Issue 4 / Volume 12 / April 2016

HK$70.00

CHINA REELS IN REVENUESChina’s economic slowdown fails to dampen a box-office boom that rivals Hollywood

Plus:ProfileA4S Executive Chairman Jessica Fries

Mid-tiers do moreExpansion of the non-Big Fours

LifeCPAs make a difference

President’smessage

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April 2016 1

Dear members,

Amid rapid technological, regula-tory and economic development, the profession is set to undergo tremendous changes in the next 25 years. This was the overarch-ing theme of the Institute’s joint conference with the ICAEW held earlier this month, featuring lead-ers, senior executives and Council members of both Institutes and experts from the accounting pro-fession and business community.

The conference noted that we all need to consider the prolifera-tion of data, new methods of digi-tal communication and financial technology. The key is how we can embrace all these exciting innovations and adapt to meet the challenges, continuing to equip ourselves with relevant technical and soft skills, while reasserting the ethical values and integrity that are the foundation of our profession.

The impacts brought by changes in China’s economy, increasing global regulation and demographic shifts in our profession were among other topics discussed with thought-provoking and incisive insight shared by our speakers. The Institute is looking forward to working with our partners both locally and around the world as we believe that what-ever lies ahead, going forward, we will be better served taking it on as a profession in unison.

Another example of partnership is the launch of international audit-ing and ethics resources for our members via the ICAEW’s Interna-tional Accounting, Auditing & Eth-ics platform. Starting from 1 April, members are given one-year free access to premium technical publi-cations, articles and e-bulletins, and discounts to attend related events.

Such collaborations reflect our ongoing commitment to enhance the Institute’s global leadership and influence under the Sixth Long Range Plan.

Implementation progress of the plan was reviewed last month at the very productive Council away day, which also focused on future strategies. We talked about how to continue to enhance CPD, special-ist training and career support to members in response to a chang-ing business environment, how to strengthen member engagement and services, as well as other key Institute functions.

The new Companies Ordinance has been in force for two years and we have been monitoring its implementation and application. Invited by the Companies Registry, the Institute has recently submit-ted recommendations, based on discussions with accounting profes-sionals in business and in practice, including SMPs, on clarifying the

ordinance’s application and resolv-ing the challenges in adoption. Your Institute will continue to work closely with the Companies Reg-istry on this matter. For technical support, including common Q&As, you can refer to the Institute’s New Companies Ordinance Resource Centre on the website.

The Institute’s mentorship pro-gramme has kicked off its second year. Looking at last year’s results and this year’s continued enthusi-asm, I am confident that it is a right step toward developing Hong Kong CPAs and strengthening the founda-tion of the profession.

Lastly, I would like to thank the more than 3,600 members who took part in our annual member-ship survey, which means response rate was over 9 percent. Apart from some indicative results, such as 76 percent of respondents choosing professional and technical train-ing as one of the most important services offered by the Institute, the survey has given us perspec-tives on certain issues prevalent in today’s business world, including innovation priorities.

It is a very useful exercise to col-lect information about our members’ needs and expectations on an ongo-ing basis. We are analysing other results and will communicate more about them soon.

“ We believe that whatever lies ahead, going forward, we will be better served taking it on as a profession in unison.”

Ivy CheungPresident

ContentsIssue 4 / Volume 12 / April 2016

01NEWS

01 President’s message

04 Institute news

06 Accounting news

10FEATURES

10 The new Hollywood The underlining factors behind China’s thriving film market

17 Thought leadership: Peter Li The Chairman of the Institute’s Banking Regulatory Liaison Group looks at the future of the banking industry in Hong Kong

18 Leadership: Jessica Fries Executive Chairman of the Accounting for Sustainability project talks about the role of the profession in helping business meet climate change challenges

25 How to… Peter Nixon on how to cross cultural hurdles to develop business

26 Growing pains Hong Kong’s mid-sized firms are looking at expansion amid a changing regulatory environment

32 Success ingredient: Takashi Sekimoto Chief Financial Officer of A-1 Bakery talks about the value of human interaction

38 Lending a hand Humanitarian CPAs who volunteer their professional skills for the benefit of others

45SOURCE

45 Assessment of risks of engagements involving public interest entities It is essential to carry out procedures for client and engagement acceptance in order to manage audit or engagement risks

46 Ticking time on new revenue recognition standard: Less than two years away now, but can you wait any longer? Small planning now will help avoid painful surprises later

48 Technical update The future landscape of financial reporting disclosures

50 TechWatch 161

32On the riseTakashi Sekimoto, Chief Financial Officer of A-1 Bakery, on the battle between quality and efficiency

About our nameA PLUS stands for excellence, a reference to our top-notch accountant members who are success ingredients in business and in society. It is also the quality that we strive for in this magazine — going an extra mile to reach beyond Grade A.

A PLUS is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine.

© Hong Kong Institute of Certified Public Accountants April 2016. Print run: 7,060 copiesThe digital version is distributed to all 39,702 members, 19,371 students of the Institute and 2,252 business stakeholders every month. Subscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

President Ivy Cheung

Vice Presidents Mabel Chan, Eric Tong

Chief Executive and Registrar Raphael DingEmail: ce@hkicpa.org.hk

Head of Corporate Communications Stella To

Editorial Advisory Group Daniel Lin (Convenor), Eric Tong (Deputy Convenor), Colin Wong, Yip Ka-ki, Stanley Yuen, Raphael Ding, Chris Joy

Editorial Manager John So

Editorial Coordinator Maggie Tam

Office Address37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong KongTel: (852) 2287-7228 Fax: (852) 2865-6603

Member and Student Services Counter27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Email: www.hkicpa.org.hk Website: hkicpa@hkicpa.org.hk

Acting Editor Gerry HoEmail: gerry.ho@mandl.asia

Copy Editor Jemelyn Yadao

Contributors Tigger Chaturabul, James Kelly,

Editorial Assistant Queenie Lee

Production Manager Jasmine Hu

Designer Trevor Cheng

Cover Illustration Ivan Canu

Editorial Office 2/F, Wang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong

ADVERTISING ENQUIRIESAdvertising Director Derek TsangEmail: derek.tsang@mandl.asiaTel: (852) 2656-2676

52AFTER HOURS

52 Books How to Have a Good Day – Harness the Power of Behavioral Science to Transform Your Working Life; Interview with author Caroline Webb

54 Life and everything Jewellery and home design, as recommended by Institute members

56 A life in the day Nury Vittachi meets Tammy Fong, CPA and storyteller

38

Book review

Lending a handVolunteer CPAs share their skills with NGOs to help build better financial infrastructures

News Institute news Accounting news

Institute news

The Institute and the Institute of Char-tered Accountants in England and Wales held a joint conference this month, at which high-level speakers and panellists offered unique insights into the future of the accounting profession.

Entitled “The Next 25 Years,” the conference focused on how rapid changes would lead to the profession being very different in terms of both scale and nature in the future. Among those sharing their views were the Presi-dents, senior executives and Council members of both Institutes and leaders of the Hong Kong accounting profession and business community.

Ivy Cheung, the Institute’s President,

gave the opening remarks, outlining China’s economy, shifting demographics in the profession, regulatory burden and digital disruption as key themes.

“The global accounting profession will need to embrace technological changes and review the way we train the new generation of accountants to meet the changing needs of clients and employers,” she added.

Andrew Ratcliffe, the ICAEW’s Presi-dent, said, “The key is that we need to be adaptable and flexible: adaptable because we cannot hope to defend our traditional ways of working, and flexible because we cannot be sure what new business models will look like.

“Accountancy is grounded in busi-ness and the needs of management, investors and others; and our profes-sion has shown remarkable adaptability and flexibility over many years to stay abreast of those needs.”

John Tsang speaks at HKCPS luncheon Financial Secretary John Tsang gave a speech on “How to stay competitive while dealing with the challenges ahead” at the Hong Kong Coalition of Professional Ser-vices’ luncheon talk last month. Institute President Ivy Cheung also spoke at the Q&A session. The Institute is one of the 11 member bodies of the coalition.

Future of accounting profession discussed at HKICPA-ICAEW conference

(From left) Raphael Ding, Robert Hodgkinson, Gary Biddle, Douglas Li, Wendy Yung, T.J. Wong and Keith Pogson

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Resolution by AgreementPricewaterhouseCooper (a CPA firm)

Complaint: Failure or neglect to observe, maintain or other-wise apply paragraph 13 of Hong Kong Standards on Auditing 250 Consideration of Laws and Regulations in an Audit of Finan-cial Statements and paragraph 6 of HKSA 500 Audit Evidence.

PwC audited the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year end-ed 31 March 2012. The relevant financial statements contained a material understatement of tax expenses arising from the gain on disposal of certain properties held by a PRC subsidiary. PwC failed to detect the error and issued an unmodified opinion in the relevant financial statements.

Regulatory action: In lieu of further proceedings, the Council concluded that the following should resolve the complaint:1. PwC acknowledges the facts of the case and its non-com-

pliance with the relevant professional standards;2. PwC be reprimanded; and 3. PwC pay an administrative penalty of HK$35,000 and costs

of HK$39,655.90, which included costs incurred by the Financial Reporting Council of HK$29,655.90.

Tong Kwong Lit, Kenneth, CPA (practising)

Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standards of Auditing 220 Quality Control for Audits of Historical Financial Information and its prede-cessor HKSA 220 Quality Control for an Audit of Financial Statements, HKSA 550 Related Parties and HKSA 700 The

Independent Auditor’s Report on a Complete Set of General Purpose Financial Statements.

Tong is the sole proprietor of Kenneth Tong & Co., a firm which audited the financial statements of two private compa-nies for the years ended 31 March 2006 to 31 March 2013. The following deficiencies were found in the audits: 1. Tong inappropriately accepted a failure to make required

disclosures concerning an amount due to a related party in the financial statements.

2. There were recurrent management-imposed limitations of audit scope on properties and inventory over the years. In the face of these limitations, Tong failed to give due consideration, or properly document his consideration, of the appropriateness of continuing to accept appointment as auditor of the companies.

3. Tong inappropriately accepted the non-disclosure in the financial statements of the fact that an item stated to be a balance between the company and a shareholder was in fact a balance between the company and the wife of the deceased shareholder.

Regulatory action: In lieu of further proceedings, the Council concluded that the following should resolve the complaint:1. Tong acknowledges the facts of the case and his non-

compliance with the relevant professional standards;2. Tong be reprimanded; and 3. Tong pays an administrative penalty of HK$20,000 and

costs of HK$10,000.

Information on the Institute’s complaint handling process and guidelines for the resolution are available at the Institute’s website under the “Compliance” section at: www.hkicpa.org.hk.

The Institute in numbers

Reviews of practices with listed clients since 2007

Required follow up visit

Referred to Compliance Department and the Financial Reporting Council

Required follow up action

Direct closed

104 reviews 46%

84 reviews 38%

26 reviews 12%

10 reviews 4%

Source: Data from the Institute’s Quality Assurance Report 2015

Since the launch of the revised practice review programme in 2007 up to December 2015, the Quality Assurance Department has performed 224 reviews of practices with listed clients covering 89 individual practices.

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China cross-border takeover deals surge to record high in first quarter

NewsAccounting

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Chinese outbound merger and acquisitions totalled US$101.1 billion in the first quarter, nearly surpassing China’s full-year record of US$109.5 billion set in 2015, according to Thomson Reuters data revealed earlier this month. At that level, takeover deals of Main-land companies accounted for 15 percent of the US$682 billion in global M&A activity in the first three months of this year.

