong, Tianjin, Hubei and Chongqing by 2015.

Like China, Australia has plans to bring in a carbon market in 2015. The proposed Australian carbon market would be linked to the EU’s ETS system. Talks between senior Australian and EU officials will focus

on how Australia and the EU can work together to promote deep, liquid and integrated carbon markets. The talks ‘will also examine the mechanics of linking Australia’s carbon pricing mechanism with the EU’s ETS’, according to the EU and Australia.

The negotiations could be a sign of the times: the Asia Pacific region will increasingly take the lead in developing carbon pricing and market mechanisms as part of global climate change mitigation efforts, according to the International Emissions Trading Association (IETA).

George Stone, journalist

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_(right)-B.indd 45 06/02/2012 15:52

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

INTERNATIONAL

IFRS 9 CHANGESThe International Accounting Standards Board (IASB) issued IFRS 9, Financial Instruments, in November 2009. At that time it also said that it might be necessary to make further changes as a consequence of the ongoing project to develop an IFRS for insurance contracts. The IASB has now announced that it will undertake a project to make limited-scope changes to IFRS 9. At the same time, the IASB and US Financial Accounting Standards Board (FASB) will work together to try and reduce the differences that currently exist in their respective models for classification and measurement. The IASB has also stated that in making any amendments, it will be mindful of the fact that many preparers will have already invested time in planning for the implementation of IFRS 9 in 2015.

While it has been a slow start to the year as new pronouncements and exposure drafts are concerned, this is unlikely to remain the case as 2012 progresses. A review of the IASB’s work plan shows that there are a number of very important exposure drafts and standards due in the first half of the year. These are listed below.

* Leases – a revised exposure draft is anticipated which will continue with a

model that will require the majority of lease contracts to be recorded ‘on balance sheet’, but will simplify the way in which those leases are measured compared with the original proposals, particularly for lessors.

* Financial instruments – a new IFRS for general hedge accounting, which the IASB considers will reduce complexity and allow entities to more closely align their accounting to the hedging models they apply in running their businesses. An exposure draft in respect of macro hedging will follow in the second half of the year. There are also plans to re-expose the proposals addressing the impairment of financial instruments.

* Insurance contracts – originally exposed in 2010, the proposed standard has been subject to substantial reworking in many key areas and will therefore also be re-exposed.

Yvonne Lang, director, Smith & Williamson

MALAYSIA

PN13/2011 ISSUEDOn 23 December 2011, the Companies Commission of Malaysia (SSM) issued Practice Note No. 13/2011 (PN13), Circumstances and Procedures for Rectification of Documents Lodged and Registered with the Companies Commission

of Malaysia. This note clarifies the circumstances and procedures in which documents that have been lodged and registered with the SSM may be rectified.

It also reiterates the importance of ensuring that companies lodge documents which contain adequate and accurate information.

The full PN13 is available from www.ssm.com.my

BANK NEGARA MEASURESOn 31 January 2012, Bank Negara Malaysia announced the following liberalisation measures as part of continuous efforts to enhance competitiveness in the economy and to develop the domestic financial markets:

* Licensed onshore banks are permitted to trade foreign currency against another foreign currency with a resident.

* A licensed onshore bank is allowed to offer ringgit-denominated interest rate derivatives to a non-bank non-resident.

* Flexibility is permitted for a resident to convert their existing ringgit or foreign currency debt obligation into a debt obligation of another foreign currency.

For more information, contact Bank Negara Malaysia toll free on 1 300 88 5465 (BNMTELELINK), email [email protected] or log in to www.bnm.gov.my/fxadmin

PUBLIC RULINGS ISSUEDOn 20 December 2011, the Inland Revenue Board issued Public Ruling No. 11/2011

(PR11), Bilateral Credit and Unilateral Credit and Public Ruling No. 12/2011 (PR12), Tax Exemption on Employment Income of Non-Citizen Individuals Working for Certain Companies in Malaysia.

PR11 provides an explanation on bilateral credit and unilateral credit that may be claimed by a person who has been charged tax on the same income in Malaysia and in another country.

PR12 provides an explanation on the tax treatment of employment income derived by non-citizen individuals working for an operational headquarters company, regional office, international procurement centre company or regional distribution centre company in Malaysia.

Both are effective from year of assessment 2011 and subsequent years of assessment. They can be downloaded from www.hasil.gov.my/pdf/pdfam/PR11_2011.pdf and www.hasil.gov.my/pdf/pdfam/PR12_2011.pdf, respectively.

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

SINGAPORE

2012 BUDGET STATEMENT The 2012 Budget Statement was delivered by deputy prime minister and minister for finance, Tharman Shanmugaratnam, in parliament on 17 February. More details can be found at www.mof.gov.sg

46 Technical update

AP_T_update.indd 46 06/02/2012 10:52

ACRA ISSUES DIRECTIONS The Accounting and Corporate Regulatory Authority (ACRA) has issued Financial Reporting Practice Direction No. 1 of 2012. This direction urges company directors to focus their attention on those Singapore Financial Reporting Standards which require significant management judgments and estimations in this uncertain economic environment.

ACRA has also issued Practice Direction No. 1 of 2012, Applications for Exemptions under Sections 373(5) and 373(7) of the Companies Act, Cap. 50. This direction serves to identify: a) The legal requirements

relating to financial reporting imposed on foreign companies.

b) Policies supporting these requirements.

c) The criteria and conditions imposed by ACRA for applications under section 373(5) of the Companies Act, Cap. 50 for waiver from filing of local branch accounts, and section 373(7) of the act for relief from the requirements relating to the form and content of accounts or reports lodged.

ACRA has also issued an article, Discussion of Past Disciplinary Cases against Public Accountants and Public Accounting Entities. This sets out the decisions or rulings extracted from past disciplinary cases against public accountants and public accounting entities. Its purpose is to raise

awareness of appropriate and acceptable professional conduct, and to make known actions taken by ACRA to uphold professional conduct.

The documents can be downloaded from www.acra.gov.sg

LICENSING FOR CRAS

The Monetary Authority of Singapore (MAS) has implemented the regulatory framework for Credit Rating Agencies (CRA), with effect from 17 January 2012. Under the new CRA regulatory framework, the provision of credit rating services will be regulated under the Securities and Futures Act (SFA). CRAs will consequently have to be licensed under the Capital Markets Services (CMS) licensing regime under the SFA and be subject to licensing obligations. CRAs will be required to comply with existing regulations, guidelines and notices under the SFA that apply to all CMS licensees. In addition, CRAs will also have to comply with a new code of conduct for CRAs that MAS will introduce in conjunction with the establishing of a regulatory regime for CRAs.

MAS will also require CMS licensees providing credit rating services to appoint and register under the Representative Notification Framework any individual who acts as their representative in providing credit rating services. Representatives providing credit rating services will be required to hold, as

a minimum, a Bachelors degree in a relevant discipline that will allow them to perform the job function effectively.

Existing CRAs will be given a transition period of six months to apply for the required licence.

For more, go to http://tinyurl.com/7unk4bd

CONVEYANCING WORKFLOW The Ministry of Law implemented new measures on 1 August 2011 to protect conveyancing money, by regulating how lawyers can receive and hold conveyancing money. These measures include requiring lawyers to hold conveyancing money in conveyancing accounts with specially appointed banks, namely: Bank of China, Bank of East Asia, CIMB Bank, DBS Bank, Far Eastern Bank, OCBC and UOB. Alternatively, lawyers can hold such money through the Singapore Academy of Law’s conveyancing money service, or via escrow arrangements. The withdrawal of money from such accounts requires joint authorisation by lawyers acting for different parties.

As a further enhancement, from 1 January 2012, the Singapore Land Authority’s Electronic Payment Instruction (ePI) service will allow lawyers to electronically notify banks of the details of conveyancing money paid into conveyancing accounts, instead of using hard copy forms. The Inland Revenue Authority of Singapore will

also accept electronic stamp duty payments via the ePI service, which will reduce processing time and further streamline conveyancing transactions.

