Committee for the Registry of Auditors and Accountants 1 October 2015

CRAC BULLETIN No. 43 – October 2015 (Electronic Version)

CRAC and the Financial Intelligence Office (GIF) co-hosted a „Regional Risk Assessment Explanatory Seminar‟ at the Basement Auditorium of the Financial Services Bureau Building on 10

th September 2015. It is reported

that, with the purpose of coordinating with the latest international requirements, the Macao SAR‟s Anti-Money Laundering Inter-departmental Working Group proposes to revise the corresponding legislations on „Suppression and Prevention of the Crimes of Money Laundering and Financing of Terrorism‟; accordingly, CRAC has also drafted the „Bill for Revision of the Instructions for Prevention and Suppression of Money Laundering and Financing of Terrorism for Auditors, Accountants and Tax Advisers‟. Mr. Iong Kong Leong (CRAC Chairperson) gave the opening speech at the seminar, and Ms. Ng Man Seong (GIF Coordinator), Mr. Chris Cheong (Representative of Deloitte Touche Tohmatsu – Sociedade de Auditores) and CRAC staff were speakers at the seminar. Approximately 50 people, including representatives of auditing and accounting firms as well as auditors and accountants, registered to attend the seminar.

Chairperson’s Speech

In his opening speech, Mr. Iong expressed

that: as a member of the Asia Pacific Group on Money Laundering (APG), Macao is required to accept periodic joint assessments from experts, and the next round of assessment is

scheduled for 2016. Nevertheless, Macao is required to first complete a self-conducted National Risk Assessment (NRA) before carrying out of the joint assessment with experts. For this reason, the GIF has entrusted Deloitte Touche Tohmatsu – Sociedades de Auditores to carry out the related work. Since Deloitte Touche Tohmatsu – Sociedades de Auditores has already completed the assessment work, they would like to present the analytical results to the participants at the seminar. Meanwhile, Ms. Ng wished to present the potential money-laundering/financing of terrorism risks and corresponding preventive measures for company service providers also at the seminar. Last but not least, since CRAC is in the process of revising the corresponding anti-money laundering instructions, a CRAC staff presented the first draft of the Bill for Revision.

Corresponding Bill for Revision of

Instructions The current „Instructions for Prevention and

Suppression of Money Laundering and Financing of Terrorism for Auditors, Accountants and Tax Consultants‟ were enacted and promulgated back in 2006. CRAC is obliged to make revisions to the above Instructions in order to coordinate with both the revision work and latest international requirements on corresponding legislations. At the seminar, a CRAC staff presented the

Open Seminar

Committee for the Registry of Auditors and Accountants 2 October 2015

framework and specific details of the Bill of Revision. The Bill of Revision is composed of 8 major segments: 1. General provisions; 2. Assessing risks and applying a risk-based approach; 3. Internal controls; 4. Customer due diligence and measures to detect suspicious operations; 5. Refuse to perform specific operations; 6. Record keeping; 7. Report suspicious transactions; and 8. Duties to co-operate.

After the seminar, CRAC has mailed out

notifications to all audit firms, accounting firms, auditors and accountants as well as uploaded the Bill of Revision to the CRAC website (http://www.dsf.gov.mo), with the intention to collect industry comment regarding the Bill of Revision. (Consultation period: 14

th September

to 13th

October 2015)

CRAC and the Association of Chartered Certified Accountants (ACCA) co-hosted 3 training sessions in the third quarter of 2015. Among them, two sessions had balance sheet items, revenue and leases as main topics and focused on IFRS practical issues and the corresponding challenges, whereas the remaining session explored the common misconceptions in China tax and consequences of non-compliances. The topics had been well received, as 546 students have registered and participated in total.

Issues on Specific Items in Financial Statements

During the seminar titled „Issues on

Specific Items in Financial Statements‟ held on 23

rd July, the key speaker presented some

classic case studies of analysis on financial statements of several listed companies, in an effort to draw students attention and educating them about the corresponding standards. Items in financial statements discussed in the seminar include intangible assets, goodwill and contingent consideration, classification of interest in other entities, and presentation of financial liabilities and equities; there are

approximately 10 corresponding Standards, including „International Accounting Standard (IAS) 38 – Intangible Assets‟, „International Financial Reporting Standards (IFRS) 3 – Business Combinations‟, „IFRS 10 – Consolidated Financial Statements‟, „IFRS 11 – Joint Arrangements‟, „IFRS 12 – Disclosure of Interests in Other Entities‟, „IAS 28 – Investments in Associates and Joint Ventures‟, „IAS 39 – Financial Instruments: Recognition and Measurement‟, and „IFRS 9 – Financial Instruments‟.