“It’s shaping up to be a busy year for China outbound M&A, and I don’t think the trend is changing anytime soon,” Brian Gu, co-Head of Asia-Pacific M&A at JP Morgan Chase, told Reuters. “You will see new names coming up, especially from the private sector, while in the past we only had

some serial acquirers,” he added.China’s appetite for overseas acquisi-

tions has propelled Asia to the forefront of global deal-making for the first time, according to the news wire. Asia’s share of global M&A reached 27.1 percent in the first quarter, just ahead of Europe, from an average of about 20 percent.

Overall, however, global M&A activity dropped 14 percent in the first quarter. Analysts have pinned the slowdown on market volatility and the negative senti-ment in the equity markets generally. M&A activity in the United States fell most sharply, according to the Financial Times, with US$256.6 billion worth of

deals representing a 29 percent fall from a year earlier, while in Europe, activity was modestly higher at US$181.6 billion.

“The sheer volume of Chinese deals highlights the sharp decline in M&A oth-erwise,” Alan Klein, Partner at Simpson Thacher & Bartlett, told the FT. “Chinese companies have a bigger share of the overall volume simply because there were fewer deals globally.”

Deals in the quarter included the larg-est ever Chinese takeover of a foreign company, when China National Chemi-cal Corp. agreed on its US$43.8 billion acquisition of Swiss pesticide and seed manufacturer Syngenta.

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A world of numbers

PwC predicts Hong Kong, China IPOs to pick upMainland and Hong Kong initial public offering markets will see strong performances driven by abundant global liquidity flowing into emerging markets, according to a PwC report released earlier this month. PwC said authorities in Mainland and Hong Kong are working towards the launch of the Shenzhen-Hong Kong Stock Connect in second half of 2016, as well as the development of multi-layered capital markets in China. “These measures will help increase liquidity between the Mainland and Hong Kong markets and have a positive influence on IPO activities,” the report says. There were a total of 19 new listings in the first quarter in Hong Kong, a 32 percent drop year-on-year.

U.S. tax becomes more convenient to payThe Internal Revenue Service in the United States announced earlier this month that it would begin facilitating individual taxpayers to pay their tax bill in cash through 7-Eleven convenience stores. Taxpayers can pay at 7,000 participating 7-Eleven stores in 34 states, but maximum payment is US$1,000 per day and each transaction incurs a US$3.99 fee. Prior to this, those who didn’t have a bank account or credit card would have had to travel to an IRS taxpayer assistance centre.

Daily Mail in talks on Yahoo bidBritish tabloid newspaper the Daily Mail and its parent company General Trust Plc, is in talks with private-equity firms about backing a potential bid for Yahoo’s media and news websites, the Wall Street Journal reported this month. The newspaper is the latest to the list of potential buyers of Yahoo’s core business, which includes telecoms company Verizon Communications and media and internet company InterActiveCorp. The web portal, which put itself up for sale in February after a turnaround effort by Chief Executive Marissa Mayer proved unsuccessful, extended the deadline for bids from 11 August to 18 August.

EY partners with AdobeEY and computer software company Adobe have announced a strategic alliance that will expand the Big Four firm’s digital and web content services to help its clients with their digital transformations. Under the alliance, Adobe will team up with EY to help companies improve profitability and gain competitive advantage through digital transforma-tion programs. EY said the partnership follows a market shift towards the concepts of digital enterprise, and expects to develop a new suite of capabilities and offering to support clients in the digital ecosystem.

How much the merger between pharmaceutical companies Pfizer

and Allergan would have been worth, had it not have fallen

through earlier this month. The sudden collapse came days after the Obama administration made a rule change that some observers

say was specifically aimed at preventing U.S.-based Pfizer from taking advantage of the lower tax

rate in Allergan’s base of Ireland, in a process known as inversion.

US$160billion

The number of offshore entities listed in 11.5 million confidential

documents held by the Panamanian corporate service provider Mossack Fonseca that were leaked along with

the identities of shareholders and directors of the companies.

214,000

The figure that credit card debt in the United States is fast

approaching, according to a study by CardHub.com, a company that

monitors consumer financial issues. The U.S. is the world leader in credit

card debt, according to statistics from the Census Bureau and the

Federal Reserve Board.

US$1trillion

AFP

April 2016 7

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Pacquiao’s ex-accountant held for fraudMichael Cabuhat, a former tax accountant of boxer Manny Pacquiao, has been arrested by authorities in the United States for allegedly stealing US$1.2 million in tax refunds that should have gone to clients, reported ABS-CBN News. It was reported that VisionQwest, the California-based company partly owned by Cabuhat, was previously hired by Pacquiao, but later filed a lawsuit over alleged unpaid services, while Pacquiao’s team countersued claiming VisionQwest filed inaccurate tax returns on their behalf.

Saudi Arabia to adopt IFRS by 2017 Listed companies in Saudi Arabia are set to adopt International Financial Reporting Standards from next year, according to a report from Forbes. At present, only Saudi banks and insurance companies follow IFRS, while other companies follow standards set out by the Saudi Organization for Certified Public Accountants. According to Forbes, the kingdom may find it difficult to meet the timetable of all 173 listed companies adopting IFRS for financial periods beginning on or after 1 January 2017, because of a shortage of accountants versed in IFRS, as well as the potential difficulty of matching international accounting standards with the requirements of sharia law.

Cameron first U.K. PM to publish tax returnsDavid Cameron became the first British Prime Minister to release his tax returns, after the leak of confidential documents from a Panama-based corporate service provider showed that he had made a profit from a £30,000 stake in his late father’s offshore investment fund. Cameron had been a prominent voice in the global crackdown on large corporations and wealthy individuals perceived to be dodging taxes through the use of tax havens. Cameron’s tax returns further revealed that he had inherited money from his late father in two separate amounts – one directly and one as a gift through his mother – meaning he did not have to pay £70,000 of inheritance tax.

Las Vegas casino to settle SEC probe Casino giant Las Vegas Sands Corp. will pay US$9 million to settle Securities and Exchange Commission allegations that its Chinese operations had poor accounting controls from 2006 through at least 2011, the SEC said this month. The corruption case revolved around the company’s sponsorship of a Chinese basketball team, plans for a business centre in Beijing, and a ferry deal in Macau. The SEC said the gambling company transferred more than US$62 million to a consultant in China, often without supporting documents or appropriate authorization.

NewsAccounting

AFP

David Cameron

Manny Pacquiao

AFP

April 2016 9

EntertainmentChina’s film industry

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Kung Fu Panda 3 (2016) is the first major U.S.-China co-production for an animated movie. DreamWorks Animation and Oriental DreamWorks made two movies – one in English and one in Mandarin

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EntertainmentChina’s film industry

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April 2016 15

Thought leadershipPeter Li

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Let’s get down to it and take stock of where the banking industry is at the moment. If

we can picture some sort of a report card for banks in Hong Kong, what would that look like?

Over the past decade, even though profit margins have trended downwards, banks in Hong Kong have generally continued to be prof-itable. There have been no bank fail-ures, capital levels have continued to improve and there have been notable advancements in risk management. The importance of governance and understanding of ethical standards have also gained greater recognition. No matter what the drivers are, it is important to note that the banking industry has been constantly chang-ing and adapting.

These changes did not come without significant challenges. The most prominent relate to the hand- ling of regulatory change, where banks have by and large played a reactive role. The broadening and deepening of regulatory require-ments have generally been felt through greater constraints on the nature and quantum of business that banks can do and, more nota-bly, increased costs to running the business. To date, most regulatory changes have focused on fixing existing problems, as opposed to improving customer service or operational efficiency.

Operationally, banks have always been, essentially, a high-volume and data-intensive business. However,

adoption of leading-edge technology is not as advanced as you might think. Manual processes continue to dominate banking operations in areas such as finance, risk man-agement and compliance. To be fair, banks have focused efforts to accelerate the outsourcing of their operations to lower cost locations or to “centres of excellence.” How-ever, the design of these processes has remained essentially the same as it was in a manual environment. Unless there was a redesign for more streamlined processes, they can actually add more complexity as the number of process hand-offs and system interfaces increase.

On the customer front, they can now access many of the services that were previously delivered face-to-face through mobile apps and web-based interfaces – i.e. a self-service model. This is certainly convenient for customers for many routine, low value-added transactions and is cost efficient for the banks. However, while the same amount of business can be done faster and with fewer people, these alone do not neces-sarily drive growth. To do so, you need to expand the range and type of services, improve the quality of service or both.

It’s a bit of an exaggeration and probably over simplified but what we have here is an interest-ing picture where technology is deployed in place of human beings in customer interactions, and human beings are performing backend

processes that are probably better handled by machines. So the ques-tion is whether it should be the other way round.

This situation presents an oppor-tunity for banks to rethink the cur-rent model and realign their people to growth activities. There have been significant advances made in arti-ficial intelligence and programmes have proven their case in solving complex computational problems. Digitizing operational processes and the use of machine-learning techniques and artificial intelligence in risk management and compliance have real potential to substantially improve the effectiveness and reduce the manual workforce.

It might sound old-fashioned, but on the customer side, revamping and uplifting service quality delivered by real people could actually be a sig-nificant growth factor. While prod-ucts are easily replicable and mobile apps and programmes are adept at routine and enhancing efficiency, the human touch can be much more dis-tinctive and impactful on customers. Research has proven that human-to-human interactions are integral to demonstrating customer care, listen-ing and understanding, resolving issues and building trust. Success here can have motivational benefits for the employees as well.

In many regards, the banking industry continues to find itself in interesting situations, and develop-ments will no doubt continue to draw focus and attention going forward.

Chairman of the Institute’s Banking Regulatory Liaison Group, and Financial Services Assurance Leader at PwC, takes a look at where banking businesses might be headed in the face of mounting regulations and technological advancements

Could the future of banking be back to front?

“Technology is deployed in place of human beings in customer interactions, and human

beings are performing backend processes that are probably better handled by machines.”

Leadership prof ileJessica Fries

The Prince of Wales’ initiative to mobilize accountants to address the challenges facing the world, Accounting for Sustainability, is going global. A Plus speaks to Jessica Fries, its Executive Chairman, on its plans to set up in Hong KongPhotography by Trevor Aston

Jessica Fries previously held roles at PwC, including leading global activities around integrated reporting

A IS FOR SUSTAINABILITY

A gap year backpack-ing through Asia had a profound influence on

the Executive Chairman of the Prince’s Accounting for Sustain-ability Project (A4S), Jessica Fries.

“Sustainability is something I have always been interested in and I think it’s funny how a career can evolve, not necessarily how you expected it to, but how you would have wanted it,” Fries says.

A4S was established by The Prince of Wales in 2004 to mobilize action and leadership by the finance and accounting community to address the chal-lenges to the economy and society posed by issues such as climate change, increasing depletion of and demand for natural resources, urbanization and inequality.

Through the support of Prince Charles and his ability to bring together senior figures from across the finance world – in business, the capital markets, governments, regu-lators and education – A4S seeks to inspire action and achieve change.

After completing her masters

in economics from the London School of Economics, Fries took a gap year which gave her a first-hand glimpse behind the theory of sustainable development which she had studied, seeing it in prac-tice as she travelled across Asia. “I fell in love with the region and am always very happy to have an excuse to come back.”

When she joined PwC, and became a chartered accountant, most of her clients were in the oil and gas sector and starting to grapple with the environmental and social impact of their operations through sustainability audits. After moving across to the sustainability team, she was seconded to A4S in 2008 for one year. That year became four before she assumed the newly created role of Executive Chairman.

Fries has overall leadership responsibility for A4S running a small secretariat from Clarence House in London with support from secondments and working in partnership with member organiza-tions, institutes and companies. “The great thing about working

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April 2016 19

Leadership prof ileJessica Fries

with finance people is it’s about action, not sitting around the table talking,” says Fries.

