issue 7 / volume 12 / july 2016 moral manapp1.hkicpa.org.hk › aplus › 2016 › 07 › pdf ›...

MORAL MAN

Issue 7 / Volume 12 / July 2016

Stavros Thomadakis, Chair of the International Ethics Standards Board for Accountants, explains the board’s new ground-breaking standard and potential global influence

HK$70.00

Plus:Future of auditThe role of artificial intelligence

Era of electric carsWhy China could become a global leader

LifeCPA bookworms

CT partners.indd 2 2/2/16 12:20 PM

President’smessage

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July 2016 1

Dear members,

The Institute’s prestigious bench-mark programme, the Best Corpo-rate Governance Awards, started inviting entries earlier this month. With the awards heading into their 17th year, we’re making changes to reflect evolving market expecta-tions. We have dropped the refer-ence to “disclosure” in the name of the awards because good disclosure is only one aspect of good corpo-rate governance.

The growing connectivity and online communications between global financial markets have made timely disclosure and transparency, and providing quality information even more important to help inves-tors make more informed decisions and to provide stability to markets.

Among other changes this year is the introduction of a self-nomination approach for the awards that recognize significant improvement. There are also three new awards to emphasize essential elements of good governance prac-tices, namely internal control and risk management; board and audit committee operation and function-ing; and website corporate gover-nance information.

With its refreshed ambit, the Best Corporate Governance Awards continue to champion best practices to strengthen Hong Kong’s governance culture. Join us or encourage your clients to par-ticipate by 15 August.

The second seminar under the Business Leaders Series took place this month with Richard Lancaster, Chief Executive Officer of CLP Holdings, a consistent winner of our corporate governance awards, sharing his valuable insight and experience in corporate culture and governance. It was great to see about 350 members – another full house – joining the event and enjoying the lively interaction with our renowned speaker.

The series is aimed at sharing the latest thought leadership and inspiring members, who are leaders in their own right and have to make tough but important decisions daily. The Institute will continue to invite business leaders to share their perspectives in business and social issues, and their wisdom in driving business success.

Further to the successful launch of the Institute’s Facebook page in October last year, we have set up another social media platform to connect with members. The Standard Setting Department’s LinkedIn page aims to engage with interested parties on the latest developments in standards relat-ing to financial reporting, auditing and ethics. These topics of discus-sion fit well with the professional network which now has more than 433 million users in over 200 countries and territories.

This initiative also comple-

ments the Institute’s overall com-munications strategy to tap into the growing digital trend and cater to our increasingly technology-savvy membership. Follow the HKICPA SSD page now to get updates and join the discussions – we would like to hear your views.

Staying on the technical front, I would like to remind you to sub-scribe to International Accounting, Auditing & Ethics, a world-class online resource developed by ICAEW that is free for HKICPA members. You will be able to access a range of tools written and delivered by specialists in the field. Simply go to www.icaew.com/HKICPA and follow a few registration steps.

Nominations for the 2016 LegCo election will run until 29 July, so exercise your right now and participate in this important exercise for the profession. We are organizing a forum on 26 August for you to meet the candidates and more details will be available soon.

Turning to the news, will the historic Brexit affect you and your clients? As accountants, we are always strong at creating opportuni-ties amid risks and uncertainties. Stay positive and we would keep you updated if there is any important development that can be of concern.

As the summer is here, I hope you are able to take some time off to recharge and refresh.

“ With its refreshed ambit, the Best Corporate Governance Awards continue to champion best practices to strengthen Hong Kong’s governance culture.”

Ivy CheungPresident

ContentsIssue 7 / Volume 12 / July 2016

01NEWS

01 President’s message

04 Institute news

06 Accounting news

10FEATURES

10 China charged up The long road ahead for China’s electric vehicles market

17 Thought leadership: Bruno Arboit The Chairman of the Institute's Insolvency Specialist Designation Vetting Committee on why it is vital for Hong Kong to adopt an effective corporate rescue mechanism

18 Leadership: Stavros Thomadakis The Chairman of the International Ethics Standards Board for Accountants discusses the board's priorities for the future

25 How to… Michael Leung, President of Hong Kong Computer Society, on how a robust information technology strategy can create business value

26 I, Auditor A look at how cognitive technology is efficiently redefining the auditing process

32 Success ingredient: Florence Kong The Finance Director at 10 DESIGN has helped build a solid foundation for the architecture and design firm

38 Turning the page Institute members share what makes a good book and the lessons they can assert from it

44SOURCE

44 China's VAT reform – history in the making The transformation from business tax to value-added tax in China explained

46 Tips for a smooth practice review Ways practices can steel themselves in the event they are chosen for a practice review

48 Technical update HKFRS 9 – impact on classification and measurement for financial assets

50 TechWatch 164

26I, Auditor

The exponential growth of AI recently is revolutionizing auditing, allowing CPAs to focus more on strategic matters

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

Editor Gerry HoEmail: [email protected]

Copy Editor Jemelyn Yadao

Contributors Tigger Chaturabul, James Kelly, Ben Richardson, George W. Russell

Editorial Assistant Queenie Lee

Production Manager Jasmine Hu

Designer Trevor Cheng

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

ADVERTISING ENQUIRIESAdvertising Director Derek TsangEmail: [email protected]: (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 July 2016. Print run: 7,070 copiesThe digital version is distributed to all 40,037 members, 19,163 students of the Institute and 2,293 business stakeholders every month. Subscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

President Ivy Cheung

Vice Presidents Mabel Chan, Eric Tong

Chief Executive and Registrar Raphael DingEmail: [email protected]

Head of Corporate Communications Stella To

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

Editorial Manager John So

Editorial Coordinator Maggie Tam

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

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

52AFTER HOURS

52 Books Flash Boys – A Wall Street Revolt reviewed, and interview with author Michael Lewis

54 Life and everything From enjoyable nights out to simple desk-based stretches, as recommended by Institute members

56 A life in the day Nury Vittachi meets Jane Wong, Managing Director of Fiesta Global Limited

32The master planner

Florence Kong, Finance Director at architecture firm 10 DESIGN, uses her CPA skills to ensure landmark projects are profitable

Book review

News Institute news Accounting news

Institute news

Mainland CPA firms can now have Institute members as partnersHong Kong CPAs can now become partners in a Mainland CPA firm based on the extension of the scope of the Closer Economic Partnership Arrangement from Guangdong province to rest of China.

Previously, Hong Kong CPAs were only allowed to be partners in Guangdong province-based firms. Now, as long as a Hong Kong CPA has obtained a Chinese Institute of CPAs qualification, maintains a place of abode and resides in the Mainland for more than six months annually, and is at a firm controlled by Mainland partners, the Hong Kong CPA can be a partner at the Mainland firm.

This latest development further reinforces the value of a Hong Kong CPA designation, says Raphael Ding, the Institute’s Chief Executive and Registrar, in his latest Chief Executive’s Update.

The Ministry of Finance has announced the detailed application procedures in pursuance of this new CEPA initiative on it’s website.

Hong Kong permanent residents who

have obtained a CICPA qualification and the required practical experience can now submit an application to the MoF office at the province where the CPA practice registered to join a Mainland CPA practice as partner. Hong Kong audit experience is also recognized, and the applicant is required to provide a certification by the Hong Kong CPA practice of the audit experience. Other specific provisions include:1. The partnership agreement should

specify that Mainland resident partners of the CPA practice will represent not less than 51 percent voting rights on operation and management decisions. A copy of such partnership agreement forms part of the supporting materials.

2. Hong Kong permanent resident with Chinese nationality can become the managing partner of a Mainland CPA firm. An applicant applying to become a managing partner has to provide a copy of his/her Hong Kong identity card and a declaration that he/she does not have other nationality.

3. The admitted applicant will be subject to regulation by the MoF offices at provincial level and above, and has to comply with Mainland laws and regulations, including the CPA law (註冊會計師法), the partnership law (合夥企業法) and the secrecy provisions that apply to non-Mainland officers.

Members and past Council member honoured for contribution to Hong KongThe Hong Kong government recognized three Institute members and a past Council member this year for their distinguished services to the society, by presenting them with a Gold Bauhinia Star, a Silver Bauhinia Star and two Bronze Bauhinia Stars.

This year, a total of 310 people were on the Honours List. Among them was past president Paul Chan, who received a GBS for his “dedicated and distinguished service to the government and the Hong Kong community,” particularly in his capacity as Secretary for Development.

4 July 2016

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Disciplinary findingWu Kit Man, Athena, CPA

Complaint: Wu was convicted of an offence involving dishonesty.

Wu was convicted at the Magistrates Court of theft for having taken cash which did not belong to her from an ATM machine. Her subsequent appeal to the higher courts was unsuccessful. Wu notified the Institute of the conviction in accordance with her membership obligations. After considering the information available, the Institute lodged a complaint against Wu under section 34(1)(a)(ii) of the Professional Accountants Ordinance.

Decision and reasons: Wu was reprimanded and ordered to pay a penalty of HK$5,000 and the costs of disciplinary proceedings of HK$28,211. In making its

decision, the Disciplinary Committee took into consideration, among other things, the relatively light fine ordered by the court, Wu’s personal circumstances and the effect of the conviction on her career.

Resolution by AgreementLam Yat Chung, Paul, CPA (practising)

Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standards on Auditing 500 Audit Evidence, HKSA 705 Modifications to the Opinion in the Independent Auditor’s Report and its preceding standard HKSA 701 Modifications to the Independent Auditor’s Report.

Lam was the sole proprietor of a CPA firm. In auditing the financial statements of a private company for each of the four years ended 31 March 2010 to 2013,

he failed to obtain sufficient evidence of a material amount due to directors included in the financial statements. Lam also failed to modify his audit opinion on the financial statements when he had not obtained sufficient evidence of the said amount.

Regulatory action: In lieu of further proceedings, the Council concluded that the following should resolve the complaint:

1. Lam acknowledges the facts of the case and his non-compliance with the relevant professional standards;

2. Lam be reprimanded; and 3. Lam pays an administrative penalty of

HK$35,000 and costs of HK$10,000.

Details of disciplinary findings and guidelines for Resolution by Agreement are available at: www.hkicpa.org.hk.

Hailed for providing valuable advice on various issues during her tenure as member of the Executive Council, Starry Lee, Chairman of the Democratic Alliance for the Betterment and Progress of Hong Kong and Institute member, was awarded the SBS for her long public and community service, particularly her contributions to Kowloon City District.

Institute member Anthony Yeung earned a BBS, particularly for his contributions to the promotion of inclusion and rehabilitation of people with disabilities and fostering of employer-employee relationships.

Ambrose Cheung, a past Council member, also recieved a BBS for his community service over the years, particularly in his capacity as Chairman of Sham Shui Po District Council.

Standard Setting Department launches LinkedIn pageThe Institute’s Standard Setting Department has launched a LinkedIn

page, aiming to engage with members and other interested parties on the latest developments in standards relating to financial reporting, auditing and professional ethics.

Members should follow HKICPA SSD on LinkedIn to join in discussions on related hot topics.

A Plus wins SOPA awardThis magazine earned an editorial cartooning prize last month at the Society of Publishers in Asia Editorial Awards, a prestigious recognition for outstanding journalism in both traditional and new media throughout the region. The winning entry, Yahoo to stick to Alibaba spinoff plan without IRS backing, was created by well-known cartoonist Harry Harrison.

ObituariesThe Institute notes with regret the passing of Cheung Kit-yuk and Tam Tak-ding.

Institute in numbers

As of 30 June, the Institute has 1,784 registered CPA firms and

corporate practices, up from 1,763 in June last year.

Sole proprietor/practitioner

1,286Two to three partners

418Four or more partners

80July 2016 5

NewsAccounting

6 July 2016

Several accounting organizations stressed the need for continuing international cooperation amid the economic and political turmoil surrounding the United Kingdom’s referendum last month to leave the European Union, known as Brexit.

The Institute of Chartered Accountants in England and Wales will continue its partnerships with EU governments and regulators and with European professional organizations, Chief Executive Officer Michael Izza said in a 24 June blog post on the ICAEW website.

Likewise, the International Federa-tion of Accountants called for continuing global cooperation and coordination to ensure development of quality account-ing standards as the U.K., Europe and other parts of the world grapple with

uncertainty. “The accountancy profes-sion will have an important role to play in the myriad issues that will need to be addressed,” IFAC CEO Fayezul Choud-hury said in a statement.

Among the uncertainties the U.K. accounting profession faces in Brexit is the fate of EU directives already trans-posed into U.K. law and what action the U.K. will take on future EU poli-cies, reported Bloomberg. The U.K., for instance, put into effect on 17 June the EU Audit Regulation and Directive, which introduced new requirements for statutory audits.

“Parliament and the government will have to decide which parts of legisla-tion will be discarded, and it can’t be assumed that every piece of legislation

will be overturned,” Financial Reporting Council spokesman Peter Timberlake told Bloomberg.

How the U.K. would handle policies currently underway through the EU sys-tem, is also questioned. The U.K.’s course of action is unclear if EU policymakers approve directives that must be incorpo-rated into member nations’ laws, “although logic would suggest the U.K. may choose not to adopt,” Timberlake said.

