Accountant Middle East - December 2012

SETTING STANDARDS IN FINANCIAL AUDITING & ACCOUNTANCY DECEMBER 2012

RULES OF ENGAGEMENTGrant Thornton’s Managing Partner Hisham Farouk addresses the contentious issues of succession and governance in family-owned enterprises

JENNIFER’S JOURNEY

TO CFO

EXCLUSIVE! ALSO...

ROAD TO CONVERGENCE

ASSESSING THE CFO

WHISTLEBLOWING IN THE UAE

MANAGING FAMILY BUSINESSES

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SETTING STANDARDS IN FINANCIAL AUDITING & ACCOUNTANCY DECEMBER 2012

RULES OF ENGAGEMENTGrant Thornton’s Managing Partner Hisham Farouk addresses the contentious issues of succession and governance in family-owned enterprises

JENNIFER’S JOURNEY TO CFO

EXCLUSIVE

ALSO

ROAD TO CONVERGENCE

ASSESSING THE CFO

WHISTLEBLOWING IN THE UAE

MANAGING FAMILY BUSINESSES

PUBLICATION LICENSED BY IMPZ www.accountancyme.com

EDITOR'S AUDIT

3

CONTENTSDECEMBER 2012

16 COVER STORY: Rules of engagement – Grant Thornton

Managing Partner Hisham Farouk tackles the contentious issues of succession and governance in family-‐owned enterprises.

38PERSONALITY & PRACTICE: Jennifer’s journey to CFO -‐ Coutts’ new Chief

career path that led to her joining the top ranks of

56 IFRS SPECIAL: Road to convergence -‐ Will IFRS ever succeed

in becoming the dominant world accounting standard?

16

Main

Fea

ture

s

384 December 2012

6 NEWS & VIEWS: Tax conference -‐ Middle East and South Asia delegates

meet in Dubai to assess the impact of economic and political

14 INTERNATIONAL PERSPECTIVES: Changes to IFRS 9 – The IASB has published proposals for

8 ROBERT HALF SURVEY:

20 FAMILY BUSINESS:

44 FINANCIAL REPORTING: Global alignment -‐ KPMG and ACCA report

Current AffairsPr

ofes

sion

Wat

ch

Spec

ial R

epor

ts

10 BUSINESS PICTORIAL:

36 FORENSIC AUDITING:

62 TAX WATCH:

65 TECH TALK:

66INDUSTRY APPOINTMENTS: Revolving door -‐ Find out the latest movement of

52 MOVERS & SHAKERS: Accounting for his life -‐ BDO Founder and Managing

From the Experts 26 WHISTLE BLOWING:

46 BUSINESS INSIGHTS: Assessing the CFO -‐ Executive job search consultant Shane

Phillips examines critical areas in the hiring and selection process

Interactions3 EDITOR’S AUDIT

5

8

WAVES OF CHANGE

TAX KEY FOCUS AT MESA SUMMIT

Municipality employees get ACPA honours

THE INSTITUTE of Chartered Accountants of India (ICAI) - Abu Dhabi Chapter has grown exponentially and now boasts a strong membership base of around 600 members.

This was revealed during the chapter’s 24th annual international seminar and the 1st GCC conference that was held recently under the theme “Waves of Change…Oceans of Opportunity”.

The two day seminar that was inaugurated by Sheikh Nahayan Bin Mubarak Al Nahayan, UAE’s Minister for Higher Education and Scientific Research, saw a record gathering of more than 800 attendees, who

600NUMBER OF CURRENT MEMBERS OF ABU DHABI CHAPTER OF ICAI

included Sachin Pilot, India’s Minister of Corporate A!airs, Huda Al Matroushi, Board Member of Abu Dhabi Chamber of Commerce and Industry, M. K. Lokesh, the Ambassador of India to UAE and Jaydeep Shah, the President of ICAI (pictured above).

Sheikh Nahayan Bin Mubarak Al Nahayan praised the contribution of the Chapter in furthering the friendly and professional relationship between India and UAE.

Other dignitaries to grace the event included N. R. Narayana Murthy, Chairman Emeritus, Infosys and Dr Sam Pitroda, Advisor to the Prime Minister of India.

The Abu Dhabi Chapter of ICAI was established in October 1984 and operates under the legal umbrella (as a member) of the Indian Business Professional Group, Abu Dhabi.

KPMG RECENTLY held a major conference on tax, where senior professional drawn from the Middle East and South Asia (Mesa) region converged to address concerns of economic uncertainty at the global and regional level. The topic of discussion was the impact of

and tax policy in the region, with key focus revolving around how economies are reacting to

Middle East. While talking about the potential implementation of a tax regime in the UAE, Greg Wiebe, KPMG’s Global Head of Tax commented: “As a stable economy, the UAE is well placed

to manage and implement a tax regime based on global learnings and be able to take the time needed to assess what makes the most sense for the region."

EIGHTEEN EMPLOYEES of Dubai Municipality who successfully acquired the Arab

Accountant (ACPA)

honoured by the Arab

special ceremony held at Dubai Municipality headquarters.The ceremony was held in the presence of

Dr Talal Abu-‐Ghazaleh, ASCA chairman, and Mohammed Abdul Kareem Julfar, the Dubai Municipality's Assistant Director General for Financial and Fixed Assets Affairs (both pictured).The event witnessed stimulating lectures by

the UAE Accountants and Auditors Association (AAA), Dubai Municipality and ASCA, where Dr Abu-‐Ghazaleh delivered a talk on the topic ‘Learning in the Knowledge Age’.

STATS FACT:

NEWS & VIEWS

6 December 2012

WAVES OF CHANGE

TAX KEY FOCUS AT MESA SUMMIT

Municipality employees get ACPA honours

THE INSTITUTE of Chartered Accountants of India (ICAI) - Abu Dhabi Chapter has grown exponentially and now boasts a strong membership base of around 600 members.

This was revealed during the chapter’s 24th annual international seminar and the 1st GCC conference that was held recently under the theme “Waves of Change…Oceans of Opportunity”.

The two day seminar that was inaugurated by Sheikh Nahayan Bin Mubarak Al Nahayan, UAE’s Minister for Higher Education and Scientific Research, saw a record gathering of more than 800 attendees, who

600NUMBER OF CURRENT MEMBERS OF ABU DHABI CHAPTER OF ICAI

included Sachin Pilot, India’s Minister of Corporate A!airs, Huda Al Matroushi, Board Member of Abu Dhabi Chamber of Commerce and Industry, M. K. Lokesh, the Ambassador of India to UAE and Jaydeep Shah, the President of ICAI (pictured above).

Sheikh Nahayan Bin Mubarak Al Nahayan praised the contribution of the Chapter in furthering the friendly and professional relationship between India and UAE.

Other dignitaries to grace the event included N. R. Narayana Murthy, Chairman Emeritus, Infosys and Dr Sam Pitroda, Advisor to the Prime Minister of India.

The Abu Dhabi Chapter of ICAI was established in October 1984 and operates under the legal umbrella (as a member) of the Indian Business Professional Group, Abu Dhabi.

KPMG RECENTLY held a major conference on tax, where senior professional drawn from the Middle East and South Asia (Mesa) region converged to address concerns of economic uncertainty at the global and regional level. The topic of discussion was the impact of

and tax policy in the region, with key focus revolving around how economies are reacting to

Middle East. While talking about the potential implementation of a tax regime in the UAE, Greg Wiebe, KPMG’s Global Head of Tax commented: “As a stable economy, the UAE is well placed

to manage and implement a tax regime based on global learnings and be able to take the time needed to assess what makes the most sense for the region."

EIGHTEEN EMPLOYEES of Dubai Municipality who successfully acquired the Arab

Accountant (ACPA)

honoured by the Arab

special ceremony held at Dubai Municipality headquarters.The ceremony was held in the presence of

Dr Talal Abu-‐Ghazaleh, ASCA chairman, and Mohammed Abdul Kareem Julfar, the Dubai Municipality's Assistant Director General for Financial and Fixed Assets Affairs (both pictured).The event witnessed stimulating lectures by

the UAE Accountants and Auditors Association (AAA), Dubai Municipality and ASCA, where Dr Abu-‐Ghazaleh delivered a talk on the topic ‘Learning in the Knowledge Age’.

STATS FACT:

NEWS & VIEWS

6 December 2012

'GONE IN 8 MINUTES'

IFRS FOR SMEs

Auditors win praise

TELLER SERVICE customers in the UAE have been assured of faster services when they visit their bank. In its quest to improve

its customer’s banking experience across some

of its branches, Standard Chartered bank has introduced the ‘8-‐minute teller guarantee’, a move that promises to serve customers within an eight minute time frame. The service is currently running at six branches

in the country including Bur Dubai, Deira, Emaar Business Park, Dubai Mall, Al Najda and Al Ain. It will be rolled out to all of its 11 branches by the beginning of 2013. “Standard Chartered adopts a ‘customer

services to individuals. We review our service levels and customer satisfaction constantly and always look at ways to enhance their experience,” said Mohammed Al Mazemi, the bank’s general manager, in charge of distribution in the Middle East (pictured).