For more, go to www.conveyancing.sg

Joseph Alfred, policy and technical adviser, ACCA Singapore

HONG KONG

ANTI-MONEY LAUNDERINGThe Securities and Futures Commission has released a new set of guidelines on anti-money laundering and counter-terrorist financing, which will come into effect on 1 April 2012.

These provide guidance to licensed corporations relating to the operation of the provisions of schedule 2 to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO).

Schedule 2 of the AMLO aims to bring customer due diligence and record-keeping requirements in line with the latest international standards. The guidelines assist corporations to design and implement appropriate and effective policies, procedures and controls so as to comply with the AMLO, and include examples of industry-specific suspicious transactions that may warrant reporting to the Joint Financial Intelligence Unit.

Sonia Khao, head of technical services, ACCA Hong Kong

47

AP_T_update.indd 47 06/02/2012 10:52

Current or non-current liability?Accounting for liabilities may appear to be straightforward but simple rules can have signifi cant effects on corporate fi nancial statements, explains Graham Holt

SOME CURRENT LIABILITIES SUCH AS TRADE PAYABLES AND EMPLOYEE COSTS ARE PART OF THE NORMAL WORKING CAPITAL

There have recently been some major breaches of debt covenants reported by companies, but the issue then arises as to how this liability is reported. The question is whether the liability is a current or non-current liability and how to present the liability in the statement of financial position.

IAS 1, Presentation of Financial Statements, paragraph 60 stipulates that an entity should present current and non-current liabilities as separate classifications in its statement of financial position, except when a presentation based on liquidity provides more relevant and reliable information. Whatever the method of presentation, an entity should disclose the amount expected to be settled after more than 12 months and less than 12 months.

When an entity supplies goods and services with an identifiable operating

cycle, separate classification of current and non-current liabilities highlight liabilities due for settlement in the period. Information regarding the realisation of liabilities is useful in assessing the solvency of an entity as IFRS 7, Financial Instruments: Disclosures, requires disclosure of the maturity dates of financial liabilities.

Financial liabilities include trade and other payables. If a liability category combines amounts that will be settled after 12 months with liabilities that will be settled within 12 months, note disclosure is required which separates the longer-term amounts from the 12-month amounts.

Paragraph 69a–d of IAS 1 states that liabilities are to be classified as current if any one of four specified conditions is met. The conditions are:A It expects to settle the liability in its

current operating cycleB It holds the liability primarily

for tradingC The liability is due to be settled

within 12 monthsD It does not have an unconditional

right to defer settlement of the liability for at least 12 months after the reporting period.

All other liabilities are to be

classified as non-current. IFRS 7 does not deal with the classification of financial liabilities but the disclosure of information that enables users to evaluate the nature and extent of risks arising from financial liabilities to which the entity is exposed.

IFRS 9, Financial Instruments, deals with the classification and

measurement of financial liabilities. In October 2010, the International Accounting Standards Board (IASB) published additions to the first part of IFRS 9 on classification and measurement of financial liabilities. The requirements in IAS 39 regarding the classification and measurement of financial liabilities have been retained, including the related application and implementation guidance. This means that there are two measurement categories for financial liabilities, which are fair value through profit or loss (FVTPL) and amortised cost. The criteria for designating a financial liability at FVTPL also remain unchanged.

Some current liabilities such as trade payables and employee costs are part of the normal working capital of the entity and the entity classifies the amounts as current even if they are to be settled outside of the 12-month period. There are some current liabilities that are not part of the working capital cycle but are due for settlement within 12 months or are held for trading. Financial liabilities are an example of this fact.

Financial liabilities are classified as current when they are due for settlement within 12 months, even if the original term was for a longer period than 12 months and an agreement to refinance on a long-term basis is completed after the reporting date but before the financial statements are authorised for issue.

GET VERIFIABLE CPD UNITSAnswer questions about this article onlineStudying this article and answering the questions can count towards your verifi able CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

48 Technical

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SOME CURRENT LIABILITIES SUCH AS TRADE PAYABLES AND EMPLOYEE COSTS ARE PART OF THE NORMAL WORKING CAPITAL

There have recently been some major breaches of debt covenants reported by companies, but the issue then arises as to how this liability is reported. The question is whether the liability is a current or non-current liability and how to present the liability in the statement of financial position.

IAS 1, Presentation of Financial Statements, paragraph 60 stipulates that an entity should present current and non-current liabilities as separate classifications in its statement of financial position, except when a presentation based on liquidity provides more relevant and reliable information. Whatever the method of presentation, an entity should disclose the amount expected to be settled after more than 12 months and less than 12 months.

When an entity supplies goods and services with an identifiable operating

cycle, separate classification of current and non-current liabilities highlight liabilities due for settlement in the period. Information regarding the realisation of liabilities is useful in assessing the solvency of an entity as IFRS 7, Financial Instruments:

Financial liabilities include trade and other payables. If a liability category combines amounts that will be settled after 12 months with liabilities that will be settled within 12 months, note disclosure is required which separates the longer-term amounts from the 12-month amounts.

Paragraph 69a–d of IAS 1 states that liabilities are to be classified as current if any one of four specified conditions is met. The conditions are:A It expects to settle the liability in its

current operating cycleB It holds the liability primarily

for tradingC The liability is due to be settled

within 12 monthsD It does not have an unconditional

right to defer settlement of the liability for at least 12 months after the reporting period.

All other liabilities are to be

classified as non-current. IFRS 7 does not deal with the classification of financial liabilities but the disclosure of information that enables users to evaluate the nature and extent of risks arising from financial liabilities to which the entity is exposed.

measurement of financial liabilities. In October 2010, the International Accounting Standards Board (IASB) published additions to the first part of IFRS 9 on classification and measurement of financial liabilities. The requirements in IAS 39 regarding the classification and measurement of financial liabilities have been retained, including the related application and implementation guidance. This means that there are two measurement categories for financial liabilities, which are fair value through profit or loss (FVTPL) and amortised cost. The criteria for designating a financial liability at FVTPL also remain unchanged.

Some current liabilities such as trade payables and employee costs are part of the normal working capital of the entity and the entity classifies the amounts as current even if they are to be settled outside of the 12-month period. There are some current liabilities that are not part of the working capital cycle but are due for settlement within 12 months or are held for trading. Financial liabilities are an example of this fact.

Financial liabilities are classified as current when they are due for settlement within 12 months, even if the original term was for a longer period than 12 months and an agreement to refinance on a long-term basis is completed after the reporting

GET VERIFIABLE CPD UNITSAnswer questions about this article onlineStudying this article and answering the questions can count towards your verifi able CPD if you are following the unit route and the content is relevant to your development needs. One hour of learning equates to one unit of CPD

AP_T_HoltCPD.indd 48 08/02/2012 12:32

Case study 1An entity operates in the oil industry. It is constructing and operating an oil rig, which is financed partly by a loan raised in 2010 and the entity classified the loan correctly as a non-current liability in accordance with paragraph 69 of IAS 1. In the statement of financial position at 31 December 2011, the entity reclassified the loan as a current liability.

In the 2011 financial statements, the entity disclosed, as an event after the reporting period, that the loan had been settled with cash received under an oil production agreement. The entity also disclosed that a letter of intent in connection with the agreement had been signed by the end of the 2011 financial year. In the directors’ report for the year, the entity stated that the loan was classified as a current liability due to the fact that the loan had been settled in February 2012 when the oil production agreement became legally binding. The original settlement date was 31 December 2015. The entity stated that it had reclassified the loan in accordance with IFRS 7, Financial Instruments: Disclosures.

SolutionIFRS 7 applies only to information disclosed in the financial statements and not to the classification of liabilities. Therefore, the standard is not relevant. The classification of the loan as a current liability does not comply with paragraph 69 of IAS

1. In respect of the 2011 financial statements, the oil production agreement, effective in February 2012, was a non-adjusting event after the reporting period as determined in accordance with IAS 10, Events After the Reporting Period.

It can be concluded that the loan should have been classified as a non-current liability in the 2011 statement of financial position because the entity did not meet any of the conditions set out in paragraph 69a–d of IAS 1:A The project loan is not a liability

which would be settled in the issuer’s normal operating cycle (paragraph 69a). The loan is a financial liability providing financing on a long-term basis. It is not part of the working capital used in the entity’s normal operating cycle.