David Cameron, who resigned as prime minister soon after the referendum results were announced, led the campaign to keep the U.K. in the EU. Earlier this month, Britain’s Home Secretary Theresa May was confirmed to succeed him. She has said that “Brexit means Brexit” and that there will be no attempts to stay within

Accounting firms urge forEU cooperation post-Brexit

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More jurisdictions sign up to corporate tax avoidance rulesAnother 36 jurisdictions, including Singapore and Hong Kong, have signed up to new rules on corporate tax avoidance as part of a global crackdown on aggres-sive tax planning. The base erosion and profit shifting (BEPS) initiative, originally developed by the G20 and the Organization for Economic Cooperation and Development, aims to save as much as US$240 billion a year in lost tax revenue around the world. A group of developing countries also signed up to BEPS at a meet-ing, aimed at expanding the framework, in Kyoto on 30 June. The number of signatories is now at 82.

EY U.K. leads in leadership gender balanceEY in the United Kingdom is in the lead compared to other firms when its comes to appointing women into leadership roles (34.1 percent), according to survey results released this month by the Managing Partner’s Forum, a profes-sional firms organization. KPMG is second with 32.1 per-cent, with PwC (31.7 percent) and Deloitte (31.6 percent) in third and fourth place. Grant Thornton takes fifth place with 28.6 percent, followed by Smith & Williamson with 27 percent. MPF’s statistics is based on data provided by all 10 accountancy firms with annual U.K. revenues in excess of £100 million.

IESBA roll out new standardsThe International Ethics Standards Board for Accountants released its new standard, Responding to Non-Compliance with Laws and Regulations, this month aimed at resolv-ing potential conflicts of interest for accountants and auditors, by providing guidance on what to do if they uncover corporate wrongdoing. “The standards clarify that profes-sional accountants must be active and not turn a blind eye to noncompliance,” Stavros Thomadakis, Chairman of the IESBA, told the Wall Street Journal. “It’s trying to bring about early, early detection, if you will, but also early action by management or authori-ties.” He added that “in times of crisis, there may be more of a temptation to not comply.”

Deloitte University opens in SingaporeDeloitte has opened a branch of their Deloitte Uni-versity in Singapore on 27 June, in a bid to develop future leaders for the firm. The launch of Deloitte University Asia Pacific, located in Amara Sanctu-ary Resort in Sentosa, also comes amid the growing demand for talent in the region. According to the Asia Pacific Dean at Deloitte University, the firm expects 1,000 students will participate in the univer-sity’s curriculum by 2017.

July 2016 7

The percentage of the world’s initial public offerings launched in Asia Pacific in the first half of the year,

according to a report by EY, making the region the most active during

that period for IPOs. It was held back, however, from a slowing IPO market in Greater China, where the number

of deals dropped from 236 in the first half of last year to 101 this year.

A world of numbers

The percentage of accountants in the United States who said they had already decided who to vote for in November’s presidential election, according to a survey by Accounting Today. About 50 percent of those surveyed think

that the result will have a major or some impact on their firm.

Or 26%, the overall percentage of women sitting on FTSE boards in the United Kingdom, an increase

compared to a year earlier but showing signs of a slowdown in the

pace of change, according to the Female FTSE Report. Companies are targeted to reach 33 percent

female board composition by 2020.

65.5%

52%

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aplusNewsAccounting

Mark Zurkerberg

Atsutoshi Nishida

Facebook faces probe into intangible assetsFacebook is facing an investigation over the transfer of intangible assets from the United States to its unit in Ireland. The Internal Revenue Service filed a petition to force Facebook to comply with the probe into whether it unscrupulously undervalued its intellec-tual property and then shifted resources between its Irish sub-sidiaries in order to pay Ireland’s 12.5 percent corporate tax rate instead of the 35 percent the U.S. charges. A Facebook spokesper-son said the company had complied with all local laws.

Toshiba ex-bosses to avoid criminal chargesThe three former presidents of Toshiba shamed over the electronic giant’s high-profile accounting scandal are unlikely to be held crimi-nally responsible, sources told The Japan Times. The Tokyo District Public Prosecutors Office’s special investigation unit informed the Securities and Exchange Surveillance Commission that it would be hard to press charges, according to reports. Atsutoshi Nishida, Norio Sasaki and Hisao Tanaka were at the helm of Toshiba at the time the company exaggerated its operating profit by US$1.2 billion.

British SMEs google financial adviceThe number of small- and medium-sized enterprises in the United Kingdom that turn to an Internet search engine for financial advice is almost equal to the portion that seek the counsel of an actual accountant. According to a survey conducted by the Association of Accounting Technicians, 19 percent of SMEs will simply google their questions when they need financial advice, while 22 percent said they would turn to an accounting professional. Moreover, only 8 percent said they would ask for help from trade bodies.

Wal-Mart cuts hundreds of accounting rolesThe retail giant Wal-Mart is cutting accounting and invoicing positions in approximately 500 locations in the United States in a bid to be more efficient. Money will instead be counted at each store by a machine to improve the speed and accuracy, and invoicing will be handled by a centralized team. A spokesperson for the company’s largest private-sector employer said that the two to three employees affected in each store would be offered new customer-facing roles.

July 2016 9

Electric verhiclesChina

10 July 2016

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In the coming October, 20 drivers will race at up to 210 kilometres per hour through the

streets around Hong Kong’s Cen-tral Harbourfront in the first round of this season’s FIA Formula E Championship, the world’s first all-electric racing series, and the first to be held in the city.

About 25 minutes in, they’ll pull into the pit stop and scramble to a replacement all-electric vehicle for the second, nearly identical leg. The changeover to stop their cars from overheating highlights the gulf still separating the battery-powered Formula E’s vehicles and the internal combus-tion engines used by its older, wealthier and more glamourous rival, F1.

That gap, though, is narrowing fast. Five years from now, there will be no second car if gains in battery power and endurance meet expectations, says Hong Kong Automobile Association President Lawrence Yu Kam-kee.

“This is why you need a For-mula E race standard: to upgrade and improve, and try to prove the engines’ durability and efficiency,’’ says Yu, who is credited with bring-

ing ePrix to the city. “I remember when Formula 1 started they had very sophisticated engines, but now ordinary cars are using designs based on those from F1.’’

Formula E’s potential to push EV performance explains China’s growing presence since the race’s 2014 debut in Beijing. Two of the 10 teams taking part in the October race are Chinese and Ma Qing Hua, the nation’s first ePrix driver will race for one of them. A third, United States-based outfit has Chi-nese funding, while Beijing-based NextEV TCR used to run a team but is now one of nine construc-tors, alongside Audi’s partner ABT Schaeffler, Renault and Jaguar.

The payoffs from advances in EV engineering are potentially game-changing for China, which is a latecomer to the 150-year-old technology of internal combus-tion engines and faces formidable barriers to enter the market for hybrids pioneered by Toyota’s Prius, which depends on a petrol-driven engine as well as its battery. Electric-only and plug-in hybrids (PHEVs) – in which a small internal combustion engine serves as a generator to recharge the battery – offers China a level playing field to become the global leader, says Yu.

If anything, the field is tilted in China’s favour. The central government’s control over infra-structure and urban planning, strong leadership of industry, the rise of densely populated mega-cities and a vast base of digitally savvy consumers make China a testing ground not just for EVs but for the future of global mobil-ity – in which EVs, connectivity and autonomous transport are all integral ingredients, according to Marco Hecker, Automotive Consulting Managing Partner at Deloitte China.

CHINA CHARGED UP

“ A vast base of digitally savvy consumers make China a testing ground not just for EVs but for the future of global mobility.”

Driven by increasing consumer demand and aggressive government backing, sales of electric vehicles are ramping

up in China, which accounted for more than half of the global electric car market last year. Ben Richardson looks

at the long, rough road ahead for the country’s EVsIllustrations by Ester Zirilli

July 2016 11


“The Chinese government has a better chance to bring an ecosys-tem together than anywhere else in the world,” says Hecker. “You can create an ecosystem all by yourself, without having to solve all the in-dividual desires of making money, profit and owning the customer in-terface. That’s something that other companies and countries should be wary of.”

The prime drivers for China’s EV ambition are its desire to create a world-beating industry that helps curtail oil imports, boosts exports and addresses domestic concerns over urban air quality, where ex-haust emissions are key.

Fuelling demandAggressive government backing – including tax breaks and other incentives, state purchases of locally produced vehicles and non-tariff barriers to imports – accom-panied by Chinese firms’ growing manufacturing and design capabil-ity fired a threefold surge in sales of PHEV/EVs last year, while U.S. sales fell 7 percent, according to an April report from HSBC. China last year accounted for 55 percent of the segment’s global market, up from 29 percent in 2014. The government aims to have 5 million EVs on the road by 2020, passing the 500,000 mark in March.

The surge in EV sales has been accompanied by investment in charging infrastructure, with the number of fast-charging outlets more than quadrupling last year. The government plans to have 12,000 charging stations and 4.5 million individual points at the end of the decade. In any case, average

journey lengths in China are short and easily covered by current battery ranges, reducing the much talked about “range anxiety” that analysts often cite as a brake on growth in other markets.

Helping to fuel demand, the Chinese government is encourag-ing hundreds of millions of its citizens to migrate from rural areas to cities, where Internet connectiv-ity combining with high-rise living foster new patterns of consumer be-haviour. The government has also invested heavily in high-speed rail and aviation as alternative ways to travel between cities.

“People can do everything they need to do online, or they can walk… the day-to-day infrastruc-ture is very different in China than anywhere else in the world,” says Hecker. “The real future of mobility is not happening in Silicon Valley, but it’s really happening in the Asia Pacific.”

Chinese consumers are more likely to buy a new car without taking a test drive, he adds – in part because they do more research on-line than consumers anywhere else in the world. Government efforts to

cut congestion by restricting new licences or the amount of time driv-ers can spend on the road typically don’t apply to EVs, so impatient drivers will trade the pitfalls of electric cars so they can get behind the wheel sooner, he says.

According to a report by De-loitte, a majority of “Generation Y” consumers (63 percent) in China think that they will be driving an alternative engine or fuel efficiency vehicle by 2019 and they are willing to pay more for it. Hybrid electric is the predominant choice for them.

A newly released survey by Nielsen AC found that more than half of respondents who said they would consider buying new energy vehicles said they’re looking forward to cars produced by global Internet companies, while almost 60 percent would consider models made by Chinese Internet companies. Indeed, domestic companies already control more than 90 percent of the Chinese market, with Tesla the only foreign brand among the top 20.

The sheer scale of the domes-tic market may prove the catalyst for a sustainable boom in new-energy vehicles. Surging sales are helping fuel a virtuous circle in which higher demand is driving down battery and other costs and spurring carmakers to roll out a wider range of models, according to HSBC. By 2020, it predicts falling costs of Nickel-ion batteries that can account for 30-40 percent of total costs will mean EVs become cheaper than equivalent internal combustion engine models, clear-ing one of the biggest hurdles to sales and removing the need for expensive government subsidies.

Domestic companies already control more than 90 percent of the Chinese market, with Tesla the only foreign brand among the top 20.

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14 July 2016

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Road to scepticismSuch rosy outlooks for the PHEV/EV segment draw scorn from sceptics such as Chairman of Market and Investment Strategy at JPMorgan Asset Management Michael Cembalest, who says he’s heard it all before. Cembalest points to a 1966 Wall Street Journal report on a “major breakthrough” by Ford Motor Co. that would give longer driving ranges to electric cars and predicting the new models would hit the market in 10 years. Forecasts of the U.S. market for new energy vehicles this decade have repeat-edly proved wildly optimistic. President Barack Obama said the U.S. would have 1 million EVs by 2015; by January of that year there were 280,000. The Nissan Leaf is the best-selling EV since 2009, with 186,000 sold; Toyota shipped 1.3 million of its Corolla sedans last year.

Battery prices that stayed too high and provided too little range, and the failure to roll out adequate charging infrastructure posed ma-jor deterrents for buyers. So too has the competing and contradictory claims of EVs’ environmental ben-efits, further confused by complex trade-offs all along the so-called well-to-wheel supply chain.

One example of that is how the fuel mix supplying a power grid will have a significant impact on an EV’s output of carbon dioxide: a car charged entirely by natural gas has about half the greenhouse gas footprint of one tapping a grid powered by coal. That means an EV in China emits more CO2 than a gasoline car because of China’s reliance on coal power, says Rich-ard Muller, Professor of Physics at the University of California, Berkeley.

The focus on EVs by govern-ments also carries a potential envi-ronmental cost by failing to apply

policies that would yield the best returns. “A big issue with them is that they’re still a glamour market item rather than something for the average person,” says Merrin Pearse, a Hong Kong-based sus-tainability strategist. “If through incentives you end up putting cars on city centre roads without col-lecting road-user charges you end up creating more congestion.

“If you can get one of those truck drivers to switch over, you’re probably saving the emissions of 10 modern cars.” The biggest environmental gains from EVs are likely to come from heavy and light goods trucks, industrial vehicles and public transport – and China is the world leader in this segment.

Beyond TeslaPerhaps the single biggest drag on demand for EVs globally has been their failure to inspire a positive narrative.

“Mention electric cars and a world of Scalextric and remote-control plastic vehicles covered in stickers springs to mind,” said Rob Eadon, a Hong Kong-based motor-ing enthusiast whose cars include a Maserati and Alfa Romeo Spider.

Which is why even environ-mentalists are making tactical en-dorsements of the hype surround-ing high-end, design-centred autos like the Tesla range. “If you are an enthusiastic motorist, you’d say:

‘I want a bit of style’,” says Edwin Lau Che-feng, Executive Director of the Green Earth, a Hong Kong-registered environmental charity. “Tesla stirred up the attraction of EVs. Tesla is a catalyst for the EV market.”

Tesla Founder Elon Musk’s upstart challenger hoisted a feel-good balloon over battery power just when traditional high-end automakers are beginning to take the market seriously. Porsche’s fully electric Mission E will be on the road before the end of the de-cade. Audi will begin production of its all-electric SUV by 2018, which is also the target date for Mercedes-Benz to launch at least one long-range fully electric car. All the new models are expected to have a range of about 500 km per charge.