Global goalsA4S’s objectives are threefold: 1) Inspire finance leaders to adopt sustainable and resilient business models; 2) Transform financial decision-making to enable an integrated approach, reflective of the opportunities and risks posed by environmental and social issues; and 3) Scale up action across the global finance and accounting community.

The Accounting Bodies Net-work (ABN) was established in 2008 under the auspices of A4S and brings together institutes from around the world with a joint membership of almost two million accountants from 176 countries. Members commit to a set of five principles to support the integra-tion of sustainability into every-thing they do. The Hong Kong Institute of CPAs is a member, rep-resented by its Executive Direc-tor of Standards and Regulation, Chris Joy. The principles are to: • Influence and inform • Lead by example • Drive thought leadership • Collaborate through the

network • Incorporate accounting for

sustainability into training and professional education

Fries will have reason enough to return to her beloved Asia in the coming year, looking to establish chapters of its CFO Leadership

Network across the region, in Hong Kong, India, Japan, Australia and New Zealand. Last year, she visited Hong Kong to test the appetite of CFOs for a local chapter of the network to be set up. “There was great feedback from everyone to get things off the ground more formally,” she says.

“Our vision is to create a global CFO Leadership Network with regional chapters around the world. We find that face-to-face working at the project team level and with the CFOs themselves is really important to share insights and work together effectively. So, we will be working closely with the Hong Kong Institute [of CPAs] to set up a chapter of the network in Hong Kong.”

A focus of the network is to explore how to drive commercial advantage by linking environ-mental and social issues with the finance function. “We are also dis-cussing taking the guidance mate-rial and tool kits we’ve developed, and rolling them out to adapt them to really work for the companies and organizations in Hong Kong.”

Fries is also looking to promote the Finance for the Future Awards globally. The awards founded by A4S and ICAEW seek to celebrate the role of the finance function and financing in building sustainable organizations. The awards have been working with the Institute to encourage Hong Kong companies and individuals to enter. Entry is now open for the awards, which will be held in London in October.

A4S is harnessing the influence of its ABN and CFO networks in

“ Our vision is to create a global CFO Leadership Network with regional chapters around the world. We find that face-to-face working at the project team level and with the CFOs themselves is really important to share insights and work together effectively.”

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international forum. During the annual Conference of Parties in Paris last year, the ABN high-lighted the role the profession can play in helping businesses move to sustainable business models and to meet climate change challenges. During this year, members of the network plan to focus on further engagement around climate change and the United Nations’ sustainable development goals, which aim to stimulate action over the next 15

years in areas of critical impor-tance for humanity, the planet and the economy.

“There is a huge opportunity for the accounting community to contribute to the achievement of these global goals, in particular in terms of how progress can be mea-sured,” says Fries. “More broadly, the accounting community has vital skills to enable organizations to respond to sustainability risks and opportunities, whether around

measurement, providing a level of rigour to performance analysis, or providing insight to inform strate-gic decision-making.”

Future-proofing CFOsDuring her time with A4S, Fries has noticed a cultural change among CFOs and accounting pro-fessionals when it comes to aims and objectives.

“When we first started our work with the CFO community,

Fries was responsible for establishing and running the International Integrated Reporting Council

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Leadership prof ileJessica Fries

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a lot of people were intrigued because this was the first time that they had really thought about, or been asked, ‘finance and sustain-ability, what's the link?’ That’s something that we really see shift-ing. I don’t get asked that question very often any more.

“The classic finance role can be quite narrow, focused on measuring financial performance. It some-times gets characterized as being a bit backward-looking, adding up the numbers after the event, rather than providing insight to inform the direction. Involvement in the sus-tainability agenda requires finance teams to adopt a strategic, future oriented outlook.”

One of the conversations A4S has been having recently with CFOs revolves around the question: what does the CFO of the future look like? “There has been a lot of discussion of the different trajectories that could be taken, particularly if you look at technology and how that is going to reshape the work of the finance function.

“With more automation of the basic finance activities, finance professionals need to start thinking about the added value that they can bring. Understanding how an inte-grated approach – one that reflects the organization’s reliance on the natural environment and society – can bring real insight and be used to create business opportunity, as well as respond to risk, is one way to ensure continued relevance.”

There is also evidence that the companies that are taking a lead on sustainability are able to attract bet-ter talent. And, Fries says, it does no

harm to a CFO’s career either. “It’s still quite rare for CFOs

to be vocal and confident on this agenda, so it’s absolutely a way for them to make their mark. For a CFO who is looking at a CEO role as a next step, it’s a great thing to have on the CV.”

While at A4S, Fries was responsible for establishing the International Integrated Report-ing Council and running it as its executive director during its first 15 months of operation to October 2011, overseeing its transition to an independent organization.

She says integrated reporting has several intangible internal benefits for a company including helping to break down internal silos and getting teams to create the information needed by work-ing together. “That’s quite a simple quick win by going down the integrated reporting route.”

The onus of accountability may sound daunting to small- and medium-sized enterprises, but Fries says it can often be easier for them to incorporate integrated reporting. In Japan, as Fries points out, many SMEs have adopted inte-

grated reporting and it can be an easier fit than in a large organiza-tion as management is more likely to have a good handle on activities across the company.

“In terms of steps to enable SMEs to integrate sustainability into decision-making, we have seen a lot of large companies working very closely with their SME supply chain to provide them with expertise and investment to respond.”

She highlights Britain’s super-market chain Sainsbury’s as a case study in how it works with its dairy suppliers to help benchmark information around environmental and climate issues and, through that, they find the farmers can save “quite a lot of money.”

By opening up the supply chain, it is possible to see where the risk might be. “Another example may be the clothing and retailing indus-try, where labour or human rights issues may exist,” she says.

Fries has a long to-do list in 2016 – expand the CFO Leadership Network globally, establish new chapters around the world, work with the investment community and stock exchanges around the integration of environmental and social issues, and explore with the accounting institutes what are the training needs for the future generations of accountants and CFOs. “As anyone who has met The Prince of Wales will be aware, he inspires and encourages you to be ambitious,” says Fries.

Details of how to enter the Finance for the Future Awards can be found at www.financeforthefuture.co.uk.

Accounting for Sustainability

was set up by The Prince of Wales in 2004. At its launch, he said

that the aim is to “ensure that we

are not battling to meet 21st century challenges with, at best, 20th century

decision making and reporting

systems.”

“ With more automa-tion of the basic finance activities, finance profession-als need to start thinking about the added value that they can bring.”

April 2016 23

How to...Peter Nixon

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April 2016 25

Knowing where people and orga-nizations fall on the spectrum of cultural hurdles to development is key for growing business in today’s working environment, where understanding the ethnic, religious, linguistic and racial background of your prospective client always takes the back seat. Here are nine markers to keep in mind:

Be mindfulMindful clients tend to better recog-nize and more accurately describe the problems they are facing, there-fore making it easier for you to propose solutions. If you are dealing with people who are not helpful in conceptualizing their needs, it can be useful to invite your prospective client into a space and time where it is easier for you to assist. This space will almost inevitably be face-to-face, outside the office without smartphones, and involve plenty of paper to jot down ideas that arise from the conversation.

Align with the missionIt is easy to sell something you believe in but near impossible to do so if you aren’t aligned and clear on your mission. If you find yourself in a situation where the mission is confused or people are no longer aligned, you may decide it better to postpone your involvement until things stabilize. You can improve alignment through dialogue with stakeholders and a concerted effort to make the changes necessary.

Have passionWe are primarily passionate about results, relationships or rationale.

While we are a mix of all three, one of them has greater pull on our motivation and effective business development requires you to know your preference. Identify the prefer-ence of your client and adjust your style accordingly to match theirs in order to avoid failed or delayed business development.

Engage in dialogueOur diminished ability to dialogue is central to what’s preventing us from surfacing opportunities and proposing ways to address these for our clients. One of my favourite dialogue methods is Challenge Mapping, invented by Dr. Min Basadur, which involves getting key stakeholders into a conversa-tion about their main challenges, why these exist and what’s stopping people solving them.

TrusteeIdentifying the level of trusteeship among the people you are engaging with for business development is an important precursor to knowing how best to address their needs and wants. Some are engaging with you to simply tick the box, while others demonstrate genuine interest in the solutions you offer them.

PartnerSome clients are looking for partners while others are simply looking for vendors. It is always good to demonstrate the willing-ness to partner while recognizing this isn’t always what the client is looking for. If you want to increase partnership behaviour, you need to find opportunities to increase your

visibility and presence with your target client and build relationships with key stakeholders. This can take a lot of time.

DiversityThe challenges of diversity arise when working with others and needing them to open their minds to new ways of thinking in order to hire you or your firm. If you find yourself challenged by people unwilling to consider new providers or new ways of doing things, then you can consider using influenc-ing tactics such as asking someone your prospective client respects to suggest your new approach or show how other organizations are switch-ing to your solutions.

FearRisk takers may jump at your solu-tions too early, making it difficult for you to meet their expectations, while risk-averse clients may keep you or a competitor as a supplier longer than expected because there is less risk in retention than in changing. To increase risk appe-tites, analyse and discuss risks before proceeding in small steps with your “pilot” project, and be prepared to slow down or stop if needed to address the risk appetite.

SustainThe most impressive athletes are not those that win once but win repeatedly. To build your sustain-ability, you will need to discuss and align values and practices with your stakeholders and check these things periodically to ensure con-tinuous alignment.

…jump cultural hurdles for better business development

The Founder and Managing Director of Potential Limited and an Institute member explains how to develop business in today’s world of mixed communities

ConsultingMid-tier firms

GROWING PAINSMid-tier firms are finding that size does matter, as they respond to a stricter compliance environment and try to get their heads, and hands, around big dataIllustrations by Benedetto Cristofani

26 April 2016

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April 2016 27

ConsultingMid-tier firms

H ong Kong’s mid-tier firms are experiencing grow-ing pains. Bridging the

gap in the market between small audit-based accounting firms and the increasingly advisory-focused space the Big Four occupy, Hong Kong’s mid-sized firms are look-ing at both consolidation and expansion.

An increase in initial public offerings, mergers and acquisitions is creating ample business oppor-tunities in advisory services, while big data and other digital innovation are opening the profession up to new possibilities. However, at the same time it has become more chal-lenging for all firms, whether big or small, to reinvent themselves and fight for the talent in order to thrive.

The challenge for the mid-sized firms is meeting the business world’s growing advisory needs, while maintaining their traditional bread and butter role of supporting small- and medium-sized enter-prises with their audits, amid ever tougher compliance and reporting requirements.

“The Big Four are shifting their business focus into advisory ser-vices, whereas mid-sized firms are still struggling with the traditional statutory audit work, which is highly commoditized and therefore price competitive,” says Albert Au, Chairman of BDO Hong Kong.

With a headcount of 1,000 and rising, BDO Hong Kong is one of the largest of the medium-sized

firms in the city. Au, a past presi-dent of the Hong Kong Institute of CPAs, says regulatory issues are determining the type of profession-als he is looking to hire.

“Industry or sector specialization is important because of the increas-ing regulation in clients’ businesses, for example financial regulations such as those from the Securities and Futures Commission, Hong Kong stock exchange and Institute of Internal Auditors, as well as anti-money laundering and know-your-customer requirements.”

RSM Hong Kong has a staff of 450, which has been steadily growing, and is looking to hire more graduates in the coming year, driven in part by requirements for new skills, in areas such as data analytics.

“Apart from the regulatory issues, the convergence of account-ing, finance and IT skills is not only having an impact on hiring demand, but also additional requirements, e.g. feeling comfortable working with various technologies. Account-ing professionals need to use tech-nological tools now to create new ways in analysing and presenting clients’ financial data,” says RSM Hong Kong’s Managing Partner Wong Poh Weng.