80%PROPORTION OF WORKFORCE IN SMEs IN MOST COUNTRIES

MORE ATTENTION should be given to small and medium enterprises while discussing implementation of accounting standards, as these businesses constitute the larger portion in the economic sectors in the Arab countries, the Chairman of Arab Society of Certified Accountants (ASCA), has urged.

While inaugurating a training seminar on the International Financial Reporting Standards for Small and Medium-Sized Enterprises in Abu Dhabi, Dr Talal Abu-Ghazaleh (pictured) said SMEs employ around 80% of the labour market compared to other big companies, produce 80% of the GDP and comprises 99% of the registered companies in any country. He added that international accounting standards need to be developed in the knowledge age, as the focus should be directed to the brand as a wealth.

STATS FACT:

OFFICERS WORKING in internal audit departments play a key role in protecting

the global markets, through adopting the best standards of governance, accountability and transparency to ensure that the money paid is spent

Addressing an annual conference for chief audit executives in Abu Dhabi, Philip Tarling, the US Chairman of the Institute of Internal Auditors (IIA) also showered plaudits on the UAE, for its aggressive corporate governance and transparency drives. “There’s greater need to increase

awareness about the internal audit profession as it plays a vital role in risk management and fraud prevention in companies,” Tarling urged. The symposium, which witnessed

the attendance of over 150 experts from major international and regional

trends in internal audit. Echoing the same sentiments, his UAE counterpart Abdulqader Obeid Ali (pictured), said the internal audit profession has achieved

years in the UAE, in-‐line with the rapid growth of the country’s economy.

increase in the number of members who joined the association, which has reached over 1,500,” Abdulqader added.

7

NEWS & VIEWS

SLOGGING IT OUT

WITH A rise in growth and productivity signalling the potential return to pre-recessionary levels, it isn’t

surprising that Dubai finance professionals are working harder than ever.

According to a survey by the world's leading

and every day.

longer than their contracted hours. The survey

industries.

With 89% working longer hours than contracted,

(83%) and France (84%). However, not surprisingly,

with 98% of workers in Hong Kong and Singapore working longer than their contracted hours,

Nine in 10 Dubai accounting and !nance employees work longer hours than required, new survey shows

average. The country with the highest proportion

professionals are putting in long hours, with

regulation through business partnering functions

strike the right balance between work and

personal obligations positively affect his or her job

as happier workplace. This in turn also helps with

75 DUBAI-BASED HRDS WERE ASKED ‘HOW OFTEN DO YOUR EMPLOYEES WORK LONGER THAN THEIR CONTRACTED HOURS?’ THEIR RESPONSES:

James Sayer

SURVEYROBERT HALF

8 December 2012

Register today to receive savings plus many chances to win the latest Apple iPad**. Simply quote BRAINSGCC1 when you register with CIMA.

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GBP

SLOGGING IT OUT

WITH A rise in growth and productivity signalling the potential return to pre-recessionary levels, it isn’t

surprising that Dubai finance professionals are working harder than ever.

According to a survey by the world's leading

and every day.

longer than their contracted hours. The survey

industries.

With 89% working longer hours than contracted,

(83%) and France (84%). However, not surprisingly,

with 98% of workers in Hong Kong and Singapore working longer than their contracted hours,

Nine in 10 Dubai accounting and !nance employees work longer hours than required, new survey shows

average. The country with the highest proportion

professionals are putting in long hours, with

regulation through business partnering functions

strike the right balance between work and

personal obligations positively affect his or her job

as happier workplace. This in turn also helps with

75 DUBAI-BASED HRDS WERE ASKED ‘HOW OFTEN DO YOUR EMPLOYEES WORK LONGER THAN THEIR CONTRACTED HOURS?’ THEIR RESPONSES:

James Sayer

SURVEYROBERT HALF

8 December 2012

Register today to receive savings plus many chances to win the latest Apple iPad**. Simply quote BRAINSGCC1 when you register with CIMA.

*Register today and save 582 AED. Based on an exchange rate of 1 GBP = 6 AED. All prices are quoted in GBP and exchange rates are subject to variation.**Visit the CIMA website for terms and conditions.

T. +9714 4347370 | SMS CIMA on. +971 50 633 07 99 for call backE. [email protected]

NO SUBSCRIPTION FEE UNTIL 2014

Brains Behind Business.com

REGISTER NOW FOR70SAVE

100 GBP*

GBP

Guests pose for a group photo during the ‘Brochure Release’ at an event dubbed ‘Waves of Change… Oceans of Opportunity’ organised by ICAI Abu Dhabi.

Musician Mika Singh performs during the 24th Annual International Seminar for the Institute of Chartered Accountants of India, Abu Dhabi Chapter.

Peter Beynon, ICAEW Middle East Regional Director tests his swing before the start of ICAEW-sponsored Golf Challenge tournament at Al Badia Golf Club, Dubai.

SWING! WAVES OF CHANGE

HAPPY HOUR

BUSINESS PICTORIAL

10 December 2012

Guests pose for a group photo during the ‘Brochure Release’ at an event dubbed ‘Waves of Change… Oceans of Opportunity’ organised by ICAI Abu Dhabi.

Musician Mika Singh performs during the 24th Annual International Seminar for the Institute of Chartered Accountants of India, Abu Dhabi Chapter.

Peter Beynon, ICAEW Middle East Regional Director tests his swing before the start of ICAEW-sponsored Golf Challenge tournament at Al Badia Golf Club, Dubai.

SWING! WAVES OF CHANGE

HAPPY HOUR

BUSINESS PICTORIAL

10 December 2012 11

BUSINESSPICTORIAL

Stuart Dunlop, the Association of Chartered Certi!ed Accountants (ACCA) head of Middle East (left) listens to the proceedings with his UAE counterpart Susie Isaacson, during the association’s new members’ induction ceremony in Dubai.

Sheikh Nahayan Bin Mabarak Al Nahayan, Minister of Higher Education and Scienti!c Research addresses participants during the ICAI-Abu Dhabi annual seminar.

The Chairman of Arab Society of Certi!ed Accountants (left) Dr Talal Abu-Ghazaleh presents a memento to his counterpart from the UAE Accountants and Auditors

Association, Saif Bin Abed Al Muhairi at a recent event organised by ASCA.

ATTENTIVE

CHIEF GUEST

ASCA MEETS AAA

In a brand-new book, O!shore Apocalypse: The Collapse of the Tax Haven Industry - What

does the future hold?, interna -tional tax advisers argue that the o!shore tax-haven indus -try is on its last legs following a massive attack from the world’s most powerful nations. It is a message that GCC inves -tors ignore at their own peril.

On the surface, this claim may appear slightly outland -ish. Wealthy individuals have parked as much as $32 trillion in tax havens – more than double the annual GDP of the United States, according to a study by a former McKinsey consultant commissioned by the Tax Justice Network. If such massive sums remain in o!shore accounts, isn’t it fair to say that tax havens are as successful as ever? Moreover,

how can the powerful coun -tries’ fight against tax havens impact GCC-based inves -tors, since none of them pays personal income tax and only a few are subject to domes -tic corporate taxes? It would seem that any attacks on the o!shore world should be of little interest to GCC-based investors.

Well, not really. For many years, Western

governments in particular tolerated o!shore tax havens – jurisdictions whose laws make it possible for wealthy individuals and corporations to hide their earnings from domestic revenue authori -ties. But this willingness to turn a blind eye ended once the financial crisis struck in 2008, sapping national tax bases. Cash-strapped govern -ments realized they could no

longer a!ord to allow taxpay -ers to route their investments through tax havens and avoid paying their fair share into the public purse. Beginning in 2009, developed countries, joined by emerging-market nations such as China and India, launched an aggressive crackdown on tax havens, mostly by forbidding their own taxpayers to use such jurisdictions for tax-planning purposes.

O!shore Apocalypse’s authors, who work as academics, auditors, tax consultants and compliance officers, became alarmed by the number of people they encountered who wanted to optimise their taxes by setting up shell companies in tax havens. These firms would be nothing but a mailbox – one that could be shared by

hundreds of other corporations whose owners are also trying to dodge taxes. Many business leaders clearly do not under -stand that the changes of 2009 have increased the likelihood that o!shore tax evasion will result in prosecution, fines and even prison time.

Why do these changes a!ect GCC-based investors and people who use GCC jurisdictions for tax planning purposes?

In the aftermath of the financial crisis, investors from the GCC have discovered huge potential in Europe, where many companies desperately need liquidity, as well as in Asia. GCC-based companies often structure their foreign invest -ments through intermediate holding companies, trading companies or special-purpose vehicles (SPVs) incorporated

in low-tax jurisdictions such as Luxembourg, the Netherlands, Switzerland, Cyprus, Singapore or Hong Kong.