The cases were simple yet comprehensive, and the speaker gave an in-depth analysis of the Standards. At the seminar, students were able to understand that some simple analysis of financial statements can lead to many accounting traps becoming clearly visible, whether it be intangible assets, recognition and measurement of goodwill and impairment tests, or revaluation of contingent considerations, or classification of „interests in other entities‟; with regard to Standards, the speaker explained, in details, the requirements from corresponding Standards one by one. The explanations were supported by simple case studies, which are believed to assist students in deepening their understanding on corresponding standards and to enhance both practical applications and analytical abilities.

Common Misconceptions in China Tax and the Consequences of

Non-Compliances

The „Common Misconceptions in China Tax and the Consequences of Non-Compliances‟ seminar took place on 26

th

August, as the instructor combined case studies analysis with explanations of legislations to provide a detailed presentation of various common tax issues. The seminar was very

Training News

Committee for the Registry of Auditors and Accountants 3 October 2015

As of 30

th September 2015, the number of registered auditors, registered accountants, audit

firms, and accounting firms registered with the Committee for the Registry of Auditors and Accountants is as follows:

Registered Auditors 114

Registered Accountants 176

Registered Audit Firms 13

Registered Accounting Firms 2

informative and covered topics including: methods for collecting property tax, corresponding punishments for tax invasion infringements; specific regulations on infringements regarding the use of special VAT invoices, among others.

Tax legislations and points-to-note brought out from the seminar include those that require understanding from investors and financial accounting staff. For example, false issuance of special VAT invoices or other such invoices would be punishable by a minimum of 10 years imprisonment (or even life imprisonment), in addition to a fine between 50,000 and 500,000 yuan (Chinese dollars) or confiscation of properties; should an entity falsely issue special VAT invoices or other such invoices, not only would the entity be punishable, but any managers or staff who are directly responsible would also be punishable. Articles 205 to 212 of the „Criminal Law of the People‟s Republic of China‟ provide strict regulations on penalties involving special VAT invoices.

Other tax legislations presented in the seminar were noteworthy too, for example: Announcement on Issues Concerning the Regulation of Goods and Articles Entering and Exiting China Through Cross-Border Trade E-Commerce (Announcement No.56[2014] of the General Administration of Customs), Notice of the State Administration of Taxation on Issuing the Measures for the Implementation of Special Tax Adjustments (for Trial Implementation) (No.2[2009] of the State Administration of Taxation), Interim Measures for the Administration of Carrying Foreign Currency Cash for Persons Entering or Exiting the Territory (No.102[2003] of the State Administration of Foreign Exchange), and Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Individual Income Tax on Gifts Given by Enterprises for Business Promotion or Development (No.50[2011] of the Ministry of Finance).

IFRS – Future Challenges

On 17th

September, the „IFRS – Future Challenges‟ seminar presented two international hot items – revision background and revision process for revenue and leases. The Standard on revenue had been in place for over 10 years, and the new Standard was released back in May 2014, and will be effective from 2018; discussion regarding the Standard on leases had been ongoing for many years, and its new Standard is expected to be promulgated at the end of 2015.

„IFS 15 – Revenue from Contracts with Customers‟ is the focal point of this seminar. The key speaker analyzed the major changes IFRS 15 brought to existing international standards regarding revenue, and used case studies to illustrate the five steps for recognizing revenue as well as their practical impacts. It is reported that since IFRS 15 put much emphasis on the identification and judgment of „contracts‟ and „performance obligations‟, it is expected that IFRS will bring huge impact on revenue recognition for different industries, particularly the telecommunication and the retail industries. Although the effective date of IFRS has been postponed to 2018, some retrospective requirements still exist, and the key speaker encouraged those enterprises that would likely be impacted by IFRS 15 to seek understanding and start planning early on.

Committee for the Registry of Auditors and Accountants 4 October 2015

Accounting Function: Specific Responsibilities, Prevention of

Frauds…

Numerous studies regarding the history of accounting have suggested that accounting is an important force of promoting the rise of the business society. If we were to say that, for both nomadic and farming eras, the meaning of accounting were limited to the recording of economic events, then as the world entered the commercial era (an era of numerical management), the significance of accounting has quickly become apparent. The fact that Luca Pacioli‟s double-entry bookkeeping system has been put into practice for over 500 years lies heavily on its reasonable (or rational) methods for recording and setting of accounts, and its accounting supervision throughout, so that economic activities can be managed in an orderly fashion. A good and stable socio-economic order is what politicians and economists have always been seeking throughout the years. In 1923, H.R. Hatfield elaborated on the meaning of accounting in his defence for the subject. He said: “the function of accounting is to define responsibilities, to prevent frauds, to pave way for industrialization, to ascertain equity, and to solve the most difficult question in the business world – „what is profit?‟. Accounting offers to facilitate government‟s financial operations, and ensure efficiency in corporate management.”

