ISSUE 12 VOLUME 8 DECEMBER 2012

PLUS• BoostingthefortunesofSMPs•Institute’sbrightyoungmembers• ShereenTong,CFOofVTech

Accountants give back to the community

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A year of hot topics

COLIN BEERE

Dear members,

I t has been an eventful year for me, as your president, during which we saw global and local political changes. I wish to thank my two vice presidents, Susanna Chiu and

Clement Chan, other fellow Council members, the Institute’s management and staff led by our chief executive and registrar, Raphael Ding, and his pre-decessor, Winnie Cheung, and of course all of you for your support.

One of the highlights of the year was the events leading up to the LegCo debate about the introduc-tion of clause 399 to the Companies Ordinance, which relates to the criminal liability of auditors. While the outcome was not desirable, it was heart-ening to see a united front and strong lobbying from our members and other accounting bodies in Hong Kong. It was a genuine moment of solidarity and showed the Institute is truly nonpartisan.

In putting forward our views, we were not just focusing on the profession, but also on how we can support and contribute to Hong Kong as an international financial market.

As the largest professional body in Hong Kong, we have a significant role to play in contributing to society and we have some of the best brains in Hong Kong within the profession.

Two important elections took place in the city this year in which we actively facilitated our members to take part. In February, we invited candidates running to become chief executive of Hong Kong to meet you. We held another forum in September for you to meet the four candidates standing for the LegCo ac-countancy functional constituency election.

Audit profession reform was another hot topic during my presidency. It is a natural step to sup-port the global expectation that the profession has to be independently regulated. We have been

working closely with the Financial Reporting Council and other government departments, and also talked to international regulators. While the overall direction is clear, the devil is in the detail. We will consult you to understand your thoughts.

Reshaping the regulatory landscape is to strengthen Hong Kong as a capital market and protect investors, which is also our concern when we think about auditor liability. The collapse of an audit firm, especially a big one, would bring dras-tic disruption to the market. That is why we have been working tirelessly with our stakeholders to limit auditor liability, especially now that clause 399 has been passed.

At our recent conference, we heard much about issues shaping our profession at the moment. These include integrated reporting, which will ex-pand our perspective and opportunities on how we can make corporate reporting more useful to investors, stakeholders and the public.

This year, we achieved much in all of our work in relation to governance, standard setting, edu-cation, China and international relations, member services, communication and thought leadership. All of these, as well as the topics mentioned above, have been re-examined in the context of our sixth long-range plan. At the beginning of the year, we started to think about what the future needs and where the Institute was heading. Underpinning this is a stronger sense of how we as a profession can contribute more actively to Hong Kong and how we can make a difference.

Finally, I wish you all a great festive season and our profession all the best under the new leader-ship team. I encourage you to exercise your ability to influence and shape the future by voting for the new Council by 11 December.

Keith PogsonPresident

“ In putting forward our views, we were not just focusing on the profession, but also on how we can support and contribute to Hong Kong as an international financial market.”

President’s message

December 2012 1

2 December 2012

56 Business travel Honnus Cheung wanders around wonderful Copenhagen

58 After hours George W. Russell on wine; Alisha Haridasani on watches

60 Let’s get fiscal Nury Vittachi knows there’s no escape from death and taxes

LIFESTYLE

FEATURES

14 Beyond audit Small- and medium-sized practitioners face a competitive audit

market. George W. Russell looks at their prospects

20 Young guns Many Institute members under the age of 35 are on a fast track.

Jemelyn Yadao meets the profession’s youthful high-flyers

28 Success ingredient Shereen Tong is on the front line in the fickle world of consumer

technology. Alisha Haridasani interviews the CFO of VTech

34 Northern exposure Tourism is booming, thanks to Mainland visitors. George W.

Russell reports on the pros and cons

40 Giving backAlisha Haridasani and Jemelyn Yadao profile Institute members who make personal commitments to improving the lives of others

01 President’s message04 Institute news06 International news10 Greater China news

REGULARS

46 Fair value Gary Stevenson of BDO explains how property valuations can

comply fully with HKFRS 13 Fair Value Measurement

48 TechWatch 121 The latest standards and technical developments

50 Tech Q&A Your questions about standards answered

54 People on the move The latest professional appointments from around the region

55 Events A guide to forthcoming courses, workshops and member activities

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ISSUE 12 VOLUME 08 DECEMBER 2012 CONTENTS

President: Keith PogsonEmail: president@hkicpa.org.hk

Vice Presidents: Susanna Chiu, Clement Chan

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

Deputy Director of Communications: Stella To

Editorial Advisers: Daniel Lin, Clement Chan, K.M. Wong

Editorial Manager: John So

Editorial Coordinator: Maggie Tam

OFFICE ADDRESS:37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong KongTel: +852-2287-7228 Fax: +852-2865-6603

MEMBER AND STUDENT SERVICES COUNTER:27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong

WEBSITE: www.hkicpa.org.hkEMAIL: hkicpa@hkicpa.org.hk

M&L

Editor: George W. Russell

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

Copy Editors: Jemelyn Yadao, Alisha Haridasani

Production Manager: Jasmine Hu

Design Manager: Jennifer Chung

Editorial Assistant: Lucid Wong

EDITORIAL OFFICE:2/F, Wang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong

ADVERTISING ENQUIRIES:Advertising Director: Derek TsangEmail: derek.tsang@mandl.asiaTel: +852-2656-2676

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

© Hong Kong Institute of Certified Public Accountants December 2012. Print run: 33,810 copiesSubscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

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

4 December 2012

NEWSTHE INSTITUTE

Two lay members named to CouncilThe government has appointed Melissa Brown and Tam Wing-pong as new lay mem-bers of the Council of the Hong Kong Institute of CPAs. The appointments were made un-der the Professional Accountants Ordinance (Chapter 50). Brown, a fund manager, is a member of the Securities and Futures Com-mission public shareholders group. Tam, a veteran civil servant, was the postmaster-general of Hong Kong before his retirement. Their terms will start in December and last until 30 November 2014. They succeed Cath-erine Leung and Ambrose Cheung.

Annual report released,features arts as themeThis year’s Institute annual report is now available in English for members. The report features Hong Kong’s booming art industry as its theme and draws parallels with the ac-counting profession. The Chinese version will be available soon.

Members hold meetingswith Guangdong officialsRepresentatives of the Institute, its taxation faculty and other CPA firms met with senior representatives from the Guangdong Provin-cial Local Taxation Bureau last month. Mat-ters discussed in the meeting included the role and regulation of tax agents and value-added tax reform in Guangdong.

Table tennis team is a hit at tournamentThe Institute’s table tennis team came sec-ond in this year’s joint professional table tennis tournament, held on 4 November. The team competed against six other profession-al bodies representing barristers, surveyors, doctors, architects, lawyers and dentists. In the cross-border competitions in Guang-zhou, also held last month, the Institute’s badminton team won its championship, while the football and table tennis teams came second.

ObituaryThe Institute notes with regret the passing of Ho Sik-lan.

Companies take home awards for corporate governance disclosure

The Hong Kong Institute of CPAs has announced the results of the Best Corporate Governance Disclosure Awards 2012. This year saw several companies honoured for the first time, including The Link Real Estate Investment Trust, which won both platinum and significant improvement awards, Pacific Basin Shipping, awarded a special mention in the non-Hang Seng Index (large market capitaliza-tion) category; COSCO International Holdings, which received platinum award in the non-HSI (mid-to-small market capitalization) category; and Ping An Insurance (Group) Company of China, which took the gold award in the H-share companies and other Mainland enterprises category.

The judges presented diamond awards, the highest honour, to Prudential and CLP Holdings, noting that many companies and organizations in Hong Kong still have more to do to bring their corporate governance practices to the highest stan-dards. “This year, we refined the marking scheme taking into account the latest developments,” said Stephen Law, chairman of the awards organizing committee.

Evidence of good governance practices, which judges were particularly looking out for, included “preparing for the changing demands and expectations reflected in the new corporate governance code under the listing rules, which is being implemented in phases starting this January, and to have increased aware-ness of the impact their activities have on the community and the environment,” Law said.

The winners received their awards at a ceremony held on 23 November, with Sir C.K. Chow, chairman of Hong Kong Exchanges and Clearing, as the guest of honour.

Keith Pogson, president of the Institute, was named the 2012 Champion for the Advancement of Women at the Women of Influence Awards.

Pogson, who is also managing partner for Asia-Pacific financial services at Ernst & Young, was nominated by The Women’s Foundation, an organization dedicated to the lives of women in Hong Kong, for advocating the advancement of women in the workplace.

He told the South China Morning Post that he was both “flattered” and “sur-prised” to have won the award. “I am also slightly saddened there are not more men out there advocating and championing the advancement of women,” he added, noting that he is usually one of a few men at meetings held by the foundation.

Pogson provides mentorship to talented women with leadership potential. He is also helping to identify women who can become mentors. He has been involved in this work at E&Y for about five years and at the foundation for two years.

He stressed the importance of mentorship for young female professionals, say-ing that “it is about gender diversity and how to develop a person’s full potential regardless of gender.”

In 2012, the proportion of female members of the Institute rose to close to 50 percent. “This is a trend that will continue with increasing numbers of women entering the field,” said Pogson.

Group honours Institute president for advancement of women’s rights

Prudential, CLP receive top annual prizes

NEWSINTERNATIONAL

6 December 2012

Swiss bank UBS axed up to 10,000 jobs worldwide last month, immediately sending tremors across the European banking industry.

In London alone, the bank cut 3,000 jobs in dramatic style as employees turned up to find that their office entry passes no longer worked. They were then taken aside and given a letter asking them to stay away from the office until further notice.

The UBS move is reflective of a solemn mood in the sector. According to a report by Roland Berger Strategy Consultants published earlier this year, Cost Reduction in the European Bank-ing Sector, the industry will need to cut costs by at least 10 percent over the next five years in order to “achieve a 55 percent cost-to-income ratio by 2016, assuming a flat revenue growth environ-ment.” Half of the cost cutting

would come from workforce cuts, the report forecast.

According to the Financial Times, banks are facing cyclical issues that are dampening revenues, such as a weak global economy, low trading activity and a low interest-rate environ-ment. These have forced banks to scale back costs by restructuring, such as UBS’s decision to give up most of its fixed- income trading and the Royal Bank of Scotland’s

Japan giantscut down bygrim outlook

Three Japanese electronics brands delivered grim announce-ments last month, hinting at uncertain futures.

Television producer Sharp announced that its full-year net loss forecasts doubled to US$5.6 billion, raising “serious doubts about [its ability] to continue.”

Sony stated that while it is still making profit, it expects to sell fewer hand-held PlayStation portable products, TV sets and digital cameras. Despite this negative outlook, the company maintained its full-year profit forecast at US$1.63 billion, Reuters reported.

Meanwhile, Panasonic said it expected to lose almost US$10 billion this year amid low de-mand and a strengthening yen. The losses have driven the com-pany to restructure operations and cut 8,000 jobs in the second half of this year.

Looming U.S. “fiscal cliff” threatensto overshadow Obama poll victoryAutomatic tax rises, spending cuts set for 1 January

UBS cuts 10,000 jobs amid forecasts of banking sector shake-up

Barack Obama AFP

Americans celebrated the an-nual Thanksgiving holiday in November amid an atmosphere of guarded optimism that the government would avoid plung-ing the country over the so-called “fiscal cliff” triggered by auto-matic tax increases and spending cuts set to come into effect on 1 January 2013.

The looming financial crisis has taken the edge off President Barack Obama’s re-election on 6 November over Republican con-tender Mitt Romney. The victory allowed the Democratic Party to retain the Senate, with the Republican Party holding onto the House of Representatives.

The tax rise is due because several temporary tax cuts – together worth US$400 billion for 2013 alone, according to The New York Times – are scheduled to expire. Some of the tax cuts date back to President George

W. Bush’s administration, while Obama enacted others in 2010.

About US$100 billion in spending cuts will come from the end of some unemployment benefits, a reduction in federal healthcare payments to doctors and a US$85 billion federal bud-get cut, of which US$32 billion will come from military spending and US$53 billion from cuts to ed-ucation, healthcare, law enforce-ment and social programmes.

decision to shut down or sell its brokerage, cash equities and eq-uity capital markets businesses.

The Roland Berger study said that, while most banks have an-nounced cost-cutting, only a third of the top 25 banks have “an am-bitious cost transformation plan.” However, because of inherent differences across Europe, “Span-ish banks, and to a lesser extent, Italian and Greek banks need to make the most significant cuts.”

Only the federal social security system and the Medicaid health-care programme for the poorest households escape spending re-ductions. Benefit cuts to Medicare, a wider healthcare programme, are limited to 2 percent.

Corporations are already planning for the worst: Reuters reported that Wal-Mart Stores moved its planned dividend to December from January to help shareholders avoid a tax increase.

George Osborne, the United Kingdom’s Chancellor of the Exchequer, placed Mark Carney, governor of the Bank of Canada, at the head of the Bank of England in a bid to shake up the central bank.

Carney, the first foreigner to run the BoE in its 318-year history, will succeed Sir Mervyn King in July. The Financial Times reported that the move was hailed by the City because it sends the message that the U.K. is “open to business” from abroad.

It took Osborne nine months to attract Carney, who also heads the Financial Stability Board, the international body set up to monitor the global financial system. Carney’s basic salary will be £480,000 a year – an increase from Sir Mervyn’s salary of £305,000. He will be serving a five-year term instead of the usual eight-year term outlined in legislation.

December 2012 7

Canada bank chief named to BoE post

Economic reforms, central bank to be issues in Japan election

Japan’s prime minister, Yoshi-hiko Noda, dissolved parliament last month, placing the nation on track for a general election this month.

Surveys suggest the elec-tion will oust the current Japan Democratic Party and swing in favour of the Liberal Democratic Party led by Shinzo Abe who was briefly prime minister in 2006-07 before quitting due to stress. However, a minority govern-

ment or a fractious coalition are possible results.

Abe has called for drastic reforms of the economy with easing policies. According to a report by Bloomberg, two of the nine members of the Bank of Ja-pan’s board have already shown signs of favouring more stimulus measures, which is in line with Abe’s policy.

In light of deflation and a strengthening yen, Abe has also

called for an increased inflation target of 3 percent, compared to the central bank’s current 1 per-cent goal, which should weaken the Japanese currency. “There is no time to wait for the BOJ governor to change next year, so I want to act now,” Abe was quoted as saying by Bloomberg.

According to a Morgan Stanley report titled 2013: The Year of JPY Weakness, “additional pressure on the central bank to

Talks over European Union budgetend without deal amid divisionsNegotiations to restart next year after “convergence” reached

AFP

A European Union summit in Brussels held last month to decide the bloc’s budget for the next seven years ended without a deal.

According to the Financial Times, the proposed budget fell through because the European Council president, Herman Van Rompuy, was unable to find a middle ground between the spending demands of the southern nations, such as France, Spain and Italy, and proposed austerity measures from the northern members, such as the United Kingdom and Germany.

