ISSUE 10 VOLUME 8 OCTOBER 2012

Hong Kong introduces tougher rules to curb flows of dirty money

HK$70.00

PLUS• KennethLeung,LegCorep• Makingsustainabilitywork• CPAsandtheirfurryfriends

LAUNDERERSHUNG OUT TO DRY

New names and new ideas

COLIN BEERE

Dear members,

L ast month saw Kenneth Leung elected as our new representative to the Leg-islative Council and an increased turn-out rate of members voting, reaching

70 percent, compared with 62 percent in the last election in 2008. We have interviewed Kenneth in this issue so you can get to know more about his views on some of the most pressing issues facing the profession. We will work closely with him on the many challenging tasks ahead.

Later this month, we will hold a conference at the JW Marriott Hotel to discuss the challenges and opportunities that Hong Kong faces as a glob-al capital market. Accountants are paramount to Hong Kong’s status as a global hub for commerce and finance. Therefore, we have chosen two ar-eas of interest that directly affect us – sustainabil-ity and the future of the profession – as combined themes for the conference.

In the first part of the conference, authoritative speakers from Hong Kong and around the world will talk about why sustainability is important and how to communicate about it and report on it. With Hong Kong Exchanges and Clearing pub-lishing its newest environmental, social and gov-ernance reporting guide, the discussion on how to embrace sustainability is increasing in both the practising and business sector. (See our feature on page 18.) In the second part, seasoned panel-lists will share their thoughts on the new direc-tions and influences for business and our profes-sion, as well as the skills and attributes you need to acquire in order to succeed going forward.

Another important event this year will be our annual trip to Beijing, which will take place early next month. We are planning to visit government authorities with which we have strategic working relationships, such as Ministry of Finance, China Securities Regulatory Commission, Chinese Insti-tute of CPAs, Ministry of Commerce, United Front Work Department of the Central Committee of

the Communist Party of China, Hong Kong and Macau Affairs Office of the State Council and Na-tional Audit Office.

Fostering ever closer ties with the accounting profession and the government over the border will continue to be our priority as we aim to cre-ate new opportunities for our members and re-solve some of the regulatory issues arising from the increasingly intertwined commercial activi-ties between Hong Kong and the mainland.

Back in Hong Kong, we have just filled three director level vacancies in the standards and reg-ulation division: Simon Riley as director of stan-dard setting, Linda Biek as director of compliance and Elsa Ho as director of quality assurance.

This will ensure the Institute continues to pro-vide excellent technical support to you through training and publications on the latest standards, as well as upholding the appropriate standards through reviews of practices and financial state-ments. We are particularly glad that we have found suitable people to fill these posts to lead our compliance and quality assurance arms. These appointments will help strengthen our ef-forts to protect the public interest and give them the confidence that the work of Hong Kong CPAs always maintains the highest standards.

Our mandate extends beyond Hong Kong as we keep exerting influence overseas on issues affecting the profession. This was recognized recently, when both our representatives on the International Federation of Accountants were reappointed: our past president, Albert Au, as member of the small and medium practices com-mittee, and one of our vice presidents, Susanna Chiu, as member of the professional accountants in business committee.

We wish all the best to those mentioned above as they carry out their duties on behalf of the In-stitute to help us achieve our goals, both tactical and strategic.

Keith PogsonPresident

“ Our mandate extends beyond Hong Kong as we keep exerting influence overseas on issues affecting the profession.”

President’s message

October 2012 1

2 October 2012

56 Business travel Honnus Cheung revels in romantic Rome

58 After hours George W. Russell on wine; Akua Achampong on watches

60 Let’s get fiscal Nury Vittachi knows when you've been in the job too long

LIFESTYLE

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

REGULARS

42 IFRS 8 William Lim and Candy Fong look at IFRS 8/HKFRS 8 Operating

Segments as the IASB starts its post-implementation review

46 TechWatch 119 The latest standards and technical developments

49 Tech Q&A Your questions about standards answered

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

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

SOURCE

FEATURES

14 Clocking in at LegCo Kenneth Leung, the accountants’ new representative at the

Legislative Council, tells George W. Russell about his priorities

18 Valuing responsibility Craig Stephen asks how the stock exchange's new guide on

environmental, social and governance reporting affects companies

24 Success ingredient NH Tang, the CFO of IBM Hong Kong and China, tells George W.

Russell about his 27 years at the computing giant

30 Coming clean Hong Kong has toughened its anti-money laundering legislation.

George W. Russell asks the experts about the changes

36 Creature comforts CPAs are finding companionship from their furry – and sometimes

exoskeletal – friends, as Jemelyn Yadao reports

P

HO

TO: S

AM

AN

THA

SIN

ISSUE 10 VOLUME 8 OCTOBER 2012

CONTENTS

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

Vice Presidents: Susanna Chiu, Clement Chan

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

Deputy Director of Communications: Stella To

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

Editorial Manager: John So

Editorial Coordinator: Maggie Tam

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

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

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

M&L

Editor: George W. Russell

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

Copy Editors: Akua Achampong, Jemelyn Yadao

Production Manager: Jasmine Hu

Design Manager: Jennifer Chung

Contributor: Craig Stephen

Editorial Assistant: Lucid Wong

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

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

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

© Hong Kong Institute of Certified Public Accountants October 2012. Print run: 51,910 copiesSubscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

Your chop Your Logo

14

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

4 October 2012

NEWSTHE INSTITUTE

Mobile revolution to befocus of IT conferenceThis year’s Information Technology Confer-ence held by the Institute will cover the mobile revolution in the workplace and take place on 17 November at the Kowloon Shangri-La Ho-tel. Speakers at the event include Victor Lam, deputy government chief information officer, Gan kok-tin, senior manager at Pricewater-houseCoopers, and David Mushinskie, group IT director at Avery Dennison, a labelling and packaging company. Members are urged to enrol for the event by 18 October to benefit from the early-bird discount.

Dragon boat team excels in Sai KungThe Institute’s dragon boat team came sec-ond place in the mixed open golden bowl final and fourth place in the women’s open silver cup final in the Sai Kung Vigor Dragon Boat Race 2012 last month. The team also came third in the mixed category of the Hong Kong Sea School Charity Dragon Boat Cham-pionship 2012. They competed against 15 other teams at this year's CPA cup during the National Day celebration dragon boat invita-tion race on 1 October at Shaukeiwan.

KPMG Polar Bears chill outin basketball competitionKPMG’s Polar Bears team won the CPA bas-ketball championship last month, beating 21 other teams. KPMG’s Grizzlies and PwC 2 came second and third respectively, while FTI Consulting were placed fourth. Jeffrey Ho Chun-hei, who plays for PwC 2, won the three-point shootout game.

Hong Kong Marathon set for 24 FebruaryThe next Standard Chartered Marathon will be held on 24 February. The Institute has been given a pre-open application quota for 1,000 Institute members. Members who wish to take part must register by 12 October.

Annual dinner The Institute’s annual dinner, with the theme of "Guys and Dolls," has been set for 3 De-cember and will be held at the Hong Kong Convention and Exhibition Centre.

Sustainability heads agenda at Institute conference

Anthony Francis Martin “Con” Conway, chairman of I.Tel Holdings – an invest-ment shareholding company for IT-related activities – died last month at the age of 72 after a long battle with cancer. Although not an accountant, Conway was a longtime supporter of the Institute. In particular, he was instrumental in spear-heading many initiatives in innovation and technology education and aware-ness for the profession. He was also a member of the editorial board, which was tasked to oversee the Institute’s magazine.

Conway had served as chairman of I.Tel Holdings since 1998. Before joining the company, he was director of New World Telephone for two years and direc-tor of Hong Kong Telecom for 11 years.

The city’s media nicknamed him the “father of the IT industry in Hong Kong” after he worked as part of the team that installed the first computer in the terri-tory in 1963.

He was also chairman of the Hong Kong Management Association Informa-tion Technology Committee and a past president of both the Hong Kong Infor-mation Technology Federation and the Hong Kong Computer Society.

A funeral mass was held at St. Joseph’s Church on 4 October.

Con Conway, IT pioneerand business executive

Financial official, IIRC CEO to share viewsThe Institute will hold a conference on 27 October to discuss the challenges and opportunities faced by Hong Kong as a global capital market. The event will focus on the role of sustainability in successful businesses and the future of the accounting profession.

The one-day conference will feature a panel of speakers from leading companies and authorities. They include K.C. Chan, secretary for financial services and the treasury, Julia Leung, under-secretary for financial services and the treasury, Christine Loh, under-secretary for the environment, and Paul Druckman, chief executive officer of the International Integrated Report-ing Council.

The event, which is open to CPAs, regulators and academics, will be divided into two sections. The first, “Sustainability – business strategy, governance and reporting,” will cover the importance of sustainability from a business point of view and how to report it to investors and the public.

The second, “Expanding horizons – the profession of the future,” will in-volve speakers sharing their views on the skills accountants and businessmen will need to succeed going forward. Representatives from the Big Four, as well as companies such as COSCO Pacific and Hutchison Whampoa, will talk about how we should adapt to a changing business environment.

The conference will take place at the JW Marriott Hotel, and the enrolment deadline is 15 October.

Obituary

6 October 2012

NEWSINTERNATIONAL

In a bid to boost its slowing economy, India’s government has announced reforms of the country’s retail and aviation sec-tors by opening them to foreign investors.

India’s cabinet last month agreed to allow 51 percent for-eign direct investment in multi-brand retail stores. Wal-Mart of the United States, Tesco of the United Kingdom and Carrefour of France are expected to make investments.

India’s individual states and territories will be given the

final say on whether to allow multi-brand retail stores in their respective jurisdictions.

So far, nine states, including Andhra Pradesh, Haryana, Ma-harashtra, Rajasthan and the National Capital Region around Delhi, have agreed to the new arrangement, according to The Times of India.

The policy prohibits multi-brand retailers with foreign direct investment from trading through e-commerce, preventing Amazon and others from enter-ing India.

“We’re glad about the progress that has been made in India, but there are conditions,” Lucy Neville-Rolfe, a director of Tesco, Britain’s biggest retailer, told the Economic Times. “We have to study the impact of the conditions.”

India will also permit foreign airlines to buy minority stakes of up to 49 percent in Indian domes-tic carriers.

However, analysts were scep-tical that foreign airlines would rush to invest in the ailing Indian aviation sector.

Germany pegs cost of bailout at €190 billion

Germany is expected to contribute 27 percent, or €190 billion, of the euro zone rescue fund, after the Constitutional Court, the coun-try’s highest judicial body, ruled that the European Stability Mech-anism and the European Union’s Fiscal Compact are compatible with the country’s basic law.

The court decision, an-nounced last month, removed the last obstacle preventing the deployment of €500 billion.

“Germany is fulfilling its full responsibilities as the biggest economy and a trusted partner in Europe,” Chancellor Angela Merkel said after the decision. “This is a good day for Germany and a good day for Europe.”

The court ruled that Germany could proceed with its contri-bution to the mechanism, but required parliamentary approval of any increase in the agreed-upon €190 billion.

Jean-Claude Juncker, who chairs the Eurogroup, a panel of euro zone finance ministers, said he would call the first meeting of the mechanism’s board on 8 Oc-tober, the German news agency DPA reported.

Some experts saw the ruling as a step toward the common sharing of debt among members of the euro zone. “This may stabilize the currency union, but it will change its character,” Jörg Krämer, chief economist at Com-merzbank in Frankfurt, told The New York Times. “This will be the starting point of what I call the union of mutualized debt.”

U.S. hopes more quantitative easing will stimulate economy, boost jobsFed to buy extra US$40 billion of securities a month

India opens retail, aviation to foreign investors

Ben BernankeAFP

The United States’ Federal Re-serve Board plans to buy an extra US$40 billion in mortgage-backed securities each month to boost the economy.

The board, known as the Fed, already buys about US$45 billion a month in long-term treasuries and is hoping a third round of quantita-tive easing will further stimulate the economy and help relieve unemployment, now at about 8 percent.

Unlike the previous two in-stances of bond buying, where the Fed imposed a limit on the amount of bonds it would purchase, the board this time will continue to buy the securities until the job market shows significant improve-ment, Reuters reported.

“We’re looking for ongoing, sustained improvement in the labour market,” Ben Bernanke,

the Fed chairman, said at a press conference last month. “There is not a specific number we have in mind [but what] we’ve seen in the last six months isn’t it,” he said.

The Fed also announced that it would continue Operation Twist, which involves selling short-term bonds and using the proceeds to buy longer-term bonds in order to keep interest rates lower.

The decision is already having a positive effect on wholesale

mortgage rates, Eric Rosengren, the president of the Federal Reserve Bank of Boston said on 20 September, Reuters reported. “The actions taken by the [Fed] provide significant addi-tional support to the

economic recovery,” Rosengren said in a speech.

Some governments opposed a new round of quantitative easing. Guido Mantega, Brazil’s finance minister, warned that the move would affect the rest of the world.

Two years ago, the second round of quantitative easing by the Fed pushed billions of dollars abroad, leading to the apprecia-tion of many emerging-market currencies.

October 2012 7

Nomura Holdings plans to slash jobs in the Europe and North America to save US$1 billion after the financial institution’s chief executive admitted that the acqui-sition of Lehman Brothers assets was not a successful manoeuvre.

The brokerage firm is taking measures to become an Asia-centred business, undoing ambi-tious groundwork laid out by the previous management team after the company bought a large part of Lehman Brothers in 2008.

The Tokyo-based broker has barely turned a profit since the Lehman acquisition due to tough business conditions amid the European debt crisis. Nomura has chalked up nine consecutive quarterly losses at its overseas operations.

Its new chief, Koji Nagai, said of the Lehman deal: “People ask me whether the Lehman acquisition failed… and with this perfor-mance, we can’t say it’s been a success.”

Nagai replaced former chief Kenichi Watanabe in August as part of a management reshuffle.

According to Bloomberg, No-mura has about 12,800 overseas employees, compared with a work force of 22,000 in Japan. About 30 percent of Nomura’s current staff were with Lehman prior to the takeover.

Nomura says it will complete the latest round of restructuring by March 2014. It is aiming for pre-tax profits of 250 billion yen, Reuters reported.

Nomura plans cuts after failed takeover

U.S. pays whistle-blower US$104 million rewardTax authorities in the United States paid out a US$104 million reward to a former UBS banker after information he provided helped recover US$800 million in fines.

Bradley Birkenfeld, 47, received the cash reward after divulging schemes that Swiss-based UBS used to encourage American citizens to dodge their taxes. The bank subsequently paid a US$790 million fine to avoid criminal prosecution.

Birkenfeld was also impli-

cated and charged with fraud for withholding crucial information from federal investigators. He pleaded guilty in 2008 to one count of conspiracy to defraud and was given a 40-month sentence.

The US$104 million payout is said to be the largest ever paid by the U.S. Internal Revenue Service under its whistle-blower pro-gramme, which offers informants rewards of up to 30 percent of any fines and unpaid taxes recovered by the government.

Since the law was strength-ened in 2006 it has generated hundreds of claims alleging tens of billions of dollars in tax eva-sion, reports Bloomberg.

Senator Charles Grassley, who sponsored the law, defended the payout, telling The Wall Street Journal, “An award of US$104 million is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid as a result of the whistle-blower information.”