Cost Accounting: Embodying Democratic Participation

Financial Accounting: Embodying

Supervision Duties

In the business community where people are motivated by the willpower of becoming rich, people constantly strive for new and

innovative production methods, expanding to the global market. Cost accounting ran alongside with the rise of factories. From the late 19

th to early 20

th centuries, cost accounting

has successfully changed the way enterprises calculated profits by combining financial accounts, enhancing enterprises‟ managerial levels. Minimizing costs has always been a type of competitive advantage. In cost management accounting, segmentation of costs is, in effect, confer of power and acceptance of responsibilities, providing clear basis when it comes to performance appraisals. The setting-up of objectives, feedback on information received, prompt auditing, holding someone accountable when necessary, all these factors combined would urge people to make greater efforts in realizing pre-established managerial objectives. This process requires the democratic participation from all involved (particularly those frontline technicians). Without such accounting progress, „Taylorism‟ would not be established on the basis of psychological revolution between workers and employers and, without Taylorism, there would not be „Fordism‟ that subsequently changed the world. Needless to say, in financial accounting, accounting practitioners‟ control over the entire accounting procedure, particularly their grasp at the starting point of audits (audit source document, determining whether an economic transaction should be accounted), reflects the supervision duties of accounting in great details. The persistence of accounting practitioners is key in the realization of „everyone is equal before finance and economic disciplines‟. Many people often complain about accounting practitioners of being too „rigid‟, but doesn‟t this „rigidity‟ reflect on the accounting practitioners standing firmly on their principles, denying anyone from privileges, safeguarding democracy in return?

Theoretical Discussion

Foreword (editor): I’m an accounting practitioner and I like accounting. In my opinion,

there is a lot more to accounting than mere numbers, it is a form of art; even though

accounting is a product of politics, ethics lies the fundamental principles. In other

words, the impact accounting has on society is far beyond what I had imagined when I

started to study accounting. I have found all new respect for accounting after reading an

article titled ‘Accounting is the Guardian of Democracy’ and, thus, I’d like to share it

with our readers in this issue of CRAC Bulletin.

Committee for the Registry of Auditors and Accountants 5 October 2015

Committee for the Registry of Auditors and Accountants

Address : Rua da Sé No.30, Centro de Recursos da Direcção dos Serviços de Finanças, 1/F Tel : (853) 8599 5343, 8599 5344 Fax : (853) 2838 9177

E-mail : crac@dsf.gov.mo Website : http://www.dsf.gov.mo

Accounting Standards Hotline (853) 8599 5300

Registration for R.II of Examinations

Registration for round II of examinations (2015) took place between 10 and 21 August 2015. A total of 119 candidates have applied to sit this round of examinations (15 candidates registered to sit the examinations for auditors, and 104 for accountants). After reviewing their application material, 116 candidates have been admitted to sit the examinations.

This round of examinations has once again been listed by the Education and Youth Affairs Bureau (DSEJ) as a subsidized item under the Continuing Education Subsidy Scheme, and candidates have the option of deducting the examination fees from their personal account (only full payment will be accepted). Actual examinations are scheduled to take place on 28 and 29 November as well as 6, 12 and 13 December at the training centre for civil servants, located on 6

th Floor of Cheng Feng

Commercial Centre, No.322-362 Alameda Dr.

Carlos d‟Assumpção. For more information, please call the CRAC office during office hours.

Past Examinations

The new licensing examinations system „one-year two-rounds‟ has been in place since 2008. Accordingly, CRAC hosts two rounds of examinations each year (once per half-year). CRAC hopes that the new system would allow candidates to design and adopt the optimal exam strategy that best fits their personal situations, with the eventual aim of reaching their goal of passing all subjects. Past statistics show that, between 2008 and 2014, a total of 1,100 candidates have taken licensing examinations, whereby 59 candidates have passed all subjects and qualified for registration. In addition, 3 candidates have qualified to register as registered accountants from round I of 2015 examinations.

The Macao SAR Government Student Welfare fund hosted the „Scope of Work of Financial Professionals Seminar‟ for high school graduates on 4

th June 2015. Hans Lai (CRAC Member)

was invited to attend the seminar that presented the accreditation regime of the accounting and auditing professions of Macao. It is believed that the seminar could assist the new generation of Macao in gaining a better understanding of the accounting industry.