And while Tesla may be strug-gling to transform itself into a profitable mass-market manufac-turer, it and other non-traditional automakers are disrupting the industry through more than just the way cars are powered, says Hecker at Deloitte.

They are also revolutionizing sales and distribution channels, forcing traditional carmakers to lift their game – and possibly herald-ing an era of greater collaboration, such as that between Aston Martin and LeEco, the Chinese technology company that is backing Faraday Futures’ ePrix racing team. The James Bond’s favourite luxury sports marque and LeEco, known as “China’s Netflix,” are working on the 1,000 horsepower RapidE – also due for release in 2018.

“I see more collaboration oppor-tunities’’ between the newcomers and traditional original equipment manufacturers, says Hecker. “They are so different in product focus and they could learn from each other.”

The Nissan Leaf is the best-selling EV since 2009, with 186,000 sold; Toyota shipped 1.3 million of its Corolla sedans last year.

Tesla currently has 80 percent share

of the electric car market in

Hong Kong, with the rest taken up by players

such as Japan’s Nissan Motor and France’s Renault

Group, Steve Man, Director of Research

Asia for Autos and Industrials at Bloomberg

Intelligence, said in a media briefing

this month. But German brands

such as Audi, Porsche, BMW and

Mercedes-Benz will likely pose a

threat to Tesla as they are expected

to all have their electric vehicles in the market by 2018, he added.

July 2016 15

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Thought leadershipBruno Arboit

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July 2016 17

On 3 June, the Hong Kong government gazetted the Companies (Winding Up and

Miscellaneous Provisions) (Amend-ment) Ordinance 2016 (the amend-ment ordinance). The actual date of commencement is yet to be announced by the Secretary for Financial Services and the Treasury. The amendment ordinance represents one of the most significant updates to Hong Kong insolvency law in recent years, herald-ing a number of amendments to the Companies (Winding Up and Miscel-laneous Provisions) Ordinance (Cap. 32) and subsidiary legislation.

According to the government’s press release, “The amendment ordi-nance will improve and modernize Hong Kong’s corporate winding-up regime by providing measures to increase protection of creditors as well as streamline and further enhance the integrity of the winding-up process.”

The changes proposed by the amendment ordinance are welcome news, but do not go far enough. To really bring Hong Kong’s insolvency law up to date, the government needs to adopt an effective corporate rescue mechanism. Hong Kong’s proposed corporate rescue mechanism, provi-sional supervision and corresponding insolvent trading provisions, have been talked about for far too long. They should have been part of the amendment ordinance so as to put our insolvency legislation on a par with other developed jurisdictions.

Creditor protectionIn terms of enhancing the protection of creditors, the amendment ordinance:• Introduces the concept of “transac-

tions at an undervalue” providing for the court to set aside transac-tions at an undervalue entered into

by a company within five years prior to commencement of its winding up (new sections 265A to 265E, 266C and 266D). This pro-vides another tool in the liquida-tor’s armoury to attack antecedent transactions.

• Provides for standalone provisions for the court to set aside pre-wind-ing-up transactions entered into by the company which are unfair preferences (new sections 266 and 266A to 266D). Previously unfair preferences were dealt with in a somewhat cumbersome manner via a combination of corporate legisla-tion and the Bankruptcy Ordinance (Cap. 6).

• Attaches liability to directors and members in receipt of the pro-ceeds of any share buy-back or redemption from the company’s own capital that occurs within one year of the commencement of the company’s winding up. In such instances the respective directors or members are liable to repay the amounts received (new section 170A, amended s171 and s179).

• Seeks to minimize the potential for abuse of a director-initiated credi-tors’ voluntary up by amending existing section 228A to set out more clearly the process of initiat-ing such a liquidation. Introduces a new section 228B setting out the powers, duties and liabilities of a provisional liquidator appointed under section 228A.

• Amends existing section 241 to provide creditors with sufficient notice prior to the meeting of creditors in a creditors’ voluntary liquidation.

• Inserts a new section 243A and 250A to limit the powers of a liq-uidator nominated by the company

and the directors, prior to the meet-ing of creditors taking place.

Streamlining the winding-up processThe amendment ordinance seeks to simplify the winding-up process via the following:• Liquidators may communicate with

the Committee of Inspection (COI) by electronic means (new sections 296A to 296E), including the exe-cution of any resolutions required by the COI (new sections 207D to 207K). The COI may also attend meetings remotely (new sections 207B and 207C).

• A COI shall consist of between three to seven members unless varied by way of application to the court (amended section 206). The liquidator must summon a first meeting of the COI within six weeks from the date of the appoint-ment of liquidators, or the appoint-ment of the COI, whichever is later (new section 206A).

• The bills of agents employed by the liquidator in a court wind-ing up may be approved by the COI without taxation by the court (amended rule 176 of the Companies (Winding-up) Rules). Liquidators and their agents will certainly appreciate this amend-ment as the taxation process can sometimes significantly delay settlement of bills.

• In a court winding up, a liquidator may appoint a solicitor without either court or COI sanction pro-vided that at least seven days’ notice of the intention to exercise the power has been provided to either the COI (if so appointed) or creditors (amended section 199 and new schedule 25 added).

The Chairman of the Institute’s Insolvency Specialist Designation Vetting Committee says Hong Kong’s corporate winding-up regime still has a long way to go to be aligned with the latest international developments

Hong Kong insolvency law update – a look at recently announced amendments

Cover storyStavros Thomadakis

Stavros Thomadakis is emeritus professor

of financial economics at the University of

Athens. For many years, he directed the university’s graduate

finance programme on applied accounting

and auditing

18 July 2016

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SETTING A HIGHER

BARStavros Thomadakis, Chair of the International Ethics Standards Board for Accountants (IESBA), tells George W. Russell about his priorities, the challenge of technology, and the lessons to be learned from the crisis in his Greek homelandPhotography by Jeff Singer

S tavros Thomadakis doesn’t have to look far to see how relevant ethics are to

national economies. The veteran Greek policymaker, Chair of the IESBA since January 2015, believes that his homeland’s on-going finan-cial crisis is a lesson for the world.

Now based at the IESBA head-quarters in New York, Thomadakis says he has been appalled by the events that have unfolded since the beginning of the global financial meltdown in 2008. “Greece has undergone a crisis caused by over-indebtedness and fiscal mismatch.”

“I think there’s a big lesson from Greece in that transparency and fiscal accountability in the public sector are very important – maybe even more so than in the private sector,” he concludes.

The IESBA chief says elected officials and public servants need to be made accountable for the way they spend taxpayers’ money and how they manage economies. “We talk about public interest, but if there’s something in the public interest, it’s that.”

As IESBA chair, Thomadakis is an important player in the debate over setting ethics for accountants in the post-global financial crisis environment. “I believe that within the public sector we should have the same high levels of ethics and accountability as those we’re trying to promote in the private sector.”

Strong accounting standards can underpin a healthy ethical environment, he says. “I’m very supportive of International Public Sector Accounting Standards. And if you have such a set of standards, they will help promote ethical behaviour, which is also very much needed within the public sector.”

To be sure, some recent head-lines at home and abroad – from clinical drug trials to construction bid rigging, and academic integrity failures to sports doping – make it appear that the world is facing an overall ethical crisis.

But Thomadakis cautions against over-reaction. “The way I see things, we are not in a particularly unethical era, but the world is emerging from a global financial crisis and a reces-

sion and, in times of crisis, ethical conduct comes under greater stress,” he explains. “I must say the media always has an appetite for the sala-cious, which includes both financial and other types of unethical activi-ties,” he adds.

Fortunately, he says, there is more scrutiny in times of apparent upheaval. “What the general public needs to understand is that scandals and unethical behaviour come from a minority of the population of accountants and we are trying to make them an even smaller minor-ity and hopefully eliminate them altogether.”

Ordering the outputThomadakis, who succeeded the late Jörgen Holmquist, is no stranger to the ethics organization. From 2005 to 2011, he was the first chair of the Public Interest Oversight Board, which oversees the activities of three of the independent standard setting bodies supported by the International Federation of Accoun-tants, such as IESBA.

“Our principal role is that we’re

July 2016 19


the independent international stan-dard setting board and we work to set clear, high-quality, global stan-dards that can be applied in every jurisdiction around the world,” Thomadakis says.

IESBA’s centrepiece is its Code of Ethics for Professional Accoun-tants (the Code), adopted or other-wise used in more than 100 juris-dictions. “Part of our central role is that we engage with stakeholders to promote adoption of the Code, as well as effective and consistent implementation,” he adds.

As chair, Thomadakis sees his main role as leading IESBA’s activities. “That means a lot of coordination, a lot of synthesis, a lot of consultation, and I would say the management of timely production and delivery of our outputs.”

That output is the product of the IESBA Strategy and Work Plan, 2014-2018. “We’re right in the middle of that,” he says, adding that as chair, his goal is to try to achieve the work plan’s objectives. “It’s quite a big list of things.”

One of the biggest items on the list was IESBA’s new standard, Responding to Non-Compliance with Laws and Regulations.

Known as NOCLAR, this standard has stirred controversy over the six years since a project to develop it was first approved. The standard represents the first time the Code has allowed professional accountants to bypass the funda-

mental ethical principle of confi-dentiality. “This is a standard that needs the auditor or other accoun-tant to respond to non-compliance with laws and regulations up to the point of disclosing it to a relevant authority in the appropriate circum-stances,” Thomadakis explains.

“This new standard is expected to have a strong effect and sig-nificant repercussions in the public interest,” he says, “not only in the sense that it will stimulate disclo-sure of non-compliance to public authorities, but also in preventing it because clients or employers will know that auditors and other professional accountants have a responsibility to respond.”

NOCLAR, says Thomadakis, is uncharted territory for IESBA. “This is a ground-breaking standard,” he acknowledges. “We are planning to provide implementation and support tools in the form of questions and answers, video presentations, inter-views and explanations, so users will have a lot of assistance.”

Éthique sans frontièresIn February 2012, IESBA estab-lished a working group to examine whether strengthening part C of the Code would better promote ethical behaviour by professional accoun-tants in business, who play a funda-mental role in financial reporting and facilitate effective corporate governance.

“We are doing some work in revising this part of the Code and renewing it,” says Thomadakis, “dealing precisely with the respon-sibilities and behaviour of accoun-tants, especially those in high corporate positions. I do believe that tone at the top is very important in shaping corporate culture and behaviour and critical to the effec-tive implementation of our Code of Ethics.”

Non-accountants who are in corporate leadership positions are, of course, outside the remit of the Code, but Thomadakis believes that should not be an obstacle. “There is a role that professional accountants in busi-ness can play to influence the culture where they work,” he says. “Corpo-rate culture and ethical behaviour are very highly interlinked.”

Good corporate culture, he adds, knows no national boundaries. “We at the ethics board, and I personally share this view, believe that the fun-damental ethical principles reflect universal ethical values.”

Thomadakis concedes, how-ever, that the circumstances

IESBA Strategy and Work Plan,

2014-2018, lays out four

interconnected strategic themes

that articulate the board’s vision over the medium to longer term:

maintaining a high quality Code of Ethics

for Professional Accountants

for application by professional

accountants globally;

promoting and facilitating

the adoption and effective

implementation of the Code;

evolving the Code for continued relevance in a

changing global environment; and

increasing engagement and cooperation with key stakeholders.

“ There is a role that professional accountants in business can play to influence the culture where they work.”

The IESBA Code of Ethics for Professional Accountants establishes principles of ethics for the

2.8million

professional accountants – whether in public practice, in business, education, or the public sector – who are

members of IFAC member bodies.

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“ Like most things in life, good friends sometimes agree to disagree so obviously in terms of that type of process it can be time consuming.”

July 2016 21


under which the IESBA principles are applied might differ between countries. “We have to be sensitive to national conditions and pecu-liarities in the manner of applica-tion,” he says.

He accepts that global har-monization of ethics standards is difficult. “As a result of the global financial crisis, we have a lot of diversity that was created in the world,” he says. “Various national jurisdictions took their own initiatives, promulgating various standards. But even in jurisdic-tions that have promulgated their own standards, the Code can act in a complementary fashion with national standards. This is a com-plicated job and we’re doing a lot of outreach in order to achieve this.”

Thomadakis says he will continue to engage with global stakeholders during his three-year term. “My role is also to represent IESBA to mould deeper understand-ing by stakeholders, and the public at large, of our strategy, activities and our mission, and to develop and maintain effective relationships with regulators, preparers of finan-cial statements, the investor and corporate governance communities, jurisdictional standard setters, such as the Hong Kong Institute of CPAs, and the accounting profession.”

Overall, he is optimistic about IESBA’s potential global influence. “Standards do support a high level of ethical conduct,” he maintains. “They do have a strong effect and make a lot of difference in harmo-

nizing behaviour across jurisdic-tions around the world, which is in itself important.”

Technological challengesLooking to the future, Thomadakis is keen to clear the current slate so the board can prepare for the next IESBA strategic work plan for 2019-2023. “Besides restructuring NOCLAR and part C of the Code to enhance its usability and under-standability, we have two other projects,” he explains.

“One is what we call long association, dealing with partner rotation rules that we are trying to enhance and strengthen in order to deflect the threat to independence that comes from familiarity.”

The other priority is impor-tant work on what are called the safeguards that apply in every audit engagement. “This is in order to maintain the independence of the auditor and the compliance of the auditor with our fundamental principles,” he adds.