European Central Bank may gain powers to oversee euro area lendersGermany concerned about European Commission proposals

AFP

The European Com-mission last month announced a plan to allow the European Central Bank to su-pervise all euro zone financial institutions as a first step toward a so-called “banking union.”

The commission said it intends to give the central bank new powers to monitor euro zone banks under a single supervisory mechanism.

Germany immediately raised objections that the proposals risked overstretching the bank. Chancellor Angela Merkel’s coalition government wants the bank’s new powers to apply only to systemically relevant or cross-border institutions.

This coincides with the

commission’s plans to give new powers to the European Banking Authority, which currently regu-lates the euro zone’s banks.

Current rules mean that decisions made by the author-ity’s panel need to receive support from a majority of all 27 European Union countries. The new proposal would see this procedure reversed: the panel’s decisions will be implemented

automatically unless there is a majority vote against it.

In addition, a proposed independent panel of officials would have powers to impose European Union laws and arbitrate disagree-ments between euro zone and non-euro coun-tries, such as Britain.

Germany remains the major obstacle to a European banking union. Michael Grosse-Broemer, the chief whip of Merkel’s conservatives, told Reuters that Germany’s current deposit guarantees would not become part of any EU-wide deposit guarantee scheme. “We need a clear-cut separation of national and European deposit guaran-tees,” he said.

Angela MerkelAFP

8 October 2012

A draft report by the European Parliament’s legal affairs committee has sug-gested watering down the proposed European Commission reforms of the auditing profession.

The commission tabled proposals that would require companies to change their auditor every six years. It also proposed introducing caps on market share that would force the Big Four to split the provision of audit and non-audit ser-vices. However, the parliamentary report recommended that auditor rotation should only have to take place every 25 years and that share caps should not be introduced, Accountancy Age reported.

The report, published last month, was drafted by Sajjad Karim, a British con-servative member of the European Parliament. Socialist and green parties in the parliament favour wholesale reforms while centrist and right-wing parties are more committed to the status quo, the Financial Times reported.

The Karim report is at odds with submissions the commission has received from shareholders of audited companies, the FT reported. Shareholders say significant adjustments need to be made for auditors to be more independent from the companies they oversee.

Investors are also critical of the concentrated nature of the audit market, which is dominated by the Big Four.

A paper calling for action has been signed by more than a dozen institutional investors and investor associations that collectively manage €732 billion of funds, the newspaper reported.

PCAOB reports high levelof U.S. audit deficienciesRegulators in the United States are still finding a high level of deficiencies in the work of the Big Four. Most of the Public Company Accounting Oversight Board’s 2011 inspection reports of the firms have yet to be issued, but they will show a continued “spike” in audits found to have seri-ous problems, PCAOB member Jeanette Franzel said in a speech in Chicago last month. Last year the board found deficiencies in almost a third of audits they examined at Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.

H&M sales miss estimates due to August heatwaveClothing retailer Hennes & Mauritz announced third-quarter sales that missed analyst estimates due to a heatwave across parts of Europe in Au-gust discouraging shoppers. Revenue, excluding value-added tax, rose to 28.8 billion kronor (about HK$34 billion) in the quarter to 31 August, miss-ing the 29.8 billion kronor average estimate of 19 analysts surveyed by Bloomberg. Germany, Spain and France all recorded above-average tempera-tures in August.

Groupon names KPMG veteran to senior positionThe Chicago-based discount coupon website Groupon has appointed Brian Stevens, a former KPMG audit partner, as its new chief accounting officer. In a regulatory filing in the United States, associated with a disclosure in March that stated the company’s fourth-quarter results in 2011 were worse than previously reported, Groupon admit-ted that “there is a material weakness in the de-sign and operating effectiveness of... [its] internal control over financial reporting.”

IFRS Foundation appointsAsia-Oceania office directorThe Trustees of the IFRS Foundation have ap-pointed Mitsuhiro Takemura as director of its Asia-Oceania liaison office. Takemura, a partner at Deloitte, was previously a technical fellow at the International Accounting Standards Board and a former member of the technical staff of the Accounting Standards Board in Japan. He will be inaugurated this month.

IASB proposes new standardto improve hedge accountingThe International Accounting Standards Board has released a new hedge ac-counting standard to replace IAS 39.

The proposed new accounting standard, IFRS 9, has been designed to encourage improved risk management and was developed by the IFRS Foundation.

It has been released with the hopes that it will make it easier for chief finan-cial officers to navigate transactional risks.

IFRS 9 will undergo a 90 day review period and the IASB will make any necessary ratifications. Usually the IASB releases proposed new standards in the form of an exposure draft, which allows for questions to be raised formally and calls for feedback from stakeholders. IFRS 9 has been released as a review draft and does not call for further consultation but is available for reference so that people can become familiar with its content.

Initial plans to adjust and rework IAS 39 were closed in late 2010 and have only now been released.

The new rules will take effect from 1 January 2015. However, companies can adopt them sooner if they wish.

European Parliament reporturges audit reform dilutionEC proposals on rotation, share caps rejected

NEWSINTERNATIONAL

10 October 2012

NEWSGREATER CHINA

Premier Wen Jiabao insisted that the government is stabilizing the economy, pledging that the country would meet its target of 7.5 percent growth this year.

Wen was speaking at the World Economic Forum in Tianjin last month in what is expected to be his final high-profile inter-national appearance before he is scheduled to step down as premier by March 2013 after 10 years in office.

In his speech, he defended his government’s response to the 2008 financial crisis, which included some of the most exten-sive fiscal and monetary easing in history.

“I want to make it clear here to-day that it was exactly due to our resolute decision and scientific

response that China was able to avoid factory closures, job losses and return of migrant workers to their home villages,” the Financial Times quoted Wen as saying.

“Thanks to our efforts, China was among the first to achieve an economic upturn and what we did was also vital in promoting world economic recovery,” he added.

Wen pointed to the govern-ment’s surplus, which he said stood at ¥100 trillion by the end of July despite slowing revenues, as proof that the measures were successful.

He added that the government had set aside about ¥100 billion as a stability and adjustment fund that it would not hesitate to use.

The premier went on to detail the country’s other economic achievements during his time in office, including increasing GDP per capita from more than US$1,000 to US$5,432, creating 100 million new jobs and raising China’s urbanization rate from 39.1 percent to 51.3 percent.

China’s economy has grown an average of 10.7 percent a year during Wen’s premiership.

Alliance Boots, one of Europe’s largest pharmacy chains, announced last month that it will buy 12 percent of Nanjing Pharmaceutical Company for ¥560 million.

The Swiss company, better known by its trading name Boots after its British retail chain, outlined its ambitions in China, saying it was aiming for a share of up to 30 percent of China’s phar-maceutical distribution market.

When finalized, the deal will make Boots the second biggest shareholder in Nanjing Pharma-ceutical, the fifth biggest phar-maceutical distributor in China.

Boots first entered China through a joint venture, Guang-zhou Pharmaceuticals Corpora-tion, in 2008.

Boots kicks in to buy stake in drug company

Wen stands by monetary easing,pledges to meet economic goalsOutgoing premier cites achievements at Tianjin summit

European Commission investigates solar panel dumping claims The European Commission has launched an anti-dumping in-vestigation against Chinese solar panel manufacturers, examining whether the companies violated trade rules by selling their prod-ucts below cost in Europe.

According to the commission, this is the biggest anti-dumping complaint filed in terms of im-port value. “China exported solar panels and their key components worth around US$26.5 billion to the EU,” the commission said in a statement.

The investigation came after EU Pro Sun, a group of more than

20 European solar panel makers, filed a complaint.

China’s Ministry of Com-mence said in a statement in response that China regretted the decision. “The European Commission went ahead to initi-ate the anti-dumping investiga-tion despite repeated calls by China to solve the trade dispute on photovoltaic products via consultations and cooperation,” the statement said.

Chinese solar companies expressed concern over tariffs that might result from the inves-tigation. “The solar industry is

based on a global and complex value chain, and will be therefore substantially and negatively affected by trade protectionism,” Darren Thompson, managing director of the European arm of Yingli Green Energy, a Chinese solar panel manufacturer, said in a company statement.

“There would be no win-ners but rather immeasurable damage and regression from our fundamental goal of making so-lar a cost-effective energy source available to everyone,” Thomp-son’s statement added.

The EU said in its official

journal, that if Chinese firms were found to be dumping, it will decide whether penalties should be imposed.

In a separate trade complaint, the United States alleged that China has been unfairly subsidiz-ing vehicle and automotive parts exports.

The Chinese government re-jected the accusations, saying the case was prompted by the U.S. presidential election campaign.

China also filed a WTO com-plaint against the U.S., alleging that illegal duties were levied on many Chinese exports.

Wen Jiabao

AFP

October 2012 11

Home Depot, the American hardware retailer, said it would take a US$160 million after-tax charge in the third quarter as a result of closing its last seven stores in China.

The charge includes the impairment of goodwill and other assets, terminations of leases and severance payments.

The store closures reflect China’s preference for cheap labour, reducing demand for the chain’s do-it-yourself home improvement products. Home Depot is now focusing on online and speciality stores in the Chinese market.

Home Depot and other retailers have struggled to expand in China, where the economic growth is at its slowest pace in three years. Retail sales in August increased by just more than 13 percent from a year earlier, down from a 17 percent year-on-year increase in 2010-11.

“We’ve learned a great deal over the past six years in China, and our new approach leverages that experience and reflects our continuing interest in providing value to Chinese customers as well as our shareholders,” Frank Blake, Home Depot’s chief executive, said in a statement.

The U.S. retailer entered China in 2006 by acquiring 12 stores, a number of which are among the seven to be closed.

China Construction Bank plans to spend as much as US$15 billion on a European bank acquisition in what would be the biggest-ever overseas deal by a mainland bank.

“Some of the banks in Europe have been put up for sale [and] now we are looking for the right choice,” Wang Hongzhang, the bank’s chairman, told the Finan-cial Times.

Wang said CCB had set aside up to ¥100 billion to acquire a whole bank or a stake of 30 to 50 percent in a larger entity.

He added that policymakers have brought the financial crisis in Europe under control and that the region is still an attractive place to invest.

“Opportunities in Europe are

critical for the development of the bank ... We believe the Euro-pean economy is still very strong. As the Chinese proverb says: ‘A starved camel is still bigger than a horse,’ ” Wang told the FT.

He said that an investment in the United Kingdom, Germany or France is especially attractive

because those economies have been less affected by the finan-cial crisis and will help the wider region recover.

Wang added that CCB wants to double the number of subsid-iaries and branches around the world to 30 by 2015.

Analysts have suggested that China’s banks could take advantage of the financial crisis to purchase assets in the United States and Europe.

In July, Industrial and Com-mercial Bank of China completed a US$140 million purchase of the U.S. assets of Bank of East Asia.

ICBC made the largest foreign deal by a Chinese bank to date when it paid US$5.5 billion in 2007 for 20 percent of South Africa’s Standard Bank.

Home Depot takes charge over closures

Telecom companies deny espionage allegations Executives from Huawei and ZTE Technologies, China’s two largest telecom equipment makers, stood before legislators in the United States last month to deny allegations that they were helping the Chinese government to spy.

The companies have been accused of deliberately leaving “back doors” open in their products to assist in the espionage of U.S. government and commercial secrets on behalf of Beijing.

The U.S. House of Representatives intelligence

committee convened a hearing to discuss the allegations. “Our sources overseas have told us that there is a reason to question whether the companies are tied to the Chinese government or whether their equipment is as what it appears,” committee chairman Mike Rogers said.

Charles Ding, Huawei’s chief U.S. representative, and Zhu Jinyun, a ZTE senior vice-president for North America and Europe, disputed the accusations. “What they have been calling back doors are actually software bugs,” Ding

said in the hearing, noting that such bugs are common.

The two executives also said their firms were independent of the Chinese government. “Huawei has not and will not jeopardize our global commercial success nor the integrity of our customers’ networks for any third party or government,” Ding added.

Rogers said that he was disappointed by the responses. “I was hoping for more transpa-rency, more directness in some of the answers,” he said at the close of the hearing.

China Construction Bank plans US$15 billion Europe acquisitionChairman says continent remains attractive destination

Wang Hongzhang

AFP

12 October 2012

NEWSGREATER CHINA

Entrepreneurs in pledge to strengthen Arab tiesChinese and Arab entrepreneurs agreed they should increase cooperation between their companies during a five-day China-Arab States Economic and Trade Forum in Yinch-uan, Ningxia last month. He Ping, president of Shanghai-based Langsheng Investment, said cooperation between companies in China and Arab states is now limited to commodity pur-chases, sales in the manufacturing sector and labour for the service sector. “Such low-level cooperation is not good for the international-ization of Chinese or Arab companies,” he said.

Investors need protection, Morgan Stanley boss urgesWei Sun Christianson, co-chief executive of Morgan Stanley’s Asia operations and head of its China business, said Chinese regulators should do more to protect investors. During a panel discussion at the World Economic Fo-rum in Tianjin last month, Christianson said regulators need to look deeper when examin-ing initial public offerings. “Instead of looking at the profitability – the business model of the company – they should focus more on things such as protection of the interests of the inves-tors,” she said.

Liberian auditors pursueNanjing master’s degrees Ten staff members of the General Auditing Commission of Liberia have headed to the mainland to pursue two-year master’s degrees in auditing at Nanjing Audit University. They are expected to combine their studies with professional certification programmes.

Shanghai police detain 35 over forged textbooksPolice in Shanghai have detained 35 people suspected of forging thousands of accounting and financial analysis textbooks. More than 20,000 books purporting to be published by the Association of Chartered Certified Accoun-tants and the Chartered Financial Analysts Institute were confiscated, according to the Yangpu district police department. The books’ retail value was estimated at ¥200 million.

The Public Company Accounting Oversight Board in the United States has banned Michael Studer, the president of the Studer Group accounting firm, from prepar-ing an audit report for a securities issuer for three years. The PCAOB’s action against Studer is its fourth China-related enforcement this year.

The regulator said that the accountant failed to comply with the PCAOB’s audit-ing standards for two Chinese companies: China Clean Energy, a biodiesel and specialty chemical producer, and China Kangtai Cactus, a biotechnology company.

The PCAOB also cited the accounting firm’s failures in the audit of Biocoral, an international company specializing in the research and development of biomedi-cal technologies and biotechnologies. Studer, whose firm has offices in Freeport, New York, and Vancouver, did not respond to requests for comment from Barron’s, the publication reported.

A few months earlier, the PCAOB fined the Buffalo, New York, accounting firm of Brock, Schechter & Polakoff US$20,000 for improper work undertaken for companies in China. James Waggoner, one of the firm’s principals, was fired over the work and banned from public accounting for three years.

PCAOB slaps fourth ban related to mainland issuers in a year

E&Y told to offer evidence behind “state secrets” claimCourt tells Big Four firm to provide explanation

The Court of First Instance in Hong Kong has ordered Ernst & Young to file evi-dence on or before 15 October to explain why the accounting firm cited China’s laws on state secrets as the reason for refusing to hand over records related to the audit of a Chinese company.

In August, E&Y declined a request from the Securities and Futures Commis-sion to produce audit papers and accounting documents relating to the listing application of Standard Water, one of the accounting firm’s clients.

E&Y claimed that the records were held by its mainland joint venture partner, EY Hua Ming, and fell under China’s state secrecy laws. The SFC launched legal proceedings against E&Y for failing to comply.