The Union of Associations of Professional Accountants of Macau hosted a training course titled „Budgeting and Cost Management for Construction Projects‟ on 6-7 August 2015. Mr. Wang Zhicheng (Associate Professor at Beijing National Accounting Institute) was invited as the key speaker of the course, which was attended by over 110 people. CRAC was the course‟s supporting organizer.

To understand and grasp the latest information regarding „prevention and suppression of crimes of money laundering‟, and to follow up with corresponding work, CRAC continued to assign staff to participate in two meetings held by the Financial Intelligence Office during the 3

rd

Quarter of 2015: „General Meetings for Regional Risk Assessment Items‟ and „Anti-Money Laundering and Financing of Terrorism Working Group Regular Meeting‟.

Examination News

Committee for the Registry of Auditors and Accountants 6 October 2015

IAASB Reviews Multiple Auditing Standards to Enhance Awareness on Disclosure of Statements, Increase Informational Content of Audit ReportsIn January and September 2015, the

International Auditing and Assurance Standards Board (IAASB) issued a new International Standard on Auditing (ISA 701 – Communicating Key Audit Matters in the Independent Auditor‟s Report), and revised 14 Standards. The Standards will be applicable to audits of financial statements whose accounting period starts from 15 December 2016 onwards. It is reported that the reform is intended to raise the quality of audit work, increasing the informational content of audit reports, thereby enhancing the relevance for decision-making and public‟s confidence for these audit reports. It could be said that, by including „Key Audit Matters‟ in audit reports will subvert traditional format and content of standard audit reports, thus having far-reaching implications. Other revisions include requiring audit practitioners to pay greater attention on the disclosure of financial statements and going-concern assumptions among others during the audit

process. Revised Standards which have been

completed include ISA 700(Revised) – Forming an Opinion and Reporting on Financial Statements, ISA 705 (Revised) - Modifications to the Opinion in the Independent Auditor‟s Report, ISA 706 (Revised) - Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor‟s Report, ISA 570 (Revised) - Going Concern, ISA 260 (Revised) - Communicating with Those Charged with Governance, ISA 200 (Revised) – Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISAs, ISA 210 (Revised) – Agreeing the Terms of Audit Engagements, and ISA 240 (Redrafted) – The Auditor‟s Responsibilities Relating to Fraud in an Audit of Financial Statements, among others. For more information, please visit the following website: http://www.ifac.org.

IFRS: Speeding-up Worldwide Adoption

As of 1st May 2015, there are 116

jurisdictions that have already required either all or the majority of their publicly accountable entities (listed companies and financial institutions) to adopt the International Financial Reporting Standards (IFRS). This implies that, among the 140 jurisdictions listed in the database of IFRS Foundation, over 82% of them have already adopted IFRS.

The remaining 24 jurisdictions can be put into two categories: 1. Those that already permit or require IFRS for at least some domestic publicly accountable entities (14 jurisdictions); 2. Those that currently do not

require or permit IFRS for any domestic publicly accountable entities (10 jurisdictions). It is reported that, among these 10 jurisdictions, one of them (Thailand) is in the process of adopting IFRS in full, and another (Indonesia) in in the process of converging its national standards substantially (but not entirely) with IFRS.

For more information, including details of the 140 jurisdictions, please visit the following website: http://www.ifrs.org/Features/Pages/Global-reach-of-IFRS-is-expanding.aspx

Mainland China: Interim Measures for Professional Liability Insurance for Accounting Firms

In June 2015, the Ministry of Finance and the Insurance Regulatory Commission issued the „Interim Measures for Professional Liability Insurance for Accounting Firms‟. The „Measures‟ are comprised of 6 chapters and 25 Articles, which provides regulations regarding coverage, compensation and supervisory inspections for professional liability insurance for accounting firms. Professional liability insurance for accounting firms refer to the insurance under which an accounting firm or any of its partners and shareholders of any other practitioners shall assume the compensation liability in accordance with the law for any economic loss caused by its or his practicing activities to any client or other

interested parties. The measures also expressly point out that: the accounting firm should prioritize the coverage of professional liability insurance for its audit engagements; for other non-audit engagements, whether insurance should be covered should be based on the level of risk of these engagements as well as the firm‟s developmental needs. In addition, the Measures also provide the calculation methods and amount for the maximum limit for accumulated compensation.

The measures have come into effect on 1st

July 2015. Please visit the MOF website for more information: http://kjs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201507/t20150702_1264863.html

Foreign News