While it may be perfectly reasonable to set up a company in any of the above-mentioned jurisdictions, a GCC investor must consider how he will repatriate profits and exit the investment in a tax-optimised manner. Due to the international onslaught on tax havens, a company can no longer claim residence in a low-tax jurisdiction by setting up a simple letterbox company there. A corporation must prove it has “substan -tive presence” – not just legal presence – if it wants to enjoy tax benefits in a given jurisdic -tion. An example how such a tax structures of multina -tional companies without any substance came under public scrutiny was after a report prepared by French televi -sion, France 3 as well as UK broadcaster BBC earlier this year. The reports highlight the role of Luxembourg as a place where subsidiaries of multina -tional enterprises (without or very little substantive activity) are incorporated and used for financing activities. While it was (or still is) best practice of multinationals, which are usually advised by the Big Four, to structure their tax a!airs in a similar manner, such tax plan -ning activities are more often considered to be aggressive

and may well attract the focus of revenue authorities in the very near future.

Firms can achieve “substance” through numer -ous means: setting up an office, hiring local residents (not necessarily citizens, but at least residents), and using locally based e-mail and corporate addresses, amongst others. More importantly, a company must justify its legiti -mate presence by locating management functions in the jurisdiction. These cumulative measures will also assist in risk allocation and asset allocation to the entity registered in the low-tax jurisdiction.

In a nutshell, a company must prove that its presence in a low-tax jurisdiction is not only tax-driven, but has genu -ine business motives.

Companies investing through the Middle East, often through Dubai and its attractive Free Zones, will face the same challenges. They will have to establish physical presence, particularly if they want to benefit form the UAE’s growing network of double tax treaties.

T his is a costly process, but corporate leaders will find they have little other choice. Accountants, auditors and especially financial institu -tions are loath to get involved in tax evasion and will refuse to serve clients if they see evidence of illegal o!shore tax

haven activity.Furthermore, the book also

discusses the Foreign Account Tax Compliance Act (FATCA), the most recent U.S. initiative to improve tax compliance of their citizens. Even though FATCA imposes reporting requirements on U.S. taxpay -ers, the act´s primary target are not citizens and residents of GCC countries who have a U.S. passport, since they already had an obligation to report to the IRS prior to the implementation of FATCA. The main purpose of the act is to require from foreign financial institutions to report directly to the IRS information about their U.S. clientele, a very unique procedure indeed, as such form of automatic cross-border exchange of informa -tion between financial institu -tions (FFI) is fairly unknown unless money laundering charges were involved. The intention of the U.S. lawmak -ers is clear: all U.S. taxpay -ers who were not compliant with U.S. tax laws should be forced into legality. In other words, either they denounce themselves or the FFI will do it on their behalf. Arab banks have already highlighted their concerns about the dispro -portionately high compliance costs involved although the same opposition came from other FFIs around the world, with little success.

To sum up, O!shore Apoca -

lypse walks investors through the process of establishing substance in low-tax jurisdic -tions and explains the most recent developments in the area of international taxa -tion. It explains why tradi -tional o!shore schemes have become dangerous, landing numerous investors and o!shore promoters in prison. Readers will also discover:

How a lone whistleblower at Switzerland’s biggest bank, UBS, brought disaster upon tax havens worldwide by alert -ing the U.S. Department of Justice to his bank’s involve -ment in o!shore tax shelters. The UBS a!air touched o! a global fight against bank secrecy, a!ecting not only U.S. citizens, but citizens of other countries who try evade taxes by hiding behind financial non-disclosure laws in tax-haven jurisdictions.

How a group of under -cover journalists helped put one of Romania’s top o!shore company-registration agents behind bars. The agent helped his clients avoid taxes on oil imports to the EU using “state-of-the-art” companies incorporated in Delaware, Cyprus and Seychelles.

Why countries with developed law-enforcement systems may treat o!shore “tax planning” as money laun -dering – and charge o!enders as participants in criminal organisations.

The Coming Apocalypse for Offshore Tax Havens?

OFFSHORE APOCALYPSEThe Collapse of the Tax Haven Industry - What does the future hold?

. ..i s available on Amazon, the Appstore and on smashwords.com as an e-book for all tablets

Philipp Hildebrand considers the automatic exchange of information inescapable. “ Within five years - maybe 10 - the names of customers from abroad will be delivered to the

State Treasury in their country of origin,” predicted former President of the Swiss National Bank.

www.o!shoreapocalypse.info www.o!shoreapocalypse.info

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ICPAS LAUNCHES CAT QUALIFICATION FOR JOBSEEKERS

‘CLOUD’ ACCOUNTING TAKES ROOT IASB ISSUES

IFRS 9 CHANGES

FASB proposes update to clarify offsetting disclosures

THE INSTITUTE of Certified Public Accountants of Singapore (ICPAS) has launched a scheme that will enable unemployed mid-career jobseekers to join the accounting profession as accounts assistants.

The scheme, called Accounts Assistant Place-and-Train Programme, is funded by a governmental agency, which will o!er participating firms allowances of up to 70% of the trainee's monthly salary.

ICPAS explained the scheme awards successful candidates

with the Certified Accounting Technician (CAT) qualification, which also provides trainees with the foundations to become professional accountants. – The Accountant, UK

11%CPA FIRMS OPERATING IN THE ‘CLOUD’ IN US

THE INTERNATIONAL Accounting Standards Board (IASB) has published proposals for limited changes and measurement requirements for

IFRS 9: Financial

Instruments.

measurement phase of a wider project to reform

Because IFRS 9 was already fundamentally sound, and in an attempt to keep disruption to entities that have already adopted IFRS 9 down, the IASB has kept amendments consistent

structure in IFRS 9, and generally minimised changes.

THE FINANCIAL Accounting Standards Board (FASB) has proposed an accounting standards update to clarify the scope of transactions subject to offsetting disclosures.FASB wants to shed

light on a previous accounting standards update, ‘No 2011-‐11’, which covers the disclosures regarding offsetting assets and liabilities. This update was launched in December 2011 as a result of a joint project with the International Accounting Standards Board aimed at improving transparency between US GAAP and IFRS. The FASB has now issued ‘Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about

Offsetting Assets and Liabilities’, an update for public comment to address implementation issues “surrounding the scope of balance sheet offsetting guidance issued last year,” FASB technical director Susan Cosper (pictured) said.

STATS FACT:

THE MAJORITY US CPA’s have embraced the ‘cloud’ and think they are vital to clients' digital innovation, an American Institute of Certified Public Accountants (AICPA) survey has revealed.

The results of the survey, which polled 624 members of the institute, were issued during its recent conference Digital CPA: 2012, hosted by its technology subsidiary CPA2BIZ.

According to the survey, 11% of CPA firms already operate completely in the cloud and have a strong incentive for getting their clients to use digital technologies while one-third of accounting firms use cloud solutions in some parts of their practice.

The survey also found the biggest benefits of cloud adoption is “the ability of work virtually or expand beyond current geographic” and not having to worry “about software updates”, while security concerns and change management are considered as barriers. CPA2BIZ president and chief executive o"cer Erik Asgeirsson said cloud solutions were “powerful technologies” for Small-and Medium-sized Entities.

INTERNATIONAL PERSPECTIVES

14 December 2012

ICPAS LAUNCHES CAT QUALIFICATION FOR JOBSEEKERS

‘CLOUD’ ACCOUNTING TAKES ROOT IASB ISSUES

IFRS 9 CHANGES

FASB proposes update to clarify offsetting disclosures

THE INSTITUTE of Certified Public Accountants of Singapore (ICPAS) has launched a scheme that will enable unemployed mid-career jobseekers to join the accounting profession as accounts assistants.

The scheme, called Accounts Assistant Place-and-Train Programme, is funded by a governmental agency, which will o!er participating firms allowances of up to 70% of the trainee's monthly salary.

ICPAS explained the scheme awards successful candidates

with the Certified Accounting Technician (CAT) qualification, which also provides trainees with the foundations to become professional accountants. – The Accountant, UK

11%CPA FIRMS OPERATING IN THE ‘CLOUD’ IN US

THE INTERNATIONAL Accounting Standards Board (IASB) has published proposals for limited changes and measurement requirements for

IFRS 9: Financial

Instruments.

measurement phase of a wider project to reform

Because IFRS 9 was already fundamentally sound, and in an attempt to keep disruption to entities that have already adopted IFRS 9 down, the IASB has kept amendments consistent

structure in IFRS 9, and generally minimised changes.

THE FINANCIAL Accounting Standards Board (FASB) has proposed an accounting standards update to clarify the scope of transactions subject to offsetting disclosures.FASB wants to shed

light on a previous accounting standards update, ‘No 2011-‐11’, which covers the disclosures regarding offsetting assets and liabilities. This update was launched in December 2011 as a result of a joint project with the International Accounting Standards Board aimed at improving transparency between US GAAP and IFRS. The FASB has now issued ‘Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about

Offsetting Assets and Liabilities’, an update for public comment to address implementation issues “surrounding the scope of balance sheet offsetting guidance issued last year,” FASB technical director Susan Cosper (pictured) said.

STATS FACT:

THE MAJORITY US CPA’s have embraced the ‘cloud’ and think they are vital to clients' digital innovation, an American Institute of Certified Public Accountants (AICPA) survey has revealed.