B The issuer did not hold the loan primarily for the purpose of trading but for the purpose of financing the construction of the oilrig (paragraph 69b).

C The loan was not due to be settled within 12 months after the reporting period (paragraph 69c).

D The entity had an unconditional right to defer settlement of the liability for at least 12 months after the reporting period, because the loan was not due to be settled within 12 months after the reporting period (paragraph 69d).

Paragraphs 74–76 of the standard address the consequences of a breach

49 TO GET THE QUESTIONS GO TO www.accaglobal.com/ab_tech

Case study 1An entity operates in the oil industry. It is constructing and operating an oil rig, which is financed partly by a loan raised in 2010 and the entity classified the loan correctly as a non-current liability in accordance with paragraph 69 of IAS 1. In the statement of financial position at 31 December 2011, the entity reclassified the loan as a current liability.

In the 2011 financial statements, the entity disclosed, as an event after the reporting period, that the loan had been settled with cash received under an oil production agreement. The entity also disclosed that a letter of intent in connection with the agreement had been signed by the end of the 2011 financial year. In the directors’ report for the year, the entity stated that the loan was classified as a current liability due to the fact that the loan had been settled in February 2012 when the oil production agreement became legally binding. The original settlement date was 31 December 2015. The entity stated that it had reclassified the loan in accordance with IFRS 7, Financial Instruments: Disclosures.

SolutionIFRS 7 applies only to information disclosed in the financial statements and not to the classification of liabilities. Therefore, the standard is not relevant. The classification of

1. In respect of the 2011 financial statements, the oil production agreement, effective in February 2012, was a non-adjusting event after the reporting period as determined in accordance with IAS 10, Events After the Reporting Period.

It can be concluded that the loan should have been classified as a non-current liability in the 2011 statement of financial position because the entity did not meet any of the conditions set out in paragraph 69a–d of IAS 1:A The project loan is not a liability

which would be settled in the issuer’s normal operating cycle (paragraph 69a). The loan is a financial liability providing financing on a long-term basis. It is not part of the working capital used in the entity’s normal operating cycle.

B The issuer did not hold the loan primarily for the purpose of trading but for the purpose of financing the construction of the oilrig (paragraph 69b).

C The loan was not due to be settled within 12 months after the reporting period (paragraph 69c).

D The entity had an unconditional right to defer settlement of the liability for at least 12 months after the reporting period, because the loan was not due to be settled within 12 months after the reporting period (paragraph 69d).

www.accaglobal.com/ab_tech TO GET THE QUESTIONS GO TO

AP_T_HoltCPD.indd 49 08/02/2012 12:32

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FINANCIAL LIABILITIES ARE CURRENT WHEN THEY AREDUE FOR SETTLEMENT WITHIN 12 MONTHS, EVEN IFTHE ORIGINAL TERM WAS FOR A LONGER PERIODAND AN AGREEMENT TO REFINANCE IS COMPLETEDAFTER THE REPORTING DATE BUT BEFORE THE FINANCIAL STATEMENTS ARE AUTHORISED FOR ISSUE

of a provision of a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand. In this case, the liability is classified as current, even if the lender has agreed, after the reporting period and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach.

Under IAS 1, a liability is classified as current as the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. However, the liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.

Case study 2In December 2010, an entity agreed a 10-year leasing agreement

with a leasing company and undertook to comply with certain covenants during the term of the lease agreement. The agreement stipulated that, in the event of a failure by the entity to fulfil any of the contractual obligations, or having failed to rectify any such breach within a one-month period, the lessor had the right to terminate the leasing agreement.

In such a case, the entity would have to pay all unpaid amounts due before the termination of the agreements. As at 31 December 2011, the entity was not in compliance with the covenants stipulated in the leasing agreement. It was additionally established that on 31 January 2012, the entity was still not in compliance with the specified leasing covenants. In the 2011 consolidated financial statements, the debt relating to the leasing company was classified as non-current in accordance with the payment schedules included in the original agreement. The entity had received, from the lessor, a notification confirming the failure to comply with

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the covenants as of 31 December 2011. Thus, as at 31 December 2011, having failed to fulfil the contractual obligations and being in breach of relevant covenant, the leasing company was entitled to require the entity to repay the debts immediately.

SolutionThe entity’s presentation of the debt as a non-current liability is not in accordance with IAS 1, paragraph 60 that specifies the circumstances in which liabilities are to be classified as current. The amounts outstanding in respect of this arrangement at 31 December 2011 should have been disclosed as a current liability. IAS 1 stipulates that a liability shall be classified as current where it is due to be settled within 12 months after the reporting date, and the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

ConclusionAccounting for liabilities may appear to some to be relatively straightforward but simple rules can have significant effects on corporate financial statements.

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

50 Technical

AP_T_HoltCPD.indd 50 08/02/2012 12:33

A crowd-pleasing Budget?SMEs and the middle classes will benefi t most under Hong Kong’s 2012–13 Budget. But without an overhaul of the tax system, what are the long-term prospects?

Hong Kong’s chief executive Donald Tsang grabbed widespread media attention in late January at the World Economic Forum in Davos, Switzerland. While pressing Europe’s leaders to deal quickly with the European debt crisis, he baldly admitted that he has ‘never been as scared as now’ about the global economy.

This gloomy outlook had obviously hung heavy over Hong Kong’s 2012–13 Budget discussions. In his Budget speech on 1 February, financial secretary John Tsang forecast the city’s economy would grow by only between 1% and 3%, after achieving 5% in 2011–12, and inflation would fall to 3.5% from 5.3% during the previous year. As a result, in what is likely to be Tsang’s final Budget before handing the reins over to a new government from 1 July, he delivered a slightly expansionary Budget with a fiscal deficit of HK$3.4bn, and included a

HK$80bn series of measures intended largely to help small and medium-sized enterprises (SMEs) and the middle classes counter an economic slowdown.

‘[These] measures will tide enterprises over difficult times, preserve employment and increase

people’s disposable cash at hand,’ Tsang said.

With over HK$600bn in the government’s fiscal reserves (representing 35% of Hong Kong’s gross domestic product), Tsang was able to promise a slight deficit for 2012–13. This follows the surplus he

Gloomy outlook: The last budget of Donald Tsang’s administration reflected his mood at the World Economic Forum in Davos, Switzerland, when he described his fears for the global economy

* Profits tax reduced by 75% for 2011–12, subject to a HK$12,000 ceiling.

* Salaries tax and tax under personal assessment reduced by 75% for 2011–12, subject to a HK$12,000 ceiling.

* Basic personal tax allowances raised to HK$120,000 from HK$108,000.

* Maximum period for tax deductions on home loan interest payments increased from 10 to 15 years of assessment.

* Waive business registration fees for 2012–13.

* Halve the charges for import and export declarations.

* Abolish the capital duty of 0.1% (previously capped at HK$30,000 per case) levied on local companies.

* Waive property rates for 2012–13, subject to a ceiling of HK$2,500 per quarter, which is estimated to cover almost 90% of all properties.

* Increase the maximum tax deductions for mandatory contributions to Mandatory Provident Fund schemes from HK$12,000 to HK$15,000.

*KEY TAX CHANGES

51Technical

CN_T_HKbudget.indd 51 07/02/2012 10:42

now estimates will be HK$66.7bn for 2011–12 by the financial year’s end on 31 March, thanks to record land, salaries and profits tax revenues.

However, Tsang is notorious for being overly conservative with his budget estimates; last year, he estimated a deficit of HK$8.5bn for the 2011–12 Budget. It remains to be seen whether the Budget will actually result in a surplus, applying a fiscal handbrake to the economy.

One-off reductionsTsang’s one-off salaries tax rebate should mollify the middle class taxpayers angered last year by the government’s initial refusal in the 2011–12 Budget to grant salaries tax rebates. Tsang had proposed a cash injection into their mandatory retirement fund accounts, but eventually bowed to public pressure and offered HK$6,000 cash handouts to the city’s adult permanent residents.