The net result, Thomadakis points out, will be almost a new Code of Ethics. “Our primary objective is to continue to work on raising awareness of the Code and building trust, which is a very important public interest tool,” he says. “I see IESBA’s role, and my role, as keeping a very open mind in dialogue with the various com-munities of stakeholders.”

The use of technology is wide-spread in auditing and account-ing. Standard setters are therefore

increasing their emphasis on new technology. “Digitalized processes must be scrutinized, lest they are built in with unethical responses,” he warns. “In preparing for our next strategic plan, we will engage in a lot of international discussion about strategic priorities, which will, as well as issues of technol-ogy, include globalization, regula-tory diversity and harmonization.”

“ Standards do support a high level of ethical conduct. They do have a strong effect and make a lot of difference in harmonizing behaviour across jurisdictions around the world.”

Thomadakis was the first chair of the Public Interest Oversight Board (2005-2011), which oversees the activities of the IESBA and other standard setters

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From an academic standpoint – Thomadakis is emeritus profes-sor of financial economics at the University of Athens and for many years directed the university’s graduate finance programme on applied accounting and auditing – he is counting on the new genera-tion to promote ethics. “This is where we should exercise thought leadership,” he observes.

“The good thing about the Code is that it is principles-based, so it applies in all operating environ-ments and I am very hopeful that the new generation of accountants, which will be using a lot more digital technology, will at the same time combine ethics and digital technology in better fashion.”

Thomadakis believes the next generation of CPAs will look at

the Code not as a burden but as a goal. “I and my colleagues at the ethics board hope they will approach the accounting profes-sion knowing that it is being held up to higher standards of ethics,” he says. “This new generation has greater ethical aspirations, and ethics will become a mag-net for good young people to join the profession.”

July 2016 23

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July 2016 25

“A bank is like an IT company,” my chief executive officer concluded at the end of a recent management workshop. The same can indeed be said to many other industries and companies, where traditional business models are being chal-lenged by fierce competition, rising customer expectations and, more ostensibly, disrupted by innovative technologies.

While information technology remains a key enabler for change and growth, many executives have come to realize that technology, or more precisely, people who are able to apply technology, can help busi-nesses transform and transcend into a new modus operandi with greater agility, resilience and performance. For these enterprises, an IT strat-egy has become an integral part of the overall business strategy, and IT’s role has evolved from running operations to creating sustainable business value.

Accordingly, investment on IT has shifted significantly from “busi-ness as usual” to “value creation.” In return, the economic value expected from IT investment can be measured by improvements in the overall cost-to-revenue ratio, while the strategic value can translate into competitive advantages in terms of customer satisfaction and market share.

In terms of an IT strategy deliv-ering business value, there are five key focuses.

First and foremost is customer centricity. For service-oriented busi-ness like banking, the only valuable asset is customers. As customers are getting better informed, companies nowadays must understand a lot

more about each of them in order to come up with products and services that can truly meet his or her needs. Apart from the data customers pro-vide, companies have started to tap into open data, or so-called Big Data, to know more about what customers like, where and when they spend, and how to serve them better. IT renders the data and tools to make such business analysis possible.

Service excellence is the next area where IT can deliver great business value. Smart adoptions of technologies, such as cloud comput-ing, mobility and social media plat-forms, have brought about a level of convenience and quality that’s never thought possible before. The ability to deliver personalized, just-in-time services, thanks to analytics and Internet-of-Things devices, has changed the dynamics between service providers and consumers, to become collaborators and partners. For services, a “less is more” para-digm has emerged, as in paperless records, wireless connections, con-tactless devices, cardless payments, cashless transactions, borderless coverage and so on, resulted in seamless and frictionless customer experience.

Turning to operational effi-ciency, the advent of imaging, workflow and storage technologies has made possible streamlining of internal processes and procedures, reducing manual handling and human errors by straight through processing, shortening turnaround time, and returning a much better service quality. Digitally signed documents can now be exchanged and safe-kept securely using block-

chain and smart contract technol-ogy. Advanced robotics, as another example, has redefined process automation, enabling products to be manufactured and services delivered with a higher degree of accuracy, efficiency and quality.

Business intelligence is the one area that an IT strategy can show its unique value. It allows executives to define different set of metrics specific to business functions, including sales forecast, financial performance, risk management as well as operational and inventory controls, and make data-driven, fact-based decisions. Expertise and tools, along with data gathered internally and from open domain, give management the critical capac-ity to expect the unexpected and inspect what is expected. “If you can’t measure it, you can’t manage it,” as the saying goes.

An IT strategy is not robust without a comprehensive support of corporate governance, especially at a time when concerns like public accountability, regulatory compli-ance, interest disclosure and man-agement transparency are drawing increasing attention. It also includes proper governance of the IT func-tion itself, for instance in the data protection space where health and wealth related industries, both deal-ing with sensitive personal data, stand out on top. Of paramount importance there are cybersecurity, segregation of duties, checks and balances, dual control etc., along with monitoring and reporting facilities for the board and manage-ment to discharge their corporate governance responsibilities.

…translate an IT strategy into business value

The President of Hong Kong Computer Society highlights how information technology has evolved to become a fundamental part of an overall business strategy

AuditCognitive technology

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8 March 2016 may go down in the annuals of accounting history as the day audit-

ing beginning to change forever. On that day two of the Big Four, Deloitte and KPMG, both an-nounced separate partnerships to embrace the adoption of artificial intelligence as part of their service offering.

Deloitte announced an alli-ance with Kira Systems to bring the power of machine learning to the workplace, an innovation that could relieve workers from the tedium of reviewing complex documents, and extract and struc-ture other textual information for better analysis.

“Wading through miles of corporate jargon hunting for key words and patterns can consume considerable time and resources,” says Managing Director of De-loitte’s innovation group in the United States, Craig Muraskin. “By teaming with Kira Systems we can help organizations reduce their review time while redeploy-ing talent to higher value activi-ties – let’s save our eyes for more strategic matters.”

Meanwhile, KPMG announced plans to apply IBM’s Watson cog-nitive computing technology with a focus on its auditing services.

“The cognitive era has arrived,”

says Lynne Doughtie, KPMG Chairman and Chief Executive Of-ficer in the United States. “KPMG’s use of IBM Watson technology will help advance our team’s ability to analyse and act on the core finan-cial and operational data so central to the health of organizations and the capital markets.”

Cognitive technology enables greater collaboration between hu-mans and systems, providing the ability to communicate in natural language and analyse massive amounts of data to deliver insights more quickly.

These activities have the potential to advance traditional views on how talent, time, capital and other resources are deployed by professional services organiza-tions. It could free time from audit, tax, advisory and other profes-

sional services to focus more on judgment-based tasks.

A recent KPMG report, 2016 China CEO Outlook – Now or Never, found that CEOs of China-headquartered companies are prioritizing innovation to drive growth and have highlighted it as one of their top strategic priorities, ahead of their global counterparts. Of the 129 respondents, 40 percent said they were using data and ana-lytics to improve financial report-ing while 70 percent of CEOs rated considering the integration of ba-sic automated business processes with AI and cognitive processes as one of their top concerns.

Evolving processCognitive technology is further advancing improvements to sam-pling processes, in which auditors review subsets of data. At the same time, the firms say, cognitive-enabled processes allow auditors to focus on higher-value activi-ties, including offering additional insights around risks and other related findings.

Looking back though, this trend isn’t really all that new. Many of the developments in comput-ing, and hardware and software capabilities over the past 30 years have, in large part, been driven by the demands of auditing, accord-

A growing trend towards the application of artificial intelligence in auditing is enabling auditors to automate tasks that have been conducted manually for years. James Kelly finds out how cognitive technology is evolving the audit process and how CPAs can take advantageIllustrations by Gianfranco Bonadies

I, AUDITOR

“ We can help organizations reduce their review time while redeploying talent to higher value activities – let’s save our eyes for more strategic matters.”

July 2016 27


ing to the father-and-son authors Richard and Daniel Susskind in their recent book, The Future of the Professions.

“The amenability of financial statement auditing to technology is long established. In the 1980s auditors were early adopters of spreadsheet and microcomputer technology, and there was much talk about the great potential of ‘audit automation.’ It was during that era too that the discipline of computer audit came of age – audi-tors had to have the skills to review and interrogate computer-based accounting systems, as well as paper-based materials,” the Suss-kinds write in the book.

For some, AI strikes a more ominous note; a threat of hu-man endeavour being usurped by machines. The popular fiction de-piction of robots and AI replacing humans was popularized by the stories of Isaac Asimov through the 1940s, which were published as a collection I, Robot in 1950.

Rather than auditors being replaced by jaunty robots, the future of AI is more often a stack of benign blinking black boxes. One of Hong Kong’s leading proponents of AI, City University’s Associate Profes-sor in the Department of Computer Science, Andy Chun admits, how-ever, there is no one standard defini-tion of “artificial intelligence.”

“I usually explain that AI systems are computer systems that perform intelligent tasks – tasks that we normally think only humans would be able to perform, for ex-ample our abilities to speak, listen,

and see, as well as higher-level abili-ties to solve problems, play board games, produce plans and designs. Any task that normally requires human intelligence can be good potential for using AI,” he says.

Over the past decade, Chun has been involved with using AI to schedule engineering work for the MTR, to allot aircraft parking at Chek Lap Kok, to review forms submitted to the Immigration Department, and to roster nurses at the Hospital Authority.

He sees the accounting profes-sion and the task of auditing as highly suited to take advantage of cognitive technology.

“AI has proven to be well-suited in encoding professional knowl-edge. It is interesting, but the more specialized the knowledge, the easier it is to apply AI. This is be-cause professional knowledge and associated procedures or processes are well-defined.

“For the accounting profession, there are clear sets of practices as well as guidelines and govern-ment regulations. In addition, with

recent advances in machine learn-ing and big data analytics, AI can be used to analyse a much larger volume of data and faster than any human auditor possibly can, as well as the ability to extract useful knowledge from those large data sets,” Chun says.

At least for the time being, there is still a definite role for humans in the auditing process.

“AI systems are very narrowly focused. They may be very good at interpreting concrete account-ing rules, guidelines, regulations, and best practices. But anything that falls outside the pre-defined professional knowledge, such as requiring common sense for exam-ple, AI will fail poorly,” he adds. “Also, there is inevitably knowl-edge that might not be available to AI that only reside in the heads of humans who work in the organiza-tion. For example, organizational knowledge that requires having to work in an organization for a long time to accumulate might not be available to AI that is performing the auditing process.”

Co-convenor of the Institute’s Information Technology Interest Group, Victor Tan, says AI is an exciting area for accountancy.

“We haven’t any specific plans to promote awareness or discus-sion on this but it is a looming subject. I believe exercising pro-fessional audit judgments may still lie with humans, but even here, arguably AI could play a big role, given that AI can evaluate a larger amount of data and is inherently objective,” Tan says.

By 2025, about 30 percent of

corporate audits will be performed

by artificial intelligence,

according to a survey in 2015 of 800 executives, from the World

Economic Forum’s Global Agenda Council on the

Future of Software & Society.

“ Anything that falls outside the pre-defined professional knowledge, such as requiring common sense for example, AI will fail poorly.”

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New skills Preparing existing professionals and students with the skills needed for this new landscape is a concern of professional bodies, universities and firms.

The International Federation of Accountants is looking at what next generation accountants will need to learn and how to prepare for a world of work that differs greatly from today. While the foundation skills of the profession won’t change, IFAC feels the curriculum will need to reflect the world around it in order to remain relevant.

“As AI becomes more prevalent, the technical skills we learn as accountants and auditors will need to be supported by learning AI inter-faces and understand how AI sources and interprets information,” says Sylvia Tsen, IFAC’s Senior Direc-tor, Quality and Member Relations. “Another key consideration for our profession is the so-called ‘soft-skills.’ A professional accountant’s communication and leadership skills are of increasing importance, which help us to show empathy and emo-tion – traits beyond machines.

“As technology changes, pro-fessionals must adjust – which is exactly what we have always done. The good news is that with so much history of continuous professional development, our profession’s flex-ibility and adaptability is already proven,” says Tsen.

In Hong Kong, Deloitte has been investing heavily in in-house train-ing and development for its staff and even extending it to its clients.

Deloitte Partner Peter Koo says

professionals may need to have greater comprehension of IT at the input and process stage, and pre-sentation skills at the output end, to make sense of this mass of data for the clients.

“Consulting is a people-oriented business, so you will need bet-ter equipped people to go into the market place. If we can change that faster than the others, then we get bigger market share,” says Koo, an Institute member.

Nevertheless, AI raises new is-sues and concerns related to privacy and security, as well as whether the existing standards need to be revised or new industry-wide regulations need to be introduced.

Tsen says technology is almost always ahead of laws and regula-tions. In relation to auditing and as-surance standards, the International Auditing and Assurance Standards Board will in the next couple of months issue a request for input on data analytics.

“IFAC supports the work of the board and all its members are expert volunteers drawn from a wide range of geographies and experi-ences. Their global perspective is really important to spotting issues and trend, and ensuring audit and assurance standards are relevant and implementable. It’s great to know the impact of technology, and how it’s used, is very much on the IAASB’s radar.”

The future is nowProfessor Gary Biddle, Chair of Accounting at Hong Kong Uni-versity and an Institute member, is

optimistic for the future of the pro-fession and the new opportunities it presents. However, he foresees it posing not just a challenge to the role of the auditor but to the firms themselves.