The results of the survey, which polled 624 members of the institute, were issued during its recent conference Digital CPA: 2012, hosted by its technology subsidiary CPA2BIZ.

According to the survey, 11% of CPA firms already operate completely in the cloud and have a strong incentive for getting their clients to use digital technologies while one-third of accounting firms use cloud solutions in some parts of their practice.

The survey also found the biggest benefits of cloud adoption is “the ability of work virtually or expand beyond current geographic” and not having to worry “about software updates”, while security concerns and change management are considered as barriers. CPA2BIZ president and chief executive o"cer Erik Asgeirsson said cloud solutions were “powerful technologies” for Small-and Medium-sized Entities.


14 December 2012

CPA AUSTRALIA AND CIMA RENEW DEAL

IOSCO TO ENCOURAGE IFRS ADOPTION

THE INSTITUTE of Certified Public Accountants of Australia (CPA Australia) and the Chartered Institute of Management Accountants (CIMA) have renewed their

mutual recognition agreement for another four years, starting November 2012.The agreement was initially established in

January 2009 and allows members of both bodies reciprocal membership. According to CPA Australia president John

Cahill (pictured), the agreement is meant to improve access to international job markets as well as encourage international take-‐up of professional and educational standards.CIMA president Gulzari Babber expressed

satisfaction about the growing partnership,

“an additional opportunity to enhance their competitiveness in the global market.” – The Accountant, UK

95%WORLD’S SECURITIES MARKETS THAT IOSCO REGULATES

THE INTERNATIONAL Organisation of Securities Commissions (IOSCO) has agreed to take a greater role in the adoption of IFRS during its inaugural meeting held in Madrid last week.

The decision came after IFRS Foundation Trustees chairman Michel Prada urged IOSCO's board to actively participate in global e!orts to implement IFRS.

According to Prada, international standards are a means to improve the comparability and integrity of financial statements worldwide.

IOSCO, also a global standard-setting body for securities regulation, said Prada's proposal will be considered by the Committee on Multinational Disclosure and Accounting which promotes consistent regulatory interpretation and enforcement of IFRS. IOSCO, whose membership regulates more than 95% of the world's securities markets, set January 2013 as the deadline to sign a Multilateral Memorandum of Understanding (MMoU) on international enforcement cooperation and information sharing.

STATS FACT:

Accountants ‘most trusted source of business advice’ACCOUNTANTS ARE increasingly seen as the number one port of call for small businesses to attain business advice, a survey by business software provider Sage UK, has revealed.The Sage Omnibus survey, which

polls more than 1, 000 customers per month, found 44% of small business owners turn to accountants first for business advice, compared to 21% who search the internet and 18% who called on business groups and industry associations.Interestingly, 21% of business

owners say they are more open and honest with their accountants than their bank managers while 15% are

more honest with accountants than they are with their friends, family and even spouses! Half of respondents think that accountants provided the most valuable business advice, while 90% of business owners described

their relationship with their accountant as "good" or "excellent".

illustrate the evolving role of accountants, who have become seen increasingly as part of their clients business.“More business owners than ever

before are turning to accountants for guidance as the regulatory landscape evolves, and the fact that more than 1 in 7 are more honest with their accountant than they are with their nearest and dearest underlines just how valued their counsel and advice really is," Sage accountants division managing director Jim Scott said. -‐ The Accountant, UK

15


RULES OFENGAGEMENTGrant Thornton’s Managing Partner Hisham Farouk tackles the contentious issues of succession and governance in family-owned enterprises

IT IS SAID that a man’s worth is no greater than the worth of his ambitions. This phrase best suits Hisham Farouk, given that at a young age of 35, his achievements

and accomplishment in his accounting and auditing career have preceded him.

The dynamic leader joined the profession in 1998

Grant Thornton (GT) UAE to the next growth phase, after a successful career in assurance services with a number of large family owned businesses in the region.

As the Managing Partner of Grant Thornton UAE, Hisham has been tackling various issues in family owned businesses which cover succession, governance, public listing (IPO) and operations, among others.

He is well positioned to understand the family owned business market given the fact that Grant

International Ltd, one of the world’s leading organisations of independent assurance, tax

Farouk Mohammed in 1966.

Grant Thornton is one of the largest global advisors to family-‐owned businesses and has worked with a number of local businesses who

to conduct an independent professional valuation of the Al Habtoor Group, ahead of the company’s potential public listing early next year.

Hisham said in an exclusive interview with Accountant Middle East; “Grant Thornton has witnessed the transformation of UAE in its primary history to where it stands today, as one of the leading economies in the world. Family-‐owned businesses have contributed to this transformation, and continue to push the country into its next phase.”

Family-‐owned enterprises represent more than 90% of the business community in the UAE, according to a recent study published in the UAE.

sector plays on the local economy. In order for the UAE to move further forward it is essential for these family-‐owned businesses to recognise how they can unlock their potential for growth.

While elucidating the key issues that are needed in family-‐owned businesses when planning succession, Hisham said;

“Succession planning and the introduction of young dynamic leaders is essential to continued business growth and innovative

TAKING CHARGE:

As the Managing Partner of Grant Thornton UAE, Hisham Farouk has been tackling various issues in family owned businesses, including succession, governance and IPO

FAMILYBUSINESS

16 December 2012

RULES OFENGAGEMENTGrant Thornton’s Managing Partner Hisham Farouk tackles the contentious issues of succession and governance in family-owned enterprises

IT IS SAID that a man’s worth is no greater than the worth of his ambitions. This phrase best suits Hisham Farouk, given that at a young age of 35, his achievements

and accomplishment in his accounting and auditing career have preceded him.

The dynamic leader joined the profession in 1998

Grant Thornton (GT) UAE to the next growth phase, after a successful career in assurance services with a number of large family owned businesses in the region.

As the Managing Partner of Grant Thornton UAE, Hisham has been tackling various issues in family owned businesses which cover succession, governance, public listing (IPO) and operations, among others.

He is well positioned to understand the family owned business market given the fact that Grant

International Ltd, one of the world’s leading organisations of independent assurance, tax

Farouk Mohammed in 1966.

Grant Thornton is one of the largest global advisors to family-‐owned businesses and has worked with a number of local businesses who

to conduct an independent professional valuation of the Al Habtoor Group, ahead of the company’s potential public listing early next year.

Hisham said in an exclusive interview with Accountant Middle East; “Grant Thornton has witnessed the transformation of UAE in its primary history to where it stands today, as one of the leading economies in the world. Family-‐owned businesses have contributed to this transformation, and continue to push the country into its next phase.”

Family-‐owned enterprises represent more than 90% of the business community in the UAE, according to a recent study published in the UAE.

sector plays on the local economy. In order for the UAE to move further forward it is essential for these family-‐owned businesses to recognise how they can unlock their potential for growth.

While elucidating the key issues that are needed in family-‐owned businesses when planning succession, Hisham said;

“Succession planning and the introduction of young dynamic leaders is essential to continued business growth and innovative

TAKING CHARGE:

As the Managing Partner of Grant Thornton UAE, Hisham Farouk has been tackling various issues in family owned businesses, including succession, governance and IPO

FAMILYBUSINESS

16 December 2012

FAMILYBUSINESS

17

Succession in family-owned business is a more humanistic matter rather than a technical or competence issue.

thinking. The founders of family-‐owned businesses may have expectations of their family charting their own course in life, but the reality is that the family business is embedded into each member from an early age. It is only when the family members start to take an active interest in the business that the founders consider the business to be a viable career path.”

He however cautions that sharing a business can do much to strengthen the family bond, but passing a family business from one generation to the next can be a complicated process and one which needs to be managed and planned with care.

“The incumbent management has a great wealth of management experience and this skill has to be inculcated on to the younger generation who are taking over, it should be done in a very open and transparent manner to ensure that there is stability in the company. The ultimate objective is to guarantee that the business is not hurt during the corporate restructuring and transitioning period. All the stakeholders must agree that productivity and smooth functioning of the company is the ultimate goal.”

that the presence of independent senior members on the board, capable of challenging the decisions of the management, is widely considered as a means of protecting the interests of stakeholders too.

“This external management team must have an added value, the required skill set and the necessary expertise in order to aid the growth of the business. Most importantly, there has to be chemistry between the board and the family owners. The family members must communicate openly and transparently with the board, especially on the key matters concerning the business.”

In addition to the introduction of an external management team; Hisham strongly recommends the services of an independent auditor. However, he said that family members and the board must ensure that the accounting team comprises of the right individuals who can be relied upon to provide objective reporting.

“Whether they have an independent audit or not, the main questions to consider are; what is the added value... or what is the unique information they are getting from these auditors which would help them take the business to the next level?”

“Material changes happen in family businesses, for

“Shadowing the founders of the business is not

are trying to move the business forward in an era of increased competition. The introduction of an external management team and independent auditor are imperative in strategically aligning the business growth strategies to the market demand and opportunity.”

According to the executive, independent non-‐executives play a critical role in encouraging further new thinking in the business; this also

of control of the business.