Talent poolThis competition for data-savvy accounting professionals from both the Big Four and mid-tier firms is putting pressure on the talent pool.

“We would like to recruit more talent to cope with the increased workload,” says Mazars Hong Kong Managing Director Ste-phen Weatherseed. “However, it has been very difficult to recruit talent of the right calibre and we have been experiencing very tight resources in the past 12 months.”

This workload has come from increased M&A and capital market activity from existing customers along with new businesses from international clients with world-wide operations and new entrants to the Hong Kong and Mainland markets. Weatherseed expects the Hong Kong office to remain steady at around 300 staff this year. “The 2016 outlook is mixed. While we see our clients continuing to

“ While we see our clients continuing to be active, we are cautious in our re-cruitment because of the uncertainty in the economic and political envi-ronments in Hong Kong, Mainland and Europe.”

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be active, we are cautious in our recruitment because of the uncer-tainty in the economic and political environments in Hong Kong, the Mainland and Europe.”

The prospect is more bullish at ShineWing (HK) CPA, which expects to increase its headcount by up to 10 percent in 2016. It is currently at around 350. Manag-ing Partner Roy Lo identifies more Chinese IPOs, and an emphasis on risk management, and envi-ronmental, social and governance reporting as driving the demand.

“There is an increasing awareness on ESG reporting, and professionals who could help issu-ers on ESG disclosure are highly wanted, since issuers nowadays are required to make disclosure in its annual report or ESG report whether they have complied with the ‘comply or explain’ provi-sions,” says Lo.

“The HKEx has highlighted the importance of corporate governance and ESG disclosure in recent years, as seen by its proposal on making changes to the Corporate Gover-nance Code and the implementation of ESG disclosure requirements,” he says, adding that there is an increas-ing expectation from investors and other stakeholders.

It is a similar story with the Big Four. Striving to expand their advi-sory and consulting services, they are on the hunt for industry specific experience, Mainland tax experts and those with data analytics skills.

“The challenge is to get the best people. Everyone wants to get the best ones,” says Derek Lai, Deloitte China’s Southern Region Managing Partner. “We focus a lot on advisory and there is no longer simply compliance but solution driven. There will continue to be space for small, medium and large firms in Hong Kong.”

Recruitment firms report the demand for professionals with IT and data skills and experience from both mid-sized and large firms is strong and competitive.

Adam Johnston, Managing Director of Robert Half Hong Kong and Japan, says with increased reporting there is strong demand for professionals with compliance experience. “Aside from knowledge of global regula-tions, the most highly sought after candidates also have several years of experience with local regula-tors including the Hong Kong Monetary Authority and Securi-

ties and Futures Commission.”Michael Page Hong Kong

Director Rebecca Chan says the HKEx’s changes to the Corporate Governance Code earlier this year have led to a demand for experi-enced professionals as well as a focus on data skills. “There is an increasing demand for talent in compliance, IT auditing and the risk advisory sector,” she says.

To merge or not to mergeWhile mid-sized firms offer management consultant services to SMEs such as outsourcing, accounting and payroll services, and act as business advisors, it is a matter of debate whether further growth into larger scale advisory work is likely to be organic rather than from mergers with manage-ment consultant companies.

BDO’s Au says organic growth may be too slow for those mid-sized firms in a hurry, but mergers are also problematic.

“For mid-sized firms, mergers with management consultants are not really feasible because they [mid-sized firms] lack a brand name. Also, acquisitions are not viable because of the lack of finan-cial resources,” says Au.

After starting off to build up internally, the Big Four opted for acquisitions: Deloitte acquiring Monitor in 2013; PwC acquiring Booze & Co. in 2014; EY acquir-ing Parthenon in 2014; and KPMG acquiring Tower Watson’s human

“ For mid-sized firms, mergers with management consultants are not really feasible because they [mid-sized firms] lack a brand name.”

In February, Mazars merged

with Chinese accounting firm

Union Power, making it rank 13th

in China.

April 2016 29

ConsultingMid-tier firms

30 April 2016

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resources services delivery prac-tice in 2015.

Mazar’s Weatherseed says there is continuing pressure on resources at an international level to invest in technology and talent and to keep abreast of corporate developments.

“The challenge is to find the optimum operating model to allow for excellent client service, all round technical quality and profitable delivery across borders. All firms, including the Big Four, continue to aim to find the right solution, and hold talks at senior levels to explore possible tie-ups. There is nothing new in this, but as we have seen there have not been sufficient incen-tives to lead to any global mergers now for some years.”

ShineWing’s Lo says firms will need to explore some kind of partnership with consulting firms to respond to the rising demand for management consultancy services.

“We would expect that more firms would look to partner with

consulting firms, so that they could join forces to provide more comprehensive services to meet the diversified needs of clients”.

Nevertheless, many mid-tier firms are continuing to build up their strength internally.

“Our other services, especially the specialized advisory and con-sulting services are continuously expanding, and accounting profes-sionals are embracing the increased responsibilities with a more strate-gic role,” says Wong of RSM.

Loosening the beltThe ubiquitous One Belt One Road initiative, proposed to encompass 65 countries and more than 4 billion people, is also cited as potentially creating new business for the mid-tier firms. Hong Kong is perceived to be a key centre for providing professional services to support it.

“This would create a great deal of economic activities, providing immense opportunities for Hong Kong professionals to work in different engagements, including accountants, who could help build a bridge between the Mainland and the rest of the world,” says Lo.

Sentiments echoed by Wong. “Due to the growing economy and the effect of One Belt One Road, the growth-focused entrepreneurial and the new start-up businesses will need professional corporate advi-sory, M&A, IPO, financial advisory services, hence, business opportuni-ties will rise, and there will be a lot of room to develop on both audit and

non-assurance services.”This means that it is crucial for

mid-tier firms to have some form of presence, tie up or partnership with a Mainland domestic firm to service their Hong Kong clients’ busi-ness growth with local expertise. According to BDO’s Au, depending on your specific situation, the tie up could take the form of a loose affili-ation to a merger of sorts.

In January, Mazars opted for the latter. Mazars had already built up a Mainland practice servicing inbound foreign investment “but we needed a domestic merger to gain access to the local market and the growing outbound opportunities,” says Weatherseed. “This is why we have recently merged with Zhong-Shen ZhongHuan, giving us the opportunity to grow a truly Chinese practice with international reach.”

ShineWing has branches in 23 Mainland cities while RSM Hong Kong has a close relationship with its China firm, Ruihua Certified Public Accountants, which is a member of the RSM network.

With greater demands for accountability and ESG reporting, along with Hong Kong intricately linking with the Mainland, jug-gling old roles and new respon-sibilities will define the space mid-sized firms occupy.

“The market is large and diverse, and so as long as there are mandatory audit requirements there will be a need for firms of all sizes,” says Weatherseed.

“ The challenge is to find the optimum operating model to allow for excellent client service, all round technical quality and profitable delivery across borders.”

April 2016 31

Success ingredientTakashi Sekimoto

Yu Weiping spent most of his career

in the Ministry of Finance's personnel

and education division, of which

he was promoted to director in 2005

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ON THE RISE

A t nine o’clock on a weekday morning, the warm bright lights of A-1

Bakery in Sha Tin Plaza invite commuters in for a grab-and-go breakfast. The clangs of hot trays against oven racks announce the availability of fresh-baked bread and the frequent sounds of Octopus payments signal how fast they’re being sold. Since 1985, A-1 Bakery has been one of the mall’s tenants, experiencing the ups and downs of Hong Kong’s food and beverage industry for the past 30 years.

Takashi Sekimoto was a frequent customer of A-1 Bakery’s various outlets before he became Chief Financial Officer earlier this year. The Hong Kong Institute of CPAs member is particularly proud of the bakery’s display cases, which add to the premium shopping experience at A-1 outlets.

“A-1 Bakery is one of the largest players in the middle-to-high end bakery industry in Hong Kong with over 50 stores,” he says. In addition to A-1 outlets, A-1 Bakery Co. (HK) also includes restaurants and cafés such as Café Gute, La Création, Balencia, Cocomo and Parkview to its portfolio.

Established in 1948 in Osaka, Japan, A-1 Bakery Co. and its brand expanded to Hong Kong in 1985. “We share the same brand but operations are independent,” says Sekimoto. “We believe we are a Hong Kong company and we cater to Hong Kong customers.” A-1, which stands for A-grade products and number one taste, is known for offering Japanese and Western-inspired breads that are adapted to suit local palates. As a market that welcomes Japanese products, especially when it comes to food and beverage, Hong Kong, and its close proximity to Japan, made it the ideal place for A-1 to launch its first overseas venture.

Hong Kong has more A-1 outlets than Japan, due to a higher demand for efficiency here. “In Japan, the bakeries employ tradi-tional baking methods of master bakers and trainees and are more attached to handmade produc-tion. In Hong Kong, we need to be more rational in order to cover the higher costs of rent and resources,” says Sekimoto. To him, however, the human touch is the secret ingredient that makes A-1 stand out from other bakeries. Bread and

A-1 Bakery is known for revolutionizing bread with Japanese and German-baking technology in Hong Kong since 1985. Today, in the face of rising costs and customer demands, Chief Financial Officer Takashi Sekimoto talks to Tigger Chaturabul about how the brand must find a balance between machine and human operationPhotography by Juliet Shayne Lui

Takashi Sekimoto previously worked as a contract factory

employee for Toyota before entering the profession

April 2016 33

Success ingredientTakashi Sekimoto

“ Even as a contract worker, I learned a lot at Toyota and practised kaizen.”

dough are still prepared fresh at a central factory and then distrib-uted to the shops, up to three times a day. In medium-sized A-1 baker-ies that have space for a kitchen, bread is baked in-store, enhancing the shopping experience with the aroma of fresh bread.

The best-selling product is the Light Rye Raisin Walnut Bread, owing its popularity to its unique texture according to Sekimoto. Other popular products include French-style baguettes and butter breads as well as Japanese sliced bread. “A-1 first came to Hong Kong when the market didn’t have a big variety of baked goods, mainly just the mom-and-pop shops selling similar products, and we wanted to provide another choice for consumers, which was high in quality, safety and good taste,” he says. “Our philosophy is to improve the quality of life for them through our products.”

The bakery imports key ingredi-ents like flour from Japan, achiev-ing standardization in its recipes. Japanese imports are met with high demand in Hong Kong, which can be seen inside busy department stores such as AEON, YATA, Sogo and Apita, with consumers willing to pay more for quality they are confident in.

The kaizen effectWhen Sekimoto was a child living in Hong Kong from the age of four to 10, his father took him to visit the then newly constructed Bank of China skyscraper. He remembers being impressed by the stylish build-ings and elite professionals going in and out of the offices, and even wanting to be one of them one day.

After moving back to Japan, he graduated from Shizuoka Univer-sity with a degree in environmental education and a teaching certificate that hasn’t been used. “I was inter-ested in interdisciplinary studies and thought that the subject would boom in the future,” Sekimoto says. Instead, his love of working with numbers took him to a stock brokerage where he analysed the economic outlook for investors.

“While I was there, I learned that a lot of small- or medium-sized companies faced problems due to lack of skills in management and accounting, and were instead mak-ing decisions solely on inspiration or experience,” he says. “I decided to go into accounting so I could help them.”