The court can order E&Y to comply with the SFC’s request if it judges that the accounting firm does not have a reasonable excuse for not complying, Accounting Today reported.

E&Y resigned as auditor of Standard Water in 2010 due to “certain inconsisten-cies in documentation,” and the company withdrew its listing application shortly afterwards, according to the SFC.

This is the second SFC action related to China secrecy laws. On 22 August, the commission suspended trading in shares of Hong Kong-listed China High Preci-sion, a maker of automation equipment, after the company declined to provide sufficient information to its former auditor, KPMG, saying its business involved Chinese state secrets.

14 October 2012

After his election victory in the accountancy functional constituency, Kenneth Leung tells George W. Russell about audit liability reform and other important debates in which he will be representing accountants at the Legislative Council

Photography by Samantha Sin

K enneth Leung might be keep-ing a sharper eye on his collection of clocks on 3 October. That’s when the tax

partner at the Clifford Chance law firm and Hong Kong Institute of CPAs fellow takes of-fice as a member of the Legislative Council.

Time is not something Leung has had to spare recently. He has barely had an opportu-nity to celebrate his win after the 9 Septem-ber election. By the close of ballots at 10:30 p.m. the outcome was anyone’s guess. Leung waited all night with his campaign team un-til about noon the next day, when the result was announced.

“That afternoon I had a quiet lunch with my wife, and then she went to work,” says Leung. “I took my eight-year-old son to his piano class in Wanchai – just doing things as normal as possible.” Leung spent the rest of the afternoon responding to congratulatory emails and text messages. “I make it a point

to reply to emails myself.”The election was sparked by the retire-

ment of Paul Chan as the LegCo representa-tive of the accounting profession. Leung won a four-way battle with 7,701 votes – around 46 percent of the total cast. “If Paul had been the opponent, really, my chances would have been slimmer,” says Leung.

Leung says he is ready to put his platform into practice. He soon returns to the theme of time, specifically the working hours of accountants. “Their work-life balance is not good,” he says. “In general all professional people in Hong Kong are working terribly long hours.”

However, Leung is wary of setting stan-dard working hours, a proposal periodically raised at LegCo over the past decade or so. “There is also an outcry from various politi-cal parties that we want standard working hours, we want maximum working hours legislation,” notes Leung.

“I think this type of legislation should be kept flexible so as to enable our profession to function. You can’t just say you don’t work

more than nine hours a day or the profession will be dead.”

Leung suggests that exemptions could be applied to workers beyond a certain earn-ing threshold. “So standard working hours wouldn’t apply to people earning more than, say, HK$40,000 a month. Or in addi-tion to that the standard working hours leg-islation could use something on a yearly or monthly basis rather than saying no-one can work more than a certain number of hours a day.”

Platform prioritiesStaff at LegCo’s new complex in Tamar wave to and greet Leung as he sips tea in the lob-by canteen. He is no stranger to politics. In 2005, he was voted onto the Hong Kong Chief Executive election committee by the accoun-tancy sub-sector.

Leung was a co-founder of The Profes-sional Commons, a political think tank aligned with the pan-democratic movement established in 2007. Today he serves as a member of a number of statutory bodies, in-

CLOCKING IN ATLEGCO

LegCo representative

October 2012 15

???????????

16 October 2012

“Out of the four regulators in Hong Kong, we are the only one that has a statutory remit or obligation to educate investors but our jurisdiction covers only the securities and futures market.”

cluding the Hong Kong Housing Authority, the Independent Police Complaints Council and the Estate Agents Authority.

Leung says he has been involved in public service since he was a form three student. “I was writing articles for a newspaper for the aged, visiting aged people’s homes and giv-ing free tutorials to underprivileged chil-dren,” he recalls.

With accountants as his constituents, Leung believes the issue of audit liabil-ity should be his top priority. “First and fore-most... [is deciding whether to deal with] criminal liability, which has just been em-bedded in the Companies Amendment Bill, or civil liability, which we have been discuss-ing for a long time,” he says. “I think dealing with the criminal aspect could be the more imminent task that I should aim to tackle.

“I was not happy with the original draft and that’s why I want to... work with the gov-

ernment to revise the draft to one that is less damaging to the profession. We can tell the public that their interests are protected but we are not trying to penalize innocent [audit] managers.”

Leung notes that civil liability reform has been discussed for almost 10 years. “I have a lot of friends in the profession who want the liability to be capped... [but] I think this soci-ety is more pluralistic and really you have to do it step by step. You can’t just say we have to have a cap.

“One way moving forward is to introduce a limited liability partnership concept – al-though there are accountancy firms (smaller ones, medium-sized ones) which have already incorporated – [in which] individual directors can be shielded from the wrongdoing of other directors in the same firm. But for larger prac-tices, which still maintain a partnership struc-ture, liability is joint and several.”

Audit reformLiability is just one of a range of contentious issues that Leung will have to deal with. Another heated topic is audit reform. “The global trend is that auditors should be seen as independent and they should not be engaged as advisers to a company they are auditing,” he says.

But many accounting firms rely on both audit and consulting for revenue, and Leung notes that any reform will have to be prag-matic. “I understand their concern,” he says. “I know that a lot of the smaller firms do not like the idea as they do the whole package. Maybe there... [could be] a possible exemp-tion for the auditing of private companies.”

Another thorny matter, he says, is the evolving role of the Financial Reporting Council, and the question of whether it should take up more regulatory functions from the Hong Kong Institute of CPAs.

LegCo representative

October 2012 17

A PLUS

“Should their role be expanded? Should they oversee practice review as well? It’s a diffi-cult issue and we need to have some consen-sus and we need to look at it very soon – we can’t just duck our head and hope the prob-lem will go away.”

Meanwhile, Leung supports continued engagement with China’s accounting profes-sion. “I think in general [China has] a group of very good, well-trained accountants and the numbers have been growing dramati-cally,” he says, adding that the Institute can help with quality control through more training.

“It is I think vital to have more opportu-nities to cooperate with our Chinese coun-terparts to give them more international exposure and gear them towards the interna-tional way of doing business. Our role is to get them to the global village of compliance.”

Recent controversies have highlighted

what Leung sees as the most pressing issue between Hong Kong and the rest of China: enforcement. “There is a case where the re-porting accountants are being asked by the Securities and Futures Commission to dis-close certain audit working papers, but due to confidentiality they claim there is a na-tional security issue at stake.”

Leung believes the SFC will have to work with regulators in China to find a way for the information to be disclosed. “We need to have a common concept of what is – and what is not – confidential information so all these listed companies will not be forced into see-ing this as a kind of safe haven whenever they don’t want to disclose something.”

Working with lawyersLeung’s role as a lawyer means he is at ease dealing with regulation and legislation. “I did my accountancy qualification first, then I thought it was a good idea to do a conversion course and become a lawyer,” he says.

“When I was in England doing tax work for a Big Eight firm – Price Waterhouse as it was back then – it was very legalistic,” he re-calls. “Apart from computation, you had to do a lot of advisory work. It did involve a lot of reading of cases and European Commission decisions, and I thought it was a good idea to combine it with the law.”

Leung supports amending Hong Kong legislation to allow accountants and lawyers to work together. “In Germany in fact, in my firm, we have a team of lawyers and a team of accountants both housed under the one roof. We do complement each other. It works.”

As a tax specialist, Leung has spent a lot of time looking at how Hong Kong’s revenue system could be improved. He is concerned by Hong Kong’s reliance on real estate trans-actions: property taxes, stamp duty and prof-its tax from big property investment compa-

nies and developers.“If we are less dependent on property-re-

lated income, the crazy property values will come down,” he says. “I don’t want property prices to plummet in a few months, but it will gradually ease to a plateau level and that’s what I want to see.”

One option is a goods and services tax. “Of course this is a controversial topic,” says Leung, who concedes that he doesn’t view value added tax as a definitive answer. “I can’t say whether it is an absolutely good idea for Hong Kong. From the experience of various jurisdictions, it sounds like it’s one of the most feasible ways of broadening the tax base.”

Leung pauses to look at his watch and remind himself that he has another appoint-ment straight after the interview. “Time management is really important,” he says. “In fact I have a clock in every room at home: the toilet, the kitchen, the sitting room. Ev-erywhere I can see a clock. I have cuckoo clocks, digital clocks, different shapes and styles. I want to reassure myself I’m not missing anything.”

However, with four years ahead as a legis-lative councillor, Leung will have to sacrifice some roles. “I’m also serving on statutory and advisory boards for the government, and I will not renew my membership of these boards.”

Even Clifford Chance will see less of him. “I plan to retain about 40 percent of the level of my practice work,” he says. “The other 60 percent will be my LegCo work and that is a promise.”

However, Leung has progressive ideas about work-life balance. “I want to keep my weekends completely free,” he says. “Work-life balance is the hottest topic among ac-countants,” he notes. “Apart from salaries, of course.”

“ Time management is really important. In fact I have a clock in every room at home: the toilet, the kitchen, the sitting room. Everywhere I can see a clock... I want to reassure myself I’m not missing anything.”

18 October 2012

Sustainability

pple’s launch last month of its iPhone 5 drew a

mostly positive reac-tion. The latest incar-

nation of the iconic device is bigger, faster, thinner and better con-nected, the crit-

ics responded. But, as some asked, is it more socially responsible?

Sustainability, and corporate social gov-ernance as a whole, came to the fore last year with reports that iPhones, as well as other Apple products and those of Amazon, Dell and HP, were made in substandard condi-tions by overworked and underpaid Chinese labourers who, in some cases, apparently only escaped ill-treatment through suicide.

In the case of Apple, the outcry resulted in damaging protests from New York to London to Sydney that called for better protection for workers. They snowballed into broader criti-cism of Apple’s social record: poorly managed use of toxic chemicals, an absence of emis-sions and other environmental targets and generally lax sustainability-related reporting.

Apple defended its supply chain record, with Tim Cook, its chief executive, saying Apple caps work weeks at 60 hours, bans child labour, conducts safety inspections and sponsors educational programmes. Cook added that the Fair Labour Association, a non-profit monitoring organization, would start audits of Apple’s suppliers, including Foxconn factories in Shenzhen and Chengdu.

Over the years, sustainability has been pushed up the agenda of policymakers and corporations around the world. Sharehold-

ers, employees, consumers and regulators are increasingly letting companies know the stan-dards of corporate behaviour they expect.

“The key [environmental, social and gov-ernance] issues that investors in Asia face are tightening environmental standards and labour unrest,” Amar Gill, head of Asia research at CLSA, and his team wrote in CG Watch, a corporate governance report issued last month.

CLSA, a brokerage that says it strives to provide visibility on sustainable and ethical investing, notes that in Asia there are three drivers for better enforcement of environ-mental, social and governance issues: right-ful resistance (by employees, activists and other stakeholders), supply-chain naming and shaming, and shareholder activism.

“International companies take [sustain-ability] very seriously because they are scared of the liability,” says Peter Wong, chairman of The General Fiduciary Co., an investment and trustee company based in Hong Kong, and a member of the Hong Kong Institute of CPAs. “It is also increasingly nec-essary to show outwardly that a company is fit for purpose.”

Companies are facing ever higher expectations when it comes to disclosing their sustainability plans following the Hong Kong stock exchange’s new reporting guide on environmental, social and governance issues. Craig Stephen reports

Shareholders, employees, consumers and regulators are increasingly letting companies know the standards of corporate behaviour they expect.

Illustrations by Jammie Wu

October 2012 19

Sustainability

20 October 2012

Workplace qualityThis area covers working conditions; health and safety; development and training; and labour standards policies. It can include information related to compensation and benefits; recruitment, promotion and dismissal policies; working hours and rest periods; diversity and welfare information.

Environmental protectionThe broad category of environment could include the use of resources, waste and emissions such as greenhouse gases (carbon dioxide, methane); generation and disposal of hazardous materials, water strategy and conservation; minimizing impact on community and surrounding areas. Operating practices

This category includes supply chain management; product quality standards and monitoring; consumer protection, complaint and redress systems; advertising, packaging and labelling practices; data privacy issues, anti-corruption efforts and intellectual property policies.

Community involvementImportant community issues include direct involvement such as local investment; contributions of cash, time, space or labour to community projects covering education, health, culture, sport or other fields; general community engagement; visibility, accessibility and responsiveness to stakeholder concern.

Key performance indicators affecting these four areas could include (1) employee demography and turnover; (2) emissions quantities and mitigation strategies; (3) supply-chain evaluation techniques and customer feedback; (4) community contributions measured by money, time or other involvement.

Source: Hong Kong Exchanges and Clearing

The meaning of environmenTal, social and governance issues

October 2012 21

Making a startHere in Hong Kong, companies generally have a mixed record on sustainability re-porting. But Hong Kong Exchanges and Clearing hopes to change this after publish-ing its environmental, social and gover-nance reporting guide this year. The guide covers four areas – workplace quality, envi-ronmental protection, operating practices and community involvement – as well as general disclosure and key performance in-dicator recommendations.

“Our guidelines are for the ‘everyman company,’ ” says Mark Dickens, head of list-ings at HKEx. “It’s a recommended practice, not best practice,” he adds, saying that the aim is to encourage beginners to make a start, while other companies can apply the higher standards. HKEx encourages issuers with a financial year ending after 31 Decem-ber to implement the rules.

The rationale behind this is to accom-modate the wide divergence in existing be-haviour. Some larger companies have been undertaking increasingly sophisticated sus-tainability reporting for over a decade and even dabbling with integrated reporting, yet there are many – indeed the majority – who have still to get off the starting blocks.

One of the most widely used sets of sus-tainability standards is from the Global Reporting Initiative, an Amsterdam-based non-profit organization that promotes eco-nomic, environmental and social  sustain-ability. The organization offers several guidelines, including a comprehensive re-porting framework for various industries.

Another set of standards is issued by the United Nations Global Compact, headquar-tered in New York, which held its China-Ja-pan-Korea roundtable in Seoul last month to discuss value chain management in the con-text of sustainable development.

The Asia Pacific tends to be behind the curve in sustainability reporting, though re-quirements in Hong Kong are expected to be stiffer within a few years. For example, the HKEx guide is only a recommended prac-tice now, but by 2015 the intent is to develop it into “comply or explain” requirements. “This means you have to say why you are not doing it,” says Dickens. “Peer group pressure can be very powerful in relation to the cor-porate governance code.”

Hugh Gozzard, an enterprise risk services principal at Deloitte Touche Tohmatsu and

an Institute member, agrees with Dickens that peer pressure is important. “If you  do not take up environmental, social and gov-ernance reporting, then you are going to look  progressively  worse  as more of your peers adopt it.”

Some Institute members question wheth-er HKEx could do more to get locally listed companies to change their reporting prac-tices. “It is very mild,” Wong at The General Fiduciary Co. says of the exchange’s require-ments. “[They are saying] we encourage you to do it, meaning… you can if you want to.”

The Institute supports the HKEx efforts. “Hong Kong needs to step up to prove it has the same commitment to sustainability as its

competitors,” says Chris Joy, the Institute’s executive director. “We are very pleased the exchange took this initiative.”

Joy points out that many areas come under the sustainability umbrella such as environmental, social and governance; cor-porate social responsibility; and integrated reporting. Whatever the terminology used, he adds, the starting point is to get manage-ment to understand the business benefits. “It is not an easy first step. You need to structure your business models around sustainability.”