“In family-‐owned business, the primary stakeholders are the family members. Therefore it is the onus of the family members to bring in an executive board

for the growth of the business,” Hisham said, adding

CONSUMMATE PROFESSIONAL:

Hisham Farouk is an exemplary example of how a future leader can embrace change and drive a business forward in an innovative manner.

18 December 2012

FAMILYBUSINESS

19

Corporate governance is not exclusively the domain of large public-listed corporations, but equally as important for smaller non-listed family enterprises.

instance a lot of them started as core businesses or

you may have a family business that started off in

hospitality, construction, among others. As an independent advisor, I would want to look at how these different arms of business are providing balance, complementing or providing synergy to each other, or what the opportunity cost is.”

“This has been the natural evolution through our time. Where these businesses are at today... is sustaining that structure and moving on to the next level.”

“On the other hand, if I was the business owner, I would expect my independent audit advisor to provide a transparent audit report, supported by analytics which would aid the management team to make effective business decisions, this is particularly important for succession purposes,” Hisham adds.

“But I think the most important thing is when the patriarch or the head of the family business hands over the reins of the business. He would like to hand over a business that is ready and clean, a business that is not saddled with debts or litigations or

it easier for the next generation to grow the business and take it to the next level,” the executive says.

Like in the other GCC countries, family-‐owned enterprises represent more than 90% of the business community in the UAE, according to a

recent study published in the UAE, which also states that nearly 70% of the over 20,000 family companies in the GCC are still dominated by the

with traditional methods and attitudes”.

Statistics provided in the research authored by Saleh Al Rousan, economic adviser at the Ras Al Khaimah Chamber of Commerce and Industry, show that these companies contribute nearly 75-‐95% of the sector’s trade activity in the region, with investments reaching $500 billion.

“Their total global wealth is estimated at over $2 trillion and they employ nearly 15 million people,” it states. The study goes on to add that only around 30% of these companies are controlled by the second or third founding generation.

“Local governments should prompt these family-‐owned companies to ensure transparency, and curb the domination of social habits and

obstruct their development,” the study states.

Hisham echoes the same sentiments, warning that some family owned businesses are still dominated by the founding members, who

“It is important to embrace the change in technology and globalisation, which the young generation are already at abreast with – positioning them as the leaders of tomorrow,” he says.

Hisham specialises in a wide range of industries across the region. He is the Client Relations Partner and point of contact for all DIFC related services where he is also a licensed insolvency practitioner and is also a registered auditor with the UAE Ministry of Economy

The young executive is an exemplary example of how a future leader can embrace change and drive a business forward in an innovative manner.

SUCCESSION PLANNING:

“The introduction of young dynamic leaders in family-owned businesses is essential to continued business growth and innovative thinking,” Hisham says.

FAMILYBUSINESS

U.S. 29% 73%

Monaco 23% 45%

Hong Kong 46% 54%

Singapore 54% 74%

U.K. 35% 70% Switzerland

15% 70%

Mexico 33% 85%

South Africa 69% 82%

Spain 28% 82%

Ireland 23% 70%

Brazil 73% 90%

India 63% 86%

China 46% 76%

U.A.E. 45% 75%

Saudi Arabia 44% 37%

Qatar 60% 92%

Japan 26% 29%

OPTIMISM IN THE FACE OF ADVERSITY

NINETY ONE per cent of Middle East high net worth individuals (HNWIs) agree that viewing failure positively is essential for

an economy to grow, in comparison to 74% globally.

Compared to those in Western economies, respondents from the Middle East and North Africa (Mena) region tend to have a more positive view of setbacks, show greater persistence and

Wealth Insights series.

the Middle East (91%) and Asia (80%) believe

drop to 71% and 69% in the US and Europe. In addition, respondents in Asia and Central and South America are far more positive about the

crisis (53% and 60%) compared to the US and Europe (44% and 42%).

HNWIs comprising entrepreneurs, business leaders and investors, the report, titled; ‘If at First You Don’t Succeed… Mapping Global Attitudes

to Adversity

world view and respond to setbacks.

The report explores how different cultures value traits such as persistence and optimism, the role of luck and how entrepreneurs view setbacks as a stepping stone to future success.

More respondents in the Middle East (81%)

in entrepreneurial endeavours increases the chance that a new business will succeed. This attitude to failure is further demonstrated

would hire an individual who had experienced entrepreneurial failure; within the Mena region, Saudi (89%) and Qatari (86%) respondents

UAE respondents.

Elsewhere, just 42% and 47% of respondents

someone with a failed enterprise on their CV.

The research on persistence reveals that 74% of Saudi HNWIs are of the view that entrepreneurs

as opposed to cutting losses. Within the Mena

losses when the business is underperforming. However, an overwhelming 100% believe that past failure will increase chances of future success in entrepreneurial endeavours.

About 91% of wealthy individuals in the Middle East believe viewing failure positively is essential for growth of the economy, according to the latest edition of Barclays ‘Wealth Insights’

Percentage of respondents in each country who are entrepreneurs

FAMILY BUSINESS

20 December 2012

U.S. 29% 73%

Monaco 23% 45%

Hong Kong 46% 54%

Singapore 54% 74%


15% 70%

Mexico 33% 85%


Spain 28% 82%

Ireland 23% 70%

Brazil 73% 90%

India 63% 86%

China 46% 76%

U.A.E. 45% 75%


Qatar 60% 92%

Japan 26% 29%

OPTIMISM IN THE FACE OF ADVERSITY

NINETY ONE per cent of Middle East high net worth individuals (HNWIs) agree that viewing failure positively is essential for

an economy to grow, in comparison to 74% globally.

Compared to those in Western economies, respondents from the Middle East and North Africa (Mena) region tend to have a more positive view of setbacks, show greater persistence and

Wealth Insights series.

the Middle East (91%) and Asia (80%) believe

drop to 71% and 69% in the US and Europe. In addition, respondents in Asia and Central and South America are far more positive about the

crisis (53% and 60%) compared to the US and Europe (44% and 42%).

HNWIs comprising entrepreneurs, business leaders and investors, the report, titled; ‘If at First You Don’t Succeed… Mapping Global Attitudes

to Adversity

world view and respond to setbacks.

The report explores how different cultures value traits such as persistence and optimism, the role of luck and how entrepreneurs view setbacks as a stepping stone to future success.

More respondents in the Middle East (81%)

in entrepreneurial endeavours increases the chance that a new business will succeed. This attitude to failure is further demonstrated

would hire an individual who had experienced entrepreneurial failure; within the Mena region, Saudi (89%) and Qatari (86%) respondents

UAE respondents.

Elsewhere, just 42% and 47% of respondents

someone with a failed enterprise on their CV.

The research on persistence reveals that 74% of Saudi HNWIs are of the view that entrepreneurs

as opposed to cutting losses. Within the Mena

losses when the business is underperforming. However, an overwhelming 100% believe that past failure will increase chances of future success in entrepreneurial endeavours.

About 91% of wealthy individuals in the Middle East believe viewing failure positively is essential for growth of the economy, according to the latest edition of Barclays ‘Wealth Insights’

Percentage of respondents in each country who are entrepreneurs

FAMILY BUSINESS

20 December 2012

U.S. 29% 73%

Monaco 23% 45%

Hong Kong 46% 54%

Singapore 54% 74%


15% 70%

Mexico 33% 85%


Spain 28% 82%

Ireland 23% 70%

Brazil 73% 90%

India 63% 86%

China 46% 76%

U.A.E. 45% 75%


Qatar 60% 92%

Japan 26% 29%

74% of respondents in Saudi Arabia agree that if their business is failing, an entrepreneur should persist rather than cut their losses.

The report reveals that respondents believe

‘skills/intelligence’ and ‘effort/hard work. On average, over a third of respondents attributed success to these factors (35% each). Chance and connections, on the other hand, are seen as much less important factors, at 16% and 15%

In the Mena region, the UAE ranks highest when it comes to belief in ’skills/intelligence’ and ‘effort/

Qatar, respondents believe that 34% of success is due to chance which is the highest of all countries

Dr. Greg B. Davies, Head of Behavioural Finance

commenting: “Strong belief in skill rather than

future decisions. This mindset can be hazardous

When asked about learning from failure there are variations within the Mena region amongst respondents who have experienced failure.

learnt a great deal from past failures. When these

were similar; 85% in Qatar agreed with this statement, compared to 45% in Saudi and 37% in UAE.