However, Van Rompuy did keep in place a spending ceiling and said talks would resume next month. “The talks... show a suf-ficient degree of potential con-vergence to make an agreement possible in the beginning of next year,” he told a news conference.

“We should be able to bridge

existing divergences.” The Euro-pean Council – which comprises the heads of government of the EU member states along with the president of the European Com-mission and the president of the European Council – oversees the EU budget.

The European Commission, the executive arm of the EU which drafts its laws, initially re-quested a budget for 2014-2020 of €1.025 trillion, an increase of

4.8 percent over its 2007-2013 budget. Van Rompuy said the ceiling for the next budget would be set at €973 billion.

At the end of the summit, British Prime Minister David Cameron, who was adamant on pushing through further spend-ing cuts, told reporters that the U.K. was “not going to be tough on budgets at home just to come here and sign up to an increase.”

German Chancellor An-gela Merkel echoed Cameron’s views on cuts but remained positive.“The discussions, both the bilateral discussions and the common discussion, have shown us that there is sufficient poten-tial for an agreement,” she said.

Although the discussions failed to yield any fruit, France was able to persuade Van Rom-puy to scale back the proposed cuts to agricultural subsidies and regional aid.

AFP

act more aggressively should ca-talyse sustained [yen] weakness.”

Furthermore, Liberal Demo-cratic Party officials told Bloom-berg that Abe might also consider changing the law to reduce the bank’s independence.

In September, Japan revised down its growth projections for the second quarter this year raising significant concerns about the world’s third largest economy.

Herman Van Rompuy

8 December 2012

Hewlett-Packard has accused Autonomy, the British software company it acquired last year for US$11.1 billion, of using misleading accounting practices to make it appear more profitable than it actually was.

HP, based in the United States, claims that Autonomy had “inflated” its value prior to the takeover as part of a wilful effort to mislead HP and shareholders.

Meg Whitman, HP’s chief executive, said a senior Autonomy executive came forward to reveal worrying practices.

“We launched... a forensic examination led by PricewaterhouseCoopers and uncovered a whole host of very concerning accounting improprieties and misrepresentations,” she told media.

KPMG was brought in by HP to conduct due diligence work prior to the acquisition. Whitman said that HP had also relied on Deloitte, the British com-pany’s long-term auditor.

As a result of the PwC investigation, HP now believes Autonomy was substantially overvalued due to the misstatement of its financial performance including revenue, core growth rate and gross margins, Accountancy Age reported.

The alleged accounting scandal has already cost HP more than US$8.8 bil-lion in charges. As a result of this, and a fall in the company’s share value and low returns from the merger, HP recorded a net loss of US$6.85 billion for the quarter ending 31 October.

Mike Lynch, Autonomy’s former chief executive, denied HP’s allegations. “They [the allegations] are completely and utterly wrong and we reject them completely,” The Daily Telegraph quoted him as saying.

HP has referred the case to the U.S. Securities and Exchange Commission and the United Kingdom’s Serious Fraud Office.

FTSE 100 choose onlyBig Four audit firmsA British Competition Commission inquiry into the audit market of the United Kingdom and Eu-rope has found that between 2001 and 2011, 100 percent of FTSE 100 companies used one of the Big Four and only switched within the Big Four instead of choosing mid-tier firms such as BDO or Grant Thornton. Of the FTSE 250, 80 percent switched within the Big Four when changing firms and only 3 percent tried other firms.

FSA selects Grant Thornton to report on HBOS failureThe Financial Services Authority of the United Kingdom has appointed Grant Thornton to re-port on the failure of HBOS after the Big Four ruled themselves out due to conflicts of interest. The report will look into the management and culture of HBOS for a treasury select commit-tee. The minutes from the FSA board state that Grant Thornton was chosen for “the seniority of the team [and] the mix of forensic and regula-tory skills.”

Former SEC official namedto replace Pacter at IASBMary Tokar, a former official with the Securi-ties and Exchange Commission in the United States, has been appointed to the International Accounting Standards Board from January 2013. Tokar will replace former Deloitte Hong Kong director Paul Pacter, whose term expires at the end of this year. Tokar was most recently global leader for KPMG’s IFRS group, leading the Big Four firm’s dialogue with the global accounting regulatory and standard-setting communities.

Rice giant files suit afterMuddy Waters criticismThe world’s second-largest rice trader, Singa-pore-based Olam International, has filed a le-gal suit against investment firm Muddy Waters after its founder, Carson Block questioned the commodity trader’s accounting methods. The legal action was initiated in the High Court of Singapore following Block’s statements against the company at a conference in London on 19 November. Olam said Block’s comments were malicious falsehoods.

Former Stanford executives found guilty in US$7 billion Ponzi schemeTwo former accounting executives, Gilbert Lopez and Mark Kuhrt, have been convicted of helping fraudster Allen Stanford cover up a Ponzi scheme that cost investors US$7 billion.

Both Lopez, Stanford International Bank’s former chief accounting officer, and Kuhrt, Stanford’s global controller, were found guilty by a Texas jury of nine out of 10 wire fraud counts and one count of conspiracy to commit wire fraud after 16 hours of deliberation.

United States federal prosecutor Jason Varnado said during the closing arguments that Lopez and Kuhrt “knew the bank was doing one thing and promising investors another, and they helped hide it. The only explanation for that is a criminal explanation.”

The two face sentences of more than 20 years. Lopez and Kuhrt were the last former executives at the bank to face criminal trials for the fraud.

HP accuses British acquisition of deception over profitability Computer giant takes US$8.8 billion charge

NEWSINTERNATIONAL

10 December 2012

NEWSGREATER CHINA

The world’s biggest online auc-tion website, eBay, has agreed to team up with a Chinese company in a bid to expand its presence in the Mainland and tap into its booming Internet market.

The firm will collaborate with Xiu.com, a Shenzhen-based lux-ury online retailer and launch a localized shopping portal named eBay Style. The site already has up to 5,000 brands in apparel, handbags and shoes on board.

Due to the growing popular-ity of online shopping, China has become a key market for e-commerce with Internet firms. According to China’s Ministry of Commerce, the local e-commerce market was worth more than US$120 billion in 2011, a 53.7 percent increase from 2010.

Melanie Tan, vice president of eBay, told the media that there

has been “a 40 percent year-on-year increase of goods bought by Chinese consumers navigating eBay.com in English.”

“We believe that in the future, Chinese consumers will use eBay as a passport to global fashion styles, especially for leading women’s brands and accessories, and menswear,” she added.

In welcoming the new partnership, George Ji, CEO of Xiu.com, identified eBay, with its global access, as “an ideal partner” for his firm. “Through our curation efforts, we also hope to introduce a new, more inspir-ing buying experience to Chinese consumers,” he said.

The chief executive officer of eBay, John Donahoe, had ordered a renewed push into China after his predecessor, Meg Whitman, had difficulty gaining traction in Asia a decade ago, Businessweek reported recently.

Ebay first launched in China in 2002, but was undermined the year after by a more innova-tive local competitor in Taobao.com. Taobao outdid eBay in China in terms of its payment systems, advertising network and customer service.

Baidu, China’s most popular search engine, in its debut United States dollar offering last month, sold US$1.5 billion worth of bonds.

Selling in two parts, the Baidu bond deal was priced at a spread of 160 basis points over treasur-ies for the five-year and 185 basis points over treasuries for the 10-year, according to a term sheet seen by the Financial Times.

This was about 100 basis points more expensive than what Google achieved in a debt sale

last year, yet 100 basis points cheaper than that paid by Ten-cent Holdings, a Chinese Internet company, when it last raised dollar debt, the FT reported.

Also according to the paper, the deal was mainly marketed to high-grade debt investors rather than to emerging market inves-tors in order to raise the money at a lower cost than emerging market companies have been able to achieve previously.

The Internet giant said it planned to use some of the

money to pay down existing debt and as a “war chest” for strategic purposes, including overseas mergers and acquisi-tions. “Our operations outside of China, though very modest at present, are growing,” Kaiser Kuo, director of international communications at Baidu, told Bloomberg.

“Our bond is really about having a ready war chest that gives us flexibility for a range of future strategic uses. While we have no specific [merger

Wang Qishan, an experienced trade negotiator and former banker, has been appointed to lead the Communist Party’s Central Commission for Disci-pline Inspection, the organiza-tion in charge of rooting out corruption among officials.

He was also named a member of the new seven-man Politburo Standing Committee, headed by new party chief Xi Jinping, that will guide China in the coming five years.

Observers expect Wang, former president of China Construction Bank, to face many challenges. Wang Yukai of the Chinese Academy of Governance told the South China Morning Post: “He has a strong personal-ity... It would be very tough for someone with such characteris-tics in the party disciplinary job.”

Banker takes up new job as anti-graft chief

eBay to embark on partnership with Shenzhen online retail siteHeavy use of English site sparks renewed push into Mainland

Baidu sells US$1.5 billion in bonds to fund M&A “war chest”

John Donahoe

and acquisition] deals pending currently, we will be attuned to opportunities,” Kuo added.

J.P. Morgan and Goldman Sachs handled the deal with ANZ, Bank of China Hong Kong, Deutsche Bank and Mor-gan Stanley.

Baidu accounted for 78.6 percent of China’s search engine market by revenue in the third quarter, according to Analysys International, a researcher focused on the Chi-nese Internet market.

AFP

December 2012 11

Tycoon Zhang Zhirong abruptly resigned as chairman of shipbuilding empire Rongsheng Heavy Industries and real estate company Glorious Property Holdings last month after a settlement was reached with regulators in the United States over insider trading by another company he controlled.

The Hong Kong-based Zhang left both businesses about five weeks after Well Advantage, another company he controlled, agreed with the U.S. Securities and Exchange Commission to pay US$14 million as part of the insider-trading probe.

The SEC said traders at Well Advantage made more than US$7 million in illegal profits by acting on prior information of an acquisition deal between Chinese state-owned oil firm CNOOC and Canada’s Nexen.

Rongsheng said Zhang was stepping down as chairman “to devote more time to his personal endeavours,” according to a statement posted on the Hong Kong stock exchange. Zhang also announced that he was stepping down as chairman of Glorious properties.

Zhang was replaced at Rongsheng by its chief executive officer, Chen Qiang, and at Glorious by CEO Chen Lixiong.

Manufacturing activity in China expanded in November, accord-ing to a report by HSBC. The data indicate signs of a recovery of the world’s second largest economy.

The preliminary HSBC China Manufacturing Purchasing Managers Index, which was released on 22 November, rose from 49.5 in October to 50.4 in November – the first sign of expansion in 13 months.

Qu Hongbin, chief China economist at HSBC, wrote in a note accompanying the results that the reading “confirms that economic recovery continues to gain momentum towards the year end.”

In the past year, China’s manufacturing sector has been

hit by a slowdown in demand for Chinese exports from the United States, the euro zone and Japan.

Analysts have cited mea-sures introduced by China’s policymakers to boost growth as reasons behind the sector’s improved performance.

In the past few months, the central bank has relaxed lending, approved infrastruc-ture projects and have also cut interest rates twice since June. Qu cautioned that the recovery is still in its early stages and that global economic growth remains fragile. “This calls for a continuation of policy easing to strengthen the recovery,” he said in the report.

Beijing is likely to continue to loosen its monetary policy

although it could shift to a more neutral stance later next year, Citigroup economist Ding Sh-uang told Dow Jones Newswires.

The results of the HSBC report will be confirmed in the index’s final reading on 3 December, two days after the official China Federation of Logistics and Purchasing index is released.

The HSBC index has shown weaker readings than the of-ficial one since mid-2011, which analysts say is because the bank puts more weight on smaller, private-sector companies.

Adding to the recent signs of recovery, additional data found that industrial profits in China rose 21 percent in October from a year earlier.

Tycoon quits asinsider tradingscandal settled

Ping An, PetroChina to anchor PICC’s IPOChina’s second-largest insurance company Ping An and oil and gas company PetroChina have been named as anchor investors of the HK$27.8 billion initial public offering of state-owned People’s Insurance Company of China, set to be Hong Kong’s biggest IPO in more than two years.

Ping An will subscribe to around HK$778 million worth of PICC shares while PetroChina has pledged around HK$1.16 billion, according to The Standard.

The two companies add to the deal’s list of investors drawn

by PICC’s growth prospects and presence of “cornerstone” investors such as American International Group. Shares held by cornerstone investors have a lock-up period during which they cannot be sold, but there is no such condition for anchor investors.

PICC, China’s largest non-life insurer, has already attracted around HK$3.6 billion in subscriptions through margin orders from local retail investors, an amount which indicates a 1.6 times oversubscription of its HK$1.39 billion retail target.

Dah Sing Financial Holdings is expected to invest in the offering while PICC, according to Reuters, will also issue about 30 billion yen worth of shares in Japan.

The group offered 6.55 billion shares under the international offering and 344.9 million shares for local retail investors at a price range of HK$3.42 to 4.03 per share, the company said in a prospectus issued with the Hong Kong stock exchange.

The offering is the biggest in Hong Kong since AIA, the Asian life insurance arm of AIG, raised HK$17.9 billion in October 2010.

Upbeat HSBC index reading shows signs of growth in manufacturingBeijing’s policy measures cited as major factor

12 December 2012

NEWSGREATER CHINA

CCB chairman defends Mainland bank standards Wang Hongzhang, chairman of China Construc-tion Bank, defended the nation’s accounting standards amid concerns that banks were under-reporting bad loans. Wang told the Fi-nancial Times that when regulators demanded accuracy and transparency from the country’s financial institutions, it strictly complied with rules. CCB, China’s second biggest bank by as-sets, has under-performed the stock market by a wide margin this year.

New yuan lending slumps to yearlong low point New yuan-denominated lending dropped to its lowest monthly point in a year in October, down by 14 percent year-on-year. Lenders ex-tended 505.2 billion yuan worth of new loans, which fell below the 590 billion yuan the mar-ket had expected, according to data released by the People’s Bank of China on 12 November.

National statistics office revamps GDP calculationsChina will revise its gross domestic product accounting methods in line with international standards, the National Bureau of Statistics said. China’s current methods are derived from the 1993 version of the United Nations System of National Accounts, which was revised in 2008. The bureau told Xinhua it would change its sys-tem to reflect the revisions.

E&Y names winners of entrepreneurship awardsErnst & Young has announced the two winners of the E&Y Entrepreneur of the Year 2012 China awards. Ma Weihua, executive director, presi-dent and CEO of China Merchants Bank, won the award for the Mainland region and Michael Wu, chairman and managing director of Hong Kong Maxim’s Group, was presented with the award for the Hong Kong and Macau region.

CorrectionA news item in the November issue of A Plus incorrectly described a new charge relating to certain Hong Kong real estate transactions. It is a buyer stamp duty, not a property tax.

The BDO group has announced that a significant part of PKF China will join BDO Li Xin before the end of this year.