Arguably, local companies are only tak-ing their lead – or lack of – from the Hong Kong government, which has a history of dragging its feet when it comes to legislat-ing good corporate behaviour. For instance, Hong Kong has for years remained one of the few international jurisdictions without a competition law, although one is due to be effective from next year.

“There is very little appreciation of sus-tainability and generally less public pressure to act, even though it’s happening all over the world,” says Wong. “When it comes to pollution most people just hold their noses,” he adds. “People are more worried about paying more for the buses.”

Potential confusionOne hurdle to moving ahead is the consider-able knowledge gap over what to measure and report. Experts say there is often confu-sion over what should be included.

A distinguishing feature of sustainability is it must be an activity that is directly relat-ed to reducing risk. “It has to be seen as part of the strategy of the business where you identify value and not just public relations,” says Gozzard. “If it isn’t, the danger is it can be seen as green-washing or propaganda.”

Jeanne Ng, director of environmental af-fairs at CLP, says there has to be a business case for acts of sustainability. “It is not just to make us feel good.” She distinguishes sustainability acts from corporate philan-thropy, which is an act of doing good where nothing is expected in return. “If we are, say, building hospitals, it is because we are look-ing at managing our commercial and social risks.” To CLP, building a hospital counts as sustainability rather than philanthropy be-cause it reduces social risks by developing a strong link with the community.

Sustainability is still an area of consid-erable experimentation, competing stan-dards and varying degrees of sophistica-tion. Yet the advice is that getting started is important. “HKEx recognizes that small companies have limited resources and are usually stretched at senior management lev-els, which is why we have given them three years,” says Dickens. “They can also pick and mix on indicators, while at the same time we are providing seminars and training to get them up the learning curve.”

The implementation of environmental, social and governance reporting should not daunt companies, experts say. According to Gozzard, the key is to get buy-in from man-agement, who need to see the long-term val-ue. Benefits include not just risk reduction, but also attracting better talent, a better im-age, better funding and a more favourable relationship with suppliers.

In the decade since CLP began working on sustainability it has become much more

Some larger companies have been undertaking increasingly sophisticated sustainability reporting for over a decade... yet there are many who have still to get off the starting blocks.

systematic, says Ng. “We have built up a sys-tem for reporting environmental, social and governance data in a more systematic way.”

This, she says, prepared CLP for the next step of integrated reporting, which com-bines a sustainability report and annual re-port, leading to new challenges.

“You have to find key performance indi-cators that are not only material but robust enough to go in the annual report. For sus-tainability data to be included in the annual report, [it] will need to go through the audit committee before ultimately being signed off by senior management.”

The worry for many, however, is that envi-ronmental, social and governance reporting sounds as if it adds another burden to time-pressed companies. In the profession, there is also a wider debate about whether improv-ing the quality of general financial reporting is a more pressing need.

A further complaint is that companies are too busy focusing on survival, or simply keeping up with recently introduced accel-erated reporting schedules required by the exchange, to worry about environmental, social and governance reporting.

This is a misunderstanding, says Paul Druckman, chief executive officer of the In-ternational Integrated Reporting Council, a global body that encourages companies to integrate strategy, governance, environ-mental and economic context into financial reports.

Druckman says the aim is that rather than being primarily an exercise in compliance, an integrated report should be the real com-pany story, including not just sustainability but also other factors such as intellectual as-sets and human capital.

“While environmental, social and gov-ernance reporting is additional disclosure,

integrated reporting is an evolution not an addition,” says Druckman, who will be a keynote speaker at the Institute’s conference on 27 October, which will focus on both sus-tainability and the future of the profession.

One encouraging sign is that more com-panies see the value of obtaining a high rank on indices that measure environmental, social and governance reporting. These in-clude the HSI sustainability index in Hong Kong, which is provided by RepuTex, an ad-visory firm that specializes in sustainability risk analysis and rates 636 Hong Kong and mainland-listed companies.

The biggest question, perhaps, is whether companies will get rewarded for their extra reporting efforts. Dickens says this type of reporting is becoming more important to in-vestors. “It is not of course as important as a profit warning but it will affect confidence in companies and in the market.”

The aim is that rather than being primarily an exercise in compliance, an integrated report should be the real company story.

October 2012 23

24 October 2012

Tang Nai Hoi, chief financial officer IBM China and Hong Kong

Success ingredient

F or Tang Nai Hoi, a career at IBM has involved a lot of adapta-tion. Just as the hardware technology pi-oneer evolved

into a software and services company, Tang has seen his role change with the times.

“IBM is a company with a lot of reflec-tions,” says Tang, chief financial officer of IBM China and Hong Kong Limited and a member of the Hong Kong Institute of CPAs. “It always goes through self-diagnostics to find out what and how it can do better.”

Tang, known widely as NH, has helped to guide some of the transformations at IBM during his 27 years at the company. He views his role as much a troubleshooter as an ac-countant.

“I think an accountant is just like a detec-tive,” he muses. “You find out what’s going on, how it happened, why it happened and whether there is any way to resolve it.”

When Tang joined IBM in 1985, it was at the forefront of computing. The IBM Person-al Computer was just four years old and was the company’s first significant collaboration with a growing chipmaker called Intel and an emerging operating system program-ming company named Microsoft.

Fast forward to less than a decade later, however, and IBM – nicknamed Big Blue – was confronting strategic challenges. It had grown vast but slow and was seeing its nim-bler competitors grab market share. From 1993, the company shed tens of thousands of employees and consolidated its structure, a project that involved Tang’s expertise.

“[In the] 1990s, we underwent transfor-mation across many different areas,” Tang recalls. He remembers when each of the IBM business locations – there are about 150 now – had its own data centre. By 1994, there were just two locations across the Asia Pacific – Australia and Japan – chosen for their political and social stability. “We made major savings from that,” says Tang. In 1999, when Tang was working in Tokyo, the Japa-nese data centre was merged into the one in Australia; this time for geological stability.

Tang also helped oversee a consolidation of accounting processes in the Asia Pacific.

“[Ledger] accounting moved from Hong Kong to Australia, while employee account-ing moved to our Beijing centre,” he recalls.

Another centre in the United States han-dles inter-company and tax-related matters, and there’s a fixed asset accounting centre in Eastern Europe. “I work with our people from a lot of different places,” he says. “I know their emails and we talk but I never see them,” he adds, referring to his colleagues around the globe. “I often just know their Facebook pictures.”

Big Blue rebornThroughout the 1990s, when the hardware sector became increasingly com-petitive and less lucrative, IBM changed its business model to focus on growth businesses such as services and software. “IBM very ac-tively transformed itself to make sure we are more effi-cient, more productive and can respond much faster,” says Tang.

In 2002, IBM purchased PricewaterhouseCoopers’ management consulting and technology services arm for roughly US$3.5 billion in cash and stock to expand the scope of its of-ferings. Large accounting firms were pressured to spin off their consulting busi-nesses following the col-lapse of Enron and Arthur Andersen and the enact-ment of the Sarbanes-Oxley Act in the United States. Two years later, IBM sold its PC hardware division to Lenovo, the China-based computer firm.

“Both moves were part of our strategy to move to the high value segment of the market,” recalls Tang.

“The acquisition of PwC Consulting strengthened our consulting practice and ability to offer high value integrated solu-tions to our clients. With the divestiture of our PC business to Lenovo, we also formed

a partnership with Lenovo and we’ve been benefitting from services and financing business through the relationship.”

At the turn of the millennium, high pro-file corporate scandals such as Enron put internal control in the spotlight. True to a computer company’s ethos, IBM reviewed theirs in a systematic way. “We started a new process called ‘control closing’ after Sarbanes-Oxley was passed in the U.S.,” re-members Tang. “We review all the financial

and operational processes, track samples of everything we do and see how many defects we have. When we have a defect we have to understand why and how it happened and how to fix it.”

October 2012 25

Tang Nai Hoi, CFO of IBM China and Hong Kong, tells George W. Russell how he used his accounting and business skills to help his company keep up with three decades of blistering change in the IT world

Photography by Samantha Sin

TRUE BLUE

???????????

26 October 2012

The result, he says, is that process de-fects – that is, defects caused by the inher-ent design of the process – are minimized to maybe one each year. “We see more human defects,” he acknowledges. “We have to keep repeating training and communication.”

More recently, the 2008 financial crisis has forced IBM to implement better due dili-gence after a significant client was toppled. “Since Lehman Brothers, we don’t assume all our clients are okay by default,” Tang says. “We go through all the necessary credit checks. Everyone has to start from zero.”

Having sold off much of its hardware

business and with the focus now very much on cloud computing, IBM’s presence has be-come harder to fathom. Tang does seem to miss some of the gadgetry of the old IBM he knew when he joined. “It’s more difficult to show you our products, because a lot of our products are not hardware,” he concedes.

Nevertheless, after a quick rummage through drawers, Tang shows how IBM is still very much involved in developing much of the IT we use today. Placing a 2002 Fujitsu Lifebook tablet computer next to the lat-est smartphones, he says, “It doesn’t matter what the front end is; the back end is still our

services and products,” pressing a few but-tons to launch IBM software.

Logical choiceFortunately for Tang, the prospect of change was why he joined the company. The Hong Kong Baptist University graduate was com-pleting a master’s degree in business admin-istration at the University of Texas at Aus-tin – an institution proud of a long history of collaboration with IBM – when recruiters told him the company’s Hong Kong office was looking for staff.

Tang, a keen mathematics student and

Success ingredient

October 2012 27

A PLUS

“China, the growth engine of the global economy, has huge market potential. In addition, China offers a huge pool of talent for our delivery as well as for driving innovation. We currently have four global delivery centres in China, and we plan to make China our global innovation hub.”

chess aficionado, signed up. “The interest-ing thing was that there were a lot of job roles and job rotation for six months or even up to two years,” he recalls. “I rotated between employee accounting, ledger accounting, tax accounting… I think I held nearly every accounting position.

“Then I transferred to what we call our pricing unit,” he adds. The pricing unit is responsible for handling all the company’s pricing programmes with its customers. Later on, Tang worked in business planning, financial planning and consolidation. Af-ter two years in Tokyo at IBM’s Asia Pacific

headquarters, Tang was assigned to head the China group in Beijing.

IBM entered the Hong Kong market in 1957. It opened its first China office in the 1930s but was absent from the mainland be-tween 1949 and 1979 as China went through political and economic upheaval.

Today, IBM’s China strategy is going full steam ahead. “Both China and Hong Kong are very interesting parts [of the world] for us,” says Tang.

“China, the growth engine of the global economy, has huge market potential. In ad-dition, China offers a huge pool of talent for

our delivery as well as for driving innova-tion. We currently have four global delivery centres in China, and we plan to make China our global innovation hub.

“In terms of talent, Hong Kong also has a special role to play,” adds Tang. “With Hong Kong being an international financial and business centre and a gateway to China, pro-fessionals from Hong Kong have... the capa-bilities to facilitate China enterprises grow-ing globally and multinational corporations expanding into China. We set up one unit of IBM’s China development laboratory in Hong Kong about three years ago.”

October 2012 29

In 2000, Tang was appointed CFO of IBM China and Hong Kong. “I don’t think I’m a traditional CFO anymore… my current role involves many areas,” he says. “My role overlaps operations and how technology af-fects the process controls and efficiencies and costs. I focus on delivering business per-formance.”

With Tang’s involvement, IBM’s China business is going strong, with revenue up 21.6 percent last year from 2010. The com-pany is expanding deeper into the country’s smaller cities such as Zhenjiang in Jiangsu province, where IBM is using hardware, software, services and technologies to mon-itor traffic and bus schedules and create a consolidated view of the city’s transport network.

The project uses business analytics – the practice of methodically exploring an or-ganization’s data to help optimize business processes – for which Tang has high hopes. “One of our [other] clients, a logistics compa-ny, feeds information from handheld [global positioning systems] back to their communi-cations centre, which uses this information to adjust their delivery route on a real-time basis to maximize their efficiency.”

The challenge for IBM, he says, is how to help clients put data to good use. “Our job depends on how creative and how innova-tive we are in using data,” he says. “The more we can think how to use data, the more we can make the tools to use it.”

Basic road rulesTang says he couldn’t have reached his po-sition without his core CPA training and refreshing his knowledge via continuing professional development – skills he likens to having a driving licence. “If you don’t have the basic skills you can’t drive the car,” he says. “I don’t expect everyone to be a race-car driver, but if you don’t have basic train-ing it will not be safe for the driver or anyone else on the road.”

Tang’s respect for a solid foundation is one of the reasons behind his involvement in IBM citizenship initiatives, which include

funding social programmes and having em-ployees active in the community. “I joined our volunteers in community service to visit the Junior Achievement leadership confer-ence programme and met with 20 form four students. Two or three are taking accounting and they are afraid.”

Accounting, Tang explains, is not a sub-ject to be feared by young children. “Even in primary schools, students should be taught how to manage their own cash flow through their pocket money or through their lai see,” he says.

Tang says that corporate accounting is not

what it was. “Sometimes I think that working as a finance professional nowadays is a lot more complicated than 25 years ago. [Back] then it was straightforward: You booked the entries, and you didn’t need to know much about the outside environment.”

That’s changed, says Tang. But that spells exciting opportunities for prospective ac-countants like the fourth form students.

“Now you have to know what’s happen-ing in China, what’s happening in Europe, and how it’s going to affect your clients, how it affects IBM and how it affects what I’m doing here.”

Anti-money laundering

30 October 2012

COMINGCLEAN

A t first glance, HSBC and Stan-dard Chartered appear to have little in com-mon with Boma Amaso, an ille-gal immigrant

languishing in a Hong Kong prison. But the banking giants and the 35-year-old Nigerian man have all been embroiled in the same crime: money laundering.

In July, HSBC was forced to apologize to a Senate panel in the United States for inade-quate compliance with anti-money launder-ing rules. The panel alleged that the bank allowed about US$15 billion to be laundered by drug gangs, terrorists and rogue nations. The bank set aside US$700 million in antici-pation of fines.

A month later, Standard Chartered agreed to pay US$340 million to a New York state regulator to settle allegations that the bank laundered US$250 billion for Iranian

banks in violation of U.S. sanctions.In February, Amaso’s appeal against his

40-month prison sentence was denied. He had earlier been found guilty of laundering

more than HK$2.8 million through Hong Kong bank accounts. Prosecutors said he used forged Ghana and Lesotho passports to open multiple accounts at Public Bank, Citic Ka Wah Bank and Bank of China.

Although the amounts laundered were worlds apart, they highlight the same ques-tion: Are anti-money laundering regulations stringent enough and are financial institu-tions doing enough to comply?

Indeed, accountants say Hong Kong is vulnerable to money launderers. “Hong Kong is an international financial centre with a central geographical location in Asia that is attractive to criminals when they are looking to place, layer and integrate illegal funds,” says Gabriel Wong, specialist advi-sory services principal at BDO in Hong Kong and a member of the Hong Kong Institute of CPAs.

“The problem with Hong Kong basically is that it’s a large cash society,” adds Jim Wardell, executive chairman of Baker Tilly Hong Kong Restructuring and Recovery and an Institute member. “There’s always the possibility of that being utilized for money laundering purposes.”