In a surprise move this year, Tsang also offered businesses a one-off profits tax rebate for 2011–12 and waived business registration fees for 2012–13.

However, the one-off nature of the proposed tax changes raised eyebrows among the accountancy profession, which has long called for a comprehensive tax system review to address Hong Kong’s narrow tax base. According to the government, only 1.5 million of Hong Kong’s population of seven million are subject to salaries tax, and 1,100 companies – or 0.16% of all registered corporations – pay 69% of the profits tax revenue, says

built over the next five years.Tsang also addressed businesses’

high rental costs by promising to increase commercial property supplies through revitalising industrial buildings and relocating government departments away from the business districts.

Employment protectionWhile Hong Kong’s unemployment rate fell to 3.3% from 5.5% in 2009, Tsang said this trend could quickly reverse in an economic downturn. His Budget’s measures included a HK$220m injection for the Construction Industry Council’s training programmes, HK$100m for an SME project to employ workers with disabilities, and for the Employees’ Retraining Board to offer 130,000 training places for unemployed people.

Promoting key industriesWhile Tsang congratulated Hong Kong’s four pillar industries – trading and logistics, financial services, business and professional services, and tourism – and six industries that enjoy competitive advantages for their contributions to the city’s economy, there were few new initiatives to promote them in this Budget. Among them was the government’s pledge to issue up to HK$10bn in iBonds (inflation-linked debt paper), HK$150m allocated to the Mega Events Fund for the tourism industry, and a new HK$1bn fund to help Hong Kong businesses tap mainland China’s market.

ConclusionWhile John Tsang’s farewell Budget gives Hong Kong’s middle classes and SME owners plenty to smile about with its package of one-off relief measures, he also leaves behind serious long-term issues unaddressed for his successor. The most crucial would appear to be reviewing Hong Kong’s enviously simple but dangerously narrow tax system.

Bruce Andrews, journalist

*DAVY YUN, DELOITTE CHINA

Tracy Ho, Ernst & Young’s Hong Kong tax leader. But while revenue from land sales and share transactions remains high, it seems not to be a high priority for the government.

Support for SMEsTsang acknowledged that SMEs would be the most vulnerable businesses in an economic downturn. In response, he proposed more concessions for entrepreneurs than previously offered, including: the one-off profits tax rebate; waiving business registration fees; increasing the government’s SME financing guarantee scheme’s loan guarantee ratio to 80%; offering a special concession for SMEs insuring their exports; abolishing capital duty; and halving import and export declaration charges.

These measures were generally met with applause. ‘Compared to previous Budgets, there are quite a number of measures that address the SMEs’ concerns,’ says Davy Yun, a tax partner at Deloitte China. ‘I believe they will be, to a certain extent, effective.’

Land supplyThe government’s decision to release more land for housing developments comes at a curious time as apartment sales volumes fell sharply in last year’s second half. However, public pressure for more housing is high as many cannot afford homes while property prices and rents skyrocket. The government estimates housing land supply for 2012–13 will provide 30,000 private residential flats, and 75,000 subsidised public rental flats will be

It is a balanced budget that covers a lot of measures for small and medium-sized enterprises (SMEs) and middle-income class people. With previous Budgets, there were some voices about the lack of attention to the middle-income classes, but this Budget seems to be taking care of them. Overall, we are positive it is a good Budget. We did not expect a reduction in the profits tax or waiving the business registration fees. There were not a lot of long-term measures for promoting the environmental protection industries.

52 Technical


53

KK SO, PWC HONG KONGA lot of the measures were one-off or short term. You could criticise Tsang for lacking a long-term vision in this Budget, but knowing this is an outgoing government it is understandable they do not want to commit the next government to any long-term plans. There were no surprises; many of the measures announced were circulated before the speech. We called for a comprehensive review of the tax system but it did not get any mention whatsoever. I would have clarified how the tax rules apply to private equity funds; there are currently uncertainties about how foreign private equity funds can gain exemptions from Hong Kong taxes.

TRACY HO, ERNST & YOUNGThis was better than expected. The government always releases a lot of information a few days before the Budget day, and there were more rebates and allowances than previously indicated. We are not sure how effective all the measures for helping enterprises deal with the challenges ahead will be. The salaries tax rebate and the increase in personal allowances were more than expected. The 2011–12 surplus was significant enough for the government to do something bolder and introduce more measures and tax incentives to increase Hong Kong’s competitiveness. I would review the tax system; there is a need because the last review was 35 years ago.

JENNIFER WONG, KPMG CHINAThis is the best budget the financial secretary has delivered during his term as he has listened to the public’s views and addressed the issues related to people’s livelihoods, housing and inflation concerns. Given this was his last Budget speech before a new government is elected, I thought there would not be so much included. but it lasted for a very long time. There was a relatively small scale of the issuance of iBonds; something in the range of HK$30bn would have been appropriate. Taking into account the HK$530bn pensions for civil servants, the HK$400bn-plus expenditure required for infrastructure projects and HK$70bn for the SME loans programme, Hong Kong is suffering a reserve deficit. These liabilities may need a provision.

*TAX EXPERTS’ VIEWS

long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the long-term plans. There were no surprises; many of the