About 350 PKF partners and staff will join the local BDO firm in China. The move reinforces BDO Li Xin’s position as the largest Chinese owner-managed CPA firm and makes the merged firm the market leader in serving state-owned enterprises in China.

Martin van Roekel, the worldwide chief executive officer of BDO, said he believes that the addition of PKF contributes to the firm’s future growth in the Mainland. “I visited the impressive new BDO Li Xin office in Beijing,” he said. “The new partners all expressed their positive agreement with the merger.”

In welcoming the merger, Jiandi Zhu, managing partner of BDO in China, said he expected the “combined expertise of our  partners and staff with state-owned enterprises as well as with listed companies – including H-share busi-nesses – will build upon our approach as well as our position in these market segments.”

The move follows the long-expected merger agreement between BDO and PKF in the United Kingdom as well as a merger of the two firms on the Austra-lian east coast.

BDO Li Xin to absorb 350 PKF staff

U.S. regulator completes first round of observationsPCAOB hails development as breakthroughThe Public Company Accounting Oversight Board in the United States has com-pleted a round of observations of inspections of Chinese audits.

The PCAOB also expects talks between Chinese and U.S. officials on access to audit documents to take place by the end of the year.

James Doty, chairman of the PCAOB, said that the talks could lead to a significant breakthrough. “The fact that it is a serious discussion with decision-makers who are aware of the complexities of the issues on both sides is new,” Reuters quoted Doty as saying.

According to Doty, the first of the PCAOB observations took place in late October, but there is still no deal allowing accounting regulators from the U.S. to do joint inspections with the Chinese.

Officials from China’s Ministry of Finance and the China Securities Regula-tory Commission are expected to travel to Washington before the end of the year to discuss the release of audit documents to the U.S. “These are very seri-ous, significant steps for them to take, given where we started,” Doty said.

The U.S. Securities and Exchange Commission will also be involved in the talks. In October, the PCAOB reached an agreement with Chinese authorities allowing it to inspect the audits of U.S.-listed companies from China to address numerous corporate scandals. Before an agreement was reached, the PCAOB and the SEC had been negotiating for months with Chinese counterparts. China had previously resisted, citing sovereignty concerns.

SMPs and SMEs

14 December 2012

BEYOND AUDITING

December 2012 15

As audit work becomes less profitable, small- and medium-sized practitioners have been exploring the option of diversifying. George W. Russell looks at practical ways SMPs can branch outIllustrations by Cameron Law

16 December 2012

SMPs and SMEs

ost small- and medi-u m - s i z e d enterprises in Hong

Kong have a simple, if unchallenging, rela-tionship with their accounting firm. Each year an accountant – usually a sole propri-etor or a partner in a small firm – files the company’s audited financial statements and tax returns.

Occasionally, a more ambitious com-pany seeks a loan from a third party, which might involve the accountant presenting the company’s audited accounts to the pro-spective lender. Few SMEs demand much more from their accountant; few small ac-counting firms are able to provide much more, anyway.

In most cases, it appears that small- and medium-sized practitioners have been con-tent to continue with the business they have – afterall, all incorporated companies in Hong Kong have to be audited regardless of size.

“SMPs in Hong Kong continue to rely heavily on audit and tax services as their main engines of growth,” says Albert Au, chairman and chief executive officer of BDO Hong Kong and a past president of the Hong Kong Institute of CPAs.

However, SMPs are facing a changing world, especially since the global financial crisis unfolded. Accounting firms increasing-ly have to compete with cheaper alternative service providers that can undertake book-keeping, tax and other non-audit functions not statutorily required to be performed by

CPAs. Such companies can charge up to 30 percent less than a CPA firm for a typical cor-porate tax filing, accountants estimate.

Au, who is also a member of the Insti-tute’s SMP leadership panel, says small firms will have to change their business model if they are to flourish. “SMPs need to adjust and find life after audit,” he urges.

However, SMPs say diversification isn’t as simple as it sounds. “We all try to diver-sify into non-audit work,” says Erik Cheng, an Institute member who heads Erik Cheng & Company CPA, an SMP in Wanchai. “How-ever, this is very difficult.”

The Institute’s definition of an SMP cov-ers a wide range of firms, from sole propri-etorships to medium-sized firms. As of 31 October, 1,054 firms (85.5 percent of the Institute’s 1,233 member firms) are sole pro-prietorships. A further 163 (13.2 percent) have four or fewer CPAs as partners.

Size does matter, say CPAs, arguing that diversification means adding to a firm’s head-count. “We are not able to diversify into non-audit assignments owing to the lack of a sup-porting workforce,” says Institute member David Ng of K. H. Ng & Co CPA in Mongkok.

Business challengesSMPs rely on business from Hong Kong’s SMEs, a client base still feeling the effects of the global economic downturn.

“SMEs have had to brace themselves for a challenging 2012 in the wake of the euro crisis and the U.S. economic recession,” says Albert P. K. Lau, vice chairman of the Hong Kong Small and Medium Enterprises Gen-

eral Association, the city’s small business chamber of commerce.

The Hong Kong government defines a SME as any manufacturing business em-ploying fewer than 100 people in Hong Kong, or any non-manufacturing business employing fewer than 50 people. That defi-nition fits about 98 percent of all Hong Kong businesses, which together account for the employment of 60 percent of the city’s work-force, the association says.

While the 2012-13 government budget alleviated some financial burdens on SMEs through profits tax rebates and a waiver of business registration fees, lobbyists, such as the association, argue that most small busi-nesses in Hong Kong are under pressure.

The cost of professional services is a con-cern for SMEs, according to Cliff Chan, chief

December 2012 17

executive officer of TeleEye, a medium-sized company in Lai Chi Kok that develops video surveillance products.

Chan, who is also chairman of the SME committee at the Hong Kong General Cham-ber of Commerce, says the smallest of SMEs rely on simple cash accounting and use CPAs mainly for tax advice.

However, he says that some are looking to grow with the help of their accounting firm. “Some want to become bigger – maybe they want to find an investor – then they will need more services.”

There already are accounting firms and professional services firms responding to those expansion needs by connecting SMEs with funding sources.

Another in-demand niche that smaller CPA firms can fill is corporate secretarial

services. This covers a wide range of tasks, from managing personnel and maintaining company records and registers, to ensuring that the company complies with regulations or providing advice on corporate gover-nance matters.

Exploring avenuesMany SMEs have considered listing on the stock exchange but few SMPs are equipped to handle the process for them. That forces SMEs to seek the services of larger accounting firms. Chan says he found the fees quite expensive when TeleEye sought its own listing on the Growth Enterprise Market. He says he would have used an SMP if it had the expertise.

Cheng of Erik Cheng & Company points out that there are regulatory obstacles to some fields. CPAs, he says, cannot undertake

bookkeeping services for audit clients, due to conflict-of-interest concerns. Complex tax investigations tend to go to larger CPA firms, he adds. While there is no blanket ban on providing non-audit services to audit clients, Institute members should ascertain exactly what services they are able to perform and adhere to the code of ethics.

Cheng says that providing audit or other services to listed companies tends to be off-limits to SMPs, citing the elevated risk and compliance factors and a heavier regulatory burden. “That leaves the company secre-tarial area as the most logical growth area,” he says. “But there are many corporate sec-retarial firms operating at very competitive prices already.”

Reporting on solicitors’ accounts can be a lucrative field for SMPs, as only the largest

SMPs and SMEs

corporate law firms use the Big Four or mid-tier accounting firms. However, there have been some recent regulatory pitfalls, such as CPAs falling foul of The Law Society of Hong Kong regulations, but these can be easily avoided. (See SMPs must keep a keen eye on legal pitfalls on page 19).

Some CPAs believe consulting – specialist advisory services traditionally undertaken only by the Big Four and the largest of the me-dium-sized firms such as BDO, Grant Thorn-ton, Mazars and RSM Nelson Wheeler – is not automatically closed to SMPs.

In 2006, Thomas Wong, founding part-ner at CWCC CPA in Tsim Sha Tsui and an Institute member, launched a consulting desk for Latin American companies. He says, while auditing accounts for 50 percent of CWCC’s revenues, revenues from its con-

sulting and business advisory practice have grown by about 35 percent per year over the past three or four years as a result.

Under the Closer Economic Partnership Arrangement between Hong Kong and the Mainland, SMEs are encouraged to export products and services to China. Some SMPs believe the Mainland might help hold the key to success. They expect the Qianhai Bay free-trade zone in Shenzhen to present op-portunities under CEPA that might create a model for other areas of the Mainland.

“I see the future for SMPs as good be-cause of the hinterland of China supporting us,” says Wong. “There are a lot of CPA firms in China that want to gear with local CPAs here, whether big, small or medium.” In such cases, Institute member firms could serve as an intermediary for Chinese companies

18 December 2012

“ In any organization you need to diversify, just as Hong Kong diversified from a manufacturing hub to a financial hub.”

December 2012 19

SMPs must keep a keen eye on legal pitfallsOne task often undertaken by small- and medium-sized practitioners is to give an ac-countant’s report on compliance with the Solicitor’s Accounts Rules by a solicitor’s firm. This report must be submitted annu-ally by legal professionals and firms regu-lated by The Law Society of Hong Kong.

Linda Biek, the Hong Kong Institute of CPAs’ compliance director, says that there is a rising incidence of improperly filed or substandard reports by Institute members brought to her attention by the society re-cently, but it appears that the problems are not hard to address.

Some cases appear trivial, such as the failure to use the correct forms or adequate-ly document the work performed. However, the filing of accountant’s reports are subject to specific rules and regulations.

“The Institute provides tools and re-sources to enable members to do this work

well,” says Biek. “There’s clear guidance,” she adds, referring to Practice Note 840.

Improperly filed reports cause some concern because solicitors often hold in trust large amounts of money on behalf of their clients.

Chris Joy, the Institute’s executive direc-tor, says that legal sector regulators take a grave view of any apparent breaches of the rules governing client accounts. “Once you hold third-party client money, the public expectation of correctness increases,” he says.

Despite the recent problems, Biek says that solicitors make ideal clients for SMPs who seek to broaden their customer base. “It’s a great business for them,” she says. “It should not be a high-risk engagement if CPAs utilize the available resources.”

Biek adds that the procedures to per-form the engagements are not compli-cated and the tools are available on the Institute’s website. “PN 840 sets out the requirements like a cookbook,” she says. “Just follow the recipe.”

(served by Mainland CPA firms) that want to establish themselves in Hong Kong.

CWCC has already expanded into writ-ing business proposals for Mainland clients.

Taking the next stepsOther SMPs who have made a transition be-yond audit say choosing employees with the widest experience is essential, especially for smaller firms. “We encourage employees to broaden their exposure and to expand their competencies in order to offer a wider range of services to clients,” says Philip Fung, an Institute member and a partner with LAK Associates CPA in Central.

He says transaction services – including internal control reviews, financial due dili-gence, merger and acquisition advice, busi-ness valuation and liquidations – account for

25 percent of his firm’s turnover.Networking is another critical skill for

SMPs wanting to expand their business op-portunities, Fung adds. “We have been de-veloping networks and cooperating with other accountants and other professionals such as lawyers, corporate financial advis-ers, tax experts, executive and independent non-executive directors of listed companies, chartered secretaries and qualified valuers,” he says.

Au at BDO sees three areas where the In-stitute can help: • Communicating with regulators on the

burdens faced by SMPs;• Facilitating contact and advocacy with

stakeholders such as investors and the general public about the value of auditors and professional accountants;

• Providing technical support and profes-sional guidance for SMPs.

While the Institute can advise and guide, some CPAs say there’s no substitute for ini-tiative. “In any organization you need to di-versify, just as Hong Kong diversified from a manufacturing hub to a financial hub,” says Wong at CWCC. “One should not just hang on. If you stuck with manufacturing you would be dead.”

Wong credits the Institute for helping him develop his Mainland client roster by organizing a delegation of CPAs to China more than 15 years ago, of which he was a member.

“Go to China,” he advises SMPs who want to prosper. “My advice is get a girlfriend up there!” he jokes.

20 December 2012

Rising stars

Today, accountants are taking charge of their careers at an earlier stage. Jemelyn Yadao talks to bright Institute members under the age of 35

YOUNG GUNS

“Just knock on the door and the more you consult, the more confident you are with your decision and the closer you will be to your colleagues.”

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December 2012 21

YOUNG GUNSRoy LeungPartner, audit and assurance

Benny Tong Manager, audit

“People in the U.K. are more focused during office hours... But, I don't think the workload in Asia is much more than in the U.K.”

t 34, Roy Leung is one of the younger partners at KPMG in Hong Kong. Rather than keeping a low profile and deferring to se-

nior colleagues, he finds himself often knock-ing on their doors.

Leung says such an “open door” culture has enabled him to learn a lot in his relatively short time at the firm. “We don’t really have barriers,” he says. “Just knock on the door and the more you consult, the more confi-dent you are with your decision and the clos-er you will be to your colleagues.”

A member of the Hong Kong Institute of CPAs, Leung’s career is illustrative of the sometimes rapid ascent that young accoun-tants can make.

With hard work, accounting firms of-fer young CPAs some of the most promising career paths of any in Hong Kong. Large ac-counting firms are always top of the list of the world’s best employers, according to dif-ferent global surveys.

Leung joined KPMG straight after gradu-ating from the London School of Economics in 2000. A decade later he was promoted to partner, specializing in providing audit and assurance services to clients that are listed or preparing for an initial public offering.

He has since been involved in IPO proj-ects for companies overseas including in South Africa and Russia.

“I think it’s really good not just to work with them through the phone or email, but to be in

their offices, get to know their culture and learn what their best practices are and then bring those things to Hong Kong,” he adds.

Long hours are unavoidable for those in the profession and generally in Hong Kong. However, while it is hard work, Leung says those busy periods and peak seasons are important. “You get the first deep learning curve out of it, so after completing every en-gagement you always feel that you have de-veloped yourself to a certain extent,” he says.

With auditors usually working in teams, Leung finds himself constantly working with people of a similar age group. To him, this makes ploughing through work after regular office hours much more tolerable.

“You can work in a less challenging work-place, but you won’t get as much as I got over the past 12 years.”

Embrace changeThe career advancement of bright young CPAs has led to many to work abroad. Benny Tong, 31, is one, currently working at Price-

22 December 2012

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Rising stars

December 2012 23

A PLUS

“I don’t see any major issues with becoming a female director... It’s all about enthusiasm and professionalism–[qualities] that are most valued by people in the field.”

Joyce Lee Director, audit

waterhouseCoopers in London as an audit manager.

Tong describes his office – 1 Embank-ment Place, one of seven PwC locations in the British capital – as really globalized and international.

“There’s not just people from Britain. It’s quite a good thing that you can meet people who you wouldn’t usually meet in Hong Kong,” he says.

Tong, who was promoted to audit se-nior manager before being seconded to the United Kingdom a year ago, can’t help but compare work-life balance in London with Hong Kong.