“Hong Kong has relatively free money flow and no remittance restriction, thus is

Hong Kong has toughened its anti-money laundering legislation. George W. Russell finds out how financial institutions and accountants have reacted to the reformsIllustrations by Harry Harrison

“ Hong Kong has relatively free money flow and no remittance restriction, thus is a convenient place for money laundering activities.”

October 2012 31

a convenient place for money laundering activities,” says Patrick Lo, a partner at RSM Nelson Wheeler and an Institute member.

In the Basel Institute on Governance’s country risk ranking released earlier this year, Hong Kong ranks 86th of 144 coun-tries and territories with a score of 5.51 out of a scale of 10 – a rating of medium risk. (10 being highest risk and the country with the higest risk being ranked number one.) Only two countries are rated low risk: Norway and Estonia. Most developed nations, such as the U.S., are deemed medium risk.

Plugging the loopholesIn Hong Kong, recent scrutiny by the Finan-cial Action Task Force, a Paris-based inter-governmental body established in 1989 that has emerged as the international anti-mon-ey laundering standard-setter, has prompt-ed recent legislative changes.

The task force identified deficiencies in Hong Kong including the lack of several important factors conducive to tackling

money laundering: customer due diligence, statutory backing for record keeping re-quirements, supervisory and enforcement powers for regulatory authorities, super-visory sanctions for non-compliance and a regulatory regime for remittance agents and moneychangers.

As a result, Hong Kong’s Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, which came into ef-fect on 1 April.

The new legislation codifies customer due diligence and record keeping require-

ments; includes supervisory and criminal sanctions for contravention of the ordi-nance; empowers the Hong Kong Monetary Authority, Securities and Futures Commis-sion, Office of the Commissioner of Insur-ance and the Customs and Excise Depart-ment to supervise compliance with the ordinance; and puts in place a licensing re-gime requiring remittance agents to be reg-istered and overseen for the first time.

It also establishes an independent tri-bunal to review decisions related to money service operator licensing and decisions made by authorities to impose supervisory sanctions.

Rob Morris, the managing director of the Hong Kong office of global business con-sultancy AlixPartners and an Institute mem-ber, says the impact of the ordinance will be threefold.

First, he says, “Prior to its enactment, the front line for anti-money laundering controls largely rested with banks. The ordi-nance moves this front line slightly by forc-

Hong Kong ranks 86th of 144 countries and territories – a rating of medium risk.

32 October 2012

Anti-money laundering

ing moneychangers and remittance agents to be licensed entities.”

Second, Morris says the ordinance pro-vides some teeth to existing regulations en-abling criminal sanctions to be imposed on top of administrative penalties.

Third, it provides some additional clarifi-cation on steps regulated entities can take to ensure an adequate compliance programme. “This could include the use of a risk-based ap-proach to determine the level of due diligence needed around a customer,” Morris explains.

The Hong Kong ordinance is now closer to international anti-money laundering standards. “Although U.S. and [the previous] Hong Kong legislation were both enacted to combat terrorist financing, the U.S. legisla-tion was more comprehensive and far reach-ing,” says Sara Nelson, a Miami lawyer who has compared the two regimes. “This moves Hong Kong closer to global standards.”

Another significant change is termi-nology. “The amendment redefines terms

so that the law now relates to ‘property’ in-stead of ‘funds,’ which was an unnecessarily restrictive term,” says Nigel Morris-Cotter-ill, a Kuala Lumpur lawyer who heads the

Anti-Money Laundering Network, a non-profit consultancy that provides training to the financial sector.

“That increases the scope of property that can be frozen, seized and confiscated and the persons whom orders can be made,” he adds. “Basically, the amended ordinance brings Hong Kong into line with the United

Nations standard of phraseology.”Morris-Cotterill adds that the effect of

the changes go beyond mere wording. “Un-derneath, it has an impact on the financial institutions…and puts lending on exactly the same risk management footing as de-posit taking. It’s not just simple lending: it’s leasing, trade finance and all other business areas that might have previously appeared relatively low risk in relation to money laundering.”

Burden of complianceOne significant issue for Hong Kong finan-cial institutions looking to beef up controls is the costs involved. “We see banks having to spend more on anti-money laundering sanctions compliance,” says Paul McShe-affrey, a partner at KPMG and an Institute member, who added that compliance with the U.S. Foreign Account Tax Compliance Act and the Wall Street Reform and Consumer Protection (Dodd-Frank) Act were already

“ The amended ordinance brings Hong Kong into line with the United Nations standard of phraseology.”

October 2012 33

O ne of the reasons why the anti-money laundering spotlight sheds on Hong Kong is the large cross boundary currency flows to and from the mainland.

In 2007, the Financial Action Task Force examined the People’s Bank of China’s anti-money laundering programmes and considered China fully or largely compliant with almost all its recommendations.

However, Institute members say the realities of the mainland financial system tell a different story. “Given exchange controls in the mainland, the amount of funds coming out of China into the Hong Kong economy should be readily identifiable,” says Rob Morris, managing director of AlixPartners and an Institute member. “Practically, however, this is not the case.”

Morris worked as an expert witness on a case in 2008 in which a jury in Las Vegas convicted Xu Chaofan and Xu Guojun of defrauding the Bank of China of US$485 million over 10 years. The two men were sentenced to more than 20 years in prison for laundering the proceeds of their fraud through the United States, Macau, Australia and other countries.

Much of the cash flow between China and Hong Kong occurs

through remittance agents that will now come under greater scrutiny since the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance came into effect on 1 April.

“There are probably more than 1,000 agents now who are actually registered and quite a few of them are quite large organizations,” says Jim Wardell, executive chairman of Baker Tilly Hong Kong Restructuring and Recovery and an Institute member.

But the largest hole in the fence is Macau, given its status as a popular destination for Hong Kong and mainland visitors. “If you look at Europe, if you go into a casino you have to be a member, which means they have details about you, your identity, your photograph,” says Wardell. “In Macau you take your cash and walk in and gamble. There is no effective monitoring.”

The Financial Action Task Force is keen that Macau controls this in a more effective way. Wardell says political will is the main obstacle. “The Macau population is happy with the status quo,” he says. “There’s hardly any unemployment, there’s hardly any taxation. They can build what they need.”

The China connection

affecting bottom lines. A recent KPMG survey noted that Hong

Kong financial institutions have already seen their margins squeezed due to global economic malaise, a cautious investment market and lower trade flows.

“The new legislation imposes a heavy compliance burden on financial institu-tions,” says Barry Tong, a partner at Grant Thornton and an Institute member. “Finan-cial institutions have to ensure that they have enough manpower, resources and systems to meet the anti-money laun-dering requirements of the relevant legislation.”

With their financial acumen, ac-countants have an important role to play. “We have already seen an increase in requests from compa-nies for us to submit proposals to conduct independent reviews of their existing anti-money launder-ing programmes,” says Wong at BDO.

“Professional firms can assist in helping clients un-derstand the requirements under the legislations and the impact to their busi-nesses, advising them on the adequacy of their com-pliance functions and pro-

viding training to the relevant staff,” says Lo at RSM. “As part of our induction train-ing for new staff, we have the Independent Commission Against Corruption to talk about matters including identifying and

reporting on money laundering cases.”

Institute members say it is important for the senior management within companies to understand the latest legislation and regula-tory requirements and make these system-atically work for them. “They can do so by

setting up formal policies and pro-cedures,” says Annie Chan,

managing director of corporate re-

covery and forensics at

October 2012 35

Mazars and an Institute member.Chan says several authorities – the Se-

curities and Futures Commission, the Hong Kong Monetary Authority and the Office of the Commissioner of Insurance – are eager to help companies conform to statutory require-ments and have all issued guidelines.

Wardell at Baker Tilly advises clients to establish strict know-your-customer policies. “We are able to employ the experience gained in carrying out such work to assess the effec-tiveness of businesses’ anti-money launder-ing controls,” he says, adding that his com-pany has been involved in the investigation of financial institutions where anti-money laundering controls were lax.

He says particular scrutiny is applied to parties involved in selling high value items, including financial institutions, jewellers, real estate agents and lawyers handling con-veyancing.

For their part, criminal organizations will continue to find weaknesses in the system.

One emerging trend is the use of Hong Kong bank accounts for collecting and disbursing the proceeds of lottery, advance-fee and other financial fraud, notes Chan.

Cross border transactions remain a vul-

nerability to territories seeking to control money laundering and Hong Kong is no ex-ception. “Without stricter border controls, there is the channel that allows the mainland currency [to flow] into the Hong Kong bank-ing system,” Wardell says, citing it as a signifi-cant inflow of laundered money into the city.

In the Amaso case, it remains unclear who ultimately received the funds sent through the illegal accounts, but international anti-terror-ism agencies were concerned that the transac-tions involved Algeria and Mauritania, two countries in which Islamic militants operate.

Frank Stock, vice president of the Court of Appeal, who presided over Boma Amaso’s unsuccessful bid to reduce his sentence, re-marked that the defendant could consider himself fortunate not to have received a stiffer penalty in his original trial. HSBC and Standard Chartered might well be thinking along similar lines.

“ Without stricter border controls, there is the channel that allows the mainland currency [to flow] into the Hong Kong banking system.”

36 October 2012

After a stressful day at the office, many Institute members go home to spend time with their pets. Jemelyn Yadao examines the allure of animal companions

house that came with a complimentary Rottwei-ler was never Rob Morris’ idea of the perfect family abode.

“Next to the house we were renting was a paddock and inside it was the landlord’s Rottweiler,” says Morris, managing director of the Hong Kong office of global business consultancy AlixPartners and a member of

the Hong Kong Institute of CPAs. “We had two young children so we were a bit uneasy about this.”

After the Morris family moved into their new home in the United Kingdom the Rott-weiler – a breed of dog usually known for its aggressive behaviour – was soon welcomed into the household. The dog, who the family named Cleo, overcame the breed’s negative reputation. So much so that when Morris

Work-life balance

Photography by Assaf de Courcy Arbiser

Creature comforts

October 2012 37

was being posted to the United States, the idea of leaving Cleo with her original, ne-glectful owner was not an option.

“We approached the landlord and said, ‘We’d like to take the dog with us...’ We were quite surprised as he agreed. We took Cleo with us to the States and she came with us to Hong Kong,” explains Morris, who is also honorary treasurer at the So-ciety for the Prevention of Cruelty to Ani-

mals. “She died a very old and happy dog... She was so docile with our children. An ab-solutely perfect dog.”

The heavy workloads demanded of CPAs means that coping with stress is never an easy task. Many turn to their hobbies such as a sport or try to find time for a short vacation. But some CPAs, such as Morris, manage to find a bit of escapism – falling in love along the way – through furrier means: animals.

Puppy loveMorris goes beyond taking care of his two dogs – Piggy, adopted from the SPCA, and Coco, rescued from Lamma Island. For 10 years, he has been involved with the SPCA, where he not only helps keep a grip on the purse strings but also takes an interest in the charity’s on-the-ground work. “We’ve had a couple of very successful cases recently where we’ve shut down illegal dog breeding

Norman Tsui and (from left) Star, Little Pea, Kate Tsui, Ah Si, Cathy Chui and Fei Fei

Work-life balance

38 October 2012

operations in Hong Kong. In the earlier of the two cases we successfully brought prosecu-tions against the people who were involved,” he says.

Operations such as this put a huge strain on the SPCA’s resources, says Morris. In this case, 140 dogs from the breeding farm were not able to find new homes until after legal proceedings were completed. “These animals are evidence in the case against the person who was running the farm,” he says. “We essentially had to look after the dogs ourselves for about nine months.”

To stop noise reaching the ears of neigh-bours, the breeders cut the vocal cords of many dogs so they couldn’t bark. “It’s quite sad,” says Morris.

However, the sorry tale is reaching a happy ending. “Now by and large the dogs are adopted,” says Morris, who even adopt-ed one of the puppies himself. The dog now lives with his daughter in Vancouver.

The SPCA is known for its veterinary ser-vice, adoption centres, dog-training sessions and programmes such as Cat Colony Care, which aims to reduce the number of stray cats in communities by providing free neu-tering surgery. But a large part of what the society does, Morris says, focuses on educa-tion – particularly of children – to encourage responsible pet ownership and respect for animals.

With the SPCA relying almost fully on memberships and donations, Morris ensures the charity steers away from anything that would put their financial security at risk. “I’m a bit like a non-executive director in a corpo-rate sense,” he says. “We have fully capable accounting staff who actually work on a daily basis there, but my job is to oversee that and make sure that we are financially secure.”

The skills Morris developed as a CPA have better equipped him to be the charity’s trea-surer. But it is his sincere interest in some-thing other than numbers that really quali-fies him for the role. “I can ask what I hope are sensible questions, and we can do bud-gets,” Morris says. “But aside from that you also need to have an animal welfare interest,” he says. “It’s been a fantastic opportunity for me to do something which I enjoy and also provide some benefit to the greater society, including the rest of the animal kingdom.”

Six little pigsWhile his colleagues may own dogs, cats and the occasional rabbit, Norman Tsui’s pets set him apart. “They are gentle, they don’t

“ I can ask what I hope are sensible questions, and we can do budgets. But aside from that you also need to have an animal welfare interest.”

Rob Morris andCoco (left) and Piggy

October 2012 39

fight... Generally speaking they are quite nice and adorable,” says Tsui, a director at BDO and an Institute member, about his six long-haired guinea pigs.

Tsui owned guinea pigs as a primary schoolboy, and his love for them was rekin-dled when he stumbled upon a pet shop in Singapore selling guinea pigs “more beauti-ful” than the ones from his childhood. “In Singapore they are more varied. I bought one and my girlfriend – wife now – bought one too. After that we bought another one then another one,” he says.

Tsui’s current herd includes six-year-old Star (the only remaining guinea pig brought over from Singapore), four-year-old Fei Fei, two-year-old Little Pea, two-year-old Ah Si,

one-year-old Cathy Chui and one-year-old Kate Tsui.

When it comes to pet care, Tsui and his wife have a long to-do list. From clean-ing, feeding the guinea pigs and changing the bedding of three cages, to making sure breeding activity is kept to a minimum, they take it in turns to supervise.

Keeping a watchful eye on his pets is as gripping for him as it is beneficial to the crea-tures. “I like feeding them, I don’t see it as a chore or as time consuming,” says Tsui who feeds them every night after work. “When you feed them you’re actually playing with them too. It’s just amazing when you look at them. The way they yawn is quite cute because of their very small mouths. It’s so sweet.”

Tsui’s knowledge of guinea pigs parallels that of an expert’s, but balancing his guinea-pig hobby and work duties didn’t always come so easy. “After moving back to Hong Kong, my wife used to work for an audit firm and both of us had to work quite late. It was quite difficult. There were days when we can only feed them twice a day: early in the morning and late at night.”

That time commitment is now reaping

“ It’s just amazing when you look at them. The way they yawn is quite cute because of their very small mouths. It’s so sweet.”

priceless rewards. “They really make you feel happy especially, say, if there are problems at work,” he says. “You go back, play with them and it makes you feel more relaxed. They’re such calm animals.”

Feline friendsPenny Leung’s pets quite literally walked into her life. On one rainy day in 1995, a pregnant cat walked into Leung’s house in Montreal

“ They welcome me at the front door when I return home. I like the sound they make even when they complain.”