In order to pay for his master’s degree in accounting in Austra-lia, Sekimoto signed a one-year contract as a factory worker for Toyota, working in the production

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April 2016 35

Success ingredientTakashi Sekimoto

line assembling Prius and Camry cars for the North American mar-ket. “Even as a contract worker, I learned a lot at Toyota and practised kaizen,” says Sekimoto. The Japanese kaizen philoso-phy is the practice of continuous improvement, with the belief that small changes over time lead to big results. It is one of the automobile giant’s core values, with all team members continuously looking for ways to improve operations. “We spent a lot of time discussing how to be more efficient, although it was like trying to squeeze water from a dry towel,” he says.

After graduating from Austra-lian National University, Sekimoto accepted a job offer from Deloitte China and returned to Hong Kong as an auditor, simultaneously gain-ing his CPA Australia qualification before becoming an Institute mem-ber in 2011. “It was like a childhood dream come true to come back and work as a CPA,” he says.

Visualizing numbersThe then audit manager left Deloitte China after eight years to join A-1 Bakery as CFO, now with an MBA from Manchester Business School. “A-1 was looking for someone who could help the company grow with new businesses and had a vision to reach 100 stores by 2020,” says Sekimoto. Because A-1 already has a strong team of

managers, Sekimoto currently focuses on corporate planning, uti-lizing the data collected from key performance indicators in frontline operations, human resources, mar-keting and the warehouse.

Data visualization is important for quick decision making today, but, as Sekimoto notes, it is only a small part of the bigger picture. “The system can identify anomalies in the numbers automatically but only a person can judge the best way to solve the issue,” he says. “There must be flexibility and that’s why a human analysis will always be necessary in the business.”

Indeed, perspective is the biggest difference between auditing a firm and managing a commercial busi-nesses, finds Sekimoto. “Auditing is about looking at the past and checking to see if figures are correct as a guard for the capital market. In a commercial company, you need to

look into the future to think of ways to improve,” he says.

One of the biggest challenges he faces is the competition in the market from both local and other Japanese brands as well as smaller mom-and-pop shops that are open-ing up to meet consumers’ demand for more variety. With many options available, the average con-sumption per customer is predicted to decrease despite the demand increasing. “It’s two sides of the same coin, because although there is more competition, it means that it’s harder for smaller businesses to survive. A-1 is a mature brand and already has a sufficient supply chain, supply base and customer base,” explains Sekimoto. “We have the know-how for negotiating with developers and landlords and how to create an attractive shop experience, which helps us differ-entiate,” he adds.

Increasing costs for rental, labour and costs of goods sold are other issues that Sekimoto tackles using data visualization. “Growth of the company will enhance the effect of economies of scale for both rent and COGS,” he says. “By closely monitoring things like wastage, we can easily take action to counter these cost issues.”

Even at seven or eight o’clock in the evening, the displays at A-1 Bakeries are still as full and enticing as they were in the early

A-1 Bakery adopts a multi-brand strategy

where A-1 stores target the mass market in

residential areas and train stations while Parkview,

Das Gute, Balencia and La Création stores

target customers in upmarket

shopping malls

“ We have the know-how for negotiating with developers and landlords and how to create an attrac-tive shop experi-ence, which helps us differentiate.”

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morning. “Having baked bread in the showcase makes the shopping experience more enjoyable, but we understand that this creates wastage, which is why we now use leftovers to make fertilizer and feed,” says Sekimoto.

Recipe for successFuture plans for A-1 Bakery involve gaining market share by improving operational efficiency through the extensive use of information tech-nology to capture consumer trends. It also plans to expands into new business areas, which include advis-

ing Japanese companies that are looking to expand to Hong Kong, as well as engaging with equipment manufacturers to bring Japanese products to the city and sell them under different brands.

For A-1, the balance between efficiency and quality of service is down to the battle between automa-tion and humanization. “In Japan, there are cashiers that use 3D cap-ture technology to identify which type of bread each customer pur-chases and automatically rings them up,” shares Sekimoto. This type of automation reduces staff costs and

allows part-time or new staff who are less familiar with the products to be able to handle the cashier.

However, Sekimoto believes that human interaction will remain a key ingredient in the future. “Customers who are looking for cheaper prices accept this kind of automated service but that’s not our target market,” he says. “We will continue to provide services that are based on human relationships to differentiate from competitors, because we won’t sacrifice that kind of shopping expe-rience for efficiency.”

April 2016 37

Work-life balanceHumanitarian CPAs

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A s a volunteer consultant to Playright Children’s Association, Gloria So

puts the non-profit organization’s reputation as her first priority. “It’s very different from working with my usual clients, which are listed or private companies that are look-ing at how to maximize profits,” says the Senior Risk Manager at ShineWing Risk Services Limited and a member of the Hong Kong Institute of CPAs.

The organization primarily fo-cuses on advocating the importance and power of play for all children and provides adequate inclusive play resources to the community. So first got involved with Playright in 2011 after volunteering at the an-nual “Play for All Play Day,” jointly organized by ShineWing and Playright, where accessible games and toys are set up in a park for children with disabilities to enjoy all-inclusive play. Three years later, she began volunteering her profes-sional expertise in internal controls and corporate governance to help the organization from the inside.

Unlike companies in the cor-porate world, NGOs largely lack oversight when it comes to best practices in financial management, governance and internal controls. Having a CPA consultant is useful for a charitable organization that

is tight on resources to rectify shortcomings in its operations. CPAs like So recognize the need of non-profit organizations for finance-related consulting to ensure continued growth and long-term sustainability that ultimately benefit those in need. However, because most of such organizations rely on public funding, it can be dif-ficult for them to divert resources

to seeking professional help. That’s where CPA volunteers come in.

While every NGO needs to be audited, So goes further as a con-sultant. “I believe many CPAs are interested in helping out but aren’t sure about how to reach these or-ganizations,” says So. “ShineWing has been great in cooperating with Playright for so many years and making it easier for us to volunteer our time by providing the channels to reach out during working hours.”

Having volunteered with Play-right on-the-ground with activities

such as the play days and flag days, So was moved by the organiza-tion’s genuine passion to support all-rounded development of the next generation. “This makes me want to help them in other areas like opera-tions or disclosure because I know how focused they are in helping children,” she says. “I really get a chance to see the good they do for the community through these events.”

An NGO or NPO’s objective is different from that of a listed or pri-vate company, which makes So think about her accounting processes from another perspective. “They might be completely focused on helping a minor part of the society and when you work with them, you need to tune yourself to look at their intangible assets as well, which means that when the organization wants to do a new project in a new environment, they need to take care of the compliance requirements more thoroughly.”

So continues to help Playright each year as requirements change. While Playright’s operation flow and disclosure requirements im-prove, So also reaps the reward of satisfaction. “When the organiza-tion can better disclose their in-formation, the public gets to know more about them and may become more willing to help them. This is what makes me happy,” she says.

“ I believe many CPAs are interested in helping out but aren’t sure about how to reach these organizations.”

Many CPAs contribute their valuable accounting skills to help non-governmental organizations and charities in a way that creates sustainable growth and operations. Tigger Chaturabul talks to Institute members to understand what inspires them to get involvedIllustrations by Alex Nabaum

Lending a hand

April 2016 39

Work-life balanceHumanitarian CPAs

On a mission to supportMavis Fung has been volunteering with the Hong Kong Red Cross since secondary school. The Business Recovery Services Manager in Advisory at PricewaterhouseCoo-pers and Institute member started out by volunteering her time for flag days and visits to elderly homes before joining PwC’s NGO training programme in 2013.

PwC’s Strengthening Donor Communications programme provides free seminars in Hong Kong and China to NGOs about skills in the areas of governance, risk management and reporting. The seminars are followed by a mentoring programme that matches professionals to NGOs to focus on critical areas and build a stronger community. “All NGOs need some kind of accounting service,” says Fung, “and CPAs can actually provide more than that.”

Fung and her director paired with the Hong Kong Red Cross to help it strengthen its impact reporting. “It’s always difficult for an NGO to put a number on what they do for the society. During the programme, the Hong Kong Red Cross was setting up a new humanitarian education centre and we worked with them to devise a system to collect data from partici-pants, figure out how to measure the outcomes of its events and find a way to present the data to stake-holders so they can understand the kind of impact the organization is making,” explains Fung. The education centre aims to inspire the community to support humani-tarian assistance by experiencing human suffering brought upon by armed conflict and natural disas-ters through organized activities.

The Hong Kong Red Cross has many different goals they want to achieve with the centre, such as reaching out to multiple audiences and building up the brand. Under-standing the charity’s needs, Fung helped it break things down and decide where to allocate resources. “It was about extracting all the important parts from their ideas to strengthen the overall framework of the internal operations,” she says.

In addition to impact reporting, Fung had to keep the organization’s initial mission in mind. “Is the kind of impact it is making in line with that mission? How can we help improve its corporate governance? How can it improve its services? These were some questions we were trying to answer and it was very rewarding and fruitful,” says Fung. “It was entirely new for me because although I am in advisory, I’m used to giving advice to clients about improving performance and financial positioning, with NGOs, it’s a different story.”

“We don’t have the knowledge that an NGO has and we’re not familiar with the way they operate or their internal framework,” adds Fung. “Instead, we just apply our business sense to figure out the problems and to solve them one by one.”

Volunteering with NGOs taught Fung to put herself in other people’s shoes. “NGOs really think from the perspectives of their service targets and this is something I apply when working daily with clients. It helps me identify what their main con-cerns are,” says Fung.

Fung’s drive to volunteer as a CPA stems from her goal of building the organization’s resiliency. “When I volunteered my time

“ All NGOs need some kind of accounting service,” says Fung, “and CPAs can actually provide more than that.”

Launched in 2013, the Hong Kong Institute of CPAs’ “CPAs for NGOs” programme aims to pair CPAs with small- and medium-sized nongovernmental organizations in order to help them improve their financial management and governance practices. Drawing from positive feedback from past activities, Richard Tse, a Council member and Convenor of the programme, is optimistic about the value of the roles played by accountant ambassadors.

“CPAs for NGOs” has so far organized seminars on fundraising management, corporate governance, financial management and reporting, compliance with the Social Welfare Department’s Best Practice Manual for NGOs, as well as workshops, advisory sessions and meetings between agency heads and management teams. “More than 80 percent of the 300 participants we have reached so far found the activities useful and practical,” says Tse. In collaboration with the Hong Kong Council of Social Service – the largest federation of local NGOs that in total provide more than 90 percent of welfare services – the programme engages CPA expertise to develop healthy internal financial systems and governance practises for NGOs and, in turn, help to better sustain and build their services.

“Nearly 100 accountant ambassadors have enrolled in the programme because they find this volunteering service both meaningful and rewarding,” shares Tse. “As most Institute members are dealing with commercial entities at work, this gives them the opportunity to learn more about the operating culture and practices of not-for-profit organizations.”

The programme is planning future seminars covering the impact of accounting methods on financial projections, financial evaluation and assessment, risk management and communication with stakeholders. “CPAs for NGOs” also plans to develop a handbook on best practice of governance for NGOs to further provide practical guidance and contribute to the community.

CPAs for NGOs

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April 2016 41

Work-life balanceHumanitarian CPAs

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with charities or even went on a vol-unteer trip around South America with different organizations, the impact created wasn’t quite sustainable,” says Fung. “But for this kind of volunteering, it’s more gratifying because we give them advice they can use to improve themselves in the future.”

Professional connections“CPAs can provide all sorts of support to charity organizations,” says Kevin Ng, Secretary General of Deloitte Foundation at Deloitte China and an Institute member. Ng got involved with the foundation after some personal reflection. “My firm encourages us to volunteer and I realized that I have a good career and family, which is not something that everyone has. As a global citi-zen, I need to contribute back.”