“You can see the difference... The people in the U.K. are more focused during office hours,” he says. “They try to get all the things done in a short time so that they can leave work earlier, but in Hong Kong people tend to

work long hours. But, I don’t think the work-load in Asia is much more than in the U.K.”

Having worked in the same office in Hong Kong for eight years, assisting clients mainly in Greater China, one of Tong’s biggest diffi-culties came when he first moved to London in November 2011. “I didn’t have much expe-rience working with westerners or foreigners. Although the work is the same, I needed to get used to a brand new client base and working with brand new people,” he recalls.

With the subject of accountants and long working hours constantly recurring, Tong brings the topic to a more positive light. “For young professionals, this is a very good in-vestment for your future, because you are doing two or three times more than [what] all your peers or other people are doing.”

Tong’s relative youth doesn’t mean he can keep pace without trying hard.

“All the accounting standards, all the au-diting standards are always changing, so you really need to keep yourself up to date, do some reading, training, and go to work-shops,” he says.

Learn from the bestJoyce Lee is attracted to fresh challenges. This is one of the reasons why joining the profession appealed to her in the first place. She admits, however, that work pressure and long hours are just some of the not-so-new hurdles she encounters continuously as audit director at Grant Thornton.

“One of the main challenges involves get-ting and understanding new clients, their organizations and their practices,” says Lee, an Institute member in her early 30s, who joined the firm in 2007 and previously worked for other large CPA firms.

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Rising stars

24 December 2012

“From my experience, working over-time means when we deliver more than we expected, the extra effort we contribute is less than the harvest we can enjoy afterwards.”

Francis Nip Senior manager, assurance and business advisory

There has been debate about under-rep-resentation of women in the higher echelons of the profession. Lee says she does not see notable obstacles to progress. “I don’t see any major issues with becoming a female di-rector. Many senior accountants are female and they are high performers in the indus-try. It’s all about enthusiasm and profession-alism –[qualities] that are most valued by people in the field.”

As well as challenging work situations, younger members such as Lee cite the ears and minds of more experienced accountants in their firms to be core factors leading to the development of their skills.

“Partners in our firm are all very open to listening and sharing their experiences,” she says. “The most valuable asset I have learned from them is the way to commu-nicate and handle different clients. It is always important to listen to our clients so that we will be able to provide services that best suit them.”

Prepare to flySpeaking to university students at a career forum, Francis Nip, 33, was asked whether striking a work-life balance in CPA firms was tough.

His answer was this: “For the first 20 years of your life, you live happily, study happily with your family and friends. The next 20 years, you have to work. So at the age of 40, you will have balance in your life,” laughs Nip.

Another Institute member, Nip was re-cently promoted to senior manager of assur-ance and business advisory at Mazars.

“From my experience, working over-time means when we deliver more than we ex-pected, the extra effort we contribute is less than the harvest we can enjoy afterwards,” he says.

Nip’s efforts have even taken him to war zones. Last year, he flew to Dushanbe, the capital of Tajikistan, and went again in July to visit coal mines located in remote terrain to inspect operations there. “Tajikistan is a

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December 2012 25

munication, problem solving and analytic skills, just to be able to handle things in dif-ferent situations,” he says.

Now 33, Tsang is an Institute member and senior manager for assurance and finan-cial services at Ernst & Young Hong Kong. “That’s why I chose to join the accounting profession, and in particular a firm like E&Y, which offers opportunities and a culture that cares about growth and its people.”

Like many other successful younger members, Tsang has managed to move up the ranks by sticking with one firm. During his 10 years at E&Y, he has assisted a num-ber of hedge fund and private equity fund

clients. Tsang, who was appointed manager in 2007 and senior manager two years later, has also worked in New York as part of the firm’s global exchange programme.

Like his peers, Tsang firmly sees the long working hours as a sort of an investment. “To be a successful professional, whether you are an accountant, lawyer or doctor, you need to invest time in order to make the most out of your experience.”

While many CPAs appreciate the need to sacrifice personal time to get the work done, their loved ones might not. Tsang’s success is partly due to his support group both at home and at the office. “There are a few things important throughout my ca-reer: one is understanding from my family. The second is the support I get from being in such a large firm and the support from my supervisors.”

Finally, Tsang also values the coopera-tion of his teammates. “Every one of us is working towards the same goal. That feeling helps a lot.”

“Every one of us is working towards the same goal. That feeling helps

a lot.”

Alpha Tsang Senior manager, assurance and financial

beautiful country,” he says.The country has been fractured by vio-

lent civil and ethnic conflict since the 1990s. Hostilities were renewed as recently as July. “[It] is still rebuilding,” Nip says. “We have seen United Nations soldiers in the hotel we stayed at, and mercenaries stationed at the mine sites.”

Nip hails the range of diverse assignments he has been given at Mazars as the reason he improved his skills. “I’m lucky, I have many opportunities to explore,” he says.

“We are not specialized so I’m never as-signed to a single large assignment or a spe-cific industry or a specific region’s clients,” he adds. “I work with different clients from different locations and in different sizes.”

Take one for the team After graduating, Alpha Tsang wanted a ca-reer that would propel him to become the man who could do mostly everything.

“I believed we needed to be all-round individuals and that includes having com-

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28 December 2012

Shereen Tong tells Alisha Haridasani how VTech – the world’s leading maker of electronic learning toys and cordless phones – stays competitive and relevant in the rapidly changing world of consumer technology

TOYSTORY

Shereen Tong Group chief financial officer, VTech

Success ingredient

Photography by Samantha Sin

December 2012 29

30 December 2012

e have 10,000 workers here,” says Shereen Tong, group chief financial officer at VTech, as she sweeps her hand across a bird’s eye view mod-el of the company’s campus in Dongguan that would not be out of place in Silicon Valley.

“And, here is our InnoTab,” she says, proudly pointing at the global bestselling electronic learning product for children dis-played in the company’s showroom.

“And this is our most popular phone,” she explains, picking up a demonstration hand-set from the hundreds displayed on the other side of the room.

As she continues to introduce the dif-ferent products that VTech specializes in, waltzing around the room with the proud

confidence of an athlete, it’s clear that this company, this showroom and this job are Tong’s passions – it’s what she knows best and where she loves to be.

“VTech is not just a manufacturing com-pany; we also have sales offices around the world – in the U.S., Canada and Europe – and we have our own brands. When I first joined, I realized VTech is an amazing company be-cause it covers the whole supply chain start-ing from producing the products to selling it to the end user,” explains Tong. “It’s chal-lenging and that’s what attracted me.”

Prior to joining VTech and almost imme-diately after graduating from City University Hong Kong, Tong started her career in the accounts departments of Hang Seng Bank. A

short while later, she switched to work with BNP, the French bank.

In 1992, Tong landed a job at insurance and investment management giant Prudential, also in the accounts department where her love for the profession grew exponentially.

“When I was working in the banks, I used to find accounting boring because I used to think it only involved preparing monthly re-ports,” she says. At Prudential, however, Tong was also preparing investment reports for each fund, which she found fascinating.

At the same time, she studied part time to earn her certified public accountant qualifi-cation in 1994. That was the catalyst in her career, propelling her from accountant at Prudential to chief accountant at VTech. “It

“VTech is not just a manufacturing company; we also have sales offices around the world – in the U.S., Canada and Europe – and we have our own brands.”

Success ingredient

December 2012 31

was a really huge step up and a completely different field compared to my previous plac-es,” Tong says.

As chief accountant, her fresh perspec-tive helped her execute an idea that revolu-tionized the way VTech functioned. “When I joined VTech, everything was quite manual – we didn’t even have a cash flow or financial forecasting mechanism,” Tong explains. At the time, VTech would look at historical data such as the monthly profits and losses and cash flows without producing any forward-looking projections.

Within three years Tong and her team had established a forecasting tool not just for Hong Kong but for the company’s global reach. “We also switched to using a single

bank for all our overseas subsidiaries.” With these foundations in place, VTech

has been able to grow aggressively. According to the firm’s 2012 annual report, profits grew by 4.2 percent year on year to US$1,784.5 million compared with US$1,334.9 million a decade earlier.

Tong didn’t stop there. She continued studying part time while at VTech and earned a master of science degree in infor-mation technology from Hong Kong Poly-technic University in 1999. When Tong was promoted to group CFO in 2004, she was put in charge of IT and human resources as well as the financial aspects of the company.

Behind the sharp, strong façade, Tong laughs or smiles when her achievements are

played up. “A lot of people in my generation were studying part time,” she said, almost coyly. “It was very common back then.”

Being better than goodToday, almost three VTech products are sold every second in 90 different markets around the world. This year, the company shipped 45 million handsets and 38 million electronic learning products worldwide. It is in such a solid position, Tong says, that the strength in itself is its greatest challenge. “We are very good already,” says Tong.

VTech’s InnoTab products have been featured on several top gift lists for 2012 in newspapers and websites in the United States, United Kingdom, Ireland, Australia

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32 December 2012

and Canada. But VTech doesn’t plan to rest on its lau-

rels. “We need another breakthrough,” Tong acknowledges. The group has been produc-ing innovative electronic learning products for children since the 1980s, such as child-friendly laptops and, most recently, educa-tional tablets.

In addition, its cordless residential phones arm has a 31 percent market share around the world, making it one of the leading firms in that field. The firm as a whole churns out more than 100 new products for the market every year thanks to vibrant research and development centres in Canada, Hong Kong and China.

However, there are two intrinsically linked global trends that could thwart VTech’s boom in both areas: the increased

use of mobile gadgets, including the Apple iPad, and the decrease of landline usage. Re-search from Strategy Analysis reveals that globally, there are almost 1 billion smart-phone users and, according to the Pew Re-search Center, nearly half of the adult popu-lation in the U.S., a crucial VTech market, own a smartphone.

In terms of tablets, figures from the ma-jor player, Apple, are indicative of trends: 34 million iPad units have been sold in the U.S. since its launch in 2010.

These trends raise the questions about why children would want an InnoTab above an iPad or why customers will go on buying VTech’s residential handsets. “The big dif-ference between the InnoTab products and iPads, for example, is the focus on the learn-ing features,” Tong responds.

VTech, she adds, has a library of more than 200 downloadable learning games, e-books, music and videos specifically for children, which makes the product safe and thus attractive for children and parents alike. Furthermore, parents don’t have to spend as much money and can protect their own expensive gadgets from the clumsy hands of a child.

VTech says it is getting around the issue of low landline usage by installing Bluetooth in selected products. This allows users to sync their mobile phones with their residential handsets and use them to answer calls to their mobiles. “I have one of those at home,” says Tong excitedly, as she explains the mechanisms of the handset. The user then doesn’t necessarily need a separate landline to use some of these products.

Success ingredient

VTech doesn’t planto rest on its laurels. “We need anotherbreakthrough,” Tong acknowledges.

The worldwide market share of

VTech in cordless residential phones

31%

December 2012 33

Future upgradesDespite such innovative solutions, the global financial crisis has inevitably affected VTech. “In the past two or three years, raw materials were the real cost drivers,” says Tong.

On top of that, the labour supply in China is notoriously tight. “If you want to retain and hire good people, we need to raise salaries and provide a very good working environ-ment,” she adds. These factors have driven costs up.

Fortunately, the electronic products in-dustry is not as labour intensive as other industries, such as garments, where many brands have had to move manufacturing from China to cheaper Southeast Asian countries.

VTech isn’t planning to source outside China, however. “We need to consider where

we are getting our supplies” with a view to im-proving operational effeciency, she says.

In the future, VTech will continue to transform adult gadgets into child-friendly products, says Tong. “Children always want to use the products used by their parents so that’s the line we will be taking.”

The company says new versions of the In-noTab, MobiGo and Storio product lines are in the pipeline, while the group is also aim-ing to expand its presence in China. Sales of its electronic learning products have grown steadily there already, although VTech start-ed selling AT&T-branded phones in China only in the fourth quarter of this year and sees potential for growth there.

Like VTech, Tong herself has had a strat-egy in place. Since Tong was a young girl, she laid out a path and followed it stringently.

Degree after degree allowed her to climb the ranks in a male-dominated technology industry. Today, she oversees a team of 680 people in the Hong Kong office alone.

She has no plans to slow down and says if she was to go back and do it all again, she would follow the same path with the same attitude. “If you work without any continu-ous learning, you’re going to get stuck in the same position,” she advises. “Keep learn-ing – that’s very important,” is the advice she would give her 16-year-old self.

Even today, Tong is constantly feeding her curious mind by teaching herself new things on the Internet in order to stay on top of her game. Her hands slice the air as she says that, giving the impression that no matter what challenge is thrown at her or VTech, even to-day, she can take it on.

“Children always want to use the products used by their parents so that’s the line we will be taking.”

The number of electronic learning

products VTech has shipped in 2012

38million

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34 December 2012

Tourism

Mainland tourists now account for more than 70 percent of visitors to Hong Kong. Institute members in the field say the influx from the north is helping many sectors of the economy boom, as George W. Russell reports

Northern

n one chilly No-vember day, the wind and pelt-ing rain that ac-

companied Hong Kong’s winter mon-

soon drove a knot of Mainland tourists visiting Central into a Sasa cosmetics store.

The sibilant sounds of Mandarin echoed around the store as, ignoring international brands such as L’Oréal, Bulgari and Revlon, other Mainland visitors hoovered up packs of the store’s own-brand products, such as Sasatinnie Rose Hip Oil Tightening and Re-juvenating Silky Masks.

In other aisles, creams, perfumes and lo-tions filled shopping baskets. Peng Cheng, who travelled 2,600 kilometres from Chang-chun, Jilin province, to visit Hong Kong, gath-ers up tubes of lipstick, exclaiming: “Sasa has everything I want.”

That kind of endorsement is music to the ears of Guy Look, chief financial officer and executive director of Sasa International, and a member of the Hong Kong Institute of CPAs.

Sasa released its financial results last month, for the six months ended 30 Septem-ber, and Look specifically credits Mainland tourists for the company’s improved num-bers. “The sustained increase in Mainland tourist arrivals is a consistent growth driver for the company,” he says.

The trip by Peng and her friends was among the 25.33 million visits made by Main-landers to Hong Kong in the first nine months of 2012, a 24.2 percent increase over the same period last year, according to Hong Kong Tour-ism Board data released on 1 November.

That figure accounts for 71.6 percent of the total of 35.38 million visitor arrivals over that period, illustrating the influence of Mainland-ers on Hong Kong’s tourism industry.

It’s an indication of the rising global power of the Chinese tourist, leading indus-try pundits observe. “The global tourism industry is going to be cast increasingly as a reflection of what the Chinese, and to a lesser extent Indian, traveller wants,” said Tony Wheeler, co-founder of the iconic Lonely Planet series of travel guidebooks on a recent visit to Hong Kong.