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非居民企业间接转让中国居民企业股权的若干转

让定价考量京都天华会计师事务所. Rose Zhou

随着中国税务机关对于转让定价和反避税

工作的日益深入，非居民企业间接转让中

国居民企业股权，正成为当下最为热门的

课题之一。

近年来国家税务总局相继颁布了一系列

法规，为企业重组和股权转让提供了税务

上的法律框架。在一些非居民企间接转让

中国居民企业股权的案例中，税务机关根

据698 号文中“实质重于形式”原则，否定

了中间控股公司的存在，从而判定股权转

让所得为来源于中国的所得并据以征收企

业所得税。按照698号文1的规定，股权转让

所得是指“股权转让价减除股权成本价的

差额”。然而，根据我们在实务操作中的

观察和分析，对于是否应该将该差额的全

额作为在中国的缴税基础，存在一定的争

议。本文从转让定价角度出发，对非居民

企业间接转让中国居民企业股权中被转让

中国企业价值的合理判定以及相应的股权

转让所得在中国的纳税义务进行了分析。

下面，我们通过三则假设性案例进行说

明。假设前提均为，A集团向B集团收购了B

集团旗下的甲公司（设立于香港），以及

甲公司的子公司（即乙公司，设立于中国

大陆）。中国税务机关认为甲公司没有商

业实质，而否定其存在。如图所示：

收购方出于战略目的的“超额”支付是否

需要纳税？

很多情况下，收购方会出于某些战略目的

（如并购中国目标企业达到渗入市场、垄

断市场、获得协同效应等商业目的），对

中国企业进行间接收购。出于该目的，收购

方所愿意付出的对价（即交易价格）往往

会高于目标公司的经济价值2 （实际价值）

。高出的这一部分价值则为超额价值。

案例 1

假设A集团为了垄断其产品在中国市场的占

有率进行收购。乙公司的净资产价值（即

转让

海外

香港

中国

B集团

甲公司

乙公司

A集团

来源于中国的股权转让所得

=200-100？还是=150-100？还是通过其

他合理的分摊方法进行计算？

50

100

50

交易价格

经济价格

股权成本

超额价值

股权成本价值）、经济价值以及该交易的

交易价格分别为100、150、200。那么，该

股权收购的“超额”价值为50（200-150）

。这种情况下，计算出让方B集团来源于中

国的股权转让所得时，是按照交易价格与

股权成本的差额（200-100=100），还是以

经济价值与股权成本价值的差额（150-

100=50）作为征税对象据以征税呢，或者

是否可以进行一定的市场分析和量化经济

分析，以确定对“超额”价值国内外征税

权的分配比例？

中间控股公司是否真的无商业价值？

根据698号文，中间控股公司很可能由于人

员数偏少、无经营收入等条件被税务机关

否定存在。然而，在很多案例中，由于在

过往复杂的关联交易机制中遗留的功能/

风险/资产特质等因素，企业在集团整个产

业链中所扮演的角色及其创造的价值不容

忽视。

1 国税函[2009]698号，《关于加强非居民企业股权转让所得企业所得税管理的通知》2 出于本文讨论目的，经济价值指根据一定的经济评估方法得出的价值。

54 Technical

CN_T_Chinese.indd 54 03/02/2012 11:03

转让海外

人员少。向乙公司提供客户名

单、营销活动

海外

香港

中国

B集团

甲公司

乙公司

A集团

假设不存在超额价值）。A集团的收购行为

并非出于单纯间接收购乙公司，其同时认

为甲公司也有较大的商业价值。但是由于

收购当时甲公司员工较少，被中国税务机

关认为没有商业实质而否定其存在。

这种情况下，通过对甲、乙公司进行功

能/风险/资产情况分析（尤其是历史运营

情况），可更好地判定这两家公司在当前

产业链中的各自价值。若通过合理的分析

可以量化得出该收购整体价值中的20%由甲

公司所贡献，即乙公司的实际价值为80。

那么，是否可以采用实际价值（即80）而

非交易价格（即100）为基础来计算来源于

中国的股权转让所得？

股权转让所得中所包含的无形资产价值该

如何分摊？

企业经营活动中往往会涉及未法定注册的无

形资产（如秘密技术、客户名单、销售渠道

等）。如此类无形资产最初由中间控股公司

和被间接转让中国公司共同开发形成，则可

运用合理的量化分析评估出集团产业链中各

方对该无形资产的形成所做出的贡献，进而

确定归属于各方的无形资产价值。


=100-股权成本？还是=80-股权成本？

80 交易价格

乙公司实际价值

甲贡献价值 20

案例2

假设，甲公司规模较小，员工人数少于10

名。乙公司为一家销售型企业。自乙公司成

立以来，甲公司为乙公司的市场营销与销售

做出了较大的贡献，使得乙公司获得了良好

的销售业绩。例如，甲公司向乙公司提供其

客户名单。同时，正由于拥有良好商业信誉

的甲公司，客户才愿意同乙公司签订合同。

在该情况下，中间控股公司在整个集团产业

链中的价值就不能仅仅以其在并购交易发生

时的员工人数和经营规模因素加以判定。

现假设股权转让的整体交易价格为100（

55

CN_T_Chinese.indd 55 03/02/2012 11:04

方B集团来源于中国的股权转让所得？

结论

毫无疑问，中国税务机关近年来在反避税

前沿领的经验正越来越丰富。他们对于涉

及中国企业的直接或间接股权转让的监管

愈发关注。根据我们的观察，近期的一些

股权转让案件都被中国税务机关施以了较

大的中国股权转让所得调整。因此，对于

持有复杂控股结构且涉及中国企业的跨国

企业来说，如何应对税务机关的此类审查

显得尤为重要。虽然在确定间接转让中国

居民企业股权的案件中来源于中国的股权

转让所得时，转让定价分析能起到何种作

用，中国税务机关态度还有待更多的实务

案例以更加明朗化。然而合理而具有说服

力的转让定价分析（针对超额价值、中间

控股的商业价值、无形资产等），结合资

产评估报告，无疑提供了一种合理地降低

企业在中国的股权转让所得的相关税负可

行办法。

Rose Zhou is a partner, tax and transfer pricing, at Grant Thornton, China

转让

秘密技术价值50甲乙各贡献50%

海外

香港

中国

B集团

甲公司

乙公司

A集团


=200-100？还是=200-100-25？

100

交易价格

股权成本

秘密技术

甲25/乙25

案例3

假设，乙公司为一家生产型企业。乙公司

在其生产过程中涉及一种秘密技术，该技

术由甲、乙公司共同投入研发形成。该股

权转让的整体交易价格为200，其中包括上

述秘密技术的价值50。乙公司的股权成本

价为100，则按照698号文的转让所得为100

（200-100）。根据合理的功能/风险/资产

分析，可以量化得出甲、乙公司对于该秘

密技术形成的贡献各为50%，则归属于乙公

司的无形资产价值为25（50*50%）。这种情

况下，是否可以75（200-100-25）作为出让

50

56 Technical

CN_T_Chinese.indd 56 03/02/2012 11:04

Ex-Deloitte corporate-finance partner-turned-author Penny Avis is already making plans for her 50th birthday, even though she is only 43. ‘I’ll either be making a speech saying: “I gave up the best job in the world that I worked so hard for to write a book that nobody read,” or it’ll all pay off and be a bestseller. Who knows? Either way it’s been fun.’

But what makes someone at the height of their professional career, who has seemingly smashed through any glass ceilings quicker than neutrinos in the Large Hadron Collider, give it all up to write a novel? The clues are in Avis’s determination in the world of corporate finance and how she has successfully managed her career with being a mother of two.

Avis’s career is even more surprising given that she didn’t have an early vocation for accountancy, instead

reading law at Sheffield University. ‘I couldn’t decide what I wanted

to be and when I spoke to careers people they said to do a good degree. I thought I wanted to be a management consultant but I didn’t know what that was.’

Luckily, an innate numerical streak meant that at the university milk rounds Avis’s head was turned by Price Waterhouse and she applied to train with the then Big Six firm, moving to its Manchester office.

‘I got my ACA qualification and became an audit manager. What you get from audit is the ability to look at new businesses all the time and learn what’s good and what’s bad about them; the ability to walk into a business and say, look, I can understand why this business is doing well, or not so well, and where it sits in its competitive

environment by looking at the bigger picture.’

Having graduated in 1989, by 1994 Avis had decided to move to London, a decision driven by friends and the desire to have a change of scene. The only secondment available at the time was in the technical department answering a hotline on accounting queries. ‘I wasn’t renowned for my deep technical expertise, but it was available immediately.’

The job involved giving ‘the ultimate view’ on any queries from teams and partners in the UK who were after technical sign off.

‘I had to be interviewed and crammed about standards that were coming out. Amazingly enough I got the job.’ It was, she says, ‘the best thing I ever did, for two reasons. Firstly, it gave me utter confidence in the field. I knew that they could throw anything at

A novel ideaMeet Penny Avis – the high-fl ying ex-corporate fi nance partner who, having smashed glass ceilings and weathered corporate storms, is now embarking on a writing career

Careers 57

AP_C_Avis.indd 57 08/02/2012 12:36

me and I knew how to get the answer. It taught me the route to finding the answer.’

The second benefit was that it was the perfect springboard for what turned out to be the rest of Avis’s career in professional services.

‘Another job came up, in transaction services, and the candidate had to be available immediately. I’d just done a stint for four weeks to help with a crisis in transaction services. Although they were only taking 10 people, they liked my technical background plus the work I’d done on the project, so I got one of the 10 jobs in the fledgling transaction services in 1993, when I was 25.’

The move took her career in a new direction and led to her going through the transaction services director panel while pregnant with her first daughter, Charlie, in 2000.

Simple decisionIt’s at this point that many women in the City face a sometimes difficult decision: when, and how, to pick up, continue or advance their career post children. For Avis, it was surprisingly simple: ‘I never thought I might give up,’ she says. ‘I took three-and-a-half months off and went back full time.’

Avis appreciates that she was in a financial position to afford the help that made this possible. ‘I had a maternity nurse when Charlie was first born, then recruited a full-time nanny a month before I went back to work so there was a proper handover.’

She did suffer first-day guilt, though not perhaps for the expected reason. ‘I got in, briefcase down and someone said: “You’re back, can you come to this meeting?” So I was straight back in there with no time to think, and when I got home I thought: “Oh God, I’m the worst mother, I didn’t even ring!”’ From then

Avis credits her friendship network and ‘a husband who completely supports me’ as being crucial to her own success. She was also a founding member of the City Women’s Club, a network of senior women working in financial services. ‘I do think networks – formal or informal – are incredibly important,’ she says.

And while her hard work gave her the financial stability to fund comprehensive childcare, Avis is quick to point out that ‘if you’re going to work at your career you have to invest in it and it will get easier. We didn’t have loads of money; I was a director and so with that

first nanny, [finances were] almost neutral, but I knew I had to do it to get partnership.’