“Accounting has always been big data but now what’s happening is that organizations of all kinds, profit and not-for-profit, are keeping all of their data on these big servers and that opens up all kinds of implica-tions for how auditing is done,” he says, citing Amazon as an example. “They are very big in big data and they can say ‘hey, I’m keeping all your data on our servers now, we have software we can offer you and we don’t need to sample your trans-actions anymore, we can audit every one of them.’ The whole approach to auditing and even who does it could be profoundly affected.”

Experts predict that all financial data will come to be represented in some globally accepted standard form and that the work then will largely involve running ever more powerful algorithms, searches, agents, and routines across the data.

“While the traditional audi-tor may claim that this will never replace the ‘judgment’ of the auditor (for example, as to whether the client handling provisions appropriately), the market leaders are now look-ing very seriously at how artificial intelligence can also help here,” the Susskinds write in The Future of the Professions.

So, if you are an auditor, should you be worried or excited about the future changes brought by AI?

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July 2016 31

Success ingredientFlorence Kong

W ithin the cavernous open-plan space, there are white walls,

modern concrete flooring and large windows letting in plenty of natural light. The architecture and design company 10 DESIGN made this vast 10,000 square foot location in Wanchai its home in 2011.

“We wanted some gallery space to have exhibitions at the office and enough space for our architects to work,” says Florence Kong, Finance Director at the firm and a member of the Hong Kong Institute of CPAs. “We’re a firm of designers, and designers need space.”

And so do their ambitious designs. Architects at 10 DESIGN work at a range of scales and sectors, including mixed-use complexes, corporate, cultural, hospitality, retail, education and residential. Current landmark

projects include the Urban Regeneration in Turkey, Danzishi Central Business District in Chongqing, the Infinity Loop Bridge in Zhuhai, Greatwall Complex in Wuhan, and Dubai Hills Golf Villas.

The company now has offices in Shanghai, Edinburgh and Dubai. Its strategy to venture into different geographical markets provided the necessary risk diversification in the face of volatile economic times, notes Kong. At the beginning 10 DESIGN had focused on India and China. “The India market slowed down in 2012, then we diversified, opened our Edinburgh office and explored the Middle East. When China slowed down we had the Middle East market, which was up, and when the oil price dropped, the China market had woken up and we were being appointed for

10 DESIGN has built a name as one of the most reputable mid-sized architecture and design firms in Hong Kong by working in the emerging Asian and Middle East market. Florence Kong, the firm’s Finance Director, explains to Jemelyn Yadao how her CPA skills have led her to help physically bring landmark buildings to lifePhotography by Juliet Shayne Lui

THE MASTER PLANNER

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In 2004, Florence Kong became regional financial

controller for Asia for RMJM, one of world’s largest international

architecture firms

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34 July 2016

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many projects there. Above all, the most important factor to our continuous success is our ability to deliver truly unique design that has consistently impressed our existing and potential clients.”

In the Middle East, for instance, many of the company’s large-scale developments can be found in the United Arab Emirates. In late 2014, 10 DESIGN worked with luxury developer Al Barari to design a residential complex comprising of two plots: the Al Barari Seventh Heaven and Ashjar in Dubai. “Both projects experienced tremendous success. 98 percent of the Seventh Heaven units were sold out in the first 48 hours of the launch in February last year,” says Kong.

The construction of the Seventh Heaven and Ashjar will be completed in 2017. The company was also recently appointed to build a large residential complex located next to the Dubai Eye Ferris Wheel, which is currently also being developed.

In China, Zhuhai’s free trade zone in Hengqin – being developed by the Chinese government into a new financial hub focused on the development of international financial and business services, international trade, convention and headquarters industries – is also a land of opportunity. Triggering the construction of the whole Hengqin zone, the Zhuhai Party Committee and municipal government developed the Shizimen Central Business District. As part of this, 10 DESIGN has recently won the

approval to develop the second phase of the Zhuhai International Convention and Exhibition Centre, designated as the core of the Shizimen Central Business District, for its clients: state-owned enterprise Huafa Group and its wholly-owned subsidiary Zhuhai Shizimen Central Business District Development Holdings.

The second phase will provide additional new convention space, supported by office and retail components totalling 273,000 square metres. “It’s a huge complex, which the government is using as a centralized area for the whole development because it is right opposite Hengqin. It will be one of the biggest conventions in the whole area,” says Kong.

Project profitability“One of the most satisfying part of the architectural design business is being able to witness your own work come to life. Your work will become a track record that can be validated by potential clients. In the early days, when our firm was starting up, business development was more challenging because our designs had not been built yet. But now people can start to see our amazing finished products and how developers benefit from our designs,” she says, adding that she expects to see a robust stream of projects leveraging the momentum built from such designs.

Ensuring such projects run problem-free is a major part of Kong’s role at the firm. She leads the finance team in provid-

ing up-to-date cost and revenue information to all project leaders in order for them to keep things under control. “It’s important for project leaders to know the status of their project on a timely basis, that means knowing how many staff can be involved, if they have enough budget to complete it and, ultimately, how to ensure a healthy profitability for each project,” she explains.

“Because we are a profes-sional services firm, the major cost is staff cost,” she says. “It’s very important for us to create an accurate budget for each project and monitor costs over the whole course to make sure there is no overspending.”

Building EQPrior to joining the creative industry, Kong experienced a jam-packed four years at Arthur Andersen after graduating from Hong Kong Polytechnic University in accounting.

“Arthur Andersen’s clientele was on average smaller in size than that of the other Big Five firms at the time, so there would be three to four people in an audit team, allow-ing you to be more exposed to the business side of the companies,” she says. “The skills and exposure I got at Arthur Andersen were invaluable to me, not just in terms of technical skills but even more so in terms of interpersonal skills, how to be a team player and how to work with clients,” she says.

After over four years at the firm, Kong joined New World Services

“ In the early days, when our firm was starting up, business development was more challenging because our designs had not been built yet.”

With the 2014-20 urbanization plan announced in March 2014,

the Chinese government aims

to increase the urbanization rate from 53.7 percent

in 2013 to 60 percent by 2020,

with approximately 100 million

people expected to move from

the rural areas into cities. Such infrastructure expansion is

expected to drive up demand for

services offered by Hong Kong architectural

firms.

July 2016 35


Group, a major Hong Kong-listed company involved in infrastructure and service businesses in Hong Kong, China and Macau, working in the group management services and audit department at the head office. “One of my major responsi-bilities was to introduce operational audit, not focusing so much on the financials but rather the operations of each subsidiary. I was appointed by the head office to go to each

subsidiary to see whether it was performing well, and if there are any inefficiency inside.”

A high level of emotional quo-tient (or emotional intelligence) was critical in enabling Kong to excel in her roles both as an external auditor and an internal auditor during her early career, she says. “Your role as an auditor could naturally put people on the defensive, so you have to be able to carry the right tempera-

ment to effectively carry out your job. I was once involved in a project on a company with suspected fraud and I still remember the hostility in that company’s office as I was going around and trying to understand their operations. They clearly didn’t want me there but I knew what I needed to do so I just persisted.”

The capability to see things from alternative angles, a trait developed from her CPA training, also helped.

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“ I already knew that they were very good managers, very good designers and very talented people so I knew that this opportunity was a perfect match for me.”

“In that particular engagement, if you just look at the numbers you’ll find that everything looks reasonable until you dig deeper into everything,” she says. “The CPA training did broaden my perspective.”

Artistic bloodDespite a testing time at the troubled company, the appeal of being a finance head stuck with her. She became regional financial manager at RMJM, one of world’s largest international architec-ture firms, and was promoted to regional financial controller a year after. “That was a very good time for the industry. The Asia region was the cash cow of the group. When I joined we only had 70 staff in our Hong Kong office, and then we quickly set up offices in Beijing, Bangkok and Singapore, and expanded to 210 people in the region in three years.”

After her first five years in the design world, Kong gave birth to her second child, a sign for her that it was time to be a full-time mum. However, she soon went back to her old ways after her former RMJM principals asked her to be a founding member of their

new company – 10 DESIGN. She couldn’t say no. “I already knew that they were very good manag-ers, very good designers and very talented people so I knew that this opportunity was a perfect match for me, so I joined them in setting up the company.”

Kong believes architects have little to fear from the idea that they could one day be replaced by advancing artificial intelligence and robotics. “Design is still very human-based,” she says. “In terms of technology, the sustain-able approach to architecture is the focus now for designers, so we have a research and develop-ment department in Hong Kong exploring sustainable construction technology,” she adds.

The daughter of a success-ful artist, Kong Lap Fung, Kong inherently loves art and design, and being surrounded by creatives. Inevitably, her daughter and son are developing an art sense, just as their mum did. “Recently, my six-years-old son’s drawings won him an artistic award at school. It’s certainly a lot of fun to be around creative and artistic people both at work and at home.”

Before joining the design world, Fong

was responsible for examining the efficiency

and profitability of the many subsidiaries of a

major Hong Kong-listed company

July 2016 37

Work and lifeReading

Raymond Lo browses a novel at Books & Co., a depository of secondhand books that guests are free to browse with a cup of coffee

For some Institute members, “me time” is all about a comfortable seat and a good book. Tigger Chaturabul finds out what CPA bibliophiles are currently reading and what they've learned from the written wordPhotography by Juliet Shayne Lui

TURNING THE PAGE

W orking in the publish-ing industry for over 10 years has given

Raymond Lo a deeper insight into the art of bookmaking than an average person. For the Finance and Operations Direc-tor at Oxford University Press (China) and Hong Kong Institute of CPAs member, reading allows him to understand more of what’s happening in the world through the different perspectives of dif-ferent books.

“Publishing a book involves a group of professional working diligently in the process going from engaging authors to editing their work and curating the content,” says Lo. “It made me realize the importance of reading with a critical mind the thoughts and ideas presented by the authors.” He stresses the necessity of readers understanding themselves before allowing writers to convince them of their ideas, especially when reading books about self-improvement.

CPAs like Lo can often be tucking into a good page-turner. Engaged in genres from historical fiction to Chinese martial arts, these Institute members value books for their ability to not only relax the mind, but to also broaden it.

Lo has a habit of reading half an hour each night before going to bed. “Reading is a good way to balance brain power,” he says. “When most of our work is related to numbers, reading a good book is one way to switch brain function and provoke a different kind of thinking, stimulating imaginative or creative ideas.” After Lo graduated from university and joined the profession, he began reading more management and financial books to help with career development, but job-related books has not always his favourite genre.

Lo remembers his older sister passing him Stories of the Sahara (撒哈拉的故事) by Sanmao (三 account of the Taiwanese writer’s experiences living in the Sahara

毛)

38 July 2016

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July 2016 39


Desert. “Although it is more of a feminine book, like most of the books my sister passed on to me during primary school, I gradually picked up her reading habits along the way,” says Lo.

He discovered his passion in the public library when he started reading martial arts novels by Louis Cha, better known by his pen name Jin Yong. “I really love his books and spent a lot of time indulging in his stories in secondary school,” says Lo. “Even when I feel stressed nowadays, I read Jin Yong (金庸), get into the fictional environment and forget everything. All his books are so complicated and the characters have personality.” He has the entire Jin Yong collection at home.

Today, Lo’s book preference has shifted to Chinese history and professional development, with Change by Richard Gerver, his current read at the time of writing. The book, a recommendation from a leadership forum Lo attended with his company, tells the story of a headmaster who transforms a failing school into a successful one. “It’s a good read for anyone who wants to learn how to lead the change,” recommends Lo.

Into the pastAndrew Ross prefers to read two or three books simultaneously, switching them around depending on his mood. The Managing Director at Baker Tilly Hong Kong and an Institute member is currently reading July 1914: Countdown to War by Sean McMeekin, a chronological account of events throughout the European capitols in July 1914 that lead up to the outbreak of World War I, and Five Dead Canaries by Edward Marston, a fictional novel about World War I “canaries” or female munition walkers whose skin turned yellow due to the trinitrotoluene (TNT) explosives they worked with.

“It’s heartbreaking to read about how the war could have been prevented if the leaders of the various countries had engaged with each other better during July 1914,” says Ross, “and Five Dead Canaries is an example of how authors usually base historical fiction stories on fact so you can learn something new from their perspective.”

Ross’s interest in books was sparked by Friday afternoon reading sessions with a primary school teacher in Glasgow

featuring J. R. R. Tolkien’s The Hobbit. “At the time, The Hobbit to us was a story about a boy’s adventures and the ability to become invisible and that was particularly engaging,” remembers Ross. When the Lord of the Rings series was published in his early university years, it became a hit among his peers, with Ross himself reading the series at least twice.

“ The struggles of day-to-day living that I read about made me understand there are a lot less fortunate people in the world.”

Reading historical fiction transports Andrew Ross into another era

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Crediting a small part of his decision to move to Hong Kong to Tai-Pan by James Clavell about Western traders who moved to Hong Kong in 1842, Ross acknowledges the power of books to enlighten him on new experiences and ideas. “One book that has stuck in my memory is The Ragged Trousered Philanthropists by Robert Tressell, which talks about the strifes of the working

class in Britain just before World War I because the wages were very low and most of the money went to landlords,” says Ross. “The struggles of day-to-day living that I read about made me understand there are a lot less fortunate people in the world.”

Ross subscribed to the Good Book Guide, which sent him a physical catalogue of books every two months, before it went out of

business last year. Now, Ross orders his books from a website called Love Reading or from The Folio Soci-ety, of which he is a member. The society, founded in London in 1947, binds existing novels into hard-back, complete with commissioned original illustrations, to create a collectable tome.