Penny Leung and Digui

40 October 2012

Work life balance

and gave birth to three kittens.“The cats relocated to Hong Kong with me

in 2001. [They have all] passed away apart from Digui, who became a family member from birth,” says Leung, assistant manager at a local trustee service provider and an Insti-tute member.

As well as Digui – the eldest cat at 17 years old – Leung lives with an eight-year-old tab-by called Tsui Tsui and a three-year-old black and white short-haired cat named Milton. Both were rescued from the street. Milton, who is female despite her male moniker, was found when she was two weeks old by a friend who provides animal home-staying services. She has been living with Leung since Christmas 2010. “I will probably adopt her soon,” Leung says.

Leung sees tending to her three cats as a way to escape stress and encourages other CPAs to consider having pets in their house-

hold. “They help me to not think about work-related things instant-ly... They wel-come me at the front door when I return home,” she says. “I like the sound they make even when they complain. I like their soft and warm fur and how they purr when I stay close to them, although Tsui Tsui gives me quite a few scratches once in a while.”

Leung says cats are ideal pets for busy ac-countants like her because of the animal’s self-sufficient nature. “Their independent character suits me a lot. For cats, you just need to give them a clean litter box and food. No need to walk them,” she says.

While Leung has al-

ways loved being around animals, her

previous job working as an accounting officer for an animal welfare charity increased her interest. “It was really fun. There was a vet clinic in the same build-ing so sometimes we would bring pets with us to work,” recalls Leung. “There were also cats and dogs staying in the building. So we could see them walk around everyday. Work-ing for them was meaningful.”

Alfred Chung and his crystal red shrimp

October 2012 41

“ They are very peaceful in the tank. I feel so relaxed when taking care of them after a whole busy day.”

Marine magicWhile Leung says cats are the perfect pet for a busy accountant, Alfred Chung, an auditor at Grant Thornton and an Institute member, thinks otherwise. “With some animals, they require you to take care of them all the time. And I’m very busy all the time especially peak season when I finish around 1:00 a.m.,” says Chung, who has kept crystal red shrimp as pets for about two years.

Of all the shrimp species, crystal red shrimp are known to be the most sensitive to water conditions – a trait that drew Chung into raising them in the first place. “I remem-ber searching information about them on the Internet beforehand. I was attracted to them as this kind of shrimp is very sensitive to the water, [but] they can easily breed,” he says.

Starting with just four, Chung now has 11 crystal shrimp crawling around his tank. He has a separate tank housing 10 cherry shrimp – a variety of freshwater shrimp origi-nating from Taiwan. “I’ve always been fasci-nated with the water, fish and other fresh-

water species. I plan to get more [shrimp], a bigger tank and some mini lobsters,” he says.

“What I like most about crystal shrimp is the fact that every shrimp is unique in that they have different patterns and colours. They will change throughout their life de-pending on how you look after them,” he ex-plains. “For example, the colour of the shell will be less strong if they don’t have enough food. Their colour is a reflection of how much you have cared for them.”

Despite the challenges of taking care of shrimp – including constantly having to monitor the water’s chemical composition – Chung’s aquarium gives him instant access to tranquility. “They are very peaceful in the tank,” he says. “I feel so relaxed when taking care of them after a whole busy day.”

How pets can reduce stress

I t has been long believed that the companionship of a pet can be good for everyone including, of course, Hong Kong Institute of CPAs members who have to cope with their

busy work life. This idea has been fuelled by studies conducted over the

years on the relationship between animals and the well-being of humans.

Last year, Deborah Wells, a psychologist at Queen’s University Belfast, examined the value of pets to human health for The Psychologist, the official monthly publication of the British Psychological Society, as part of her research on the therapeutic benefits of animals.

Wells says that animals have the potential to contribute significantly to our quality of lives and should not be overlooked

as an alternative, or complementary, form of therapy in modern day healthcare practices.

“No one knows the exact mechanism underlying the ability of pets to de-stress their owners, but quite a few studies point to the action of stroking a pet having a calming effect, helping to lower both blood pressure and heart rate,” Wells tells A Plus.

Psychologists say pets make ideal companions for those with demanding jobs who need to wind down. But Wells adds that having an animal in the house can do much more than alleviate stress. “Psychologically, pet ownership can also help to boost self-esteem, feelings of self-worth and decrease loneliness.”

A helping pawResearch has found that in comparison to other pets, dogs can substantially ease the psychological pressures of their owners.

In a study by Colorado State University in the United States, researchers monitored the levels of oxytocin – a hormone with stress-relieving properties that women typically produce in much larger amounts than men – of 20 dog owners after they had spent time with their dogs after work compared with them reading.

Results found that for women, oxytocin increased 58 percent with the dog and only 26 percent with quiet reading. For men, oxytocin dropped 56 percent when reading and only 22 percent after playing with the dog.

Wells agrees that owning a four-legged friend can be just as beneficial as doing a spot of meditation or yoga. “Dogs are probably more capable of boosting their owners well-being than cats, and, in turn, both of these pets are more capable of boosting human well-being than other types of companion animal,” she explains.

With their infectious thirst for going on walks, dogs also help to improve physical fitness, she adds. “[This] indirectly... helps to increase social contacts.”

I n July, the International Accounting Standards Board published for comment a request for information on the effects of implementing

IFRS 8 Operating Segments, with a comment deadline of 16 November 2012.

The request for information is part of the IASB’s post-implementation review of IFRS 8, which was issued in November 2006 and has been effective since 1 January 2009.

IFRS 8 is the first standard to be subject to a post-implementation review since the Trustees of the IFRS Foundation introduced the review process in 2007. The purpose of the post-implementation review is for the IASB to collect feedback on whether IFRS 8 is working as intended, as well as to gather more practical information on the challenges and costs associated with its implementation.

This article is intended to encourage Institute members to participate in the post-implementation review process. It provides a recap of the important requirements of IFRS 8 and some application issues commonly encountered in practice.

IFRS 8 is the same as HKFRS 8 Operating Segments and any reference to IFRS 8 applies equally to HKFRS 8.

Scope of IFRS 8

Segment reporting is not mandatory in all financial statements prepared under IFRSs/HKFRSs.

An entity is required to disclose segment information in accordance with IFRS 8 when (a) it has issued debt or equity instruments that are traded in a public market, or (b) files, or is in the process of filing its financial statements with a securities commission or

other regulatory organization for the purpose of issuing any class of instruments in a public market.

This requirement applies equally to a parent with the same features in its consolidated financial statements.

A public market is any domestic or foreign stock exchange, or an over-the-counter market, including local and regional markets.

Question 1: Entity A is a listed entity in Hong Kong. The management of Entity A believes that disclosing segment information required by IFRS 8 will be seriously prejudicial to the interest of the entity. Can Entity A omit the segment information required by IFRS 8 in its financial statements for that reason?

Answer: No. IFRS 8 does not provide any exemption for entities that fall within the scope of IFRS 8. Therefore, even when the management of Entity A concludes that disclosure of segment information required by IFRS 8 will be seriously prejudicial to its interests, the segment information may not be omitted in the IFRS financial statements.

Two-step approach

IFRS 8 takes the following two-step approach in identifying operating and reportable segments.

Step 1: Identification of the entity’s operating segmentsIFRS 8 adopts a management approach to segment reporting and requires operating segments to be identified and measured on the same basis as how financial information is reported internally for the

purpose of allocating resources between segments and assessing their performance.

Specifically under IFRS 8, an operating segment is a component of an entity: a. that entity engages in business activities

from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity);

b. whose operating results are regularly reviewed by the entity’s chief operating decision-maker who makes decisions about resources allocation and performance assessment; and

c. for which discrete financial information is available for the entity.

The chief operating decision-maker is not necessarily an individual with a specific title, but rather a function that allocates resources and evaluates performance of the operating segments of the entity. Often, the chief operating decision-maker is the highest ranking management at the entity who allocates resources to and assesses the performance of the operating segments of the entity (e.g. the chairman or the executive directors of an entity).

Question 2: Entity A is a pharmaceutical company. A research division has been set up to develop a new drug. Expenses have been incurred for the division but revenues have not been generated. Can that research division be an operating segment?

Answer: Under IFRS 8, an operating segment can be such that it has not yet earned external or internal revenues and the chief operating decision-maker is making decisions and assessing the

IASB starts its post-implementation review of IFRS 8 Operating SegmentsIt is important that members should bring application issues to the Institute’s attention, write William Lim and Candy Fong

IFRS/HKFRS 8

42 October 2012

performance of the segment based solely on expenses. Therefore, the research division can be an operating segment provided that discrete financial information is available and that information is reviewed by the chief operating decision-maker for resources allocation and performance assessment.

Question 3: Entity A has an operating unit that provides content to websites. Entity A derives substantially all its revenue from three service lines — advertising, promotions and customer service. The financial information reviewed by the chief operating decision-maker includes revenue by service lines only. Operating expenses and assets are reported on a combined basis at the entity level. Does each of Entity A’s service lines represent a separate operating segment?

Answer: No. The individual service lines are not separate operating segments. Discrete financial information is not available because there is no measure of segment profit or loss by service lines. However, in another situation where the information provided to the chief operating decision-maker contains revenue and gross profit by service lines, sufficient financial information would be available to enable

the chief operating decision-maker to assess performance and allocate resources, and hence the service lines are considered as separate operating segments.

Under IFRS 8, two or more operating segments can be aggregated into one single operating segment when all of the following aggregation criteria are met: a. The aggregation is consistent with the

core principle of IFRS 8 (i.e. to provide information to enable users of financial statements to evaluate the nature and financial effects of the business activities and the economic environments in which the entity operates);

b. The operating segments have similar economic characteristics; and

c. The segments are similar in each of the following respects: the nature of the products and services, the nature of the production processes, the type or class of customer for their products and services, the methods used to distribute their products and provide their services, and, if applicable, the nature of the regulatory environment.

IFRS 8 does not define the term “similar.” Therefore, the determination as to whether two or more operating segments are similar is dependent on the

individual facts and circumstances and is subject to a high degree of judgment.

Step 2: Identification of the entity’s reportable segmentsOnce the entity’s operating segments have been identified under step 1, the entity should then determine what the reportable segments are for financial reporting purposes.

Under IFRS 8, an operating segment is required to be reported separately when it meets any of the following quantitative thresholds:a. Its reported revenue is 10 percent or

more of the combined revenue of all operating segments, or

b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss, or

c. Its assets are 10 percent or more of the combined assets of all operating segments.

Question 4: Can two operating segments be combined as one reportable segment when they meet the above aggregation criteria but

A PLUS

October 2012 43

William Lim and Candy Fong are HKFRS/IFRS specialist partners from the national technical department of Deloitte Touche Tohmatsu.

fail the above quantitative thresholds? Answer: Paragraph BC30 accompanying IFRS 8 clarifies that the above aggregation criteria take precedence over the above quantitative thresholds. Therefore, if two or more components of a business meet the aggregation criteria, they may be combined as one single operating segment and hence as one reportable segment, notwithstanding that they may individually exceed the quantitative thresholds.

Question 5: Can two operating segments identified under step 1 that do not meet the quantitative thresholds be combined and reported as one reportable segment?

Answer: Yes, provided that the operating segments have similar economic characteristics and share a majority of criterion c of the aggregation criteria set out above.

Moreover, IFRS 8 requires that if the total external revenue reported by operating segments constitutes less than 75 percent of the entity’s revenue, additional operating segments should be identified as reportable segments even if they do not meet the 10 percent quantitative threshold.

Key disclosures under IFRS 8

IFRS 8 requires an entity to report a measure of profit or loss for each reportable segment. In addition, it requires an entity to report a measure of total assets and liabilities for each reportable segment, if such amounts are regularly provided to the chief operating decision-maker.

Various items are also required to be disclosed when they are either included in the measure of segment profit or loss or otherwise regularly provided to the chief operating decision-maker. The measures for segment reporting purposes are the

measures reported to the chief operating decision-maker for resources allocation and performance assessment purposes.

Question 6: Entity A is operationally based in Japan while its shares are listed on the Hong Kong stock exchange and its financial statements are prepared in accordance with IFRSs. For internal reporting purposes, information provided to the chief operating decision-maker is based on Japanese GAAP measures. Is Entity A required to convert the Japanese GAAP measures to IFRS measures for segment reporting purposes?

Answer: No. IFRS 8 requires Entity A to report segment information based on the measures reported to the chief operating decision-maker (i.e. the Japanese GAAP). This is also consistent with the overall management approach set out in IFRS 8. However, Entity A is required to disclose reconciliations from the segment reporting measures to the IFRS financial statements.

Reconciliations

IFRS 8 requires reconciliations to be disclosed between: a. The total of the reportable segments’

revenues and the entity’s revenue.b. The total of the reportable segments’

profit or loss and the entity’s profit or loss before tax.

c. The total of the reportable segments’ assets and the entity’s assets.

d. The total of the reportable segments’ liabilities and the entity’s liabilities.

Items (c) and (d) are required if such amounts are regularly provided to the chief operating decision-maker.

Question 7: Entity A operates two types of stores – clothing and home products, which are considered as two operating segments in accordance with IFRS 8. The

management discussion and analysis included in Entity A’s annual reports discusses the performance of these segments separately. Is it appropriate for Entity A to aggregate the two operating segments as one reportable segment?

Answer: No. It would not be appropriate to do so because it is unlikely that the two operating segments would meet the above aggregation criteria as they are not “similar” on various aspects. Also, the presentation of one reportable segment would not be consistent with the overall management approach required by IFRS 8. Indeed, over the past few years, various regulators have expressed concerns about the inconsistency between the management discussion and analysis and segment information disclosed in the financial statements.

Question 8: IFRS 8 requires entity-wide disclosures, including information about products and services, geographical areas and major customers. Entity A has just one reportable segment. Is Entity A required to make any entity-wide disclosures?

Answer: Yes, Entity A is required to make entity-wide disclosures despite the fact that it has only one reportable segment.

This article details some IFRS 8 application issues commonly encountered in practice. As mentioned, IFRS 8 uses a management approach to identify segments and hence significant judgment may be needed. If you have any application issues on IFRS 8 please do not miss the chance to give comments on the request for information by 16 November 2012.

IFRS/HKFRS 8

44 October 2012

“IFRS 8 uses a management approach to identify segments and hence significant judgment may be needed.”

Financial reporting

HKFRS 10 The new financial reporting standard HKFRS 10 Consolidated Financial Statements is effective for financial years beginning on or after 1 January 2013. HKFRS 10 includes

a new definition of control that determines which entities are

consolidated. HKFRS 10 states that an investor controls an investee if it has power over

the investee; exposure or rights to variable

returns from its in-volvement with the investee; and the ability to use its power over the investee to affect

the amount of the investor’s returns.

HKFRS 10 includes, for the first time, guidance on how these prin-

ciples of control and consolida-

tion apply

to asset managers and others in a fiduciary position. However, this new guidance involves much judgment to apply practically.

The key to the assessment of control for asset managers involves determining whether the manager is acting as agent (that is, on behalf of others) or as principal (that is, for himself) when it makes decisions concerning the entity. If the asset manager is acting as principal, then the asset manager may need to consolidate the fund, even if the asset manager’s interest in that fund is less than 50 percent.

Invitations to comment on consultation documents The Institute issued an invitation to comment on the IFRS Foundation’s Constitution Drafting Review: Separating the Role of the IASB Chair and the Executive Director, with comments requested by 21 September.