The report reveals a contrast in the number of people who see themselves as entrepreneurs in Western versus Eastern economies. According to the research, just 29% of respondents in the US and 30% in Europe regard themselves as entrepreneurs, compared to 47% in Asia, 50% in the Middle East and 55% in Central

& South America. In addition, 56% of these

great deal from failure, compared with 41% of non-‐entrepreneurs.

and North America as entrepreneurial hotbeds,

that we are seeing a global shift, with a fear of failure perhaps holding these ‘established’ economies back. Governments across the globe have highlighted the crucial role that

their culture of perseverance and how this differs across regions will be critical in making

relating to the mindset of individuals in different regions. In the Middle East, 83% of respondents

can become a successful entrepreneur. The

Percentage of respondents in each country who are optimistic*

21

FAMILY BUSINESS

BREAKINGTHE ICE

Advisory !rm RSM Dahman addresses discom!ted issues faced by family-owned businesses such as con"ict resolutions, divorce and succession planning

FAMILY BUSINESS

22 December 2012

BREAKINGTHE ICE

Advisory !rm RSM Dahman addresses discom!ted issues faced by family-owned businesses such as con"ict resolutions, divorce and succession planning

FAMILY BUSINESS

22 December 2012

IN THE conservative states of the Middle East, discussing openly about divorce is not traditionally common, yet so many marriages are breaking down.

According to UN statistics, about 26% of marriages in the UAE end in divorce. In this regard, how should issues to do with property management best approached to ensure that family businesses are not hurt in the event of a divorce?

Bill Humphreys, who is currently working as a trainer and consultant focusing on the wealth management needs of high net worth private clients, says it is necessary for couples to address the legal implications of divorce, in order to minimise disruption of business and ensure that company shareholdings remain under family control in the event of marriage break-‐up.

“It is important for any family (or business) to

in shareholders particularly where the size of the

shareholding is of strategic importance. The legal

country to country but there are many mechanisms available to ensure that shareholdings remain under family control following death or divorce if this is considered desirable,” the expert said.

“There are a number of other circumstances that create a threat to the longevity of the family

and family break up, excessive spending, taxation,

management strategies in respect of each of these leakages,” he added.

Humphreys recently partnered with a major local

educate business owners on issues dealing with the management of family-‐owned enterprises,

While disagreements are inevitable, transparent communication and clear governance systems should be put in place, as these are essential tools for any family business looking to endure beyond the first generation.

EXPERT ADVICE:

Dahman Awadh Dahman, the Founding Partner of RSM Dahman (centre), meets some business owners in Dubai. The advisory !rm has been running workshops to address challenges faced by family enterprises.

23

FAMILY BUSINESS

and dealing with non-‐family company directors.

Family owned businesses form the majority of businesses in the region and in UAE. With the second and third generation starting to get active in the family businesses, the challenges of governance structure, succession planning and growing number of family members are just a few of the many challenges faced by family business owners.

“We recognise the need for a multi-‐disciplinary approach as we are aware of the problems faced by our clients and by family businesses in the region. To address these issues, we decided to collaborate with Bill Humpreys, in order to educate the business owners about how to best handle the different situations that relate to the daily management of property and enterprises,” said

“Family businesses are complex systems involving three independent but overlapping sub-‐systems, family, business and ownership. The family businesses will become increasingly complex

over time as the self-‐interests of the different

In a separate interview with Accountant Middle East,

family businesses, saying that while disagreements are inevitable, “transparent communication and clear governance systems should be put in place, as these are essential tools for any family business

“Business advisors, in the past, focused on their

trusts, offshore companies, tax among others. This approach, in the present businessworld with complex needs and the wide range of self-‐interests

be successful,” the expert said.

important elements covered by Humphreys, who was of the view that “too many family businesses see succession as something that takes place on the death of the outgoing generation.”

“In my opinion this is clearly not the way to

succession is (or should be) a medium to long term strategy. The succession plan will include strategies to develop future leaders to ensure that

“In many cases the outgoing generation will have an important role to play in the transition process and they may also continue to have some role to play in the family business (or the business of the family),” he advised.

Commenting on how the roles of the family and the external management of the business interact best, Humphreys was of the opinion where ownership and management are separate, it is important that the responsibilities of the Executive Board are

“Any decisions that are reserved for the owners should also be clearly documented to reduce the likelihood of any misunderstandings. There is

cannot successfully grow businesses together for

that they may have completely different longer term goals,” he said.

The challenges of governance structure, succession planning and growing number of family members are just a few of the many challenges faced by family business owners in the UAE.

FAMILY GUY:

Bill Humphreys is a renowned wealth manager, !nancial trainer and Managing Consultant at Eureka Financial Ltd. He is currently working as a trainer and consultant focusing on the wealth management needs of high net worth private clients, their families and their businesses.

24 December 2012

FAMILY BUSINESS

INFORMANT’S DILEMMA

Whistleblowing in the Middle East is still a sensitive issue, while legislation of law that protects those who

report fraud, lags behind

WHISTLE BLOWING

26 December 2012

INFORMANT’S DILEMMA

Whistleblowing in the Middle East is still a sensitive issue, while legislation of law that protects those who

report fraud, lags behind

WHISTLE BLOWING

26 December 2012

IN THE Middle East the topic of Whistleblowing is more than ever at the centre of the agenda when there are discussions about corporate

governance. Nonetheless, it is a subject that all too often arouses a profound sense of unease amongst management, who fear a loss of control or believe that it may be abused by disgruntled employees or third parties with an axe to grind.

The term ‘whistleblowing’ is considered negative in some quarters as it may have connotations of being a ‘snitch’, or in some way disloyal.

ADVISORY DIRECTOR, KPMG

CHARLES ROBSON

27

WHISTLE BLOWING

SPEAKING OUT: A whistleblower will require both courage and encouragement to report fraud, as he may face contradictory loyalties from colleagues, higher management, customers or the wider public.

28 December 2012

WHISTLE BLOWING

29

Internal whistleblowing mechanisms provide management with the opportunity to address issues in-house before they are reported to a wider public or even to regulators.

WHISTLE BLOWING

There lacks a comprehensive legislation that provides for protection of corporate fraud informants, however, some provisions in the law can be applied to hold organisations criminally liable

WHISTLEBLOWINGIN THE UAE

WHISTLEBLOWING HAS evolved over the years and is now an integral part of Western corporate

governance programmes to benefit the community and reduce organisational risk as well as prevent damages and liability.

Whistleblowing was initially recognised in the US after many incidents were adjudicated in US Courts, and authorities recognised that adverse effects and liabilities would be reduced if there were preemptive measures in place to mitigate risk.

In the US, despite the fact that in early 1924 scientists established a clear link between

product liability lawsuit against asbestos manufacturers was successfully publicised in 1971. Imagine how many people died over the

there was no protection offered at that time for whistleblowers to report this publicly for the

There lacks a comprehensive legislation that provides for protection of corporate fraud informants, however, some provisions in the law can be applied to hold organisations criminally liable

COUNSEL, HABIB AL MULLA & COMPANY

MICHAEL NAROZ

WHISTLEBLOWING

30 December 2012

A developed whistleblowing system enables the authorities, and senior management within an organisation, to minimise risk, liability and stop fraud.

There are, however, some provisions in UAE legislation that can be applied to hold organisations and their senior management criminally liable and make it a mandatory duty for employees to report any wrongdoing they become aware of.

Ministerial Resolution No 518 of 2009 for Federal Law No 4 of 2000 regulating Securities and

“A set of rules, standards and procedures that aim at achieving corporate discipline in the management of the company in accordance with international standards and approaches through determination of responsibilities and duties of members of boards of directors and the executive management of the company, taking into consideration protection of shareholders' and stakeholders' equity”

Organisations incorporated in the UAE need to implement a reporting system within their corporate governance programme to ensure transparency under the law. This is not optional, it is necessary to achieve compliance with UAE laws.

As mentioned earlier, organisations may be held criminally liable for any monetary crimes or the violation of certain laws. Criminal Law prohibits fraud, corruption and monetary crimes such as embezzlement. In addition, the Anti-‐Money Laundering Law and the Companies Law prohibit certain acts perpetrated by individuals or corporate entities through their legal representatives (CEO, directors) resulting in the organisation and perpetrators being held liable.

Article 65 of the Penal Code states:

“Juristic persons [Corporate Personnel] other than

criminally liable for the crimes perpetrated by

account or in their name.”

The asbestos case, and many others causing damage to society, triggered the need to adopt a law protecting whistleblowers in the US. In 1978, US Congress passed the Civil Service Reform Act, a Federal Law, to protect the rights of government employees who reported wrongdoing.

This legislation enabled the Federal Government to extend protection for whistleblowers to non-‐governmental employees by enacting the False Claims Act in 1989. Both laws provide protection for the disclosure of information as well as protection for government employees that refuse to participate in wrongful activities at work.

Between 1978 and 1989, States began to provide whistleblower protection to employees as a result of the erosion of the “at-‐will employment” doctrine. This doctrine meant that private, non-‐

reason, including whistleblowing.

This resulted in the State Courts recognising termination at will as a violation of public policy for employees that were terminated for exercising one of their legal rights (that is, refusing to break the law on behalf or in line with employer instructions). Thereafter, State Courts considered it a violation of the law for an employer to terminate an employee ‘at will’ for reporting unsafe or illegal conduct.

In the UAE, the concept of whistleblowing is not that widely known within organisations, with systems usually adopted as part of a corporate governance programme to act as a tool to detect, report or investigate crimes, or violations of the law, health protocol, safety and the environment, as well as serious employee misconduct. A developed whistleblowing system enables the authorities, and senior management within an organisation, to minimise risk, liability and stop fraud.