The Deloitte Foundation builds value in local communities by contributing knowledge, skills and resources to social projects around the world. The projects mainly focus on education, healthcare, environ-ment and disaster relief. “Account-ing firms have reputable resources and Deloitte contributes from our earnings to run the foundation’s activities but it’s never enough,” says Ng. “We can help charity organiza-tions look after both internal and external matters like a financial system or to even help secure a tax exemption status.”

As Secretary General of the foundation, Ng sees great potential in engaging staff with charity work.

“We intake around 2,500 graduates every year in Deloitte China and the younger generation enjoys contrib-uting back to the community more and more. If they have a chance to volunteer while pursuing their careers, they’ll feel enthusiastic and good about it.” says Ng.

He recalls a recent volunteer experience he had as the head of a judging panel for Hong Kong Rehabilitation Power, which hosted a competition for people with dis-abilities to come forward with their stories. Comprising doctors and representatives from the business sector, the judging panel helped devise a fair and transparent system to screen nominations without bias. “The organization wanted to find external yet trustworthy individu-als to do the screening to ensure fairness and incite more confidence in the whole process and I think the general public would cast their trust in an accountant,” Ng shares. Hear-ing the positive stories of the nomi-nees as a judge was inspiring for Ng and motivated him to do more.

Another of Ng’s interests is in supporting social enterprises that use commercial strategies to improve societal well-being. In contrast with an NGO that relies mainly on donations to continue operating, a social enterprise engages in business to generate money and achieve self-sustain-ability. “Social enterprises often reach bottlenecks in expansion and are in need of new advertising or sales strategies. It’s important to

help them with all the professional services we can offer,” says Ng. “Our networks as CPAs are a great resource to engage and by calling upon our colleagues, clients, other NGOs and even the government, we can get a lot of people to con-tribute back to the community.”

Ng is confident in the outlook of NGOs in both Hong Kong and China in terms of creating a transparent and straightforward system for regulation. “It’s up to the government to make the process for setting up an NGO more user-friendly and CPAs can help review reports and set the rules,” says Ng.

As an advisor to various char-ity organizations, Ng stresses the importance of helping management teams build sustainable operations. Ng also advises a children’s organi-zation, where most of the members are parents of children with autism. “These parents get together to share experiences and their problems but most of them don’t have business sense. They each have the resources to support their children for now but if something happens, what can their children do?” Ng asks. The organization itself is unable to sup-port children with autism without donations. “That’s why they need to bring some sort of commercial perspective into the organization,” Ng explains.

“You can give people fish to feed them but if you teach them how to fish, that is even better,” says Ng. “That’s what we’re try-ing to do as volunteer CPAs.”

“ Social enterprises often reach bottlenecks in expansion and are in need of new advertising or sales strategies. It’s important to help them with all the professional services we can offer.”

April 2016 43

“The assessment of risks is a matter of professional judgment, rather than a matter capable of precise measurement.” (HKSA 200)

Transactions associated with complex accounting issues are not uncommon in listed entities. Those accounting issues may involve consideration of, inter alia, accounting estimates and fair value meas-urement which are examples of challeng-ing aspects of auditing. Listed entity audit engagements are generally considered as “higher risk.”

Engagements on regulated indus-tries will also require specific skills and resources. Examples include solicitors’ accounts, compliance reports of enti-ties regulated under the Securities and Futures Ordinance, authorized institutions under the Banking Ordinance, insurance brokers and insurers.

To manage audit or engagement risks at the outset, identifying risks by carrying out procedures for client and engagement acceptance is an essential step.

HKSQC 1 requires practice units to establish policies and procedures for the acceptance and continuance of client relationships and specific engagements. The standard emphasizes that such poli-cies and procedures should be designed to provide the practice units with reasonable assurance that they will only undertake or continue relationships and engagements where the practice units have the capabili-ties, time and resources to perform the engagements and comply with relevant ethical requirements.

Section 210 Professional Appointment

of the Code of Ethics for Professional Accountants states that the fundamental principle of professional competence and due care imposes an obligation on CPAs in public practice to provide only those ser-vices that they are competent to perform. If the engagement team does not possess, or cannot acquire, the competencies nec-essary to properly carry out the engage-ment, it is an example of a self-interest threat to professional competence and due care.

Disciplinary caseBelow is extracted from the Reasons for Decision of a disciplinary case handed down by a Disciplinary Committee of the Institute in 2012:

“The… audit deficiencies identified in the complaint not only demonstrate mere slips or misjudgment but a serious incompetence on the part of the respond-ent. The respondent acknowledged his incompetence but attributed it to the more demanding nature of the audit of listed companies. He also admitted that he lacked the required manpower to cope with the audit of listed companies. Yet the respondent was prepared to take up audit for listed companies when he himself was incompetent to handle the work and he was not assisted by any competent staff…”

The CPA concerned had his practis-ing certificate cancelled and he was not issued with a practising certificate for two calendar years.

Extracts of Reasons and Orders of past disciplinary cases issued by Disciplinary Committees are available at the Institute’s website at www.hkicpa.org.hk.

HKSQC 1 contains related guidance when a practice unit considers whether it has the competence, capabilities and resources to undertake a new engage-ment. Section 210 Professional Appoint-ment also contains examples of safe-guards that can be applied by CPAs in practice to eliminate threats to profes-sional competence and due care or reduce the threats to an acceptable level.

It is reiterated that members should carry out procedures for the accept-ance and continuance of engagements to ensure that they have involved the right people with the right skill sets to complete the engagements within the required time limit.

Institute resources • Section 210 Professional Appointment

of the Code of Ethics for Professional Accountants (Volume I of Members’ Handbook)

• HKSQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements (Volume III of Members’ Handbook)

• Standards on auditing, standards on assurance engagements, practice notes, etc. can be found in Volume III of Members’ Handbook.

Assessment of risks of engagements involving public interest entities

This article is

contributed by

the Institute’s

Compliance

Department

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April 2016 45

SourceAssurance engagements

New standard summaryThe International Accounting Standards Board and the United States' Financial Accounting Standards Board have jointly issued a new revenue standard, IFRS 15 Revenue from Contracts with Customers, that will supersede virtually all revenue recognition requirements in IFRS and U.S. GAAP for all companies in all industries. This is to put IFRS and U.S. GAAP on an equal footing given the current more extensive U.S. GAAP revenue recogni-tion guidance. The U.S. Securities and Exchange Commission staff continues to make public companies encouraging a “practical approach” to implementation while emphasizing the importance of con-sistency in application across industries for important issues.

In Hong Kong, IFRS or HKFRS 15 is effective for annual periods beginning on or after 1 January 2018. While both the IASB and FASB have deferred the effective date by one year from the original effective date and proposed several amendments includ-ing on principal versus agent, transition and collectability, and licenses and perfor-mance obligations to the new standard, companies should not slow down their implementation activities. In fact, given the principles-based guidance without bright lines, many companies are finding that implementation requires significantly more efforts and judgment than they expected.

Early adoption is permitted for IFRS pre-parers, provided that such fact is disclosed, and for first-time adopters of IFRS. While the changes are scheduled to take effect in 2018, their extent leaves no time for com-placency, especially for those companies planning for an initial public offering in the next two years.

The new revenue standard would

change the way many Hong Kong com-panies measure and recognize revenue and expand the disclosure requirements for all companies. More judgments and estimates may be required across multiple business functions than in the past. For example, certain items not typically thought of as revenue such as certain costs associated with obtaining and fulfilling a contract and the sale of certain non-financial assets are now scoped into HKFRS 15. Companies with the support of their audit committees should be timely executing on a well-developed plan to implement the new standard.

Revenue is a key metric. Understand-ing the potential consequences of the new standard across your organization – beyond just finance – can avoid unexpected issues related to your revenue recogni-tion process. For example, finance would need to consult with others involved in the company’s pricing decisions to deter-mine estimated standalone selling prices with limited or no observable inputs and customer credit information to apply the collectability criterion.

Which transition method to adopt?IFRS 15 requires retrospective application. The boards decided to allow either “full ret-rospective” adoption in which the standard is applied to all of the periods presented or a “modified retrospective” adoption.

Entities electing the full retrospective adoption will apply the provisions of HKFRS 15 to each period presented in the financial statements in accordance with HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Under the full retrospective method, non-U.S. entities would be required to

restate one comparative year prior to the implementation date. But U.S. public enti-ties would be required to restate two com-parative years prior to the implementation date. That means, for U.S. public entities, their financial reporting system must be able to support both the old GAAP and new GAAP as early as 2016.

Under the modified retrospective method, entities only have to recognize the cumulative effect of initially applying HKFRS 15 as an adjustment to the open-ing balance of retained earnings (or other appropriate components of equity) on the date of initial application.

So why not adopt the “modified retro-spective” approach to avoid dual reporting under old GAAP and new GAAP in 2016? There are two considerations:

1. Applying the “modified retrospective” approach may be more difficult than a company would anticipate:

• The performance obligations identi-fied under HKFRS 15 are different from the elements or deliverables identified under today’s standards.

• The relative standalone selling price allocation under HKFRS 15 results in different amounts of the considera-tion being allocated to performance obligations than had been allocated in the past.

• The contract contains variable con-sideration and the amount of variable consideration that can be included in the allocable consideration differs from the amount under today’s standards.

2. Because the “full” method has a major advantage over the “modified” method. The “full” approach provides users of the financial statements with useful

Ticking time on new revenue recognition standard: Less than two years away now,

but can you wait any longer?

46 April 2016

SourceRevenue recognition

trend information across all periods presented. Trend analysis is important for investment and credit analysis. During deliberations, the boards seemed to prefer the full retrospective approach. For companies going public, using the full retrospective approach would tell a more coherent story of their historical performance.

Status of management’s implementationNo matter which approach is selected, the starting point is to understand the potential impact of the proposed changes on major contracts with customers and key revenue streams. If the company’s business offers multiple products and services, then assessing the right level at which to perform the analysis is an important initial consideration. Companies also need to determine the right time to engage with other internal functions, such as sales, tax and legal, to evaluate the consequences of changing contractual terms.

Many companies have received train-ing on this new standard and are aware of the technical aspects of the standard.

However, very few companies have actu-ally completed an initial assessment of the potential effects of the standard, includ-ing on systems and process, given most of the company resources are devoted to prepare for the 2015 year end audit. As a result, most companies could still disclose in their 2015 footnotes that they are still assessing the impacts of the standard and cannot provide users more information on the company’s readiness, including whether significant change would occur to the company’s current systems and processes. Regulators are likely to expect an entity’s disclosures to evolve in each reporting period as more information about the effects of the new standard becomes available. Accordingly, manage-ment should accelerate their assessment of the potential efforts of the standard in conjunction with the completion of their year-end audits as audit committees would really be interested to know.

Key implementation considerationsIdentifying where to begin and which resources to involve can be challenging

for any company with competing priorities. Companies should spend time to understand the intricacies of the accounting guidance and develop a proper approach by paying attention to the following key implementation considerations:• Perform a comprehensive assessment

to identify the effects of the new standard, including the increased volume of new disclosures, on the company’s businesses, processes, IT and financial reporting

• Consider the effects on internal control, including whether there are material internal control changes that could impact the Exchange Listing Rules Practice Note 21 Due Diligence by Sponsors in respect of Initial Listing Applications assessment for a Hong Kong IPO candidate

• Evaluate whether the company has sufficient resources for an effective implementation

• Benchmark the company’s preliminary assessment against its competitors

• Disclose the anticipated transition method and effect of the standard and develop a plan for updating disclosures during the transition period

Timing is key. It gives organizations a chance to adopt the wide scope of internal changes. The new rules will call for more judgment and effort. Smart planning now will help avoid painful surprises.