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36 December 2012

China syndromeOne issue of concern is whether Hong Kong relies too much on Mainland visitors, espe-cially as weak economic sentiment means fewer visits from Europeans and North Americans. Luxury goods retailers in partic-ular bend over backwards to accommodate Mainlanders, providing yuan payment op-tions, simplified Chinese signs and stocking goods either much more expensive or diffi-cult to find in China.

“The super luxury business model is tied into the Mainland visitor,” observes Alan MacCharles, a partner and head of commer-cial due diligence at Deloitte in Shanghai, who consults on the leisure and travel indus-tries. “Is there a dependency? Absolutely.”

MacCharles says Hong Kong should be wor-ried about committing resources – both public and private – to an industry that depends so much on the Beijing government’s visa policy. “It’s a concern point,” he says. “It’s driven by government policy not by demand.”

Many from tourist-dependent busi-nesses also urge caution. “Tourism is highly volatile,” says Clement Tsang, regional fi-nance director for a Hong Kong-based unit of French luxury goods empire LVMH Moët Hennessy Louis Vuitton.

“If the Mainland government were sud-denly to change policy and reduce the import taxes or change the value-added taxes [in the Mainland], there would be a major impact,” says Tsang, an Institute member.

MacCharles cites how the central gov-ernment and the Guangdong provincial au-thorities have at times tightened the right to travel to Macau, most recently in June. In 2008, visa restrictions imposed due to con-cerns over a rapid increase in Macau gam-bling saw casinos revenue growth dropped to 10 percent that year, from 28 percent the year before.

While Hong Kong doesn’t have casinos – and no legal gambling except horse racing – there is concern that arbitrary restrictions could affect Hong Kong as an intermediate destination for Mainland visitors going to Macau. “A big percentage [of Mainland visi-tors to Hong Kong] move on to Macau,” Mac-Charles notes.

Hong Kong tourism authorities acknowl-edge the dangers of dependence on the Mainland. “Notwithstanding the impor-tance of the Mainland to Hong Kong’s tour-ism growth, it is a cornerstone strategy to

“ If the Mainland government were suddenly to change policy and reduce the import taxes or change the value-added taxes [in the Mainland], there would be a major impact.”

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maintain a diversified visitor portfolio, in order to cope with changes in the macro-economic environment and to reduce the impact of market fluctuation,” a Hong Kong Tourism Board spokesman tells A Plus.

However, industry executives cite the con-tinuing surge of Mainland tourists under the Individual Visit Scheme, which began in 2003, as evidence that a significant policy change is unlikely. “The Individual Visit Scheme has been running for the past nine years and that trend is not going to be stopped,” says Philips Ng, finance manager of Hong Kong Airlines and an Institute member.

Flying highHong Kong Airlines, which flies mainly to Mainland destinations, but also to Taiwan, Japan, Thailand and Indonesia, hopes to bring tourists to Hong Kong from more in-land Mainland cities such as Lanzhou, Xi’an, Chengdu, Kunming and Guiyang.

Such second-tier cities are an important emerging consumer segment for Hong Kong airlines. “Most airlines are developing their western China market, which has nearly 400 million people,” says Ng.

While Guangdong is the most popular source of Mainland tourists to Hong Kong, followed by visitors from the other tier-one metropolitan centres of Beijing and Shanghai, travellers from smaller cities, such as Peng, the Sasa shopper from Changchun, are in-creasingly common – and welcome.

“Non-tier-one city visitors are outstrip-ping the growth of tier-one city visitors,” says Oliver Rust, managing director of mar-ket research company Nielsen Hong Kong. “Visitors from non-tier-one cities place more emphasis on customer service, price and promotions.”

MacCharles at Deloitte says the profile of the Mainland tourist has changed dramati-cally over the years. “They’re not necessarily staying three to a room and eating instant noodles for every meal,” he says. “They have more of a midmarket or premium pro-file, and that follows through to dining and transport. They spend more on the experi-ence, not just the goods.”

Such consumers may still be drawn to bargains, however, such as budget air-lines. Hong Kong Express, a sister carrier to Hong Kong Airlines is being transformed into a low-cost carrier. (Both are owned by HNA Group, the parent company of Hainan

“ They’re not necessarily staying three to a room and eating instant noodles for every meal... They have more of a midmarket or premium profile, and that follows through to dining and transport. They spend more on the experience, not just the goods.”

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Airlines). The move comes in the face of growing rivalry from budget carriers – Aus-tralian-owned Jetstar is set, subject to regu-latory approval, to launch in Hong Kong next year in a joint venture with China Eastern Airlines.

Hong Kong Airlines also hopes to add new aircraft to its fleet in the next two years in a bid to broaden its range of destinations. It be-gan flying from Hong Kong to Hohhot, Inner Mongolia, in September.

Diverse attractionsHong Kong’s accommodation sector is also gearing for a continued increase in the num-ber of tourists. According to a forecast by Business Monitor International, a London-based consultancy, about 8,000 new rooms will be added to Hong Kong’s hotel capacity between now and 2016, increasing the total by about 11.5 percent to 77,000 rooms.

A challenge for industry professionals is

keeping tourists in Hong Kong, rather than have them move on to Macau or other desti-nations. “As Hong Kong is developing itself

to be a hub for multi-destination travel, more efforts need to be made to impress visitors,” says Matthias Li, deputy chief executive of Ocean Park and an Institute member.

“A portion of Mainland tourists have al-ready made several visits to Hong Kong, and would now look beyond the typical attrac-tions and seek more novel experiences that would depict local culture and heritage,” Li adds, citing examples such as the Tai O

fishing village on Lantau, the annual bun festival on Cheung Chau and Hong Kong Global Geopark in the northeastern New Territories.

“I don’t see any signs showing that Hong Kong is over-reliant on the China market,” he says. “The 70 percent, in my opinion, simply demonstrates the huge population in a single market who are interested in Hong Kong, which is something that we should be proud of.”

To be sure, other countries are register-ing increased interest in Hong Kong. More tourists from Korea and the Middle East are arriving, while the other “BRIC” coun-tries – Brazil, Russia and India – are among source markets with enormous room for growth, according to the Hong Kong Tour-ism Board. “I’m confident that Hong Kong is already working hard to entice these visitors to choose Hong Kong as their next destina-tion,” says Li.

The sharp increase in Mainland tourists has come at a social price, in the eyes of many Hong Kong residents.

Some Hong Kongers criticize Mainlanders’ personal habits, such as eating on public transport. Even worse incidents occur: Last year, Mainland parents were photographed letting their child defecate in a public area of the Harbour City shopping mall in Tsim Sha Tsui, a popular shopping destination for Main-land visitors.

In January, tensions were raised when a photographer claimed that security guards at the Dolce & Gabbana store in Harbour City stopped him from taking a picture of the shop’s window displays. He said store employees told him that only people from the Mainland and foreign tourists were allowed in the store.

To be fair, some Hong Kong people have been insensitive in return, confronting and shouting at tourists, chanting offensive slogans or singing songs about “locusts,” a derogatory term for Mainland Chinese who travel in large groups.

Businesses that by and large welcome Mainland tourists can also tick off a few problems, ranging from queue jumping and haggling in fixed-price stores to shoplifting and the proffer-ing of counterfeit money.

Indeed, retailers would find it hard to live without them. Marcella Chow, an economist at Bank of America-Merrill Lynch, estimates that Mainland tourists' spending made up about 23.4 percent of total retail sales in 2011.

Some authorities have expressed concern that many cross-border visitors are actually importers of consumer goods, seeking to avoid paying Mainland duties. For some retailers,

parallel importers are a non-issue. “End users make up abso-lutely the majority of our customers,” says Guy Look, a Hong Kong Institute of CPAs member and chief financial officer of Sasa International Holdings, which operates cosmetics stores throughout Hong Kong and the Mainland.

Most retailers would like to see more tourists arrive in Hong Kong. But the question is, how many is too many? The Hong Kong government is proceeding cautiously with a plan to make it easier for 4.1 million non-permanent residents of Shenzhen to enter Hong Kong on multi-entry permits.

Chief Executive Leung Chun-ying said in October that the plan would not take effect until both Chinese and Hong Kong authorities have confirmed that the city has the capacity to handle so many potential visitors. "The [postponement] is mainly to ensure the healthy development of Hong Kong's tour-ism and to minimize the impact on Hong Kong residents' liveli-hoods,” Leung said, citing concerns registered by residents of the northern New Territories, closest to Shenzhen.

Institute members, many of whom are in sectors that count on Mainland visitors, are concerned about tensions. “We, as Hong Kong residents, could do more by offering our warmest hospitality and patience to our guests from the Mainland,” says Philips Ng, finance manager at Hong Kong Airlines.

Moreover, Mainland tourists could easily decide not to go where they’re not made to feel welcome. “I’m not sure that tourists from the Mainland will continue to consider Hong Kong as their first priority,” says Clement Tsang, regional finance di-rector for LVMH Moët Hennessy Louis Vuitton in Hong Kong and an Institute member. “They may move on.”

Awkward arrivals

“ I don’t see any signs showing that Hong Kong is over-reliant on the China market.”

40 December 2012

CPAs make a difference

H ead high and straight-faced, Elvin Chan, commanding offi-cer of the Hong Kong Air Cadet Corps, marches towards his

group of young, uniformed cadets. The cadet leader, in his teens, salutes Chan at his arrival and requests for dismissal. Granting permis-sion to do so, Chan signals the cadet leader to order the rest of the squadron to dismiss.

“That ceremony is called ‘close formation,’ which signifies the end of a routine HKACC meeting. We also have an ‘open formation’ at the beginning of every meeting as well,” explains Chan, who is also a member of the Hong Kong Institute of CPAs and head of cri-sis management and business continuity for Asia at insurance giant AXA Asia-Pacific.

As they stand attentively, ready to fol-low the officer’s orders, it is obvious that the squadron comprises a group of well-disci-plined young men. Their admirable develop-

ment is partly a result of Chan’s work – and assertiveness – as a HKACC volunteer.

With a full time job in Hong Kong, con-stantly finding time to volunteer to good causes isn’t always easy. However, with the resourcefulness developed as a CPA, many like Chan still find that pursuing on-the-ground charity work can be both meaning-ful and manageable.

Commanding successHaving been a cadet himself as a young boy, Chan jumped at the opportunity to be trained as an HKACC officer in 2008. “I have picked up so many things from the corps, so I think it’s time to give back,” he says. “From my experience in the corps, I learned how to deal with people and how to evolve myself into something important.”

The HKACC, one of the 11 government-funded youth uniformed groups in Hong

Many Institute members have their favourite charities and causes. For them, it’s not just a case of putting dollars in a donation box, but also providing a personal commitment to changing people’s lives, as Jemelyn Yadao and Alisha Haridasani find out

Kong, has the mission to train up a group of skilled and confident young people for poten-tial future service in the aviation industry.

As an officer, Chan teaches his squadron of about 50 cadets discipline, leadership and interpersonal skills – attributes which he believes are essential for today’s young-sters, especially those who don’t attend top schools. “I know academically our student cadets are not the top students in Hong Kong, but I believe they can be very help-

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Givingback

ful and successful when they get to work,” he says. “Through discipline, training and experience sharing, young people will have a chance to develop some kind of self-disci-

pline for their study and personal life.”Witnessing this positive change in his

cadets, Chan says, is the best part of being a HKACC volunteer. As an example, Chan re-

calls one cadet in particular, who joined his squadron as an unmotivated, middle-level student. “During the process of training, he learned how he should behave and finally became the first officer here in our squad-ron... He is now only 17 and much more ma-ture than other boys at that age.”

Of course, another reason for Chan’s spe-cial feeling for the organization is that he met his wife, also a commanding officer, during of-ficer training. The couple married last year.

“I know academically our student cadets are not the top students in Hong Kong, but I believe they can be very helpful and successful.”

Elvin Chan

42 December 2012

Chan says one of the biggest challenges facing the HKACC is retaining cadets, as students in Hong Kong have to sit through so many exams. “Some schools also have a policy that [extra-curricular] activities should [be] shut down before exams so that students won’t be distracted. Eventually [the cadets] don’t have enough time for our train-ing,” Chan explains.

Another challenge is convincing some-times sceptical parents, many of whom aren’t used to the HKACC’s military-style training. “We maintain a high standard of discipline. We will test our students now and then strictly,” he says. “We are quite differ-ent from other uniform groups which are more gentle. So many parents say we are not offering the kind of training that they are looking for.”

Chan spends almost every Saturday af-ternoon fulfilling his duty as an officer and sometimes, if large functions are scheduled, his Sundays are taken up too. However, with the help of his squadron, Chan ensures he is not overloaded. “It’s a tactic that every offi-cer uses... we let them [the cadets] do some

administrative work. I ask them to moni-tor attendance for me and count the office hours since we have to report back to the government.”

It also allows Chan to sort out the mistakes cadets make so that they can eventually work independently – a useful skill for them when they enter the workforce, he explains. Having to do paperwork, however, in no way compro-mises Chan’s love for the organization. “I have a passion to give what I have learned from the corps and pass it to the next generation.”

Musical charity“I like to sing a lot. It is something I do in my leisure time,” says Patrick Lo, partner and

head of risk advisory at RSM Nelson Wheel-er and an Institute member, before bursting into a few lines of a Frank Sinatra song and laughing heartily.

When it came to charity, for most of his life Lo simply did what most of us do – give money to good causes. “I used to think that there is not much I can do by myself but if I give money to large NGOs and charities, they can work with economies of scale and achieve much more than I can,” says Lo.

Then, about three years ago, that all changed when Lo discovered a way to com-bine his love of singing and charity together. One day, as part of the parent-teacher as-sociation at his children’s school, Lo found out about a forthcoming charitable event that involved students going to a retirement home to sing Christmas carols for residents. “I went along with my wife and I found it very fascinating because all the elderly peo-ple were actually very happy and were really enjoying the event,” recalls Lo.

“That’s when I realized that we do have a role to play, which is to fill in the gaps that the NGOs cannot fill.” Lo believes he can

“That’s when I realized that we do have a role to play, which is to fill in the gaps that the NGOs cannot fill.”

Patrick Lo

CPAs make a difference

for the blind – taking photos. “Even though they can’t see the actual object, they can imag-ine how to create the photo and which direction to take it. The visually impaired were interested in the photos they took,” Lau says.

This year Eyetopia paired up the visu-

ally impaired with secondary and primary school children to paint colourful pictures cooperatively. Lau helped set up around 20 “art jamming booths” and a fun fair at a playground in Wanchai. “People may think they [the visually impaired] visually can’t paint but, in fact, we realized they have a lot of imagination.”

The children used their imagination, too, helping to inspire the visually impaired to create memorable images. Lau says the project helped the public understand that being imaginative while visually impaired is not “mission impossible.” The club was awarded the best improvement and project award from Leo District 303, Hong Kong and Macao, China that year for the art jamming

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The project helpedthe publicunderstand thatbeing imaginativewhile visuallyimpaired is not“mission impossible”.

apply a personal element of warmth to his philanthropy that large charities can some-times overlook. “The approach [of large NGOs] can be very cold because the people on the other end do not get to see the people who made the donations,” he explains.