With her sights set on being a partner, Avis faced another crossroads when Price Waterhouse and Coopers merged. ‘I was going through partner promotion but I felt I was going to be partner 26 of 26 and have a tiny role.’

She ended up undergoing the partner process at competitor Arthur Andersen at the same time and, when the firm offered her a meaty role plus partner, she jumped at the chance. She was, she says, ‘very proud of myself’. It was March 2001.

Little did Avis know that just a year later she would be forced to vote for her survival after the Enron scandal, which brought down Andersen and rocked the accountancy world.

‘Baptism of fire’‘My abiding memory of the Enron crisis is calamity, shock, how the place falls apart, when the US freeze money and you can’t pay payroll and bizarre messages from South American partners. I had some of the hardest meetings of my career; it was a

on, she arranged that the nanny would send regular texts – ‘my fix’ – so that she knew what was happening at home.

While Avis’s advice for women in the workplace isn’t that they should pretend to be men, she admits that super-sensitive HR departments might erroneously read that message into it.

‘My philosophy is that you should be a swan at work, however hard anything else is. Sometimes people think I’m saying women shouldn’t be who they are but I’m not, I simply believe they should think carefully about how much of their home life they should bring into the office.

‘I think it’s a matter of giving the impression that sometimes you’re a little bit more in control than you are. Don’t go in sobbing when you’re in the middle of a crisis.’

Avis’s own role model is her mother who has always worked. And with a childhood that at one stage involved five sisters in one household, she hasn’t been short of watching women work and interact.

She currently mentors partner-track women at Deloitte on a pilot scheme, with two-hour sessions helping them prepare personally and professionally.

58

AP_C_Avis.indd 58 08/02/2012 12:36

*READ ALL ABOUT IT

baptism of fire for a new partner.’She was offered a job at Ernst &

Young. ‘I didn’t feel I had any loyalties anywhere but we were encouraged to stay with the marching army.’ So she held on to wait and see what deal was being made behind the scenes.

In the end, the deal was announced in the less-than-glamorous location of a hotel near Heathrow airport, although the cloak-and-dagger nature of it, plus the doubtless bordering on hysterical Andersen partners, made for an exciting afternoon.

‘We had messages from our partners who were flying down with Deloitte partners, so we knew it was Deloitte [taking over]. Once the deal was presented to the 350-odd Andersen partners, we had to go to the back of the room and vote in favour or not of the rescue transaction.

‘There were 350 partners and 240 places in the deal. What we voted on was the process to agree who those 240 partners should be, not the names, so at the time you didn’t know whether you were a turkey voting for Christmas or not.’

As practically last in, Avis assumed she’d be offered a directorship, but her interview notes with Andersen – ‘the only paperwork they had on me!’ –

were so good that she walked in, as partner, to an enlarged transaction services department.

The culture difference between Andersen and Deloitte was, says Avis, immediately obvious. ‘Andersen partners were more outspoken and entrepreneurial – perhaps Deloitte would say more dangerous – while Deloitte was incredibly well run and very risk-focused.’

Avis went on to have a second child, Cole, in 2003, again taking short maternity leave and going back full time, and her star continued in its ascendancy – with highlights including becoming lead client service partner for Unilever and joining the Deloitte board.

Wake-up callBut things changed after the Lehman Brothers collapse in 2008. ‘The work just stopped,’ she recalls. ‘I’d been busy for five years and it was a horrid environment, ringing around for work. I started thinking I would take a sabbatical. I thought, if I don’t take a break now, when the market is rubbish, I’ll be doing this when I’m 50.’ So in 2009 Avis resigned from Deloitte.

The idea for a book came while she was driving and musing about what

Never Mind the Botox is a series about four professional women all working on the sale of a high profile cosmetic surgery business. Each book reveals how the women cope with one of the most glamorous but challenging deals of their careers, and the dramatic impact it has on their personal lives.

Alex Fisher is a high-flying lawyer close to making partner and busy planning her perfect wedding to Elliott. In the latest book, just published, Rachel Altman is a corporate financier with a prestigious accounting firm who’s desperately trying to keep on the straight and narrow. Hopelessly led astray by her bar-diving boyfriend, she gets the chance to turn things round when her boss gives her the break she’s been waiting for.

‘Rachel is closest to my career,’ admits Avis, ‘though the stories in it are made up. Our risk management brains worked out that it would not be great to have clients ringing up having recognised themselves!’

Cosmetic surgeon Stella Webb and senior banker Meredith Romaine are the main characters in the final two books, both to be published later this year.

Visit www.avisberry.com for more information.

enterprise she could set up easily. A chat with Joanna Berry – friend, mother, lawyer and ex-Eversheds partner – clarified things.

‘We started texting ideas and we realised very quickly we could do a four-women series. They are popular – things like Desperate Housewives, Mistresses, Sex and the City – all based around four women with different personalities.’

And so the idea for Never Mind the Botox was born: a series about four professional women – a corporate financier, a lawyer, a banker and a doctor – all working on the sale of a high-profile cosmetic surgery business.

With two manuscripts complete, Avis and Berry started looking at the traditional publishing process but in parallel began to explore self-publishing, which is where they decided to invest.

‘If I was advising someone with my business hat on I’d tell them not to do it, but if you self-publish you own the copyright,’ says Avis.

‘We decided to do everything to retail standard plus a little bit more. We hired our own PR, got independent cover designers to pitch, used a freelance editor and set up a professional website.’

Perhaps going back to her audit training, Avis was already looking at the bigger picture. ‘We knew the real success was film or TV and we could see what other books had made the move, like Bridget Jones or The Devil wears Prada.’ Having written a proposal, Avis and Berry toured the trade shows and caught the attention of Future Films, signing a deal in 2011.

It may be that Avis is on her way to become the new Helen Fielding or Candice Bushnell, but it seems that although you can take the girl out of accountancy...

‘I’ll always see myself as a corporate finance partner at Deloitte,’ she laughs, ‘I resigned, I have no legal right to even say it, but I can’t not say it!’

Beth Holmes, journalist

latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a latest book, just published, Rachel Altman is a corporate financier with a

training, Avis was already looking at the bigger picture. ‘We knew the real success was film or TV and we could see what other books had made the move, like wears PradaAvis and Berry toured the trade shows and caught the attention of Future

to become the new Helen Fielding partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the partner and busy planning her perfect wedding to Elliott. In the

Careers 59

AP_C_Avis.indd 59 08/02/2012 12:36

DIVERSITY FOR GROWTHA recent ACCA/ESRC (Economic and Social Research Council) roundtable in Shanghai examined the importance of diversity in business. As emerging markets such as China and India continue to be the focus for global business expansion, greater diversity within companies is needed for effective growth, concluded the expert panel at last December’s summit.

With the very definition of ‘diversity’ evolving – broadening from a focus on issues such as race and gender to encompass all of ‘human experience’ – companies need to reassess both their core principles and workforce. Businesses that lack diversity will likely fail to meet the demands of a global marketplace, the panel of financial and talent professionals said.

Today, diversity is an increasingly pressing issue as economic power shifts from developed countries to developing. The emerging middle classes in regions such as India and the Middle East are opening up opportunities for multinationals keen to flee the economic slump in the West. And, according to the IMF, 80% of the world’s population will live in emerging markets by 2030.

‘Emerging and developing markets are already contributing significantly to global growth, and the trend is set to continue’ said Chiew Chun Wee, ACCA’s head of policy for Asia Pacific. ‘As companies expand beyond their home

countries, they need to recognise that embracing diversity is key to the successful management of operations straddled across multi-jurisdictions.’

Defining diversityAs the world’s economies become more intertwined, the definition of ‘diversity’ has also changed. Historically, companies have defined diversity as race and gender. But increasingly, ‘diversity’ has expanded to encompass all of ‘life experience’, including age, education, skills, personality and culture. ‘In 2006 I was working for one of the largest US corporations and within the company, diversity was defined by race and gender,’ said Stewart Chen, talent

management leader at Honeywell. ‘They had what they called forums, where you had African American, Asian American, female forums; there was no mention of “diversity strategy”.’