The drafting review incorporated changes to the constitution to reflect the separation of the role of chairman of the IASB and chief executive officer of the IFRS Foundation. This change is in line with the conclusions of the monitoring board governance review.

This separation has already been implemented following an internal structural reorganization at the end of 2011. The chair of the IASB no longer serves as the CEO of the IFRS Foundation. Instead, this responsibility has been included in a new role of executive director.

The Institute also sought comment on the International Valuation Standards Council’s discussion paper, The Valuation of Trade Related Property, with comments requested by 17 September.

The IVSC first published Guidance Note 12 The Valuation of Trade Related Property in 2005 and updated it in 2007. In 2009 IVSC commenced its standards improvements proj-

ect, which involved reviewing all previously issued IVSC publications. The IVSC standards board originally proposed to update and replace GN12 with a new standard, IVS 232 Trade Related Property, and an exposure draft was released for public comment in June 2010, along with drafts of all the other standards that the board was proposing to update.

The board did not approve the draft IVS 232 for publication but instead agreed a project to undertake a review of the particular valuation issues raised by trade related prop-erty and to decide the nature and extent of any future pronouncements that IVSC should make in relation to this class of asset. This discussion paper set out a number of issues identified by the board on which respon-dent’s views were invited.

This discussion paper sought to establish whether trade related property represents a distinct asset class that presents unique valuation challenges, whether there are pro-cedures that differ from those in the existing IVSs that should be regarded as mandatory and whether guidance is required on the ap-plication of different valuation approaches to trade related property.

Ethics

Invitation to comment on IESBA exposure draft The Institute has issued an invitation to com-ment on IFAC’s International Ethics Standards Board for Accountants exposure draft, Responding to a Suspected Illegal Act, with comments requested by 31 October.

The explanatory memorandum to the exposure draft provides background on and explanation of the proposed changes to ad-dress the circumstances where a professional accountant in public practice or business shall, or has a right to, override the fundamen-

46 October 2012

119The latest standards and technical developments

TechWatch

tal principle of confidentiality and disclose a suspected illegal act to an appropriate external authority.

The exposure draft proposes adding two new sections addressing illegal acts to the Code of Ethics for Professional Accountants – one each for professional accountants in public practice and professional accountants in business – and several revisions to other related sections. The proposed new sections delineate the expected course of action for a professional accountant to take if those charged with governance do not respond to the issue appropriately.

The IESBA proposes that the effective date for the changes be one year after approval of the final standard. Subject to comments received on the proposed changes, the IESBA intends to finalize the revisions to the code in the second half of 2013.

Professional accountants in business

IIRC releases draft outline of integrated reporting framework The International Integrated Reporting Council has released a draft outline of the integrated reporting framework. The outline establishes for the first time the basic struc-ture of the framework and is intended to keep stakeholders informed as the frame-work is developed.

Corporate finance

Consultation on short trading halts proposal Hong Kong Exchanges and Clearing has released a consultation paper on a proposal to implement short trading halts that would allow listed companies to publish announce-ments with price sensitive information on the HKEx news website during trading hours to enable investors to digest the contents of the announcement. Significant features of the proposed model are set out in chapter four of the consultation paper. The deadline for responses is 8 October.

Consultation conclusions on ESG reporting guideHKEx published consultation conclusions on an environmental, social and governance reporting guide on 31 August. The guide is divided into four areas: workplace quality, environmental protection, operating practices and community involvement. Each of the areas is divided into three sections: aspects,

October 2012 47

Please refer to the full version of TechWatch 119, available as a PDF on the Institute’s website: www.hkicpa.org.hk

A PLUS

general disclosure recommendations and key performance indicators.

Given that respondents welcomed the proposed introduction of the guide, HKEx has decided to implement the guide, with amend-ments based on respondents’ comments. The guide will be a recommended practice appended to the listing rules. It will apply to listed companies with a financial year-end after 31 December.

Subject to further consultation, HKEx plans to raise the obligation level of some recommended disclosures in the guide to “comply or explain” by 2015.

Restructuring and insolvency

Official Receiver’s Office Panel A scheme rules updatedThe Official Receiver’s Office published a set of new Panel A scheme rules on 23 August.

The Panel A scheme was set up by the office in 1996, with support from the Institute, to outsource non-summary winding-up cases with estimated realizable assets exceeding HK$200,000.

Since the Panel A scheme was estab-lished, the opportunities for practitioners to gain experience in the insolvency field have increased significantly. Also, a tender scheme for small insolvency cases with esti-mated realizable assets not likely to exceed HK$200,000 has been introduced.

In the light of these developments, a review of the Panel A scheme rules was conducted and changes to the rules have been made. The changes include strengthen-ing the requirements for applying to join the Panel A scheme by stipulating a higher level of experience and resources than those under the tender scheme for small insolvency cases.

The office invited feedback from the Institute’s restructuring and insolvency faculty executive committee on the draft revisions to the rules. The revised rules have taken on board many of the comments made by the committee.

Protection of Wages on Insolvency Fund expansion of scope The Protection of Wages on Insolvency (Amendment) Ordinance came into effect on 29 June. As a result, the Protection of Wages on Insolvency Fund has been broadened to cover pay for untaken annual leave and untaken statutory holidays for employment contracts terminated on or after 29 June.

Taxation

Advance ruling on the taxability of interest income The Inland Revenue Department has pub-lished an advance ruling relating to Sections 14 and 15(1)(f) of the Inland Revenue Ordinance. The taxpayer in the case was incorporated in Hong Kong and is a member of a group with overseas headquarters. Pursuant to the group’s arrangement, the taxpayer will place its sur-plus funds with its overseas fellow subsidiary.

The funds will be remitted by direct wire transfer from the taxpayer’s bank account in Hong Kong to the subsidiary’s overseas bank account. Thereafter, interest income will be derived by the taxpayer. The IRD ruled that the interest income is not taxable, as the above sections are not satisfied.

The proposals only address suspected illegal acts because whether an act is illegal or not is ultimately a

matter determined by a court of law. Illegal acts are defined as acts, omissions to act or a commission, whether intentional or unintentional, committed by a client, by those charged with governance or by management or employees of a client that are contrary to laws and regulations. Personal misconduct unrelated to the business activities of the entity is excluded.

The propos-als would require a professional accountant, when encountering a suspected illegal act, to take reasonable steps to confirm or dispel the suspicion and to discuss the matter with the appropriate level of management. If the response of those with whom the matter has been discussed is considered to be inappropriate, the accountant shall escalate the matter to appropriately higher levels of management and those charged with governance.

In the case of a suspected illegal act at a subsidiary level in a group of companies, this escalation would normally reach parent

level as the management at the parent level is responsible for governance in subsidiaries. If this response is not appropriate and, as judged by the accountant, the suspected ille-gal act is of such consequence that disclosure would be in the public interest, the following

would be necessary: • An accountant providing

professional services to an audit client would be required to disclose certain

illegal acts to an appropriate authority; • An accountant

providing non-audit services

to a client that is not an audit client or a professional

accountant in business would be

required to disclose the matter to the entity’s external auditor and, in certain circumstances, the accountant would have a right to disclose certain illegal acts to an

appropriate authority and would be expected to exercise that right.

The proposals would also require an accountant to consider any ap-plicable legal or regulatory requirements and to comply with those requirements. It also requires the accountant to consider

whether it is appropriate to terminate the pro-fessional relationship with the client or resign from the employing organization. However,

termination or resignation are not substitutes for disclosure to an appropriate authority.

Having said that, the proposals provide that in exceptional circumstances the ac-countant would not be required to disclose the matter or be expected to exercise any right to do so. In some exceptional cases, a reasonable and informed third party would conclude the consequences of disclosure are so severe as to justify non-disclosure. An ex-ample would be threats to the physical safety of the accountant or others. Circumstances of a commercial nature, such as the loss of a client or income, would not constitute exceptional circumstances.

The proposals would require docu-mentation of the steps the accountant took to respond to suspected illegal acts. The documentation shall include the persons consulted, responses received and dis-closure, if any, made to an appropriate authority. The International Ethics Standards Board for Accountants considered whether there should be a materiality threshold for such documentation and concluded that this would not be appropriate.

The Institute’s ethics committee is deliber-ating on the proposals and will be preparing a submission. The IESBA proposals are likely to be controversial. The Institute welcomes comments on all matters addressed in the exposure draft. Please provide your com-ments to Simon Riley, director of standard setting, by 31 October.

Tech Q&AThe Institute has recently issued an invitation to comment on the IESBA exposure draft Responding to a Suspected Illegal Act. Could you provide details of the proposed requirements?

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

October 2012 49

Careers

Chan Ka-hoDirector, tax Chan has more than 10 years of experience in handling compli-ance and advisory taxation is-

sues in Hong Kong and the Asia Pacific. He has experience in negotiation and settlement with tax authorities on corporate and individual tax disputes, as well as tax due diligence reviews for mergers and acquisitions.

Kenny WongDirector, corporate advisoryWong has more than 14 years of accounting and commercial experience and specializes in

corporate insolvency. He has extensive expe-rience in cross border assignments, receiver-ships, bankruptcy and forensic accounting investigations.

Johnathan LaiDirector, corporate advisory Lai has more than a decade of ex-perience in corporate advisory. His focus has primarily been in

forensic accounting and litigation support. He also has considerable experience in corporate insolvency, restructuring, bankruptcy as well as digital forensics and e-discovery.

Nobukazu HaradaDirector, Japanese practiceHarada has more than 10 years of experience in serving Japanese companies in Hong

Kong and China. His expertise covers incor-porations, audit, accounting, taxation, work visa applications, due diligence, internal control, mergers and acquisitions and busi-ness consulting.

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

industries and providing training and technical support on accounting and auditing matters.

Phil GoughExecutive director, financial servicesGough specializes in advising clients on finance function trans-

formation. He has 23 years of financial services experience covering banking and insurance with 18 years in finance.

Alan LeeExecutive director, advisoryLee has extensive experience in advising clients on information security, business process level

controls, project governance and regulatory compliance in various types of IT projects. He also assists organizations in implement-ing programmes to improve personal data privacy.

Alex GrellActing head, business developmentGrell has more than 17 years of professional services business

development experience. He was previously based in Ernst & Young’s Sydney office for 18 months. Prior to joining E&Y, Grell helped es-tablish the Australian subsidiary office for a prominent global consultancy.

RSM Nelson Wheeler

Sandra ToPrincipal, audit and assuranceTo has extensive experience in providing audit and assurance services for listed and private

companies. To also has experience in initial public offerings and mergers and acquisi-tions in Hong Kong and Singapore.

BDO

Gabriel WongPrincipal, specialist advisoryWong has in-depth experience advising clients on regulatory investigations, fraud investiga-

tions, breach of contract and dispute resolu-tion and anti-bribery and corruption. He also has experience working in a regulatory author-ity enforcement division.

Ernst & Young

Arthur Tam Executive director, professional practiceTam joined Ernst & Young in 1994 and has extensive expe-

rience in auditing, risk assessment, quality assurance and managing assurance technol-ogy across the Asia Pacific.

Mimosa ChanExecutive director, professional practiceChan has experience in account-ing and auditing, providing train-

ing and technical support both locally and across the Asia Pacific. She specializes in finan-cial instruments and fair value measurement.

Napson Hon Executive director, financial servicesHon has extensive experience in providing tax services to financial

services organizations, including banking, capi-tal market, insurance and asset management companies.

Andy NgExecutive director, professional practice Ng is experienced in auditing list-ed and private clients in various

People on the moveThe latest professional appointments from around the region

50 October 2012

Your guide to courses, workshops and member activitiesEvents

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

Auditing and assurance

Accountants’ professional liability seminar will provide a refresher on accountants’ liability, covering the risks and appropriate risk management measures.CPD hours: 1.5Language: EnglishDate: 8 OctoberTime: 6:30 - 8:00 p.m.

Review of valuation by auditors

will teach you how to perform valuation reviews and fair value measurements during the course of an audit.CPD hours: 1.5Language: EnglishDate: 11 OctoberTime: 6:30 - 8:00 p.m.

Annual auditing update 2012 – developments in the auditing profession will cover various topics of interest to auditors and will include a discussion panel sharing experiences on auditing Chinese enterprises.CPD hours: 3.5Language: EnglishDate: 13 OctoberTime: 9:00 a.m. - 1:00 p.m.

CPD knowledge

Briefing session on CPD requirements is a free seminar providing an opportunity for members to understand the Institute’s CPD requirements and learning initiatives.CPD hour: 1Language: CantoneseDate: 9 OctoberTime: 12:30 - 1:30 p.m.

General business and professional knowledge

Challenges for Chinese SEC registrants will help Chinese companies listed in the United States understand their options in light of increased scrutiny following accounting scandals involving mainland companies. CPD hours: 1.5Language: EnglishDate: 10 OctoberTime: 6:30 - 8:00 p.m.

Financial services interest group lunch seminar will address issues surrounding the international debt crisis and its effects on emerging markets, the economy and different classes of assets.CPD hour: 1Language: EnglishDate: 15 OctoberTime: 1:00 - 2:00 p.m.

Accounts receivable management for export businesses will discuss the elements of good accounts receivable management and highlight export credit risks in the market.CPD hours: 1.5Language: EnglishDate: 17 OctoberTime: 6:30 - 8:00 p.m.

The art and science of knowing people in professional business will explain ways to define your own character and adapt to the people you interact with. CPD hours: 3Language: EnglishDate: 30 OctoberTime: 7:00 - 10:00 p.m.

October 2012 51

Leadership and business strategy 360° goal setting is a half-day workshop where participants will learn how to efficiently empower and support their staff by working with them to set up specific goals.CPD hours: 3.5Language: CantoneseDate: 6 OctoberTime: 9:30 a.m. - 1:00 p.m.

How to lead difficult dialogues with your clients, partners and staff will demonstrate why dialogue leadership is important to building a successful practice.CPD hours: 3Language: EnglishDate: 19 OctoberTime: 6:30 - 9:30 p.m.

56 October 2012

T o experience Rome is not only to take in its incredible history or exceptional architecture. Look beyond the obvious places to visit,

such as the Sistine Chapel, the Colosseum and the Pantheon, and you will discover Rome’s real charm on its cobbled streets, down wrong turns and through hidden finds.

Those overly focused on mounting a cultural assault on Rome may miss out on many aspects of the city’s atmosphere, peo-ple and food.

To take it all in, the best way to travel is by foot. Stroll from piazza to piazza – Rome’s squares are part of its glory. Among the most

celebrated are the Piazza di Spagna and Pi-azza Trinità dei Monti. They are separated by the steep Scalinata della Trinità dei Monti, better known in English as the Spanish Steps.

The neoclassical Piazza del Popolo and the Piazza di Trevi – site of the celebrated foun-tain – are also must-see attractions. Another famous square, Campo de’ Fiori, was the cen-tre of medieval Rome and a former execution ground that now hosts markets, shops and his-toric monuments.

The Italian capital is a shoppers’ para-dise, though you can expect to pay big bucks in the high-end shopping streets such as Via Corso and Via Condotti. Via Vittorio Veneto is

perhaps Rome’s most famous street, immor-talized in the 1960 Federico Fellini film La Dolce Vita and home to the Café de Paris and Harry’s Bar. For a less touristy, but equally chic shopping experience, venture to Via del Governo Vecchio for luxury and unique finds.