Since then, Lo has participated in sev-eral free concerts at community centres or-ganized by local charities. One particular organization close to his heart is the Hong Kong Society for the Aged, known as SAGE. Lo not only sings for the charity’s events but also helps to plan them with his wife. “I liked the idea of going up on stage and singing for people and seeing the joy on their faces. It is very fulfilling.”

Eventually, the relationship between Lo and SAGE deepened to a point where RSM Nelson Wheeler invited SAGE to be a part of their corporate social responsibility pro-gramme. Working with the charity, the firm organized a luncheon for 170 elderly people.

“There was an old couple that attended. Their combined age was more than 200 years old,” says Lo, excitedly. “SAGE told me that this couple rarely leaves their home due to their age but they came especially for our event – I really appreciated that,” he says. It is that sort of real interaction that Lo enjoys and the reason he plans to continue singing for SAGE.

The eye-openerWhile many of the original founders of the Leo Club of Victoria Hong Kong left due to work or moving overseas, one of the founders, Belle Lau, thought it important that she stay.

“I think joining the club is a time commit-ment. It’s better to be sure you can make that commitment before you take up the work duties,” says Lau, an Institute member and senior associate at BDO. The youth volunteer arm of Lions Clubs International (a global service organization committed to bettering communities around the world), Leo Clubs operate in 139 countries and have more than 150,000 members. The Victoria Hong Kong club was set up in 2008 with just 20 members. The club now has a membership of around 41, consisting of students and young professionals.

In 2011, Lau headed the launch of the club’s landmark initiative, Eyetopia, which encourages the visually impaired and the general public to participate in activities together. In its first year, the programme introduced visually impaired people to pro-fessional photographers, who taught them what some might deem an impossible task Belle Lau

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event, a remarkable achievement for a club that only started five years ago, says Lau.

Green man When Richard Cheng ventured to Inner Mon-golia on a tree-planting mission, he didn’t ex-pect the circumstances there to be so bleak. “I saw that the ground was covered in sand and the people there were living under those con-ditions. It was then I thought we should do more to help the environment,” says Cheng, an Institute member and assistant manager of the forensics department at Mazars.

Cheng was a member of a Mazars team that travelled to the area to help with re-forestation to shelter farmland from sand-storms. They were there as part of his firm’s commitment to The Million Tree Project, which aims to reforest Inner Mongolia while raising global awareness on the damage cli-mate change can wreak. Cheng, who helped plant trees, says that although the effort is not enough to solve the issue entirely, every little helps and raising awareness is vital. “I

would show my friends my pictures in Inner Mongolia and let them know how serious the environmental problems are there.”

Inspired by the trip, Cheng went on to plant more trees, this time in Hong Kong. “There are some graves in the mountain areas where people tend to burn paper every time they

visit them. They burn trees as well. We need-ed to replace all the trees,” Cheng explains. He joined a tree-planting team, organized by the Agriculture, Fisheries and Conservation Department, and spent a whole day digging, planting and watering in Tuen Mun.

Like Lau, Cheng is also a Leo Club mem-ber. In February, he and his fellow members travelled to Qingyuan in Guangdong prov-ince to visit a local school. As an avid travel-ler, Cheng suggested educating the children there about other countries and cultures around the world.

“I think the students in Qingyuan may not have many opportunities to travel abroad, so I did some research, prepared a presentation, shared some of my own travel photos and we played some games... and at the end of the lesson we taught them to sing It’s a Small World After All,” recalls Cheng, who also visited the villages in the area.

In fact, the people there, particularly the children, are the reason why Cheng plans to revisit China next year. “These kids had so

“These kids had so many certificates and awards on the walls of their home. They are very smart. But, they might not have the chance to study abroad or even study in university.”

Richard Cheng (at front, kneeling)

December 2012 45

many certificates and awards on the walls of their home. They are very smart,” says Cheng. “But, they might not have the chance to study abroad or even study in university. I think we can do more to help them.”

Breaking silent barriersFor Dominic Ho, senior audit associate at Grant Thornton and an Institute member, his first charitable act happened rather ser-endipitously. About 15 years ago, when Ho was 10 years old, the Ho family’s financial problems meant his mother had to take on a part-time job as a babysitter for infants in the neighbourhood. It was during this time that Ho met a little girl who would change his life – one-year-old Jenny Chiu, who was born to deaf parents.

Ho realized that to connect with Chiu he had to help her learn spoken and sign lan-guage to communicate with her family and the outside world. That inspired him to go on to get a certificate in sign language, which he modestly points to, and become a member

of the Hong Kong Association of the Deaf where he helps other children like Chiu.

“I try to create a channel that can harmo-nize relationships between deaf children and other children by teaching them beginner sign language that they can use when com-municating with each other,” he explains.

It is with the help of Ho and others like him

that the Hong Kong Association of the Deaf has successfully removed so many stigmas attached to those with hearing disabilities. About a decade ago, says Ho, there wasn’t much willingness for people to learn or un-derstand those with hearing disabilities.

“Nowadays, because deaf people have more tools to communicate with other people, there is a more understanding atmosphere,” he says. “There is also government funding and there are job opportunities for them.”

The association encourages those with hearing disabilities to participate in public activities, such as the annual Hong Kong marathon. These events are not only fun and healthy for the runners, but also bring the is-sue of hearing disability into the wider public consciousness.

Today, Ho still keeps in touch with Chiu, now 16, who he thinks of as a younger sis-ter. Though he doesn’t get to see her often because her family has moved to a different neighbourhood, there is always Facebook, he says, laughing.

“I try to create a channel that can harmonize relationships between deaf children and other children by teaching them beginner sign language.”

Dominic Ho with Jenny Chiu

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H KFRS 13 Fair Value Measurement provides a single comprehensive source of guidance on

how fair value is measured for financial reporting purposes. The standard is applied prospectively for annual periods beginning on or after 1 January 2013 and earlier application is permitted.

Property valuations are commonly required for financial reporting purposes, for example, for investment property, property acquired through a business combination or property being tested for impairment. Entities often use external valuers to value their property interests. Nonetheless, management is still responsible for the fair value measurements included in the financial statements. They therefore need to assess whether the valuation techniques and assumptions used by external valuers comply with HKFRS 13. This will require an understanding of the main requirements of the standard relevant to property valuations.

Definition of fair value under HKFRS 13 and International Valuation StandardsFair value under HKFRS 13 is a different concept to fair value as defined in International Valuation Standards. Rather, the concept of market value as defined in IVS will generally meet the fair value measurement requirement under HKFRS 13 subject to certain specific assumptions which are required by the standard. Management should be aware of this difference in concepts when communicating with external valuers in

order to ensure that property valuations are suitable for financial reporting purposes.

Which characteristics of the property should be taken into account?Fair value should reflect those characteris-tics of an asset that would influence the pric-ing decisions of market participants. These may include the condition and location of a property and any restrictions on its use or sale. Only restrictions that are specific to the property and that would be transferred to market participants with the property are incorporated in fair value, for example legal rights of use. The characteristics taken into account reflect the property as it currently exists, even if they are not associated with its highest and best use.

Highest and best useFair value takes into account the highest and best use of a nonfinancial asset such as property. That is the way a market participant would use the property to maximize its value or the value of the group of assets and liabilities, for example a business within which it would be used.

HKFRS 13 presumes that an entity’s current use of a nonfinancial asset is its highest and best use unless market or other factors suggest otherwise. Management does not need to consider all possible alternative uses of the property if there is no evidence to suggest that the current use is not its highest and best use. The highest and best use may differ, for example where land held for industrial purposes has potential for redevelopment for commercial use.

The highest and best use of the property should be physically possible, legally permissible and financially feasible. The use of a property does not need to be legal at the measurement date but should not be legally prohibited. The illustrative examples to HKFRS 13 show how land can be zoned for a particular use at the measurement date but how a fair value measurement could assume a different zoning if market participants would do so. Fair value should incorporate the costs of obtaining any necessary approvals for changing the use of the property, including the risk that they might not be granted and the costs of converting the property to the alternative use.

The valuation premiseThe highest and best use of a nonfinancial asset determines how its fair value should be measured. This will either be on a stand alone basis or in combination with other assets and liabilities, for example a business.

HKFRS 13 sets out principles for determining the assets and liabilities to be included in the group. Where the highest and best use of the property is in combination with other assets or with other assets and liabilities, the fair value measurement assumes that the buyer already holds (or is able to obtain) the complementary assets and associated liabilities and will use the property in a similar way.

The property’s use in an asset group may be reflected in fair value by adjusting the stand alone value or adjusting the valuation assumptions used. In limited situations, an entity might measure the property at an

How your property valuations canbe fully compliant with HKFRS 13Property valuations are commonly required for financial reporting purposes. Gary Stevenson explains how they need to meet the upcoming standard on fair value measurement

Fair value

46 December 2012

Table 1: Valuation

techniques

Gary Stevenson is principal, technical and training, at BDO in Hong Kong.

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December 2012 47

amount that it approximates its fair value when allocating the fair value of the asset group to the individual assets of the group.

HKFRS 13 assumes that the asset is sold consistent with the unit of account (i.e. what is being measured for financial reporting purposes). Management will need to determine whether the unit of account is an individual asset or a group of assets and associated liabilities. This is specified in HKFRS 13, which requires or permits the fair value measurement. The valuation premise and unit of account may differ in some circumstances, for example where a property is part a mixed use development. The unit of account may be an individual property but this property may be grouped with the complementary properties when measuring fair value. Fair value is the price for the individual property as the buyer is assumed to already hold the complementary properties and will not therefore pay more for the property simply because it is sold as part of the group.

Valuation techniquesManagement will need to ensure the valu-ation technique used is appropriate in the circumstances and sufficient data is available to measure fair value using that technique. HKFRS 13 does not prioritize the use of one valuation technique over another. The valua-tion technique chosen should maximize the use of observable inputs, including market data from recent property transactions, and minimize the use of unobservable inputs,

including management’s own forecasts and assumptions. It should also be consistent with one of the approaches summarized in table 1.

The use of more than one valuation tech-nique will be appropriate where the reliabil-ity of the resulting fair value measurement is improved as a result. If the results of the two approaches differ significantly this may indicate the need to reconsider the compara-ble properties chosen and the adjustments under the market approach or the forecast cash flows and discount rate used under the income approach.

Using more than one technique may produce a range of fair value indications. Management will need to assess the reliability of each technique and the inputs it uses in determining the point within the range that is most representative of fair value. Valuation techniques should be applied consistently unless a change in technique or its application results in a measurement that is equally or more representative of fair value. This might be the case where new information becomes available or valuation techniques improve.

Fair value hierarchyHKFRS 13 introduces a new three-level fair value hierarchy for nonfinancial assets such as property as summarized in table 2.

The valuation technique used must prioritize higher-level inputs over lower-level ones. The inputs used will determine the appropriate classification of the fair value measurement within the hierarchy, which

will in turn affect the nature and extent of financial statement disclosures required. In some cases multiple inputs will be used, which may fall within different levels of the hierarchy. Classification is then based on the lowest level of input that is significant to the entire measurement.

Given that most properties are unique, market prices for identical properties are not likely to be available. Property valuations will therefore commonly be classified within level 2 or level 3 of the hierarchy. A level 2 input for a property valuation might be the price per square foot derived from recent market transactions for similar properties in a similar location. Management will need to assess whether any adjustments to level 2 inputs for differences between the property being valued and the comparable properties are based on unobservable inputs and are significant to the overall fair value measurement. Where this is the case, the valuation is classified as level 3. Some specialized properties may rarely be sold except as part of a continuing business. In the absence of any observable market transactions for such properties, the valuation will also be classified as level 3.

Disclosure requirementsHKFRS 13 includes significant additional disclosure requirements about the valuation techniques and inputs used to develop fair value measurements. Extensive disclosures must be provided for all level 3 fair value measurements because they are more subjective than those based on market prices. Management will want to ensure valuation reports contain sufficient information to satisfy HKFRS 13’s disclosure requirements. Dialogue with the external valuers on the content of their reports may need to start earlier rather than later.

ConclusionHKFRS 13 introduces new valuation requirements that may impact some property valuations used for financial reporting purposes. Management will want to ensure there is clear communication with their external valuers about the techniques and assumptions to be used so that valuations comply with the standard.

Market approach

Income approach

Cost approach

Uses prices and other rele-vant information generated

by market transactions

Converts future amounts such as cash flows to a

single current (i.e. discount-ed) amount

Reflects the amount that would currently be required

to replace the service capacity of the asset

Quoted prices in active markets for identical assets and liabilities

Inputs, other than quoted prices within level 1, that are observable for the asset or liability either directly or indirectly

Unobservable inputs for the asset or liability

2Level

1Level

Table 1: Valuation

techniques

Table 2: Fair value hierarchy

and inputs

Level

3

Financial reporting

Institute comments on IFRS Foundation constitution consultation The Institute made a submission to the IFRS Foundation on its constitution drafting review about separating the roles of the IASB chair and the executive director. The proposed amendments to the constitution, as set out in the consultative document, were largely in line with those the Institute had supported in a previous comment letter dated 8 April 2011 on the IFRS Foundation Monitoring Board’s consultative report on the review of the foundation’s governance. In that comment letter, the Institute supported separating the role of the IASB chair from the CEO or executive director of the IFRS Foundation where the IASB chair should lead the independent standard-setting process and the executive director manage all other aspects, including adminis-trative affairs, of the IFRS Foundation.

The Institute understood that the roles have already been separated in the first quarter of 2012 and the consultative docu-ment simply proposed to revise the founda-tion’s constitution to reflect the reality of such change.

Audit and assurance

Comments on IAASB consultation documentsThe Institute made a submission to the IAASB on its invitation to comment on Improving the Auditor’s Report, as part

of the board’s continuing efforts to clarify the role of auditor and stakeholder expectations.

In principle, the Institute supported the proposed improvements to the auditor’s report to provide more information to stake-holders. However, the Institute had concerns as to the extent of information provided under the proposed auditor commentary. The Institute did not believe that the auditor commentary would address the “informa-tion gap” without giving rise to implications for auditor liability.

The Institute views audit quality as para-mount and that any proposed changes to the form of auditor reporting should only be implemented if they do not have a negative effect on audit quality.

In proposing changes to the auditor’s report, the Institute believes it is important for the IAASB to promote an understanding of the objective of performing an audit of financial statements and who are the intended users of auditors’ reports.

IVSC exposure draft on the role of professional valuers in the audit processThe Institute made a submission to the IVSC on its exposure draft of a practical guide on The Role of the Professional Valuer in the Audit Process. In principle, the Institute supported the proposed guide. The Institute considered that the distinction between the roles in acting as an auditor’s expert, and acting for an entity in providing valuations that will be included in financial statements that will be subject to audit, is not clearly explained.