“They’re very nice to have on my bookshelf, although it might not be the most sensible thing to have

July 2016 41


Stanley Leung trains his soft skills through reading, growing his career along the way

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in Hong Kong given the lack of space,” Ross laughs. “I just like to have the aesthetic pleasure of thumbing the pages, which is why I haven’t gotten into the digital and audio books.”

Reading about the rules and regulations of the industry can be both dry and difficult to ab-sorb from time to time for Ross. That’s why a change in genre gives him the opportunity to take a break.

“Reading definitely hones my concentration levels, which in turn boosts my concentration when I’m trying to understand the regula-tions and standards that come from the profession,” says Ross. “It also benefits my report writing skills because novels are written in short sentences that are well-constructed to keep the reader’s attention. I’ve become very con-scious about engaging my report readers and about keeping it short and to the point without getting too bogged down in details.”

For the futureWith the wafting smell of his favourite aromatherapy oils and a snug seat on his brown leather couch, Stanley Leung sets the at-mosphere to dive into relaxation and a good read. “I use eucalyp-tus for respiratory health and sandalwood for relief, but don’t use lavender or you will feel ‘too relax’ and fall asleep,” warns Leung. A Senior Finance Man-ager in the education industry and an Institute member, Leung enjoys reading books on self

enhancement in order to develop his soft skills.

“Reading consistently is im-portant, even if you just have time to read a page or two each day,” he says. “I always keep a book in my bag to read after lunch or when I get tired of scrolling through social media messages and some-times the book provides me with a moment of sudden insight to solve work or personal issues that are at hand.”

“I remember our current Institute President Ivy Cheung mentioning in a previous issue of A Plus that technical skills are essential in our career but in order to move up in ranks, soft skills are also important, yet often ignored,” says Leung who has a deep interest in books that help enhance his soft skills.

Leung went from reading the Wisely (衛斯理) science fiction series by Hong Kong author Ni Kuang (倪匡) to self-development books after being gifted 1,000 Things You Never Learned in Business School by William N. Yeomans from a university tutor. “It was a class on English in the workplace back in 1999

and our group won the book after completing a project together,” says Leung. “It sparked an interest for me to read new types of books.”

Business books can be useful tools for CPAs to learn how to add value to their personal or organization’s wealth. “We as auditors or finance professionals need to have business sense on top of our technical accounting knowledge,” says Leung.

Why We Want You to be Rich by Donald Trump and Robert Kiyosaki, Leung’s current read, recommended by a finance lawyer friend and picked up at an airport bookstore, includes a chapter on how to speak with power and confidence. “In order to develop your speaking skills, the book teaches you to first develop your listening skills, not only for listening to someone’s words, but understanding their body language and emotions,” says Leung. “Chief executive or financial officers often need to do public speaking or presentations and by speaking with power and confidence, they can enhance their effectiveness.”

Through reading, Leung has become a master communicator. “Whether we’re talking to friends or being interviewed for a job, it’s the words plus your attitude, emotion and body language that help deliver the entire message,” he says. “You can learn lessons like these and gain other benefits from reading, any time.”

“ Reading consistently is important, even if you just have time to read a page or two each day.”

After the Copyright (Amendment) Bill 2014 was shelved earlier this year,

authors and illustrators have petitioned for the government to implement a public

lending rights scheme on public libraries to

pay royalties when their books are loaned out.

By allowing authors and illustrators to receive payment for the loans

of their books, the scheme would protect intellectual property

rights and promote new authors' works.

July 2016 43

It is fair to say that the China value-added tax reform created many sleepless nights for the Chinese taxpayers as they raced to implement the reform by 1 May. The China VAT reform is a significant mile-stone in the China VAT history because, from this date, business tax (BT) is com-pletely replaced by VAT for all industries in China. The VAT reform announced many changes to be implemented in a very short space of time.

Why is there a need to transition to VAT?In China’s 12th five-year plan, China announced their wish to move up the value chain and made a commitment to promote the service sector. The VAT reform, transforming the taxation of services from BT to VAT, is one way to achieve this as the major aim is to resolve the double taxation issues under the BT scheme, thereby reduce the tax burden of the taxpayers and thus promote invest-ment. This is because VAT allows a credit system which mostly allows VAT paid on costs to be deductible. Indeed, during a recent speech made by Premier Li Keqiang, he estimated that the VAT reform will reduce the tax burden by 500 billion yuan.

Who are impacted?China actually began the VAT reform, using Shanghai as a pilot, on 1 January 2012 but only selected service sec-tors were affected. After this pilot was launched, it became clear that there was a need to roll out nationally and expand to

more sectors. However, the major power house service sectors of China did not join the reform and, after much anticipation, it was finally announced in March that the implementation date of the reform for all remaining sectors would be 1 May. With only a few weeks to implement, the remaining four industries covering con-struction, real estate, financial services and consumer services were included in the VAT scope. The four sectors affected have worked night and day to understand the regulations and execute them so they could go live on 1 May.

The issues in each industry sector are different as the rules themselves are dif-ferent. The major changes impacting the four sectors are as follows:

Construction and real estateThe new rules concerning the supply of construction service, sales and leasing (of real property located in China) are challenging to decipher but, with perse-verance, there are several features which are beneficial. The supplies within these sectors are subject to VAT at 11 percent, which is much higher than the 3 percent (for construction) and 5 percent (for sales and leasing of real property), but taxpay-ers in these sectors have unique mecha-nisms to reduce the VAT costs. Construc-tion and real estate companies are able to reduce their taxable base by deducting subcontracting payments and land cost from the sales amount to compute VAT – typically, these costs form a major part of the expenses so the ability to deduct these costs are not to be overlooked. In

addition, very significantly, there are tran-sitional rules for old construction or real estate projects, allowing taxpayers to opt to pay VAT under the simplified taxation method, effectively restoring the status quo to the current BT mechanism.

Financial and consumer servicesChina took a bold decision to tax financial services sector broadly at the rate of 6 percent. It is bold as China is probably the first and only country to tax financial ser-vices so widely. This decision is not totally unexpected because BT already taxes many financial products so, naturally, it was always unlikely that this tax revenue would be given up.

The VAT rules did aim, where possible, to inherit the BT rules such as the BT exemptions (for example, exemption of interests from inter-bank transactions), but we do see a narrower definition of exemptions resulting in more supplies being subject to VAT. The main chal-lenge for the financial services sector is that the reliance placed on the front end banking system has meant a significant IT adaptation to cater for the taxing of the products so that the VAT accounting can be automated.

The consumer services sector encompasses a number of industries that primarily focuses on provision of services to private individuals so restaurant and hotels are now in scope. In comparison, the new rules affecting the consumer services sector are probably the most straightforward.

China’s VAT reform – history in the making

Sarah Chin examines what is considered to be a significant milestone in the history of China tax law

44 July 2016

SourceChina tax

A benefit for allTaxpayers in other sectors are also expected to directly or indirectly benefit from the final rollout of the reform. In par-ticular, businesses will have the oppor-tunity to claim an input VAT deduction when purchasing from vendors in the four sectors and reduce their own tax burden.However, the most eye-catching high-light is the inclusion of newly acquired real estate into the scope of input credit. There have been expectations among businesses that the credit period could be 20 years with 5 percent of the input VAT on the real estate being credited each year. However, the final VAT rules provide a two-year credit period, i.e. 60 percent of the input VAT could be credited in the first year, and the remaining 40 percent for the second year. This credit period is much shorter than generally expected. It is obvious that the government is very determined in lowering the tax burden of all sectors. It is expected that this policy will encourage investment in commercial real estate.

Challenges on the implementation Although the full-scale rollout of the reform is a very positive move, consid-ering the complexity and fluidity in the economy, the impact of the new rules are to be tested in the business real-ity. Many taxpayers were dedicated to being ready for 1 May so many expect that improvements will be needed post implementation. Also, although the Minis-try of Finance and State Administration

of Taxation have already issued several clarifications to date, there remains many more issues to be clarified so businesses must continue to closely monitor.

The regulations do carry several pref-erential policies, which must be explored, for example, whether and how to adopt the transitional rules for old projects by construction and real estate taxpayers, whether to apply for VAT exemption or zero-rating treatments to reduce VAT burden. With the ability to claim input VAT credit, it is generally expected that their overall tax burden should be significantly impacted, and the resulting pricing negotiations is a common challenge. To address how to manage these negotia-tions, many have undertaken and studied the financial or tax impact analysis to understand the impact on the revenue, cost, profit and tax burden. Once this has been performed, the company can revisit their pricing policy to understand their negotiation powers with suppliers and customers alike. The commercial contracts and related legal documents should also be amended to support the new pricing agreement and to protect the company’s own benefit.

It is certain that more clarifications will be issued, so while the VAT reform is history in the making, the VAT evolu-tion and revolution is certainly not over.

Sarah Chin is

Southern Region Tax

Managing Partner at

Deloitte China

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Tips for a smooth practice review

Has your practice been subjected to a practice review? If not, are you con-cerned about receiving a letter from the Institute’s Quality Assurance Depart-ment notifying your practice that it has been scheduled for a practice review in three months’ time? A practice review is unlikely to be as bad as one might expect, particularly if the practice is well prepared.

In 2015, the QAD carried out 210 full scope reviews and 40 desktop reviews. If your practice has listed or regulated clients, it will be visited more frequently than other practices due to the public inter-est nature of those clients. Details of the practice review programme can be found in the QAD annual reports available in the Institute's website.

Practice review is a process that cannot be avoided if one wishes to enter or stay in the audit profession. It is natural that some practitioners might feel uneasy about receiving a practice review. Practitioners who continuously take audit quality seri-ously and make it a priority in their work need not be worried. Disciplinary action has been taken against very few practices

as a result of practice reviews, all of which have been the result of serious failings in audit quality. The following sets out some tips for a practice to smoothen the practice review process.

Before the visitIf your practice is selected for a practice review, a notification letter will be sent to your registered address. The notification letter will set out the information, includ-ing a complete list of audit clients, to be submitted to the QAD no later than three weeks before the visit. Checks will be made to ensure completeness of the client list during the practice review.

The notification letter will also include a link to the e-learning on “Improve audit quality – practice review process and com-mon findings,” which provides information about the practice review process and common findings that have been identified in practice reviews. Arranging for an appro-priate person(s) to take that e-learning in advance would help your practice better prepare for the practice review. Under-standing those common findings earlier would assist your practice to start consid-

ering whether those deficiencies exist and taking timely remedial actions so that the deficiencies will be corrected before the practice review takes place.

Your practice will be notified of the engagements selected for review a few days before the visit. Given that it might be a while since the selected engagements have been completed, a quick review of the files to prepare for questions on the background as well as critical audit areas would help refresh your knowledge of the engagements. It is important that your practice is ready to demonstrate that the relevant professional standards have been complied with in addressing critical audit areas. To help the progress of the prac-tice review, an appropriate engagement team member, preferably the engagement partner or manager, being available at the time of the review would help clarify issues raised on the selected engage-ment. Information requested should be provided according to the timeframe as notified, otherwise the review may need to be extended or rescheduled, which will introduce inconvenience to your practice and the review team.

46 July 2016

SourceQuality assurance

This article is

contributed by

the Institute’s

Quality Assurance

Department

During the visitThe reviewers will hold discussions with the persons responsible for quality control systems and audit engagements and review documented policies and procedures and audit work papers of your practice. Since the review will last for only a few days for most practices, a meeting timetable set at the outset of the review would be helpful as the reviewers can then arrange their work according to the timetable. Practice reviewers will try to take a constructive approach in meetings as being receptive to reviewers' comments and findings would make the process more effective and less confrontational. Often, issues can be resolved by directing the reviewers to the relevant materials as questions might be raised solely because the reviewers are not so familiar with the environment and processes of your prac-tice. If you don’t understand the matters raised, don't be afraid to ask for clarifica-tion from the reviewers to ensure that you can provide responses that effectively address the reviewers’ concerns. When deficiencies are identified, it is important to understand the causes and implica-

tions and show commitment to address the deficiencies in order to uphold quality.

At the exit meetingAt the exit meeting, the reviewers will summarize their findings and discuss root causes and preliminary actions to address the findings. If there are findings that are factually incorrect, this is the opportu-nity for your practice to provide evidence to correct or clarify the findings before they are put in the reviewer’s report. The reviewers will also advise you of the pro-cess subsequent to the visit, in particular the issue of a dated draft report and the 21-calendar day period for your practice to provide a written response. The final report and your response will be submit-ted to the Practice Review Committee for a decision on the review outcome. Since the committee’s attention is usually focused on the findings on the quality control system and the engagements reviewed that are classified as significant, prior-ity should be given to addressing those findings. If the written response contains evidence to show that appropriate action has already been taken to address the

findings, particularly the significant find-ings, it would show commitment and effort to improve audit quality that will be taken into account in determining the review out-come. The most ideal outcome would be that the review reveals no serious failings and all findings in the review have been appropriately dealt with such that the practice review can be concluded without the need for any follow up actions.

In essence, many practices that have been subjected to practice review have commented that the key to having a smooth practice review is being respon-sive and cooperative with the reviewers throughout the review process so that the reviews can be completed as effectively and quickly as possible.

• Make audit quality a priority.• Ensure the information requested by the practice review team is ready for review

according to the timeframe notified.• Be prepared for questions on the background and critical audit areas of the

engagements selected for review.• Be ready to be able to demonstrate that professional standards have been complied

with in addressing critical audit issues.• Ensure individuals responsible for quality control systems and the engagements

selected for review are available to clarify issues raised by the practice review team.• Be receptive to comments and seek clarification if unclear.• Show commitment to quality even if deficiencies are found.• Identify root causes of practice review findings and discuss and provide a preliminary

action plan at the exit meeting to address deficiencies.• Be responsive to and cooperative with the practice review team.