Whistleblowing is a major element in an organisation’s corporate governance programme that ensures organisations are compliant with UAE laws. The UAE currently does not have comprehensive legislation that provides for mandatory protection of whistleblowers from employer retaliation or alienation by any means nor provisions for reporting to combat wrongdoings.

31

WHISTLEBLOWING

A developed whistleblowing system enables the authorities, and senior management within an organisation, to minimise risk, liability and stop fraud.

There are, however, some provisions in UAE legislation that can be applied to hold organisations and their senior management criminally liable and make it a mandatory duty for employees to report any wrongdoing they become aware of.

Ministerial Resolution No 518 of 2009 for Federal Law No 4 of 2000 regulating Securities and

“A set of rules, standards and procedures that aim at achieving corporate discipline in the management of the company in accordance with international standards and approaches through determination of responsibilities and duties of members of boards of directors and the executive management of the company, taking into consideration protection of shareholders' and stakeholders' equity”

Organisations incorporated in the UAE need to implement a reporting system within their corporate governance programme to ensure transparency under the law. This is not optional, it is necessary to achieve compliance with UAE laws.

As mentioned earlier, organisations may be held criminally liable for any monetary crimes or the violation of certain laws. Criminal Law prohibits fraud, corruption and monetary crimes such as embezzlement. In addition, the Anti-‐Money Laundering Law and the Companies Law prohibit certain acts perpetrated by individuals or corporate entities through their legal representatives (CEO, directors) resulting in the organisation and perpetrators being held liable.

Article 65 of the Penal Code states:

“Juristic persons [Corporate Personnel] other than

criminally liable for the crimes perpetrated by

account or in their name.”

The asbestos case, and many others causing damage to society, triggered the need to adopt a law protecting whistleblowers in the US. In 1978, US Congress passed the Civil Service Reform Act, a Federal Law, to protect the rights of government employees who reported wrongdoing.

This legislation enabled the Federal Government to extend protection for whistleblowers to non-‐governmental employees by enacting the False Claims Act in 1989. Both laws provide protection for the disclosure of information as well as protection for government employees that refuse to participate in wrongful activities at work.

Between 1978 and 1989, States began to provide whistleblower protection to employees as a result of the erosion of the “at-‐will employment” doctrine. This doctrine meant that private, non-‐

reason, including whistleblowing.

This resulted in the State Courts recognising termination at will as a violation of public policy for employees that were terminated for exercising one of their legal rights (that is, refusing to break the law on behalf or in line with employer instructions). Thereafter, State Courts considered it a violation of the law for an employer to terminate an employee ‘at will’ for reporting unsafe or illegal conduct.

In the UAE, the concept of whistleblowing is not that widely known within organisations, with systems usually adopted as part of a corporate governance programme to act as a tool to detect, report or investigate crimes, or violations of the law, health protocol, safety and the environment, as well as serious employee misconduct. A developed whistleblowing system enables the authorities, and senior management within an organisation, to minimise risk, liability and stop fraud.

Whistleblowing is a major element in an organisation’s corporate governance programme that ensures organisations are compliant with UAE laws. The UAE currently does not have comprehensive legislation that provides for mandatory protection of whistleblowers from employer retaliation or alienation by any means nor provisions for reporting to combat wrongdoings.

31

WHISTLEBLOWING

Article 2 of Federal Law No 4 of 2002 Anti-‐

Money Laundering Law (AML) states:

1. Whoever undertakes intentionally or assists in any of the following acts with regards to the returns

of any of the crimes set forth in clause 2 of the present

article shall be deemed a perpetrator of a money

laundering crime:

a.in view of disguising or concealing the illegal sources

thereof.

b.

ownership of the returns.

c.said returns.

2.

shall be the returns of the following crimes:

a. Narcotics and psychotropic substances

b. c. Crimes breaching the provisions of the

environmental law

d.e.public funds

f. Crimes of fraud and breach of trust and related acts

g. Any other related crimes set forth in the international conventions to which the State adheres.

In addition, governmental and corporate entities have a duty to report any violation of the Penal Code or any criminal act committed under other laws such as the AML law. Individuals within any organisation have the same duty to report any crime committed within their organisation.

Article 3 of the AML states:

commercial and economic facilities operating in the

State shall be criminally liable for the crime of money

laundering should it be committed intentionally

in the name or on behalf thereof and such without

prejudice to the administrative sanctions set forth in

the law.”

Article 272 of the Penal Code States:

Article 274 of the same code states:

that a crime has been perpetrated and abstains to

report this to the competent authorities.”

violation under Article 111 and in general holds all companies and their representatives, regardless of their structure, criminally liable if they violate any of the provisions of this law.

In addition, there are many other provisions within other UAE laws, such as Federal Law No 4 of 2000 Concerning the Emirates Securities and Commodities Authority and Market, which subjects entities and their representatives to criminal liability. Also, civil liability under the Civil Transaction Law No 5 of 1985 under Articles 313(1)(b) on vicarious liability and Articles 282, 283, 291, 293(1), 300 and 304(1)(2) contain substantial provisions.

proper whistleblowing system outweigh the risks associated with not adopting one. In many corporations and governmental entities, it is a core part of their corporate governance

32 December 2012

WHISTLEBLOWING

33

programme. Whistleblowing provisions provide transparency, giving governmental authorities

of what is going on. Such programmes are also commonly used as a preventive mechanism within governmental or corporate structuresto combat wrongdoing internally, mitigating worse scenarios before they happen.

The concept of whistleblowing goes beyond auditing and HR related matters, which are the main focus of most corporate governance programs. Court cases, however, highlight other unethical or illegal activities within the operations of government/corporate structures which may expose the entity to higher risks such as fraud, AML, corruption, bribery, unsafe or illegal conduct by employees (health/environment violations) and direct/indirect civil liability whether this is through product malfunction or service malpractice.

The following case illustrates the effectiveness of whistleblowing mechanisms, and how they are

A managing director in an organisation, whilst still in employment, set up a similar business with a similar name, conducting similar activities and used the authority conferred by his employer to issue Letters of Credit to buy goods for his own

entity using his employer’s funds. He also hired the CFO and logistics manager as employees of his own entity to mitigate the likelihood of either of them blowing the whistle.

By accident, one of the Letters of Credit was placed on the CEO’s desk, prompting the CEO to look into the matter, which took some time in exposing the corrupt activities. The company unfortunately did not have a whistleblowing policy in place and it is arguable that, if it did, it would have encouraged employees to come forward and report the misconduct, mitigating the ensuing loss that the company had to bear. In the end, the company lost over $100 million over the space of three years. A costly lesson.

The objective of an internal whistleblowing policy as part of a corporate governance programme is to encourage employees to report ethical and legal violations to internal authorities so that action can be taken immediately to resolve the problem.

It also serves to minimise the organisation's exposure to the damages that can occur if employees circumvent internal policies. Most importantly, employees need to know that the organisation is serious about adherence to codes of conduct.

successful whistleblowing programme. These

a proper corporate governance programme even where there is a code of ethics, due to improper implementation.

There is a multinational corporation that has an extensive code of conduct. One of its managers established a business that operates in competition with his employer. When senior management discovered the fact that

The objective of an internal whistleblowing policy as part of a corporate governance programme is to encourage employees to report ethical and legal violations to internal authorities so that action can be taken.

WHISTLEBLOWING

he embezzled money and poached customers, they immediately fired him without taking any of the necessary steps to prove his wrongful conduct or his violation of the company’s code of conduct.

They also failed to perform an internal

wrongful actions. Ironically, when the company

against the company for wrongful termination and the company ended up with a court order to pay a substantial amount of compensation to the employee for wrongful termination.

This case highlights the importance for companies to have proper systems in place in order to avoid this type of scenario and mitigate risks, which as we see, can be substantial and arguably unfair.

a lack of trust in the internal system the unwillingness of employees to be "snitches" the belief that management is not held to the

same standard fear of retaliation fear of alienation by colleagues

There are two main risks associated with the adoption of formal whistleblowing procedures. First from the employees perspective, whereby reporting a violation may be hazardous for the employee in terms of their personal and professional reputation, especially where there is no transparent or well-‐developed whistleblowing culture.

Employees may also be hesitant to ‘blow the whistle’ even with legal protection, as they may fear retaliation in the form of being ignored by co-‐workers, being closely supervised, receiving unjust appraisals or just feeling alienated.

From the organisation’s perspective, it may be

exposed to severe reputational damage in the event that a violation of law is reported to the media or a government agency. This may also have substantial economic consequences and loss of credibility, especially where the company is publicly listed, which may affect its stock prices.

Another risk is where the employer does not undertake a preliminary investigation to ensure the violation reported is genuine in order to take the decision to escalate the matter and conduct a full investigation.

If the decision is wrong, the corporation may be held criminally liable for any false accusation, defamation or violation of UAE laws. In the event an employee “blows the whistle”, it is also crucial for the organisation to make preliminary inquiries into how the information was obtained by the whistleblower and whether it was obtained legally.