As currently drafted, the focus of the guidance appeared to be on the role of valuers acting in the capacity of an auditor’s expert, but guidance was also provided on being the management’s expert. There were further distinctions about whether the professional valuer is an internal or external expert. The Institute considered that these differences are important for a number of matters considered in the guide, for example the ethical and independence requirements and scope of work.

The Institute recommended that the “scope of work” section be expanded to include common practices not only with respect to the situation of a valuer undertak-ing a limited review of the reporting entity’s valuation, but also to whenever the profes-sional valuer is involved in the audit process.

Corporate finance

Institute submits views on Listing Rule changesAs reported in TechWatch 118, Hong Kong Exchanges and Clearing consulted the mar-ket on Listing Rule changes to complement the introduction of a statutory obligation to disclose inside information.

The Institute supports a review of the Listing Rules relating to price sensitive information disclosure in light of the impending implementation of the statutory regime for disclosure of inside information, under the Securities and Futures (Amendment) Ordinance 2012, and to provide procedures in the Listing Rules to facilitate implementation of the statutory

121The latest standards and technical developments

TechWatch

48 December 2012

A PLUS

regime, where such procedures are not provided for in the law. It also agrees on the need to ensure that no significant regulatory gaps emerge after removing the rules relating to price sensitive information.

The Institute, however, has strong reservations about certain proposals, which could result in a regulatory disclosure regime that may overlap with and duplicate the statutory disclosure regime.

Taxation

Annual meeting with IRDThe next regular annual meeting between the Institute and Inland Revenue Department will be held in early 2013 to discuss matters in relation to tax practice and procedure.

The annual meeting focuses on matters of general concern rather than discussing specific cases.

Legislation and other initiatives

LegCo questions on Hong Kong as a fund management centre and other issuesIn his reply to a LegCo question on additional measures to enhance the role of Hong Kong as a fund management centre, given the challenges from competitors such as Singapore, the secretary for financial services and the treasury explained that the government is studying a proposal for a legislative framework to facilitate the establishment of investment fund vehicles.

Regarding profits tax exemptions for onshore funds, he indicated that this would need to be examined carefully, with consideration given to factors such as Hong Kong’s competitiveness as an asset management centre and implications for government revenue.

In her reply to a LegCo question regarding relaxing the current restriction in section 39E of the Inland Revenue Ordinance, the acting secretary for financial services and

the treasury pointed out that there was no justifiable ground to amend the ordinance. She said if taxpayers were allowed to claim depreciation allowance on plant and machinery used outside Hong Kong, this would not only violate the territorial source and tax symmetry principles, but might also be perceived as encouraging transfer pricing, which would affect the taxing rights of Hong Kong and other tax jurisdictions, including the Mainland.

In his reply to a LegCo question on the relaxation of section 39E of the ordinance, and tax measures to support Hong Kong enterprises conducting innovation and sci-entific research, the secretary for financial services and the treasury indicated that it was not justifiable to relax the ordinance.

Phase two consultation on subsidiary legislation to new Companies Ordinance As reported in TechWatch 120, the government on 28 September launched the

first of a two-phase public consultation on the subsidiary legislation to be introduced for the implementation of the new Companies Ordinance, with comments requested by 9 November. The Institute has prepared a submission to the government. On 2 November, the government launched the second phase of the consultation, with comments requested by 14 December, cover-ing the following subsidiary legislation:i. Companies (Trading Disclosures)

Regulation;ii. Companies (Revision of Financial State-

ments and Reports) Regulation;iii. Companies (Disclosure of Information

about Benefits of Directors) Regulation;iv. Companies (Residential Addresses and

Identification Numbers) Regulation; andv. Companies (Unfair Prejudice Proceed-

ings) Rules.

Under item (ii) it is proposed to impose criminal sanction on auditors, similar to the original clause 399 of the Companies Bill (now section 408 of the new Companies Ordinance) for knowingly or recklessly causing certain omissions from audit reports on revised financial statements.

Consultation on legislative proposals for an independent insurance authorityThe government has launched a consulta-tion on the key legislative proposals for the establishment of an independent insurance authority. The consultation deadline is 26 January 2013. Members who wish to submit views on the consultation to the Institute should email commentletters@hkicpa.org.hk under the heading “Consultation on Legislative Proposals for an Independent Insurance Authority” by 14 December.

Please refer to the full version of TechWatch 121, available as a PDF on the Institute’s website: www.hkicpa.org.hk

December 2012 49

I n July, the Institute issued amendments to HKFRS 10 Consolidated Financial Statements, HKFRS 11 Joint Arrangements

and HKFRS 12 Disclosure of Interests in Other Entities: Transition Guidance. These clarify the transition guidance contained in HKFRS10, provide additional transition relief in the three standards and limit the requirement to provide adjusted comparative information to the preceding comparative period only.

Furthermore, for disclosures related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for periods before HKFRS 12 is first applied.

The amendments clarify the meaning of the “date of initial application” as the beginning of the annual reporting period for which HKFRS 10 is applied for the first time (i.e. 1 January 2013 for a calendar year entity, assuming no early application).

The transition guidance is amended to confirm that an entity is not required to make adjustments to the previous accounting for its involvement with entities if the consolidation conclusion reached at the date of initial appli-cation is the same whether applying HKAS27 Consolidated and Separate Financial State-ments/HK(SIC) – Interpretation 12 Consolida-tion-Special Purpose Entities or HKFRS 10.

As a result, the amendments confirm that relief from retrospective application of HKFRS 10 would also apply to an investor’s interests in investees that were disposed of during a comparative period in such a way that consolidation would not occur in accor-dance with either HKAS 27/HK(SIC) – Int 12 or HKFRS 10 at the date of initial application.

In clarifying how an entity should retro-spectively adjust its comparative information on initial application of the amendments, the

basis for conclusions in HKFRS 10 acknowl-edges that presenting all adjusted compara-tives would be burdensome for preparers in jurisdictions where several years of compara-tives are required.

Without changing the requirement to apply the recognition and measurement requirements of HKFRS 10 retrospectively, the amendments limit the requirement to present adjusted comparatives to the annual period immediately preceding the date of initial application.

The amendments confirm that an entity is not prohibited from presenting adjusted comparative information for earlier periods. If all comparative periods are not adjusted, entities are required to state that fact, clearly identify the information that has not been adjusted and explain the basis on which it has been prepared.

The amendments also consider the dis-closure requirements of HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. On initial application of an HKFRS, paragraph 28(f) of HKAS 8 requires an entity to disclose, for the current period and for each prior period presented, the

amount of any adjustment for each financial statement line item affected. Changes in the consolidation conclusion on transition to HKFRS 10 are likely to affect many line items throughout the financial statements.

This requirement could also mean more work for preparers and so the amendments agreed to limit the disclosure of the quantita-tive impact of any changes in the consolidation conclusion to only the annual period immedi-ately preceding the date of initial application.

The amendments clarify that when an investor concludes it should consolidate an investee that was not previously consolidated, and control was obtained before the effective date of the 2008 revisions to HKFRS 3 Busi-ness Combinations and HKAS 27, an entity is allowed to use either the 2008 or 2004 versions of those standards in applying the transition requirements.

HKFRS 11 and HKFRS 12 have also been amended to provide similar relief from the presentation or adjustment of comparative in-formation for the annual periods immediately preceding the date of initial application of those standards. HKFRS 12 is further amended to provide additional transition relief by eliminat-ing the requirement to present comparatives for the disclosures relating to unconsolidated structured entities for any period before HKFRS 12 is initially applied.

The amendments are effective for annual periods beginning on or after 1 January 2013, the same effective date of HKFRS 10, 11 and 12.

Tech Q&AThe Institute has issued amendments to HKFRS 10 Consolidated Financial Statements, HKFRS 11 Joint Arrangements and HKFRS 12 Disclosure of Interests in Other Entities. Could you provide details of the amendments?

Send your questions and comments tocommentletters@hkicpa.org.hk. The standard setting team will answer these questions in accordance with its policy, posted on the Institute’s website.

50 December 2012

Grant Thornton

Greg KeithManaging director, restructuring Keith has almost 20 years of experience as a partner of the firm in Australia. He led the

Melbourne recovery and reorganization team for 12 years and is particularly focused on serving the needs of investors and lend-ers with underperforming assets in the re-gion. He is also particularly experienced in manufacturing, transport and education.

Alexandra WelchManager, restructuringWelch has more than five years of experience in corpo-rate restructuring. She has

previously worked on a number of large and complex cross-border insolvencies, covering a number of different jurisdictions includ-ing China, Hong Kong, the Caribbean, the Middle East, Switzerland and England and Wales. Her area of expertise includes finan-cial services and shipping sectors.

Email your announcements to Lucid Wong at lucid.wong@mandl.asia

ment, and performance assessment. She worked as a director at Capgemini focusing on financial services.

Fred BarrosDirector Barros has more than a decade of experience working with banks in the United States on

merger integration, IT attestation, IFRS con-version, information service governance, and enterprise risk management projects.

David ChamberlainDirectorChamberlain has nearly 20 years of transfer pricing expe-rience having worked for both

the government and the private sector in the United States, specializing in dispute resolution services.

KPMG

Eric DavisDirector and head of asset management consulting Davis has more than 20 years of experience in the banking

and asset management industry. Before his appointment he was an independent consultant.

Anthony Crampton Director Crampton has more than 16 years of experience in board advisory, corporate governance,

assurance, financial reporting, business inte-gration and transaction advisory. He was previ-ously the global head of internal audit for Bunzl.

Helen Chen Director Chen has 14 years consulting experience, specializing in enterprise strategic transfor-

mation, business process, financial manage-

People on the moveThe latest professional appointments from around the region

FOR ADVERTISINGYour chop Your Logo

M&L, the publisher of A Plus

Tel: 2656 2676Email: derek.tsang@mandl.asia

54 December 2012

Your guide to courses, workshops and member activitiesEvents

Visit the Institute’s website for other programmes and to enrol and pay online: www.hkicpa.org.hk

Audit and assurance

Quality and risk management for large and medium-sized CPA firms will explain what this important function is and explore how it facilitates the work of auditors and how participants can get the best out of it. CPD hours: 1.5Language: EnglishDate: 3 DecemberTime: 6:30 – 8:00 p.m.

Financial accounting and reporting

Financial reporting seminar: valuation for HKFRS 2 Share-based Payment will examine the Hong Kong financial reporting standard and, using case studies, provide an introduction to different option schemes. CPD hours: 1.5Language: EnglishDate: 18 DecemberTime: 7:00 – 8:30 p.m.

General management skills 360° project fundamentals will look at how managers can achieve good project results through an essential process of product management consisting of four phases: initiation, planning, control and closing. CPD hours: 3.5Language: EnglishDate: 8 DecemberTime: 9:30 a.m. – 1:00 p.m.

Leadership and business strategy

Building a client-driven firm will define the nature of a client-driven firm and identify how a firm can adapt effectively to changes in the market place, build stronger client relationships and be ultimately profitable. CPD hours: 3Language: EnglishDate: 12 DecemberTime: 6:30 – 9:30 p.m.

Personal and interpersonal skills

Mediate for mutual understanding and win-win resolutions will discuss useful methods of mediation and how they can be effectively used by business managers in resolving conflicts and improving communication at work.CPD hours: 7Language: EnglishDate: 15 DecemberTime: 9:00 a.m. – 5:00 p.m.

Professional knowledge

Business productivity in mastering information technology will analyse how the latest technological trends will maximize business benefits and help participants select suitable software systems and programmes. CPD hours: 3Language: EnglishDate: 10 DecemberTime: 6:30 – 9:30 p.m.

Taxation

Structure and tax considerations for the Asia private equity market will explore in detail the typical fund management structure and related taxation issues for private equity activities in the region, including Hong Kong, Singapore and the Mainland. CPD hours: 1.5Language: EnglishDate: 10 DecemberTime: 6:30 – 8:00 p.m.

Indirect tax handling on assets restructuring in Mainland China will highlight the latest developments in indirect tax treatment for assets restructuring in the Mainland and discuss relevant issues and opportunities for taxpayers. CPD hours: 1.5Language: EnglishDate: 12 DecemberTime: 6:30 – 8:00 p.m.

December 2012 55

56 December 2012

I f Copenhagen is a fairytale city for most of the year, visitors in Decem-ber will experience a veritable winter wonderland. The Tivoli Gardens, the

Danish capital’s social and ecological heart, hosts an annual Christmas market open from mid-November until New Year’s Eve.

The Christmas market tradition began only in 1994 with a few stalls set up between the Vesterbrogade main entrance and the Glas-salen i Tivoli (Glass Hall Theatre). Since then the city has embraced the Tivoli market, which attracted nearly 800,000 visitors in 2011 and offers more than 50 stalls selling Danish cui-sine, handicrafts, decorations and other gifts.

Copenhagen is a medieval city. People started building houses around a natural har-bour near what is now Gammelstrand (Old Beach) more than 1,000 years ago. During the course of the 11th century, a marketplace for the herring fishery emerged.

Despite its status as the largest city in Scan-dinavia, Copenhagen has a small town feel and is chock full of stunning landmarks and historical buildings. The oldest buildings in the city date back more than 700 years. The Helligåndshuset (Holy Ghost House) opened in 1492 as a priory and is now an exhibition space.

Amalienborg Palace, the 17th century Queen’s residence, is considered one of the fin-

est examples of Danish Rococo architecture. Another stately pile from the 1600s, Rosen-borg Castle, exhibits the Royal Treasure, fea-turing some of the Danish monarchy’s greatest cultural artifacts.

Modern Copenhagen is no less stunning. The neo-Baroque Christiansborg Palace, built in the early 20th century, is home to the Dan-ish parliament, the prime minister’s office and the Supreme Court of Denmark.

Copenhagen is not a high-rise city. In-deed, the tallest building is just 88 metres (the 22-storey Carlsberg Hovedkontor) and one world-famous city icon is no more than 1.25 metres tall. It is the Little Mermaid, the bronze

Northern sightsInstitute member and Travelzoo Asia-Pacific CFO Honnus Cheung takes a stroll through the chilly but charming streets of the Danish capital

Business travel

Where to eat• BioM Sophisticated organic dining.

Fredericiagade 78. 3332-2466.• Kokkeriet One-star Michelin take on

Danish classics. Kronprinsessegade 64. 3315-2777.

• Noma René Redzepi’s ground-breaking cuisine. Strandgade 93. 3296-3297.

• Public House Gastropub British with a Danish twist. Vester Voldgade 25. 7026-2320.

• Relæ Christian Puglisi’s hotspot. Jægersborggade 41. 3696-6609.

Where to stay• Axel Hotel Guldsmeden Chic

and environmentally responsible. Helgolandsgade 7-11. 3331-3266.

• CPH Living Floating 12-room boutique hotel. 1C Langebrogade. 6160-8546.

• First Hotel Twentyseven Compact but pampering. Løngangstræde 27. 7027-5627.

• Nimb Centrally located luxury.Bernstorffsgade 5. 8870-0000.