The Tevere – the ancient Tiber – winds its way through the heart of the city and is crossed by numerous ponti, or bridges. One of them, Ponte Sisto, leads to southern Rome and offers picturesque views of the city, with the Janiculum – the Gianicolo, second tallest of Rome’s fabled seven hills – peaking to the west and St. Peter’s Basilica rising from the skyline to the north.

Romantic Rome

Institute member and CFO of Travelzoo Asia Pacific Honnus Cheung savours la dolce vita among the treasures of the Italian capital

Business travel

Where to eat• Al Ceppo Restaurant Traditional food in

the Parioli neighbourhood. Via Panama 2. 8530-1370.

• Capo Boi Fresh, delicious seafood. Via Arno 80. 841-5535.

• Da Francesco Good local cuisine in al fresco surroundings. Piazza del Fico 29. 686-4009.

• Hostaria da Nerone Home-cooked Roman food near the Colosseum. Via delle Terme di Tito 96. 474-5207.

Where to stay• Ambasciatori Palace Luxury on one

of the world’s most famous avenues. Via Vittorio Veneto 62. 474-2044.

• Casa Il Rosario This Dominican convent accepts tourists as well as pilgrims. Via di Sant'Agata dei Goti 10. 679-2346.

• Hotel delle Nazioni Roma Elegant choice for any type of stay. Via Poli 6. 679-2441.

• Hotel Eden Romantic allure in the heart of the Eternal City. Via Ludovisi 49. 478-121.

• Hotel Napoleon Charming, quiet and family run. Piazza Vittorio Emanuele II 105. 446-7264.

• Pyramid Hotel Comfort for the budget-conscious traveller. Via dei Magazzini Generali 4. 578-0009.

What to see • Auditorium Parco della Musica

The city's modern arts complex.Viale Pietro de Coubertin 30. 8024-1281.

• Baths of Caracalla The monumental ruins of public baths used between the second and sixth centuries. Via delle Terme di Caracalla 52. 3996-7700.

• Colosseum The stunning ruin of the 1st century Flavian Amphitheatre is a Roman treasure. Piazza del Colosseo 1. 3996-7700

• Musei Capitolini Art and archaeology exhibits focusing on the city. Piazza del Campidoglio 1. 060-608.

• Teatro dell’Opera di Roma The capital's ornate landmark concert hall. Piazza Beniamino Gigli 7. 481-601.

October 2012 57

Previous page: St. Peter’s Square and St. Peter’s BasilicaThis page (from top): The Colosseum; the Pantheon; the Piazza di Trevi; the Scalinata della Trinità dei Monti (Spanish Steps)

Business travel

St. Peter’s is situated in the Vatican, home of the pope, leader of the Roman Catholic Church, and is the world’s smallest indepen-dent state. Its fewer than 800 residents live in an area of less than half a square kilometre – around the size of Tiananmen Square.

If you want a chance to see the pope in per-son, he addresses the public on Wednesday mornings, when he speaks from his window overlooking the Piazza di San Pietro (St. Peter's Square). Tickets are required and expect the square to be heaving with the faithful, as well as many visitors, seeking a glimpse of Pope Benedict XVI, the incumbent.

After, you can visit the Vatican Museums, which include the Pinacoteca Vaticana, the Collection of Modern Religious Art and several sculpture museums. The nearby Sistine Cha-pel features nine paintings by Michelangelo as well as his masterpiece, “The Last Judgment,” above the altar and works by Raphael, Ghirlan-daio, Botticelli and other masters.

Rome, of course, has an abundance of mu-seums and galleries. The Galleria Borghese is worth a visit as much for its settings as for its contents. The 17th century villa houses a glo-rious collection of Renaissance art as well as a large assemblage of Bernini sculptures.

For fans of performing arts, October marks the traditional start of the opera and con-cert season. The 19th century landmark Teatro dell’Opera di Roma presents Amilcare Pon-chielli’s La Gioconda, featuring the American soprano Jennifer Wilson, premiering on 23 Oc-tober. The Auditorium Parco della Musica, de-signed by Renzo Piano, offers a packed sched-ule of concerts and shows.

Rome does not have the drinking culture associated with northern European cities, al-though wine bars are now common and gas-tropubs are gaining in popularity. A campari and soda in Piazza Navona – which was built as a sports arena 2,000 years ago – might set you back a small fortune but the people-watching is unparalleled. Don’t forget to have a tartufo, a chocolate ice-cream treat, at Tre Scalini.

Most Hong Kong visitors are familiar with Italian food, one of the most globally travelled cuisines. Roman specialities include the well-known spaghetti alla carbonara and bucatini all’amatriciana as well as more exotic tripe, pork and rabbit dishes.

PHOTO

: GEO

RGE W

. RUSSELLAFP

58 October 2012

Beyond port and plonk

There’s more to Portuguese wine than meets the palate,George W. Russell reports

P ortugal’s vineyards have long lived in the shadow of their coun-terparts in France and Spain. The

country is far better known for its Port and Madeira than table wines.

Even in Hong Kong, Portuguese wines are more closely identified with trips to Macau, where they are more widely con-sumed and better appreciated. Indeed, some major resorts such as the MGM Grand devote more than one-third of their wine lists to wine from Portugal.

To be sure, the best known wines from Portugal found in Macau are the crisp, green, low-alcohol Vinho Verde styles often associated with quaffing on a summer afternoon. But as the days cool, it’s worth taking a look at some more robust vintages.

The international appeal of Portugal’s wines hasn’t been helped by the fact that 90 percent of the country’s wines are pro-duced using Portugal’s 200-plus indige-nous grape varieties such as Touriga Nacio-nal, Baga and Rabo de Ovelha. Others are referred to by their Portuguese names, such as Aragonês, known elsewhere as Tempranillo.

For oenological purposes, Portugal is divided roughly into three clusters: north-ern Portugal, central Portugal and south-ern Portugal. Northern Portugal includes the Douro and Dão regions where much of the country’s finest reds come from.

The valley of the Douro – difficult ter-rain that 17th century winemakers had to create into terraces – is known for its rich red wines. Touriga Nacional is the princi-pal grape variety grown in the Douro. The valley’s hot, dry climate produces dark, aro-matic wines similar to full-bodied Cabernet Sauvignon.

One excellent Douro available here in Hong Kong is the Quinta do Vallado 2007

After hours

(HK$220, Fairmont Fine Wines, Wanchai). It delivers concentrated fruits such as plums and cherries.

Central Portugal is the least well-known when it comes to wine production. Very little good wine is produced around Lisbon and vintages from the Carcavelos, Colares, Bucelas and Setúbal areas are rarely seen outside Portugal. However, the centre of the country does contain the Ribatejo and Estremadura regions, where many fine wines are produced.

Ribatejo wines are rarely found in Hong Kong but one worthwhile purchase is the Conde Vimioso Tejo 2009 (HK$78, Wat-son’s Wine Cellar, Central). This blend of Touriga Nacional, Aragonês and Cabernet Sauvignon has red fruit, almost jam, notes.

Southern Portugal includes the Algarve, the enclave of second homes for British emigrants that unsurprisingly produces poor wine, but also Alentejo, an important grape-growing region and another signifi-cant contributor of Portuguese wines to Hong Kong.

Fine Alentejo reds include the Cortes de Cima 2007 Touriga Nacional (HK$495 Grand Wine Cellar, Sheung Wan) with its complex blueberry-blackberry aroma, notes of leather and firm tannin structure.

A more economical alternative is the Quinta do Carmo 2007 (HK$235, Rare and Fine Wines, Sheung Wan), another rich, fruity vintage ideal for accompanying

autumnal meat and game dishes.Portuguese whites shouldn’t be ignored.

And there’s absolutely nothing wrong with quaffing a sharp, raw Vinho Verde on those last heady days of summer heat.

In terms of value for quaff, you can’t go past that staple of picnic baskets and Outly-ing Island seafood restaurants, Aveleda’s famous Casal Garcia Vinho Verde Branco (HK$58, Lam Hoi Kee, Yung Shue Wan). Made from Loureiro, Trajadura, Arinto and Azal grapes, it’s crisp and refreshing with sustained citrus notes.

For a slightly more upmarket experi-ence, try the Quinta de Gomariz Loureiro 2010 (HK$150, Ample Vision Wines, Kwun Tong). On its own, the Loureiro grape tastes like something between a Sauvignon Blanc and a Viognier. It has a touch of sweetness but still has that summery, spritzy appeal.

The Douro valley also produces some fine whites, such as the Altano Branco Douro 2010 (HK$98, Watson’s Wine Cel-lar, Central) made by Symington Family Estates. This has fruity notes at the apricot and pineapple end of the spectrum, with a pleasing citrus acidity.

The nearby Dão region is better known for its reds, but also produces interesting white wines such as the Quinta das Maias 2007 (HK$180, Chateau Lamma, Yung Shue Wan). An ideal seafood accompani-ment, this has a pleasing sweetness with fetching hints of sea salt.

Terraced vineyards have covered the schist slopes of the Douro Valley in northern Portugal since the 17th century.

AFP

October 2012 59

Timeless magic

Vintage watches never go out of style, writes Akua Achampong

Af

mechanical watch in the world. The mechanical manual winding move-ment is based on the thinnest watch movement ever made, the 1.64 mm thick Calibre 1003 from 1955, but has been rebuilt in 18-karat gold.

The American 1921, re-released in 2009 as part of the same collection, also invokes Art Deco influences. Its initial release came at a time when the wristwatch was

a relative innovation. In addition, the

watch presents an unusual feature. In an attempt to break away from conventional designs of that time, its dial was shifted 45 degrees from its usual

orientation, creating a tasteful obscurity in its appearance, unusual for

both that era and now. The Art Deco movement

represented a shift in style and design in the early 20th

century. The emergence of linear symmetry marked a departure from

conventional asymmetric organic curves, combining various influences

like cubism and modernism. A new purely decorative design movement

was born – one that channelled func-tionality, modernity and glamour.

In homage to the spirit of Art Deco, the Patek Philippe Gon-

dolo collection is a contemporary take on watches from that era. The name for the collection derives from the Chronometro Gondolo watches that the company man-

V intage watches, both original and reissued, are popular among enthu-siasts. In keeping with the widely

accepted idea that classic styling never goes out of fashion, these timeless timepieces have remained relevant.

Jaeger-LeCoultre recently launched a range of their Rendez-Vous collection aimed at women customers. The Art Deco movement of the 1920s and 1930s heavily influences the pieces on offer, yet the styl-ing is resolutely feminine and poised. They feature a day-night indicator set against a guilloché dial within either a 29 mm or 34 mm case.

As an ode to their horologi-cal pasts, many brands have either relaunched or rede-signed pieces from their historical collections. Vacheron Constan-tin has brought out a range dedicated to vintage designs. Its Historiques collec-tion features eight designs with differ-ent watches added intermittently. They pay tribute to the classic brands’ rich and varied history in watch design, including traditionally fashioned timepieces and Art Deco creations.

One example, the Ultra-Fine 1955, is a nod to the clean and ultra-thin designs that the Swiss maker is famed for. Its relaunch in 2010 saw little change from the original released 55 years earlier. It has a total height of just 4.10 mm, making the 1955 model the thinnest

ufactured for Gondolo & Labouriau, a Brazilian

retailer, between 1902 and 1930.

The several varia-tions of watch

included in this collection are all rectangular

in shape but all differ in design and

finish. Like many Art Deco watches, the

emphasis is on style rather than technology,

defined by hand-wound movements,uncomplicated calibres and elaborate pat-

terns. There is stylistic variety, including Arabic

and Roman numerals and coloured dials.

The majority of vintage watches have a particular masculinity to their appearance, but Van Cleef & Arpels’ vintage Alhambra collection is a marriage of feminine ele-gance and classic features. All watches in the collection incorporate the iconic four-leaf clover motif, whether as the watch face or as a linked bracelet strap with the watch face baring this same design, and a Swiss quartz movement.

Vintage-styled watches possess the timelessness that contemporary and niche designs lack. They exude charm and have an ornamental style rarely employed on modern timepieces. They are worn not just to tell the time but purchased as sought-after collectables too. Such styles have withstood various reinventions and relaunches but always remain popular with watch lovers and collectors alike – standing the test of time.

Patek Philippe Chronometro Gondolo 5908

Jaeger-LeCoultre Rendez-Vous

60 October 2012

T he Gap store recently opened near my accountant friend’s office. Stroll-ing past, I could see him peering at

the shop sign quizzically, trying to work out what would be sold in a Generally Accepted Accounting Principles shop.

“Gap sells hoodies,” I explained. He nodded unconvincingly, although I knew he had no idea what a hoodie was.

It’s not just that he is old (born in the Late Cretaceous) but also that he is over-immersed in his own world. Even the way he stared too long at the lunch bill marked him out as an ac-countant. “Just pay it. Don’t extrapolate the restaurant’s annual revenue from it,” I said.

But I couldn’t blame him. It happens to all professionals who do the same thing for too many years. Here are 20 signs you’ve been an accountant for too long:1. When you download an ebook from Kindle

you refer to the price as “the net book value.”2. At the Oscars, you can’t understand why

there’s no prize for the production ac-countant.

3. You think the most gripping part of the Miss Hong Kong finals on TV is when they announce which accounting firm collated the votes.

4. You own 10 shirts and all of them are white. 5. You think The Beatles song “Dear Pru-

dence” is about the hidden costs of conser-vative investing.

6. Instead of “I’ll bet my bottom dollar,” you say, “I’ll risk my final consideration.”

7. You know what the word “fungible” means and love throwing it into conversations: “I like my men/women to be tall, dark and fungible.”

8. When pop stars sing “What is love?” you call out, “An intangible asset with a chal-lenging value profile.”

9. When you make a list of pros and cons of getting married, one column is headed “op-portunity cost.”

10. You have three pairs of shoes and all of them are black.

11. When you phone home from the bar on a Friday night, you tell your spouse, “Can you pick me up? I’m in a state of extreme liquidity.”

12. When your spouse wants to have children, you say, “Put your request in writing, listing up-front costs, recurrent expenditure and return on investment.”

13. You think of your children as “Liability 1” and “Liability 2.” If they fail to put on their seat belts you tell your spouse, “Please deal with our unsecured liabilities.”

14. When you and your spouse look at your drooping flesh in the mirror you say, “I think our figures have depreciated.”

15. When your spouse says “We need to talk,” you print out some appraisal forms.

16. You think of the Christmas letter your spouse writes to distant family members as The Annual Report.

17. At a marriage counselling session, you use the term “year-on-year performance.”

18. When your child gets a mixed school re-port, you make a spreadsheet of grades against school fees so you can set a break-even point.

19. When grandpa dies, you tell your col-leagues he has “gone into receivership.”

20. When your child fails half his exams, you pay half the school fees with a note saying, “Here’s the money pro rata.”

Does this sound like you? If it does, then you need a holiday. Go to the Gap, buy a hood-ie and take all liabilities, whether secured or not, on a nice long vacation. Your office will be fine without you. We’re all replaceable. Or fungible, if you prefer.

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

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

Let’s get fiscal

20 signs you’ve been an accountant for too longLeaving number-related matters at the office is a hard task for some, says Nury Vittachi

“ You think of the Christmas letter your spouse writes to distant family members as The Annual Report.”