Yin Toa Lee is

Partner at EY's

Capital Markets

Centre

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April 2016 47

The International Accounting Stand-ards Board’s Disclosure Initiative explores how disclosures in financial reporting can be improved. The Disclo-sure Initiative is made up of a number of implementation and research projects which, collectively, will ultimately have a universal impact on the preparation of general purpose financial statements in the future.

The Institute considers the Disclo-sure Initiative in its entirety to be of fundamental importance especially in light of Hong Kong’s position as an international financial centre. A lack of useful and quality financial reporting disclosures will have implications for investor and creditor trust.

IASB Chairman Hans Hoogervorst recently commented that, “Financial statements are meant to be a means of communication, and should not be viewed as a mere compliance exercise. Management needs to take a step back and consider whether they are provid-ing the right level of information in the financial statements and whether [the financial report] is useful.”

What does this mean for us? In the road ahead, some fundamental con-ceptual clarifications and/or changes will transform the way financial reports are prepared, presented, disclosed and

interpreted by users. If you would like to have a say in shaping the future of IFRS disclosures, please contact outreachhk@hkicpa.org.hk to under-stand how you can be involved.

An overview of what to expect in the near future

Proposals for determining materiality for disclosures Management are often uncertain about how to apply the concept of materiality when preparing financial reports and therefore use the disclosure requirements in the standards as a checklist. This has often led to disclosure overload or clutter. The Institute's invitation to comment on IASB exposure draft (ED/2015/8) IFRS Practice Statement – Application of Materiality to Financial Statements (which is equivalent to the IASB exposure draft of the same name), issued in November 2015, proposes a guideline to help preparers use judgment when applying the concept of materiality in preparing financial reports. The exposure draft proposes that the practice statement would serve as a guide only and would not be mandatory for application. The Institute is broadly supportive of the aims of the exposure draft and provided

recommendations for the IASB’s consideration on how to improve the guide. The Institute’s comments are available on its website.

A discussion paper on the principles of disclosure The aim of the project is to help management manage the volume of information disclosed in financial reports and improve the quality and usefulness of those disclosures. To do this, the IASB is identifying and developing a set of principles of disclosures for IFRS. As a starting point, the focus is on reviewing the general requirements in IAS 1 Presentation of Financial Statements and considering how it may be revised. A discussion paper on the principles of disclosure is expected to be published by the IASB in the second quarter of 2016.

Based on current discussion, the discussion paper will consider a two-tier approach to providing/preparing information for financial reporting. The first tier would consist of required disclosures, subject to materiality, and the second tier would require manage-ment to consider whether additional information, depending on facts and cir-cumstances, should be disclosed. The proposed two-tier approach would also specify the objective for the disclosure

The future landscape of financial reporting disclosures

48 April 2016

SourceTechnical update

requirement and would emphasize the need to exercise judgment when deter-mining the appropriate mix and extent of disclosures.

The IASB plans to use the principles of disclosure when it develops new disclosure requirements for future standards and when it makes tar-geted improvements to the disclosure requirements in existing standards.

Upcoming proposals to amend IAS 8 Accounting Policies, Changes in Accounting Estimates and ErrorsThe narrow scope proposals aim to clarify the definitions of a change in accounting policy and a change in accounting estimate. The IASB expects to publish this exposure draft in the second half of 2016.

Other aspects of the Disclosure Initiative

Amendments to IAS 1 Presentation of Financial Statements The narrow scope amendments to IAS 1 was issued by the IASB in December 2014 and is effective for annual periods beginning on or after 1 January 2016. Earlier application of the amendments is permitted. These amendments respond to overly prescriptive

interpretations of IAS 1 terms such as materiality and aggregation, order of the notes, sub-totals, accounting policies and disaggregation.

Amendments to IAS 7 Statement of Cash FlowsThe narrow scope amendments to IAS 7 was issued by the IASB in January. Earlier application of the amendments is pemitted. The amendments respond to investors’ requests for information that helps them better understand changes in an entity’s debt, which is important to their analysis of financial statements.

Shaping the future of IFRS togetherThe Institute can foresee the significant beneficial outcomes of the IASB’s Disclosure Initiative project. If you would like to influence the quality of financial reporting globally, please contact outreachhk@hkicpa.org.hk.

This article is

contributed by

the Institute’s

Standard Setting

Department

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April 2016 49

Financial reporting

Institute comments on IASB exposure drafts(i) IASB ED/2015/8 IFRS Practice State-

ment: Application of Materiality to Financial StatementsThe Institute commented on the International Accounting Standard Board’s exposure draft and supports the issuance of non-mandatory guid-ance on materiality in the form of a practice statement.

The Institute considers that the practice statement would provide useful guidance and practical exam-ples for preparers to determine how to exercise judgment when assess-ing materiality of financial informa-tion. Therefore, the Institute agrees that the practice statement should be issued without waiting for the completion of the IASB’s principles of disclosure project.

Nevertheless, the Institute sug-gests improvements that would clarify the proposed content and examples in the practice statement. In particular, adding application guid-ance and/or examples that illustrate how to make decisions to omit imma-terial information from the financial statements, and how materiality affects the extent of qualitative dis-closures, would be very useful in the context of exercising judgment.

(ii) IASB ED/2015/10 Annual Improve-ments to IFRS 2014-2016 CycleThe Institute commented on and supports the proposed amendments in the IASB’s exposure draft. The Institute welcomes the IASB’s annual improvements to make necessary, but non-urgent, amendments to IFRSs that address inconsistencies in the

application of standards and clarify the wording in a standard.

(iii) IASB ED/2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance ContractsThe Institute commented on the IASB’s exposure draft and appreci-ates the IASB’s efforts in considering two optional approaches that seek to address any issues that would arise from the misalignment of effective dates of IFRS 9 and the forthcoming insurance contracts standard.

Overall, the Institute considers both the deferral approach and the overlay approach are necessary to address the different circumstances and operational complexities that may be encountered by individual entities, as there is a diverse range of entities with insurance activities within the scope of IFRS 4.

While insurers could adopt IFRS 9 based on the existing IFRS 4, in reality, the linkage between the assets and liabilities for an insur-ance business is so intertwined that implementation of IFRS 9 before understanding the full requirements of the forthcoming insurance con-tracts standard would be challeng-ing from an operational, accounting and reporting perspective. Hence,

the Institute believes that there is a stronger argument in providing the deferral approach for insurance enti-ties to facilitate a well-thought out, effective and efficient implementa-tion of both IFRS 9 and the forthcom-ing insurance contracts standard.

However, the Institute has serious concerns that the proposed criterion outlined in the deferral approach for the eligibility, assessment and application of the predominance test at the reporting entity level is overly quantitative. The Institute strongly encourages the IASB to consider more principle-based eligibility criteria for the deferral approach that includes qualitative as well as quantitative conditions.

The Institute broadly supports providing both the deferral approach and the overlay approach as options for entities in applying IFRS 9 with IFRS 4.

Audit and assurance

New and revised HKSAsAs part of convergence with pronounce-ments issued by the International Audit-ing and Assurance Standards Board, the Institute has issued new and revised HKSAs in August 2015 and January (members’ handbook update 172 and 180, respectively) in relation to audi-tor reporting, auditor’s responsibilities relating to other information and auditing disclosures.

The new and revised HKSAs are effec-tive for audits of financial statements for periods ending on or after 15 December 2016.

Changes to HKSA 570 (Revised) Going Concern, HKSA 720 (Revised) The Auditor’s Responsibilities Relating to Other Information and HKSA 260 (Revised)

The latest standards and technical developments

TechWatch 161

50 April 2016

SourceTechWatch

Communication with Those Charged with Governance will also affect the perfor-mance of audit work. Auditors need to allow a reasonable period for implemen-tation preparation (including training and changes to firms’ audit methodologies).

Auditors are encouraged to be familiarized with the new and revised HKSAs. Audit firms should commence work on developing implementation guidance, training and communications necessary to educate engagement teams. Auditors are also reminded to discuss the implications of the new and revised HKSAs with their clients as early as possible.

Small and medium practitioners

IFAC global SMP survey: expectations for coming year moderate but remain optimisticAccording to the 2015 IFAC global SMP survey results recently published, small and medium practitioners are generally optimistic about performance in 2016, as a majority predict revenues will stay the same or increase across all service lines. However, optimism is not at the same level as a year ago as growth projections across service lines have dropped since 2014.

The top four challenges facing SMPs in 2015 remained the same as those in 2014, but the severity of each challenge decreased:• Attracting new clients (2015: 47 per-

cent, 2014: 58 percent);• Keeping up with new regulations and

standards (2015: 44 percent, 2014: 57 percent);

• Differentiating from the competition (2015: 43 percent, 2014: 50 percent);

• Pressure to lower fees (2015: 41 per-cent, 2014: 51 percent).

Additional key findings from the survey include:• SMPs recognize the value of offering

business advisory and consultancy services.

• Small- and medium-sized entities face a number of challenges, with economic uncertainty consistently topping the list.

• Competition and regulatory developments will continue to be dominant factors in the SMP business environment.

Conducted in October – November 2015, the survey received 6,725 respondents, representing 169 countries and more than 800,000 SME clients around the world, making it the largest survey of SMPs.

Corporate finance

SFC establishes FinTech contact pointThe Securities and Futures Commission has established a FinTech contact point as a dedicated channel to encourage businesses involved in the development and application of financial technology in Hong Kong to engage with the SFC. It has also established a FinTech advisory group, which will focus on the opportu-nities, risks and regulatory implications of developments related to FinTech.

According to the government’s report of the Steering Group on Financial Technologies, FinTech has developed rapidly in recent years. A variety of FinTech activities are relevant to the SFC’s regulatory work, among these are automated trading systems, financial product investment and distribution platforms, financing platforms and distributed ledger technology. Other FinTech activities relevant to the SFC’s work include big data, data analytics and artificial intelligence to support front

and back office operations of licensed intermediaries, compliance, risk and regulatory technologies and cyber and data security technologies.

Regulators release conclusions on introducing mandatory clearing and expanding mandatory reporting for OTC derivatives marketThe Hong Kong Monetary Authority and the SFC released their conclusions on further consultation on the Securities and Futures (OTC Derivative Transac-tions – Reporting and Record Keeping Obligations) Rules in May 2015. As stated in their consultation conclusions, HKMA and SFC were also working on developing the detailed rules for the next phase of implementation, including the introduc-tion of mandatory clearing and expansion for mandatory reporting.

The consultation conclusions were published on 5 February about the proposals made in a joint consultation on introducing mandatory clearing and expanding mandatory reporting for the second stage of the over-the-counter derivatives regulatory regime. The conclusions paper sets out the revised proposals after taking into account market comments and feedback and seeks to further consult on the initial list of financial services providers.

A separate conclusions paper on the specific data fields to be completed under expanded mandatory reporting will be issued shortly.

Please refer to the

full version of

TechWatch 161,

available as a PDF on

the Institute’s website:

www.hkicpa.org.hk

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April 2016 51

Behavioural science has a murky past. Stanley Milgram’s obedience experiments in the 1960s where people administered electric shocks in response to directions from a figure of authority continue to raise ethical concerns.

Perhaps a latter day comparison would be being locked in a room to work out tabula-tion functions in an Excel document. That, for this reviewer would not be a good day.

Over the last 20 years behavioural eco-nomics has gained traction, with titles often

in the bestsellers’ lists and its proponents recognized with Nobel prizes.

Economist and former McKinsey partner, Caroline Webb, has pulled together threads from the disciplines of behavioural economics, psychology, and neuroscience to transform our approach to everyday work-ing life. Her book How to Have a Good Day, with its exhaustive research literature refer-ences, is a far cry from the self-help genre or the “smile and the world smiles with you” approach to improving your life.