Tips for a smooth practice review

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July 2016 47

Why the new requirements for classifying financial instruments, do, matter

At first glance, the new classification and measurement requirements in HKFRS 9 Financial Instruments (equivalent to IFRS 9 of the same title) may not seem very differ-ent from what we have today.

In fact, the new requirements (to supersede HKAS 39 Financial Instruments: Recognition and Measurement on its effec-tive date of 1 January 2018) will result in differences that do matter for those preparing as well as reading financial statements.

Why it matters – financial assetsHKFRS 9 significantly changes the approach to classification and measure-ment for financial assets.

HKAS 39 currently prescribes four different rule-based classification and measurement criteria and approaches for financial assets. Preparers of financial statements face application complexity, while users of financial statements face understandability issues.

HKFRS 9 has fundamentally overhauled the many criteria and approaches by replacing them with a single approach for all types of financial assets. This change in HKFRS 9 not only provides simplicity for entities as they prepare their finan-cial statements, but also provides more structure for investors reading the financial statements as it directly reflects both the

nature of the instrument’s contractual cash flows and the business model in which that instrument is held.

Why it matters – financial liabilitiesHKFRS 9 essentially does not change the approach to classification and measure-ment for financial liabilities – the vast majority of financial liabilities will continue to be measured at amortized cost. The key change that is significant to the accounting for financial liabilities relates to an entity’s own debt measured at fair value.

Currently, entities that issue bonds (or the like) measured at fair value may suffer from the “own credit” effect. That is, when an entity’s creditworthiness falls, the fair value of their own debt also decreases, which counter-intuitively causes a gain to be recognized in the profit or loss. This was especially appar-ent during the financial crisis causing concern to investors worldwide.

HKFRS 9 provides a significant improvement by now requiring the portion of fair value changes caused by an entity’s own creditworthiness to be recognized in other comprehensive income rather than in profit or loss.

As entities are often asked by investors to remove the “own credit” effect from profit or loss, this improvement means that this adjustment will no longer

be necessary and is good news for investors. Entities can choose to apply this improvement in isolation prior to 1 January 2018.

What does this mean for you?Act now! With only 18 months until the standard is effective, all entities should be reviewing their contractual arrangements as an immediate first step to implementing the new classification and measurement requirements of HKFRS 9. The flow chart and table on the next page details the comprehensive assessment that management will have to make for financial assets. Management should also assess what new data it might require, assess the need to change its reporting systems and communicate the impact of the standard to your capital providers and other stakeholders to prevent any last-minute surprises.

Other publicationsOur May 2016 A Plus article discussed the implementation issues specific to the new HKFRS 9 impairment model, while our May 2015 A Plus article provided a general overview of the HKFRS 9 implementation challenges facing banks and other corporate entities. Both articles are available on the Institute’s website as further references.

Source: IASB's project summary of IFRS 9 issued in July 2014

IAS 39 Classification• Rule-based• Complex and difficult to apply• Multiple impairment models• Own credit gains and losses recognized in profit or

loss for fair value option liabilities• Complicated reclassification rules

IFRS 9 Classification• Principle-based• Classification based on business model and nature of cash

flows• One impairment model• Own credit gains and losses presented in other comprehen-

sive income for fair value option liabilities• Business model-driven reclassification

Classification differences between HKAS 39 and HKFRS 9

48 July 2016

SourceTechnical update

Cash flow characteristics – Contracted cash flows are solely principal and interest?

Business model – Held to collect contractual cash flows only?

Designation option – Fair value option?

Entities will have to assess whether their contractual cash flows are consistent with a basic lending arrangement solely made up of payments of princi-pal and interest. The principal amount is the fair value of the financial asset at initial recogni-tion. The interest amount rep-resents consideration received for: time value of money and credit risk; basic lending risks (e.g. liquidity risks); other asso-ciated costs (e.g. administrative costs); and a profit margin.

Entities will have to make a factual assessment based on how the financial assets are managed. This is typically observable through activities that the entity undertakes and is not based on the intent for the individual instrument. The determin-ing factor to classification will be how the cash flows are realized. Cash flows could be realized in one of two business model forms: (a) hold to collect, which means that the entity generates value by collecting contractual cash flows only; or (b) hold to collect and sell, which means that the entity generates value by collecting contractual cash flows and selling the financial asset.

In determining which of the two business mod-els the cash flows of an entity's financial assets fall into, entities are reminded to consider past sales information and future expectations. Hold to collect cash flows may also contain some infre-quent or insignificant sales. Hold to collect and sell cash flows will involve a greater frequency and volume of sales and the sale could be determined by, for example, an entity's liquidity needs, interest yield management, asset or liability management.

HKFRS 9 requires financial assets to be reclas-sified between measurement categories when, and only when, the entity's business model for manag-ing them changes.

An entity may, at initial recogni-tion, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or signifi-cantly reduces a measurement or recognition inconsistency. This is commonly referred to as an “accounting mismatch” between assets and liabilities.

Entities might choose to designate their financial assets and/or financial liabilities at fair value through profit or loss if doing so would better reflect the way the entity manages its business.

This article is contributed by

the Institute’s Standard

Setting Department

Get in touch with the Institute's Standard Setting Department ([email protected]) if you have any questions on or issues with implementing HKFRS 9. Also, look out for more Institute seminars on imple-menting HKFRS 9, which will be released soon.

Determining the classification and measurement of financial assetsThe following diagram summarizes the classification and measurement process for financial assets.

* Presentation option for equity investments to present fair value changes in other comprehensive income.

Source: Adapted from IASB's project summary of IFRS 9 issued in July 2014

Instruments within the scope of IFRS 9

Contractual cash flows are solely principal and interest?

Held to collect contractual cash flows only?

Fair value option?

Held to collect contractual cash flows and for sale?

Fair value option?

Fair value through other comprehensive income

Amortized cost

Fair value through profit or loss*

No

Yes

YesYes

Yes

Yes

No No

No

No

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July 2016 49

Members’ handbook

Handbook update no. 184Update no. 184 contains HKFRS 16 Leases, the equivalent of IFRS 16 Leases.HKFRS 16 eliminates the distinction between operating and finance leases for lessee accounting and introduces a single accounting model that requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

Lessor accounting however remains largely unchanged and the distinction between operating and finance lease is retained.

HKFRS 16 is effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted provided HKFRS 15 Revenue from Con-tracts with Customers is also applied.

At its effective date, HKFRS 16 supersedes the following standards and interpretations:• HKAS 17 Leases;• HK(IFRIC)-Int 4 Determining whether

an Arrangement contains a Lease;• HK(SIC)-Int 15 Operating Leases –

Incentives; and• HK(SIC)-Int 27 Evaluating the Sub-

stance of Transactions Involving the Legal Form of a Lease.

The update also highlights that HK-Int-4 Leases – Determination of the Length of Lease Term in respect of Hong Kong Land Leases will be withdrawn on1 January 2019.

Audit and assurance

Institute comments on an IAASB invitation to commentThe Institute commented on the Interna-

tional Auditing and Assurance Stand-ards Board’s invitation to comment on Enhancing Audit Quality in the Public Interest: A Focus on Professional Scepti-cism, Quality Control and Group Audits. The Institute supports the IAASB's continuing efforts to enhance audit qual-ity. The focus on professional scepti-cism, quality control and group audits is considered appropriate.

The Institute appreciates the IAASB’s commitment in revising the standards such that they stay relevant in the face of continually changing circumstances. The Institute encourages the IAASB to further develop guidance that covers key issues encountered by practitioners, in particular, application guidance on quality control and group audits.

Ethics

Institute comments on an IESBA exposure draftThe Institute commented on the Inter-national Ethics Standards Board for Accountants’ exposure draft on Limited Re-exposure of Proposed Changes to the Code Addressing the Long Association of Personnel with an Audit Client.

The Institute acknowledges that the engagement quality control reviewer plays an important role in an audit engagement. While the Institute agrees that extending the cooling-off period for the engagement quality control reviewer for audits of public interest entities could provide an effective “fresh look” on the audit engagement, the Insti-tute is also concerned that the propos-als would pose further pressure on firm resources and reduce the availability of individuals suitably qualified to act in this role. This would lead to potential adverse consequences for audit quality,

which might not be in the public interest. The Institute is mindful that the

benefits of such a “fresh look” must be appropriately balanced with the costs of having stringent rotation requirements. In this regard, the Institute believes that it is crucial to analyse how the different rotation requirements would interact and how the entire package of safe-guards would impact audit quality. The Institute, therefore, recommends that the IESBA reconsiders the proposals with caution and ensures that the rota-tion requirements are both robust and balanced.

Professional accountants in business

HKEX reports on its review of listed issuers' corporate governance practice disclosureOn 13 May, the Hong Kong Exchanges and Clearing reported the findings of its latest review of listed issuers' corporate governance practices. The review covered corporate governance reporting by 318 listed issuers with a financial year-end date of 31 March 2015 (March FYE issuers) and analysed their compliance with the Corporate Governance Code in the Listing Rules.

Overall, the March FYE issuers’ compliance level with the code was high and comparable to the issuers with a financial year-end date of 31 December, except that fewer March FYE issuers reported that they had an internal audit function and more March FYE issuers did not report a board diversity policy.

The quality of explanations given for deviating from code provisions by the March FYE issuers was varied and reflected a degree of “boilerplate” use. HKEX expects that the explanation of

The latest standards and technical developments

TechWatch 164

50 July 2016

SourceTechWatch

any deviation from a code provisions should be informative and clear, and should:• Explain the manner in which the

company deviates from the code provisions;

• Explain the measure(s) taken instead of compliance;

• Describe the decision process; and• Give considered reasons.

Members are encouraged to read the report entitled Analysis of Corporate Governance Practice Disclosure in March Year-end 2015 Annual Reports.

HKEX launches revamped ESG webpageHKEX has launched a revamped environmental, social and governance webpage, which sets out practical steps, tools and reporting guidance aimed at helping listed issuers to start ESG reporting under the revised ESG Reporting Guide.

The revamp followed from HKEX’s announcement on 21 December 2015 that it had decided to strengthen the guide in its rules after completion of the ESG consultation launched in July 2015. Amendments to the guide and related rules come into effect in two phases:• Rule amendments and upgrade of the

general disclosures in the guide from recommended to “comply or explain,” as well as the revised recommended disclosures, have come into effect for listed issuers’ financial years commencing on or after 1 January 2016; and

• Upgrade of key performance indica-tors in the “environmental” subject area of the guide from recommended to “comply or explain” will come into effect for listed issuers’ finan-

cial years commencing on or after 1 January 2017.

CFO DNA is being disruptedThe role of a chief financial officer is being disrupted by digital, data, risk and uncertainty, regulation and stakeholder scrutiny. CFOs who do not proactively define their role in response to these major forces could compromise their ability to shape strategy with the CEO and drive the innovation necessary for sustainable growth.

In the latest CFO research study Do you define your CFO’s role? Or does it define you? The disruption of the CFO’s role conducted by EY, it is noted that the profiles and priorities of CFOs around the world are undergoing a transforma-tion. Digital innovation, the proliferation of data, volatile risk, new regulations, and increasingly demanding stakehold-ers are changing the role of the CFOs, who are increasingly finding themselves stretched thin.

To help PAIBs respond to the impact, particularly from innovation and tech-nology, and take control of their profes-sional development, the Institute’s PAIB Committee is organizing its annual PAIB conference “Technology – Friend or Foe?” held on 3 September.

Corporate finance

Takeovers panel’s recent ruling on breach of Takeovers CodeOn 18 May, the Takeovers and Mergers Panel published its written decision setting out the reasons for its ruling that Alibaba Group has breached the Takeo-vers Code in its acquisition of CITIC 21CN, later renamed as Alibaba Health Information Technology.

The case is in relation to a ruling on

whether certain agreements between Chen Wen Xin (a shareholder of CITIC 21CN) and a subsidiary of Alibaba Group constituted a special deal under Rule 25 of the Takeovers Code; and, if they did, whether the whitewash waiver granted was invalidated; and, as a consequence, was a mandatory general offer obligation triggered and, if so, at what price will the mandatory general offer be made.

Restructuring and insolvency

Changes to the winding up provisions enacted The Companies (Winding Up and Mis-cellaneous Provisions) (Amendment) Ordinance 2016 was enacted on 27 May and gazetted on 3 June. The ordinance aims to improve and modernize Hong Kong’s corporate winding-up regime by providing measures to increase protec-tion of creditors, as well as streamline and further enhance the integrity of the winding-up process.

Taxation

Institute issues further submission on automatic exchange of information bill The Institute issued a second submis-sion on the Inland Revenue (Amend-ment) Bill 2016, calling for improved safeguards for taxpayers, among other things, and reiterating some of the con-cerns raised in the Institute’s previous submission.

Please refer to the

full version of

TechWatch 164,

available as a PDF on

the Institute’s website:

www.hkicpa.org.hk

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July 2016 51

Since the global financial crisis of 2008, one of the growth industries in its wake has been a new lucrative genre in popular culture that has dominated bestseller lists and the box office to satisfy a yearning to understand what went wrong. Perhaps the most popular and lucent proponent of “pop finance” is Michael Lewis.

Lewis’ autopsies of Wall Street have also been turned into films, most recently The Big Short which innovatively used a blonde model in a bubble bath wiggling a cham-pagne flute to explain mortgage bonds.