If achieved, diversity can reap benefits. The link between increased diversity and increased innovation is well documented: research by the German Federal Employment Agency found higher levels of cultural diversity correlated with higher levels of research and development.

‘With diversity you can create certain stimulating dynamics within the team,’ said Jason Wang, CFO of Henkel China. ‘In our company in China we have some employees reaching retirement but also a post-80s generation just joining us.

ACCA news60

Greater diversification leads to financial growth. In a study of 506US-based businesses, McKinsey & Company found companies with a higher proportion of women in their management committees had the best economic performance. PepsiCo attributes one percentage point of its 7.4% revenue growth, or about US$250m, to new products inspired by diversity efforts.

Diverse perspectives lead to higher productivity. A study by Henley Management College and Ford Germany found that heterogeneous teams solved complex tasks better and with a higher level of creativity and broader thought than homogeneous ones. According to Dr Edward E Hubbard in The Business Case for Diversity, diverse work teams performed six times better than non-diverse.

Diversity equals customer loyalty. In a 2011 survey by Harris Interactive and Witeck-Combs Communications, 71% of the lesbian, gay, bisexual and transgender (LGBT) respondents said they were likely to remain loyal to LGBT-friendly brands.

*GOOD FOR BUSINESS

CN_A_panel.indd 60 06/02/2012 13:25

DIVERSITY FOR GROWTH

From left: Stewart Chen, Christina Antoniou, Michael Gui, Jean Ning and Jason Wang

For certain roles we need people who are responsible and can get the work done with all the details taken care of. For other roles you need innovation: broader, strategic thinking. For these roles you need people who are young and ambitious, who are interested in new developments in cultural ideas.’

The panel singled out a want of talent as the biggest hurdle facing companies looking to expand overseas. Recruiting and retaining an effective workforce, particularly in China, is proving difficult, with increasing competition between multinationals and homegrown companies for the brightest youngsters.

Early daysChristina Antoniou, HR partner at Deloitte China, agreed, but emphasised that while emerging markets would soon be cradles of world-class talent, there’s some growing to do yet. ‘If you look at the demographics of the world, India and China are going to be the power bases in terms of talent,’ she said. ‘But in China there is an environment of rapid promotions to retain people because the market is growing so quickly and there’s a lot of opportunities for a limited pool of good talent. This results in the need to pay more attention to the development needs of individuals, as often they have simply not had the time to develop capabilities and skills through typical experiences that are often acquired over time. Development needs to be accelerated to deal with the demands of the roles and responsibilities as

individuals are promoted.’Though diversity may be a priority

for multinationals, establishing and maintaining it can prove tricky. In an international survey of ACCA members, 82% agreed or strongly agreed that a mix of skills, experiences and backgrounds was useful in their team, but only 48% agreed or strongly agreed that this was the current reality.

But Jing Ning, staff FP&A analyst at GE Industrial Solution Asia, stressed that while building diversity accrued costs (which are not strictly financial), it’s vital for companies looking to expand globally. ‘There are several different levels of cost,’ she said. ‘The most immediate one is that diversity will lead to confrontation between different groups of opinions. You’ll need to make some mistakes and you will probably take some financial cost for some decisions. But diversity is needed in large companies especially, and they can afford these costs.’

‘The question becomes: what’s the impact it can have on your organisation if you don’t do it?’ said Antoniou. ‘Diversity can be as simple as creating an environment where everyone feels they have the opportunity to perform to their best.’

Panellists agreed that the creation of a more precise measure of diversity, such as a specialised index, would help companies analyse their current workforce. Additionally, looking to organisations with a successful record of diversification would aid companies seeking to expand globally themselves.

Michael Gui, a senior consultant in

talent management at Right Management, noted that Chinese companies have evolved through hiring staff from outside China to bring their experience and best practice to the business. ‘In the run-up to the Beijing Olympics in 2008, Haier, one of the largest consumer electronics manufacturers in the world, hired many Korean experts in manufacturing, research and development and marketing,’ Gui said. ‘Although the experts subsequently exited the company, they made an impact on the staff and Haier through the sharing of their knowledge and experience. I feel like I have witnessed an evolution about how this company transformed from a local company to an international company, which has been a key component of its success.’

On a smaller scale, Gui cited Hanyu iDear, a small manufacturing company in Jiangmen, Guangdong, as an example of a Chinese business growing through sound corporate culture and work ethics. ‘Hanyu iDear’s founder believes that every employee has the passion and talent to contribute to society and the company. Its core competitive advantage is not only in its patent and manufacturing know-how, but also in its company values and workforce. This is very special in China’s evolving manufacturing business. Diversity is a business imperative for those Chinese companies who wish to emerge like a phoenix in today’s competitive corporate arena.’

Nicola Davison, journalist

61

CN_A_panel.indd 61 06/02/2012 13:26

What is work-based learning?The workplace can be a rich source of learning and many of the activities you carry out can contribute to your continuing professional development (CPD) if they help you develop your knowledge or skills.

Members following the unit route can gain both verifiable and non-verifiable CPD from a range of work-based activities. Another way of achieving your CPD requirement is to work for an ACCA Approved Employer – professional development.

ACCA will recognise any learning activity you undertake, provided that it is relevant to your role or career and contributes to your individual learning and development needs.

What is coaching and mentoring?Coaching and mentoring is generally undertaken as part of a people management role. It usually involves helping an individual to develop specific skills and knowledge around their job. Coaching is a key part of helping others to develop, but it can also help you to develop new skills.

By acting as a coach or mentor, not only will you reap the benefits of working with junior colleagues, who will become more able, enthusiastic and ambitious as a result, but you’ll also develop the characteristics and behaviours required of today’s rounded business professional.

How can coaching and mentoring contribute to CPD?Learning certain techniques can not only help you be an effective coach or mentor, but can also be a valuable contribution towards your CPD. For example, these can contribute if

you are learning new skills through coaching and mentoring a colleague.

Examples of how you can gain CPD from coaching and mentoring include:

* researching for or preparing for a coaching session

* conducting a coaching session, if this is new to you or if you are attempting new techniques.

How can I calculate verifiable CPD?It is important to consider whether you learned something through the coaching and mentoring session’s

research, preparation or delivery. If you did, it will contribute to your CPD. Keep notes of your research and the session; the person being coached or another colleague can confirm the learning took place. Remember the learning can be counted as verifiable CPD if you can answer yes to the following questions:1 Was the learning activity relevant to

your career? 2 Can you explain how you will apply

the learning in the workplace? 3 Can you provide evidence that you

undertook the learning activity?

What are the other benefits of coaching and mentoring?

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

* By being a workplace mentor to an ACCA trainee, you will be key to them completing their practical experience requirement (PER) and

achieving ACCA membership.

*The achievements and leaps forward of those you coach or mentor will reflect well on

your own leadership ability and potential.

Do you want to give something back?

The skills described above are also applicable to the role of the ACCA Workplace Mentor, another

way of gaining CPD in the workplace. You can learn new skills in a coaching and mentoring role, and also contribute to the development of the profession, helping to ensure that new ACCA members have the skills, attitudes and behaviours required to be a qualified accountant.

CPD: coaching and mentoringIf you coach or mentor staff, the activity can count as work-based learning and so help to satisfy your continuing professional development requirement

62 ACCA

INT_A_CPD.indd 62 07/02/2012 14:53

[In an age of information, the annual report remains a key tool for investors. So let’s make it better, says ACCA president Dean Westcott

After all the effort that accountants put into preparing and validating annual reports, there is sometimes a feeling that the intended audiences do not read them carefully and in some cases never even open them.

Yet a recent ACCA survey of 500 investors, capital providers, suppliers, customers and report preparers in the UK, the US and Canada found that stakeholders do value the annual report. Half cited it as their primary source of information about a company, and over a third saw it as an easy way to assess information on a company.

It all suggests that the annual report has become more important since the financial crisis, with users reviewing reports more carefully than at any time. But that closer scrutiny has brought with it some key issues for all finance professionals who prepare reports.

The report, Re-assessing the Value of Corporate Reporting, suggests that for all their usefulness, annual reports are being held back by confusion over their different audiences, their complexity and their lack of timeliness. Respondents say there is a need for a greater focus on forward-facing plans, risk management and the effective integration of these and other issues into the report in a more coherent way, with investors positioned as the single most important audience.