• Radisson Blu Royal Hotel Elegant boutique hotel near Tivoli Gardens. Hammerichsgade 1. 3815-6500.

What to see • Amalienborg Palace Winter home

of the royal family. Amalienborgs. 3312-2186.

• Louisiana Museum of Modern Art Exciting collection north of the city. Strandvej 13, Humlebæk. 4919-0719.

• Rosenborg Castle Home to the Royal Treasure. Øster Voldgade 4A.

3315-3286.• Statens Museum for Kunst Fine

national gallery. Sølvgade 48-50. 3374-8494.

• Tivoli Gardens Amusement park and “pleasure garden.” Vesterbrogade 3. 3315-1001.

• Vikingeskibsmuseet Showcase of Denmark’s ancient ships and seafarers, 40km from Copenhagen. Vindeboder 12, Roskilde.

4630-0200.

December 2012 57

Previous page: The Tivoli GardensThis page (from top): The neo-Baroque Christiansborg Palace; Christiania; Rosenborg Castle; Royal guards at Amalienborg Palace

Business travel

statue that honours children’s author Hans Christian Andersen. Much vandalized over the past century, the mermaid made an uneventful visit to Shanghai for the 2010 Expo.

No visit to Copenhagen is complete without checking out Strøget, the city’s largest shopping street and one of Europe’s longest retail avenues. It offers a range of shops from high-end bou-tiques to cheap chic, famous brand names and small-scale local artisans. Denmark’s top brands include design house Georg Jensen for jewellery, homeware and gifts, and shoe specialist Ecco.

Another not-to-be missed area is Christiania, the hippie freetown that is one of the city’s most popular tourist attractions. While the streets are not unsafe, recreational drugs are sold openly and visitors are discouraged from photograph-ing the locals.

Copenhagen has oodles of Nordic culture. The Statens Museum for Kunst is the premier art gallery and features examples by Modigliani, Picasso, Titian and Rembrandt as well as Danish masters. An exhibition there in December show-cases Danish art after 1900.

Other great art collections include Ny Carls-berg Glyptotek, the museum founded by the brewer Carl Jacobsen (who donated the Little Mermaid to the city), and the Kunstindustrimu-seet, which is devoted to design.

Despite its laidback attitude, Copenhagen has a vibrant nightlife. The Nyhavn neighbour-hood offers bars and cafes on the picturesque waterfront, while the upmarket Nørrebro and Vesterbro districts house some of the city’s best clubs and wine bars.

Scandinavian cuisine was once thought of as little more than pickled herring, hot dogs and meatballs with occasional servings of red cab-bage, but the region’s chefs have been acclaimed in recent decades.

Some would thank René Redzepi, founder of Noma, the restaurant near Christiania thought by some critics to be the best and most innovative in the world now that Spain’s experimental El Bulli has closed. However, Icelandic curd, Greenland musk ox meat and Finnish reindeer blood – never mind the ground ant paste and cockroaches on its recent menus – might not be to everyone’s taste.

Copenhagen abounds in tasty local food such as salmon, sausage and venison, often paired with local fruit such as lingonberries. Don’t miss winter treats such as æbleskiver (apple dump-lings) or flødebolle (chocolate marshmallows).

PHOTO

: GEO

RGE W

. RUSSELL

58 December 2012

Kiwi complexity

New Zealand wineries are looking to the China market, writes George W. Russell

A s every wine marketer knows, Chi-nese drinkers love high-end Bor-deaux and Burgundy. So would

Mainland and Hong Kong consumers respond positively to premium reds in similar styles without the French hype and high prices? That hypothesis has spurred the New Zealand wine industry to target wine drinkers in the region.

Last month, the Family of Twelve, an industry group supported by a dozen leading winemakers, staged a showcase in Hong Kong tied into the Hong Kong International Wines and Spirits Fair. That followed a roadshow to Beijing and Shanghai in May by New Zealand Winegrowers, an industry association.

Experts say the strategy could be pay-ing off. “New Zealand wine’s position in its key export markets has remained strong, and with impressive growth in China,” says Richard Longman, a partner at Pricewater-houseCoopers in Wellington who monitors the wine industry.

Many of New Zealand’s signature reds often involve the use of Cabernet Sauvignon, Cabernet Franc and Merlot grapes, while the whites feature Sauvignon Blanc and Semillon.

However, the flagship red varietal in New Zealand –and the most familiar to Hong Kong connoisseurs is Pinot Noir. From the Martin-borough district in the Wellington wine grow-ing region comes the full-bodied Palliser Great Marco Pinot Noir 2009 (HK$468, Watson’s Wine Cellar, Central), a fine if pricey example.

Hawke’s Bay, a major winegrowing region in the North Island, is better known for other types of reds, such as the Mission Estate Merlot 2009 (HK$138, Watson’s Wine Cellar, Central).

From the South Island’s Marlborough region comes the Saint Clair Family Estate Pioneer Block 5 Bull Block Pinot Noir 2009 (HK$168, Watson’s Wine Cellar, Central), a well-rounded wine with overtones of strong dark fruit. It is ideal for drinking immediately,

After hours

although will continue to develop for another three or four years.

Central Otago produces some fine pre-mium wines, including Misha’s Vineyard The High Note 2008 Pinot Noir (HK$368, Rare & Fine Wines, Sheung Wan). Deep and com-plex, with heavy berry accents, this wine has been recommended as an ideal accompani-ment for Chinese duck dishes as well as west-ern cuisine.

Further south is Nelson, from which comes the lighter-bodied Neudorf Moutere Pinot Noir 2009 (HK$270, Watson’s Wine Cellar, Cen-tral). While berry notes also dominate, they are offset with a few dainty floral and min-eral touches. This wine perfectly suits dishes involving New Zealand’s signature lamb racks.

One recent addition to the Nelson region is the Richmond Plains winery, which offers organic products aimed at vegetarians. Fining, the process that removes unwanted soluble material from wine, often involves the use of isinglass, a fish product, or egg. The Richmond Plains Nelson Pinot Noir 2011 (NZ$22.99, equivalent to HK$146, www.richmondplains.co.nz) is fined only with vegetables. It’s on the fruitier side but with some nutmeg-spicy counterbalance.

The Kiwis’ other grape specialty is Sauvi-gnon Blanc. Who in Hong Kong didn’t arrive at a barbecue or beach party last summer

clutching a bottle or two of wine such as the Cloudy Bay Sauvignon Blanc 2011 (HK$238, Wah Cheung, Yung Shue Wan)?

One of New Zealand’s most internation-ally successful wineries, located in the Wairau Valley in Marlborough, Cloudy Bay is primar-ily noted for its Sauvignon Blanc but also pro-duces Chardonnay and Riesling. It also fea-tures a Sauvignon Blanc made with an indig-enous wild yeast, the lychee-scented Cloudy Bay Te Koko 2009 (HK$398, Watson’s Wine Cellar, Central).

The valley is home to an abundance of win-eries producing excellent whites. The Wither Hills Sauvignon Blanc 2011 (HK$95, Watson’s Wine Cellar, Central) comes from a winery close to Blenheim. This well-priced vintage is fruity in a citrus way yet balanced by creamy and smoky hints.

Central Otago, the southernmost wine-growing region on earth, has a selection of fine Riesling wines ranging from ones with a supercharged sweetness to bone-dry charac-ter. The Felton Road Bannockburn Riesling 2011 (HK$198, Watson’s Wine Cellar, Cen-tral) is an excellent middle-ground example from there, with melodic notes of mandarin.

Don’t ignore North Island whites, especially those from Hawke’s Bay. Try the Alpha Domus The Pilot Sauvignon Blanc  2009 (HK$129, Limestone Wines, Ap Lei Chau).

View of the vineyards in the Marlborough district of New Zealand’s South Island

December 2012 59

Moonwatching

Timepieces are enhanced by a lunar phase display, as Alisha Haridasani discovers

Af

days, 12 hours, 44 min-utes and 2.9 seconds, demonstrating just how precise this com-plication is.

Today, watch brands continue to roll out moon phase watches because “this complication still fascinates, demonstrating the watch-maker’s technical mastery and know-how,” says the Raymond Weil spokesperson. This year, the watchmaker released the Mae-stro Phase de Lune Semainier, which displays not just hours and minutes but also the month, the week, the day, the date and the phases of the

moon. The diameter of the watch face measures 41.5 mm with a 10.85 mm thickness. It also fea-tures a calf leather strap, auto-

matic winding and mechani-cal movement.

Another elegant moon phase classic is the IWC

Portofino Hand-Wound, which was first intro-duced in 1984. The timepiece consists of a simple dial measuring 46 mm across with nar-

row Roman numerals and the moon phase dis-

play at 12 o’clock. The piece comes in four styles: a silver-plated dial with platinum cas-

ing and black alligator leather straps; an ardoise (slate) dial with white gold casing and dark brown alligator leather straps; a silver-plated dial with rose gold

casing and brown alligator leather straps; and a black dial with a sil-

R ome, before Julius Caesar’s calen-dar reforms, had a very loose con-cept of time. According to Stacy

Schiff, Pulitzer prize-winning author of Cleopatra: A Life, a Roman year consisted of 355 days, “to which the authorities added an extra month irregularly, when doing so suited their purposes.”

Time was so subjective and fluid that the Roman philosopher Seneca once lamented that it was “easier for two philosophers to agree than two clocks.”

Contrastingly, in Alexandria, timekeep-ing had been mastered to an art. They had been “studying astronomy when Rome was little more than a village,” Schiff writes, and consequently they were able to invent the yearly calendar with 30-day months that is used to this day and the concept of having 12 hours between dawn and dusk.

Thus, the relationship between astronomy and timekeeping came to be forged. It wasn’t until the Renaissance era, however, that this intimate relationship between celestial bodies and the passage of time manifested itself on watches. According to a spokesperson for watchmaker Raymond Weil, astronomical compli-cations, such as displays of the various stages of the moon, first appeared in “big clocks then in pocket watches with skillfully miniaturized mecha-nisms” in the 17th century.

The reason this complication was introduced in the first place is because the moon provides time with an orientation. The average time between two full moons is 29

ver casing and black alligator leather straps.

Chopard, mean-while, has four watches

with moon phases within its L.U.C collection: the

L.U.C Lunar One, Lunar Twin, Lunar Big Date and 150 All-in-One. Though all four models

display the moon phases with a midnight blue background, the most noteworthy model is the 150 All-in-One. Deviating slightly from convention, this model’s

moon phase is on the reverse dial instead of the front alongside the

sunrise and sunset times. On the front face, there is a leap year indicator as well as date, day and month displays. The 150 All-in-One has a 33 mm dial and comes with either 18-karat rose gold or white gold casing and alligator leather straps. It features a hand wound movement and water resistance for up to 30 metres.

Blancpain’s Villeret collection also has moon phase watches that not only display the best of horology but also unique designs that are either quirky or cater to Asian markets. Some of its new models for both men and women, such as models 6057-3642-53B and 3653-1954L-58B, consist of a man’s face on the moon depicting the poetic image of the Man in the Moon.

For the Asian customer, Blancpain has unveiled models such as the 00888-3431-55B that consist of a traditional Chinese calendar, indicating the five elements, date and month according to the Chinese calendar and signs of the Chinese zodiac alongside the moon phase display.

The moon has always held people’s fasci-nation – literally since the dawn of time – and, when displayed on timepieces, that sense of awe and wonder is only heightened.

Blancpain Villeret Traditional Chinese

Calendar 00888-3431-55B

ChopardL.U.C 150 All-in-One

60 December 2012

D o dead people have to pay taxes? That question springs up regularly on websites such as Yahoo! An-

swers. Bereaved family members usually post it, although occasionally there’s something in the ensuing discussion that suggests the ghost posted it directly. “Why should I pay? I have stopped using public amenities.”

(There must be Internet terminals in heaven, otherwise my kids are going to flatly refuse to go there.)

Anyway, the question always gets one of two responses. Amateur respondents who post answers just to earn website loyalty points say: “Don’t be silly, if you’re dead you can’t pay up.” Accountants give the opposite answer: “Of course you do. Tax collectors laugh at folk who use being dead as an excuse not to pay.” The professionals are right, of course.

In India, dead people pay income tax reg-ularly, sometimes for years. Madan Kumari Jain of Delhi has been paying about 200,000 rupees (HK$28,000) a year in tax for the past five years. She died in 2007. A tax office in Mumbai revealed that it had taken in 40 million rupees from corpses in the past five years, The Times of India reported recently.

This information came out when an activ-ist filed a freedom of information request, but the ensuing news reports failed to explain why exactly dead people would pay income tax. The possible theories, I reckon, are these: 1. She died owing tax money and her heirs

are settling her death duties in stages.2. She died but nobody noticed, so the tax

bills come in and the company accoun-

tant sends out the cash as a habit.3. She so loved paying tax that her corpse

rises from the grave once a year to file tax returns.

4. The money is intended for the Heavenly Tax Department in the afterlife but there has been an address mix up.

5. The Indian Department of Revenue has changed the rules so that every resident or former resident pays taxes every year, dead or alive, backdated to the beginning of time and stretching forwards to eternity.

Now if you know anything about the Indian government, you’ll know that the fifth option is by far the most likely, and if they hadn’t thought of doing that yet they will after reading this article.

While I was preparing this piece, one reader commented that a friend of hers had received a tax bill addressed to a recently de-ceased relative. She said: “He simply sent it back with a note saying: ‘The person you want has changed address’ and then added the ad-dress of the local cemetery. He heard no more from the tax office.” The envelopes are prob-ably piling up in front of the gravestone.

There was an interesting case in the Unit-ed States in which tax officers received let-ters from 250 dead people specifying that they had not earned much recently, and thus were entitled to tax refunds. The total sum requested was US$2 million. Most tax office staff ignored the requests. But a few did pay up. It turned out to be a scam by two live vil-lains. I feel sorry for any real ghosts dealing

with tax matters at that time.Also from the U.S., a reader told me that

ghosts in Michigan probably rejoiced one season when posters went up all over town saying: “Posthumus Tax Cuts.” But it wasn’t an adjustment to the tax rates in the afterlife. It turned out to be the campaign slogan of a candidate called Dick Posthumus. He didn’t get many votes. People wanted their tax cuts before death.

This seems a reasonable request. After all, like the ghost who wrote to Yahoo! An-swers noted, dead people aren’t exactly a drain on the public purse. They don’t even use doors anymore.

Nury Vittachi is a bestselling author, columnist, lecturer and TV host. He wrote the Institute’s first two storybooks, May Moon and the Secrets of the CPAs and May Moon Rescues the World Economy. A third, May Moon’s Book of Choices, was published in August.

Get your daily dose of Nury’s humour at www.mrjam.org

Let’s get fiscal

No escape from death and taxesRevenue collectors laugh at folks who think being dead is an excuse not to pay, warns Nury Vittachi

“ Madan Kumari Jain of Delhi has been paying about 200,000 rupees (HK$28,000) a year in tax for the past five years. She died in 2007.”