The latest in his unofficial trilogy, preceded by Liar’s Poker and The Big Short, is Flash Boys – A Wall Street Revolt. After many weeks at the top of the New York Times bestseller list this thriller-like account of high-speed trading was knocked off by the more weighty, though less racy, Capital in the 21st Century by Thomas Piketty.

In the late 1980s the creed according to fictional iconic trader Gordon Gekko of Wall Street was “Greed is good.” More recently, his progeny would say “Greed is good, but speed is better.”

This obsession with speed, the time it takes to make a transaction in less than the blink of an eye, has been fuelled by the advent of ever faster computers and trans-mission technology, which at the time of Oliver Stone’s 1987 movie, were more prop than central character. Enter the flash boys.

Flash Boys is about a small group of disparate Wall Street professionals who figured out that the U.S. stock market had been rigged for the benefit of insiders and that, post-financial crisis, the markets had become not more free but less, and more

Book review

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

Title: Flash Boys – A Wall Street Revolt Author: Michael Lewis Publisher: W. W. Norton & Company

In the blink of an eye

Brad Katsuyama, a former Royal Bank

of Canada trader, set up a trading

forum to treat investors fairly

52 July 2016

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controlled by the big Wall Street banks and manipulated by high-frequency traders. The currency is speed. Computer servers close to exchanges and fibre-optic connections were sold off to shave milliseconds off a trade.

But like everyone else operating in their silo-like existence, our heroes did not fully understand what was going on. Unlike many others, their curiosity got the better of their seven figure salaries.

Our protagonist is Brad Katsuyama, a trader with the conservative Royal Bank of Canada. Other key characters are also outsiders: Russian, Irish and Chinese immigrants. Working at different firms, they come to the realization separately that the markets are rigged. After they discover one another, this band of flash brothers join together to reform the financial markets. They do this by creating an exchange in which high-frequency trading – the per-ceived source of all evil – will be unable to leverage any “speed” advantage whatsoever. This new exchange effectively cuts out the high-frequency traders who were not really needed in the first place, thus saving mom-and-pop mutual funds and retail investors hundreds of millions, perhaps billions, of dollars in unnecessary fees and inflated stock prices. Nothing short of declaring civil war on Wall Street.

Such was the reaction to Flash Boys when it was first released in 2014; this new edition includes an afterword recounting the fallout.

“When I sat down to write Flash Boys, I didn’t intend to see just how angry I could make the richest people on Wall Street. I was far more interested in the characters, and the situation in which they found themselves,” writes Lewis.

In Flash Boys, Lewis is a master in untangling a labyrinth of cables and making a complicated story comprehensible, aided by a rich source of characters and his seam-less narrative skill.

Given his prodigious output, Michael Lewis’ claim to be “lazy” does appear to be a disingenuous one.

As a frequent occupier at the top of bestseller lists, a regular contributor to magazines as diverse as Vanity Fair and Poetry Magazine, and more recently turning his hand to scriptwriting, it would seem there is little time for Lewis to do nothing.

“I am a sporadic worker,” says Lewis. “I think of myself as a lazy person. I have a great capacity to procrastinate, but when I get really into a project I do vanish into it. I am not a hard worker because work is doing something that feels like work, so if it feels like work I tend not to do it.”

As a populist chronicler of the global financial crisis, Lewis says he is an accidental financial writer. “I just happened to get a job for Salomon Brothers when I was 24 years old.”

From that experi-ence he wrote Liar’s Poker out of which The Big Short was born and from that, Flash Boys was conceived.

“This is one of the great arenas in American ambition. It’s Wall Street. It’s Silicon Valley. It’s Hollywood. There are a handful of arenas of American ambi-tion and Wall Street is, maybe the hottest of them. So it does generate this material.

“In this case they weren’t going to talk to anybody else. So I felt like I was entrusted with a story and have an obli-gation to go and actually do the work.”

The attraction in the story, which was to be developed into Flash Boys, was immediate with a set of characters, in a situation with problems to solve. He also found it interesting that many of the characters were immigrants: Irish, Canadian, Russian, and Chinese. “They’re people who came to this

country [United States] with an idea of how the country operated. It’s almost as if they’re going to insist that the country operate the way they hoped it would. I find their behaviour extraordinary.

“What I loved was that you had these people who were inside the market, in exchanges, in brokerage firms, even from high-frequency trading shops who saw how the market was functioning and saw holes in the market. And instead of trying to make money from the glitches in the market, they banded together to try to fix it. It showed that the moral impulse to do something good in the world exists on Wall Street. I thought if I can explain

what these people have done and amplify it, then other people will follow their example.”

The backlash from Wall Street was instant, against Lewis and the key players in the book. “I never actu-ally held up much hope the regulators were going to do anything. Since the book came out there has been a lot of noise out of regula-tory bodies, the New York attorney general’s office, the Justice Department, so on

and so forth. But it is hard to see where it has led. Nothing has actually happened.”

Lewis doesn’t view a financial system reliant on computer servers as vulner-able from hacking or external attack but rather a more age-old threat.

“I guess it’s greed. It’s not just greed but it’s a pursuit of success without think-ing very much about the purpose of what one is doing. We don’t need any help from terrorists to screw up our financial markets, we do it all by ourselves.”

Lewis’ next book, due out this December, The Undoing Project, is on the theories developed by Israeli psy-chologists Daniel Kahneman and Amos Tversky which confronted assumptions about our decision-making process.

Author interview: Michael Lewis

July 2016 53

Life and everythingAs recommended by Institute members

Hot spots for winding down by Kenny Keung, Chief Financial Officer of Lan Kwai Fong Group

Mercato This is a causal Italian restaurant of superb quality that is open to all, and not exclusive to those more privileged.

I recommend this restaurant not only for its exquisite dining experience and fine food, but also for its affordability as the chef and the restaurateur are focused on attract-ing anyone with the desire to enjoy good food with a compatible ambience.

Mercato utilizes seasoned fresh in-gredients sourced from responsible and humane farmers. It is a place where the chef,

Jean-Georges Vongerichten, and his diners interact through the art of food.

Cé La Vi More than just another rooftop bar in Hong Kong, the two-storey venue is great for any occasion, whether it is a relaxed social gather-ing to catch up with old friends or a fun night out to meet new ones.

Of course, one can not miss out the bar's gorgeous rooftop view of Central, which actually does the Hong Kong sunset much justice.

Destination Some people sail for leisure, while oth-ers want adventure or to absorb foreign culture. Cruises to tropical destinations like the Caribbean are great for relaxing, while Alaska offers adventure and Europe immerses you in Old World ambiance.

Cruise timeFor winter cruising, the Caribbean, Hawaii, Mexico, South America and Southeast Asia are popular destinations. In the summer, consider Alaska or Europe and enjoy the cooler weather.

Type of cabinIf you plan a cruise in the Mediterranean and Northern Europe or Alaska, a balcony

or ocean view cabin is a good one as you can enjoy the great view anytime. If you book a suite, a personalized butler service will be provided to attend to all you need.

Travel companionsIf you are travelling with your family and children, consider the cruise line that of-fers an exceptional array of entertainment options. However, if you are looking for a romantic getaway with your spouse, you can choose luxury lines which offer ex-ceptional style and some of the best value.No matter what style you are going to choose, cruising can offer relaxation and fun in a family-friendly atmosphere with good food and entertainment all in one unique location.

Go

Mercato

Things to know before booking your next cruise trip by Henry Chu, CFO of Westminster Travel

54 July 2016

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Ava Hsu, Director of Anahata Yoga, on yoga-inspired stretches at the work desk

Art and cultureGeorge Tong, Director of Galerie du Monde, urges members to appreciate art in their free time

I started working with an American to set up a small art gallery on Old Bailey Street in 1977 after leaving a medium-size CPA firm. The new job gave me a chance to understand different forms of artworks, especially paintings in various mediums, sculptures and modern art.

The contemporary Chinese ink paint-ing is now well-received by art collectors overseas. The value of appreciation in art works is beyond your imagination, with recent high-priced dealings done through

international auction houses for art pieces confirming the trend.

Try to spend a little of your leisure time to explore art in Hong Kong by visiting the following websites: www.galeriedumonde.com and www.sicd.com.hk, and visit the most popular international Art Basel held annually in Basel, Miami and Hong Kong.

If you have missed the Art Basel in Hong Kong in March this year, remember to mark your calendar to catch the show in 2017.

Fitness1

1. Neck movements2. Shoulder stretch3. Spinal twist4. Seated back stretch

2

3

Those with lifestyles that involve long

hours in front of the computer, in

meetings, or on the plane – basically sitting

– would know that this tends to lead to one or all of the following symptoms:• Sore neck – and no wonder – our head is

heavier than a bowling ball and if we are not sitting in the correct body position, there is huge strain on our neck or spine;

• Tight shoulders from hunching over the keyboard and leaning towards the screen;

• Stiff back from all the sitting and lack of blood circulation;

• Sore and tired eyes; and • Mental stress.

I do find that yoga helps with all the above, and more. Apart from yoga, simple stretches can be done in the office or at home:

Neck movements – Sit upright and slowly turn the head left and right holding each side for 3-5 seconds. Then laterally stretch the neck left and right side.

Twined arms – Sit upright and bring the right arm over the left and twine the arms and press the palms together. You can feel the stretch in the shoulders and the upper back muscles. Breathe normally.

Spinal twist – Sit upright slowly twists the torso to the left side and hold the backrest of the chair. Press the right hand on the left thigh to stretch the back muscles. Breathe normally.

Seated back stretch – Sit upright and inhale; as you exhale hunch the back and round the shoulders. Inhale. As you exhale arch the back by gently raising the chest and chin up.

Shoulder stretch – Bring the right hand over the shoulder and place the right palm touching the upper back. With the left arm pull the right elbow behind the head. Breathe normally. Repeat the movement on the other side.

I find it more beneficial to attend yoga classes – whether in a group or private. Yoga is a form of exercise that is good for all ages. Don’t be embarrassed if you are not flexible enough – only babies are flexible. The key is finding the right class that suits your needs and most importantly, a well trained and experienced yoga teacher to help you start this journey of self-discovery.

An artwork entitled Lampedusa by John Armleder during the press preview for Art

Basel in Hong Kong in March

4

Photo credit: Yogananth Andiappan

July 2016 55

Hong Kong's humorist talks to the queen of weddings and the city's answer to Oprah

56 July 2016

A life in the day…. with Nury Vittachi

Jane Wong’s eyes grew wide. Her older sister, who was studying business, had just

brought home a strange and beautiful gadget: a typewriter. Jane, who was about 11 years old at the time, put aside her dolls and other toys, and spent a happy evening creating some-thing wonderful with two fingers – a typewritten document. The following day, she took it to school to show her impressed teachers.

It was a simple incident, but left the little girl with an interest in the world of business – a world where things were done with formality, and each step was taken with careful documentation.

By the time she got to Form 4, in her middle teens, Jane had made up her mind to go into the world of commerce. Working hard at school and at college, she ended up with an accounting degree, and received offers from two of the Big Four accounting firms. Clearly she had made a good choice.

The next part of her life was predictable enough. While working as an accountant, she continued to gather qualifications and experi-ence, and eventually made the jump to the world of business, and rose to the top. Finding herself with a skill in e-commerce, she then decided to make the ultimate jump, and start her own company.

And that’s when disaster struck. Jane set out on her own in early 2008 – and as no one from the business world who lived through it will ever forget, the latter part of that year saw a global financial crash.

The result was sleepless nights and cash flow worries. “Customers reduced their orders but bills kept coming,” Jane remembers. “There

were a lot of times that you just didn’t know how long you could survive, no matter how passionate you were about the business.”

Fortunately, her training as a CPA meant that she had been risk averse, so managed to survive the hard times. “Entrepreneurship is a journey, and it can be a bumpy one,” she advises.

Today, Jane has a lively and suc-cessful business – she is a celebrated queen of weddings in Hong Kong. Her company, best known through the website fiesta-wedding.com, also arranges corporate and social events, from shopping fairs to corporate din-ners to anniversaries and even private parties.

It’s a long way from working for the Big Four. People with a profes-sional background expect to do desk jobs – but in the party business, you need to literally get your hands dirty.

Yet it is also supremely satisfy-ing. Her clients have included senior people from organizations such as UNICEF, Lenovo, New World Devel-opment, the Jockey Club, government officials, and so on. Her favourite assignments are for foreign clients who choose to get married in Hong Kong, because she can create extraor-dinary events that they could never get at home, and at the same time she can showcase all that’s good about the beloved city in which she was

born and grew up. One floating wed-ding party she organized on a junk was featured in The Times newspaper in the United Kingdom.

These days, Jane makes sure she does as much work as she can from home, so she can see as much as possible of her young son, who is just about to start secondary school. She’s grateful, too, for her supportive husband.

And she is also widening the scope of her businesses. For people who don’t want to hire a wedding planner, she is offering resources for do-it-yourself weddings.

Jane has also gone full circle, back to financial leadership. She has created a website called achieversminds.com where she shares advice from experts around the world. “I want to be an influencer like Oprah Winfrey,” she says.

And she’s sharing her experi-ence in a book: From Executive to Entrepreneur – The A to Z Guide for Female Executives.

The book seems to be an appropri-ate climax to her professional journey – since it started with an 11-year-old girl, sitting at home, typing with two fingers.

Nury Vittachi is a bestselling author,

columnist, lecturer

and TV host. He wrote

three storybooks for

the Institute, May

Moon and the Secrets

of the CPAs, May Moon

Rescues the World

Economy and May

Moon’s Book

of Choices

Party girl

“ In the party business, you need to literally get your hands dirty.”

C

M

Y

CM

MY

CY

CMY

K

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