Nearly half also said too much ‘promotional material’ had crept into reports; 47% added that reports were too long, 40% too general purpose, 35% too backward-looking and 35% too complex (68% of whom blamed reporting standards and 61% legal requirements).

Even more important is what users actually wanted to see in reports. More than two-thirds wanted more on risks that could affect company performance, and how the business planned to manage or mitigate key risks. And while many respondents noted a drop in interest in social and environmental information, they also welcomed a move to integrated reporting as a way of reviving the value of this data to them.

There are challenges here: respondents say that reports need to be simplified, written with investors in mind, and more forward-looking and risk-aware. But these challenges also present huge opportunities for us to ensure that report users not only engage with the reports we produce, but get the answers they really want.

Dean Westcott FCCA is finance director of Hinchingbrooke Hospital in Cambridgeshire, England

63ACCA

What they really want

AP_INT_COM_pres.indd 63 08/02/2012 10:41

01 The bus shelter advert, in Hong

Kong’s financial hub in Central, is part of a wider campaign

03 Jordan Yu (left) and Guo Wenjie confirm the ACCA/BICPA agreement

02 Fergus Wong (left) and Davy

Yun (right), with ACCA Hong Kong’s Budget submission

HONG KONGACCA ADS SHADOW PUBLIC To further enhance the corporate brand, ACCA Hong Kong is running ACCA’s Shadows campaign across different platforms. These include a bus shelter in the heart of the Central financial district (pictured) and two 15-second TV commercials.

Highlighting how ACCA members enhance the success of the organisations, the TV adverts were broadcast on TVB’s iNews Channel for three weeks in January.

TAX INCENTIVES RECOMMENDED TO GOVERNMENTOn 18 January, Fergus Wong and Davy Yun, co-chairmen of ACCA Hong Kong’s tax sub-committee, discussed ACCA’s recommendation to the government on the 2012–13 Budget with the media at a press briefing.

Foreseeing the challenging economic environment, ACCA Hong Kong recommends that the government should adopt concrete fiscal policies in the 2012–13 Budget to provide tax incentives and related measures to build a favourable business environment, provide incentives to support crucial industries and improve the middle-income group and general economic wellbeing.

Having a favourable business environment is essential for economic development. Based on the 12th Five-Year Plan, the proposals suggest measures to capture the opportunities and capitalise on Hong Kong’s strengths in enhancing the business environment. Other recommendations are widening the income bands for the progressive tax rates and removing the timeframe for claiming tax deduction for mortgage loan interests. A deduction for the cost of employing domestic helpers was also recommended.

VISIT ACCA HONG KONG ON FACEBOOK ACCA is ranked number one among professional accountancy bodies across the globe for people ‘liking’ its Facebook page. According to VRL Financial News’ The Accountant, in November 2011, 107,293 people ‘liked’ the brand across 13 pages.

We are glad that ACCA is engaging our stakeholders on the social networking platform, and the ACCA Hong Kong Facebook page is now also up and running. Please check out the page, become a fan and stay updated.

BEIJINGACCA AND BICPA SIGN AGREEMENTThe Beijing Institute of Certified Public Accountants (BICPA) and ACCA have signed an agreement which will see them working closely together to develop the profession.

The Memorandum of Understanding (MoU) was signed in Beijing in January by Jordan Yu, head of ACCA Beijing, and BICPA president Guo Wenjie. It will result in BICPA and ACCA working together on training programmes, research and professional resources.

‘We are delighted to be signing this agreement with BICPA, an organisation with which we have enjoyed a good relationship in the past,’ Yu said. ‘The MoU will lay a good foundation for further enhancing the working relationship between the two bodies. ACCA will share knowledge and experience with BICPA to better serve members of both bodies.’

Become our fan on Facebookwww.facebook.com/ACCA.HongKong

ACCA news64

CN_A_news.indd 64 06/02/2012 13:14

04 Professor Xu addresses delegates at ACCA’s View of Top Professor Conference

GUANGZHOUVIEWS OF TOP PROFESSOR SHARED AT CONFERENCE ACCA held the View of Top Professor Conference and Approved Employer Award Ceremony on 15 December 2011 in Shenzhen. The conference attracted more than 150 finance and accountancy professionals who listened carefully to the analysis and predication of Professor Xu Jian from Peking University HSBC Management School.

Speaking about the national and global economy in 2012, Professor Xu said that China’s monetary policy in 2012 would not be as tight as in 2011, and employee income in China would double in the next five years.

Eleven representatives from employers were awarded ACCA Approved Employer certificates by Ada Leung, head of ACCA China. These were BYD, Konka, Guangdong Mobile, China Wireless Technologies, CIGNA & CMC Life Insurance Company, Danone, KWG Property Holding, DTZ, Lifetech Scientific (Shenzhen) Co, Shenzhen Goldenbull Certified Tax Agent and Walmart.

65

CN_A_news.indd 65 06/02/2012 13:14

64 News Ad campaign hits Hong Kong; ACCA puts forward tax recommendations to Hong Kong government

63 Dean Westcott The annual report has reached a crossroads, says the ACCA president

62 CPD: coaching and mentoring How you support your colleagues can count towards your continuing professional development requirements

60 Diversity for growth An ACCA/ESRC roundtable in Shanghai looks at why diversity is essential for business

Inside ACCA

As ACCA’s governing body, Council plays a pivotal role in ACCA affairs.

* It ensures that ACCA operates in the public interest and delivers the objectives stated in its Royal Charter.

* It sets ACCA’s overall direction through regular approval of strategy.

* It acts as a link between members and the professional body, and leads the organisation in the interests of both.

* It is accountable both to members and the public interest.

* It acts for all members and future members (today’s students).

* It provides leadership of ACCA and stewardship of its resources.Council develops policy for ACCA as a whole and Council

members are volunteer custodians acting for the well-being of the whole organisation. Whatever their geographical or sectoral bases, Council members do not represent particular areas or functions and are elected by the membership as a whole.

ACCA members of all ages and backgrounds are encouraged to stand for election to Council. Long-term or technical experience is valuable, but so is proven ability to participate actively in strategic decision-making. Council experience as such is not necessary. However, an understanding of good governance is essential, and personal and professional integrity must be of the highest order.

Specifically ACCA expects members to bring the following skills and attributes to Council:

*an ability to take a strategic and analytical approach to issues and to see the big picture

*an understanding of the business and the marketplace

*communication and networking skills

*an ability to interact with peers and respect the views of others

*decision-making abilities

*an ability to act as ambassadors in many different environments

*planning and time management

*a willingness to learn and develop.Nominations are now invited for election to Council at the 2012

AGM. Candidates must be nominated by at least 10 other members in good standing. Candidates should supply a head and shoulders photo and an election statement of up to 180 words, which should not include references to email addresses or websites. Candidates are also required to sign declarations of their willingness to comply with, and be bound by, the code of practice for Council members.

Further information on the Council election process, including pro forma of nomination forms, may be obtained by writing to the Secretary at 29 Lincoln’s Inn Fields, London WC2A 3EE, by faxing +44 (0)20 7059 5561, or by emailing [email protected] (please put ‘Council Elections’ in the subject box).

Elections to Council IMA BOOST FOR ACCA SURVEYACCA has joined forces with the US-based Institute of Management Acccountants (IMA) to make its Global Economic Conditions Survey an even more robust and powerful record of the state of the world’s economy.

The latest edition of the quarterly survey shows that with international trade continuing to dry up at the end of last year, finance professionals expect the global economic downturn to return with full force during 2012.

Turn to page 28 for more.

ACCA NOW HOME TO IIRCThe International Integrated Reporting Council (IIRC) has moved into ACCA’s offices in London.

The body’s CEO, Paul Druckman, and its UK-located team (around 10 people) will be based at ACCA’s offices for two years.

Druckman said: ‘ACCA has been involved for so long in corporate responsibility and sustainability that its deep connection to integrated reporting is only reinforced by this generous gesture.’

66 ACCA news

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