The science she relies on is giving us a better understanding of how our brains work, why we make the choices we do, and what it takes for us to be at our best. Webb translates three big scientific ideas (the Two-System Brain; the Discover-Defend Axis; and the Mind-Body Loop) into step-by-step guidance that should enable us to more effectively handle our tasks and relationships, even when we’re feeling under pressure.

The book is organized around seven

Book review

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

Happy talk

Author: Caroline Webb Publisher: Crown BusinessTitle: How to Have a Good Day – Harness the Power of Behavioral Science to Transform Your Working Life

52 April 2016

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different themes, and readers can jump into what is of interest to them on a particular day. This is a recommended approach, with the chapters rich in research it can be heavy going at times, lightened with her real life anecdotes such as humming Donna Sum-mer’s disco anthem I Feel Love before client workshops, and case studies from clients.

As one would expect from such a sea-soned presenter, each chapter ends high-lighting the key points for easy reference.

It’s hard to argue with the intention of the seven themes, or building blocks as Webb calls them, that the book is structured around: priorities (setting intentional direc-tion for your day); productivity (making the hours in your day go further); relationships (making the most of every interaction); thinking (being your smartest, wisest, most creative self); influence (maximizing the impact of all you say and do); resilience (sailing through setbacks and annoyances); and energy (boosting your enthusiasm and enjoyment). They literally offer something for everyone.

Again, much of the book is common sense backed up by research – sleep, exer-cise, diet, for example. “What’s changed is that the research now gives us more under-standing of why this advice has often helped earlier generations to navigate their lives,” says Webb. “For many of us, that evidence makes a big difference, because knowing the ‘why’ behind the advice makes it more likely that it sticks in our minds and more likely that we’ll take it. And just occasion-ally, new science contradicts old thinking.”

But there are useful reminders and some novel ideas to at least attempt to beat the daily grind. The appendix contains handy tools to navigate the typical challenges of the modern workplace – from conflicts with colleagues to dull meetings and the overflowing inbox.

As a girl, Caroline Webb wanted to be an astrophysicist. Then, she stumbled across economics and was quickly hooked, going on to study at Oxford and Cambridge.

“I loved the fact that it was a rigorous approach to ‘human stuff’,” she says. Webb’s first job as an economist in the 1990s was focused on transformational change in Central and Eastern Europe after the Berlin Wall came down. “It was fascinating to see the interplay between psychology and economics as people there experimented with new ways of living their lives.”

In effect, the wall coming down cemented what was to become a lifelong interest in behav-ioural change and now the focus of her book, How to Have a Good Day.

However, Webb’s first job was in a run-down supermarket, stacking shelves and working the till. On the face of it, not a great job. But strangely, she liked it, felt useful, and there was camara-derie among the staff. “Later in life I had far fancier jobs, but that early experience of work taught me that even in the worst of situations it was possible to find some enjoyment if you had some of those qualities in your day.”

“I think I wouldn’t be qualified to write a book about having a good day if I hadn’t had plenty of bad days in my life. I remember one day I was photocopying a confidential document for a meet-ing when the document got eaten by the photocopier. I couldn’t walk away because the document was confidential, but it was far worse than a normal paper jam – so I had to work out how to fix the

photocopier, while people watched and giggled. There was the time I was giving a big presentation and the heel broke off my shoe, landing me on the floor.”

“There’s plenty that we can’t control in life. But I’ve always been interested in the wiggle room that we have around the constraints we face. So much of the way we experience life comes down to the choices we make. And I refer to my own book time and again to remind myself of those choices.”

The focus of her work is to translate science from multiple disciplines into practical advice, utilizing the primary

research of others. She describes herself as a “behavioural scientist,” drawing on research from the behavioural corners of psychology and neuroscience as well as economics, and wanted to write the book to reach a much larger audience than she could through coaching.

“The boundaries between the disciplines are becoming quite blurred. All three fields are full of researchers

interested in exploring what’s going on in our heads – they’re just using comple-mentary techniques to do it. I loved having a chance to properly organize my thoughts around all the research I’d been reading and using for years.”

While "work" is the focus of the book, Webb says the lessons can be applied to any aspect of your life to realize greater work-life balance, or by colleagues and family members. “Apparently teenage children are often the focus of their first attempts at using the techniques in the relationships sec-tion of the book,” she says.

Author interview:Caroline Webb

April 2016 53

Life and everythingAs recommended by Institute members

My ideal home design is similar to what AVT is building for a condominium in Malaysia now, where houses are stacked vertically in a high rise. The feeling of a house is kept although the structure is of a condominium.

The home is two levels and is generously lit up by natural lighting with sliding doors that open to a wide terrace. This connects the living space to the outdoor environment

to enhance the feeling of openess in the home.

The rooms would be tightly organized in one area to liberate the front half of the home and to blend design with nature. There would be a densely vegetated garden with a private enclosure that is open to the sky.

I would include a slanted dormer window in the living room that can be opened to see the stars every night and build slides

and toys in a children’s room for a happy environment.

An intelligent home system that connects appliances and electronics to the Internet is also must in today’s interconnected landscape. The system can predict wake up times and coordinate things like coffee machines and bread machines to start up accordingly, thus better servicing the home owner and creating an efficient household.

Jessie Yan, Finance Director of AVT Design, shares a concept for her ideal home

Thanks to the Internet and online travel websites, planning leisure travel oneself is becoming a trend for individuals nowadays. How-ever, keep in mind things like transportation and accommodation while planning. Here are tips that may come in handy:1. Allow sufficient time for planning: Some people have an idea

of where to go but hesitate on making plans, leading to missed chances of booking flights and hotels at a lower cost. Take

time to browse travel blogs and do research to find your travel objective.

2. Travel during off-season: Always try to avoid public holidays if you are a budget traveller.

3. Always have a Plan B: Most travellers won’t be able to smoothly follow their plans during the trip. It is good to have an alternative for unexpected situations.

Viking Yuen, Accounting Manager of Travelzen, shares tips for planning leisure travel

SaveHome design

Go

Wat Arun in Bangkok

54 April 2016

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As professionals, suits in dark colours have occupied half of our wardrobes. While dressed in dark tones, I like wearing accessories that can provide a sparkling effect. Accessories with geometrical elements are what I especially love. Geometry represents simplicity and lines form shapes, which allow many possibilities for patterns and show character. 24 karat gold accessories in the shapes of diamonds or hexa-gons with stones in black or brown colours help enhance one’s independent and strong image in the workplace.

Diamonds are a brilliant gift from nature

and are so pure and different from other materials. Jewellery designed with simplicity best expresses the elegance of diamonds, and of women. The Grace series, with a pattern of diamonds from small to large is clean and gorgeous.

Work hard. Play hard. Some gold accessories in teddy bear, lipstick or high heel designs look cheerful and are suitable for after-work parties. These designs wowed me when I first saw them because I never imagined lipstick or high heels could be used as earrings or pendants. They’re playful and fun.

How to stand out by Gloria Chan, Finance Manager of Just Gold

SaveJewels

Best travel apps by Anthony Sit, Director of the Engineering Inspection Department (Hong Kong Section), Huawei Technologies

A great thing about working in a multinational corporation is that I have plenty of travel opportunities to visit places all over the world, from fully developed countries in Europe to developing countries in Latin America, Africa and the Middle East. I always manage to find some time to explore each country I visit during the weekend. One of the best ways to explore is to drive wherever you want to go. I usually use Google Maps as my navigator but sometimes it might not be the best option considering the network coverage and data consumption. Here are some other options in the market:

Sygic is the world’s most installed offline navigation app, supported by TomTom Maps and other providers, and offers more than 30 languages including Chinese. I use Sygic quite often and its offline map works very well as the network coverage in many

countries can be extremely bad and data can be very expensive. Although Sygic is not free, it's absolutely worth the purchase and you can enjoy a lifetime upgrade on maps as well.

If you are keen on finding a free app, Waze is a good option and differs from traditional GPS navigation software in that it is community-driven. It gathers complementary map data and traffic information from its users and is free to download and use. Waze is great because it enables users to report real-time accidents, traffic jams and more. In many occasions, it has helped me pick alternative routes with less traffic jams. If you are travelling in groups with few cars, you can create a group in Waze and locate all car users on the map, which makes group travel much easier and more fun.

Regardless of which app you're using, always drive safe and enjoy your travels.

Sygic Waze

Party Fun collection

Grace collection

Rock & Roll Stud

Rock & Roll Comb

April 2016 55

Hong Kong’s humorist talks to an accountant who has the power to ignite the imagination of many

56 April 2016

A life in the day…. with Nury Vittachi

T he most powerful technol-ogy in history is not a prod-uct made by Apple, nor is it

an invention by Edison or Tesla. It is storytelling, a skilled technique, which was likely created by Homo sapiens around 50,000 years ago. Scientists talk of the development of “symbolic thinking” – a way in which words or images are used to conjure up alternative realities – and how it led to the explosion of human creativity that we see all around us today.

Humans are still addicted to stories. The average person spends many hours a week in fictional worlds, watching movies or reading books or comics – and the original form of storytelling, a human voice conjuring up tales for a human listener, is still popular too.

Tammy Fong’s journey to her current role as a storyteller is an interesting one – which is no sur-prise, since each human’s life can be seen as a story in itself.

Her parents fled from Mainland China to Hong Kong to escape the political upheavals of the 1950s. They were illiterate, so books were not a part of their lives.

But perhaps it was the insecurity of their history which had an effect on their children’s lives – for Tammy was encouraged to study hard, and when it was time to choose a pro-fession, she followed her brother’s advice and chose accountancy for the security that it offered.

She went from Chinese Uni-versity of Hong Kong to the firm that became EY, before moving to private firms as an accountant –

one a locally listed company, and then two multinational businesses. As an auditor, she realized that the numbers at which she looked also told stories – the tales of the com-pany’s fortunes, good or bad.

And like many people from an accounting background, she even-tually graduated from the finance department to become a business manager. “I actually preferred par-ticipating in the business side than just sitting in the office reviewing numbers,” Tammy says.

And that’s when she encoun-tered the world of stories at a professional level. She became regional book club director for Scholastic Asia, the Eastern branch of one of the most famous chil-dren’s book companies (and the firm that published the Harry Pot-ter books in the United States).

“My teams and I worked closely with schools on promoting reading among students. I occa-sionally went to schools to give talks about the importance of read-ing and books. On some occasions, I even told stories to students, or accompanied international story-tellers to schools,” she says.

Tammy realized that storytelling was a deep and almost magical art – and so went to the United King-dom to study the technique. That’s when she learned the psychology behind storytelling, and how it creates powerfully transformative images in people’s minds.

She found she had a talent for it, and went to have many happy sessions with live audiences: “I have experienced some good moments in which the audience

and I walked in an imagined world, in which we sighed together and laughed together.”

Today, Tammy has a daughter, so she can see close up the power of stories in a child’s life. But the accountant realizes that it’s vital to understand that stories are not just for children. “Storytelling is also good for grown-ups,” she points out.

“Storytelling ignites the imagina-tion and imagination breeds creativ-ity. Stories help people examine life from different angles and understand many ways of being. Storytelling can also bond a group of people as it creates a shared experience.”

Today, Tammy is back on the road – but she is not dealing with numbers on sheets of paper. She is reawakening the human imagina-tion, at schools and at businesses and in other communities.

So if anyone wants a different type of speaker at an event they are organizing, you know whom to call. And once you are sitting com-fortably, the magic can begin.

Once upon a time, in a land far away….

Nury Vittachi is a bestselling author,

columnist, lecturer

and TV host. He wrote

three storybooks for

the Institute, May

Moon and the Secrets

of the CPAs, May Moon

Rescues the World

Economy and May

Moon’s Book

of Choices

The storyteller’s magical tale