There is a very thin line between the prevention of violations and the legality in investigating them. Gathering information in any illegal or unethical way can result in criminal liability for the entity investigating the reported violation. By way of example, if an employee reports a violation of law but has come across this information illegally, such as through eavesdropping on someone’s private life, or by accessing or reading another employee’s emails is a violation of cybercrime provisions under Federal Law No 2 of 2006.

Under Federal Law No 2 of 2006, in order for the employer to check an employee’s email, the employer needs to have the employee disclose that they are aware that the employer is the owner of the email account, and that it has the main access to the account, and that the password is given by or created by the employer and the employee is only a temporary or secondaryuser for purposes of employment only. Without this, the company can face risks during their investigation due to accessing the private information of others, which constitutes a crime.

bad assessment between damage to business reputation if revealed, and violation of law, and the sequence of exposure. This can also expose the company to liability.

Organisations need to consider implementing a sophisticated whistle blowing system to send a message about their ethical conduct to society, which emphasises compliance with law.

34 December 2012

WHISTLEBLOWING

he embezzled money and poached customers, they immediately fired him without taking any of the necessary steps to prove his wrongful conduct or his violation of the company’s code of conduct.

They also failed to perform an internal

wrongful actions. Ironically, when the company

against the company for wrongful termination and the company ended up with a court order to pay a substantial amount of compensation to the employee for wrongful termination.

This case highlights the importance for companies to have proper systems in place in order to avoid this type of scenario and mitigate risks, which as we see, can be substantial and arguably unfair.

a lack of trust in the internal system the unwillingness of employees to be "snitches" the belief that management is not held to the

same standard fear of retaliation fear of alienation by colleagues

There are two main risks associated with the adoption of formal whistleblowing procedures. First from the employees perspective, whereby reporting a violation may be hazardous for the employee in terms of their personal and professional reputation, especially where there is no transparent or well-‐developed whistleblowing culture.

Employees may also be hesitant to ‘blow the whistle’ even with legal protection, as they may fear retaliation in the form of being ignored by co-‐workers, being closely supervised, receiving unjust appraisals or just feeling alienated.

From the organisation’s perspective, it may be

exposed to severe reputational damage in the event that a violation of law is reported to the media or a government agency. This may also have substantial economic consequences and loss of credibility, especially where the company is publicly listed, which may affect its stock prices.

Another risk is where the employer does not undertake a preliminary investigation to ensure the violation reported is genuine in order to take the decision to escalate the matter and conduct a full investigation.

If the decision is wrong, the corporation may be held criminally liable for any false accusation, defamation or violation of UAE laws. In the event an employee “blows the whistle”, it is also crucial for the organisation to make preliminary inquiries into how the information was obtained by the whistleblower and whether it was obtained legally.

There is a very thin line between the prevention of violations and the legality in investigating them. Gathering information in any illegal or unethical way can result in criminal liability for the entity investigating the reported violation. By way of example, if an employee reports a violation of law but has come across this information illegally, such as through eavesdropping on someone’s private life, or by accessing or reading another employee’s emails is a violation of cybercrime provisions under Federal Law No 2 of 2006.

Under Federal Law No 2 of 2006, in order for the employer to check an employee’s email, the employer needs to have the employee disclose that they are aware that the employer is the owner of the email account, and that it has the main access to the account, and that the password is given by or created by the employer and the employee is only a temporary or secondaryuser for purposes of employment only. Without this, the company can face risks during their investigation due to accessing the private information of others, which constitutes a crime.

bad assessment between damage to business reputation if revealed, and violation of law, and the sequence of exposure. This can also expose the company to liability.

Organisations need to consider implementing a sophisticated whistle blowing system to send a message about their ethical conduct to society, which emphasises compliance with law.

34 December 2012

WHISTLEBLOWING

Organised by ICAEW, these prestigious awards will recognise and celebrate professional excellence and best practice in the accountancy and finance profession.

Guest Speaker Lord Sebastian Coe KBE

Master of Ceremonies Richard Dean, Dubai Eye

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PLATINUM SPONSOR GOLD SPONSOR

RESERVE YOUR PLACE TODAYE [email protected] 04 408 0000accountancyandfinanceawards.ae

TRUST IS a key element in all relationships that we have with others whether personal or business. When that trust breaks

down or is betrayed, as it often is when fraud happens, the consequences can be dire.

Here in the Gulf, Owner Managed Businesses are an important if not dominant feature of business life. These businesses are mostly very successful and enjoy the trust of their customers and business partners – for these businesses their reputation is of great value.

Now with second, third or even fourth generation members of the family involved in the management and day to day operations of these businesses, many have expanded far beyond their original roots becoming diverse entities operating in multiple sectors and often representing international brands and familiar household names.

It’s also inevitable that with such expansion, the role of the family at the hear of the business, controlling and directing it and intimately knowing what is going on, is harder to achieve.

The appointment of managers from outside the family usually brings wider expertise, a global focus and opportunities

fair to say, that where the family owners may have not always agreed with strategy among

themselves, the external senior management

Such managers often therefore become extremely trusted by owners – sometimes almost close

issues too for owners.

Regrettably, that trust by the owner in the manager may not necessarily be reciprocated. For various reasons, whether greed, opportunity or some other perceived dissatisfaction, some members of the senior management might abuse that trust.

When we look at reasons why fraud or other business misconduct happens, we will often hear that the fraudster considered they were

A lack of correct corporate governance

in owner managed businesses is likely to

accentuate risk of rogue senior managers doing what they want and for

their personal bene!t

HEAD OF FRAUD AND FORENSIC, GRANT THORNTON UAE

DANNY MCLAUGHLIN

FORENSIC AUDITING

36 December 2012

not being paid enough, that the rewards they expected were not coming their way. A recent investigation we have been working on shows us that the chief executive concerned was extremely well rewarded by the owner. He had acquired many tens of millions worth of assets in less than 10 years having previously been a junior auditor. The owner would regularly pay him very sizeable bonuses and yet all of this appears not to have been enough for him.

He had acquired a virtual blank cheque to increase his pay, authorise bonuses and accept commissions from his employer’s Group companies without any reference to or oversight by the owner. He agreed settlements with indebted customers and appears to have taken portions of the settlements in cash.

He appointed relatives to various jobs and he created a parallel management structure in group businesses answering solely to him so as to circumvent effective scrutiny by general managers of the group companies. The owner trusted him like a son, and this was how that trust was betrayed.

In another case, an outsourcing arrangement to run a key part of an owner’s group saw the appointment of a general manager from the outsourced supplier’s business. It raised obvious questions about where that manager’s loyalty truly lie.

These questions were answered in what appears to have been a ten year reign of working primarily

management, hiding the fact that the general manager also managed two other businesses for his original managers and embroiling the company in a series of serious regulatory and compliance breaches.

Throughout the ten year period that he acted in this underhand way, the owner had no idea of what was really going on until a partner ceased to do business with them because they recognised they were also at serious exposure to regulatory and compliance sanctions.

a CFO had agreed a number of joint venture arrangements, all of which turned out to be utter

underlying issue but rather a lack of effective due

diligence and a disregard for the alarm bells raised by pre-‐acquisition audit reports which led the group into deals that it should have walked away from.

Unfortunately in this case, the owner and most other members of the management team were unable to penetrate the shield the CFO’s seems to have erected to prevent scrutiny. Only with a rigorous and detailed forensic review of the facts, looking carefully at the timeline of the various joint venture deals, email trails, putting

for information and to provide rationale for the decision making process, did the CFO see that their position was untenable and resign.

In all these cases the owners had appointed apparently talented and trustworthy people to run their business for them. In all cases, this trust appears to have been misplaced. Trust is as we said at the beginning vital in our daily lives for healthy relationships. But that trust has to be earned and once earned, that trust needs to continually be maintained.

The adoption of what is called professional sceptisim is vital. An owner needs to be able to ask questions and ask for more evidence or

should be prepared to provide such information without it being requested.

Big problems lie ahead when senior management believe they no longer have any need to justify their actions or plans to the owner. The fact that owner managed businesses are less likely to have mature forms of corporate governance in place only accentuates the risk of rogue senior managers doing what they want and for their personal

In one case, the owner poignantly told us, that by the end, and just prior to a fraud being exposed, he felt, as owner, as if the CEO was in fact acting as the owner.

The appointment of managers from outside the family usually brings wider expertise, a global focus and opportunities for cost savings and efficiency gains.

37

FORENSICAUDITING

TRUST IS a key element in all relationships that we have with others whether personal or business. When that trust breaks

down or is betrayed, as it often is when fraud happens, the consequences can be dire.

Here in the Gulf, Owner Managed Businesses are an important if not dominant feature of business life. These businesses are mostly very successful and enjoy the trust of their customers and business partners – for these businesses their reputation is of great value.

Now with second, third or even fourth generation members of the family involved in the management and day to day operations of these businesses, many have expanded far beyond their original roots becoming diverse entities operating in multiple sectors and often representing international brands and familiar household names.

It’s also inevitable that with such expansion, the role of the family at the hear of the business, controlling and directing it and intimately knowing what is going on, is harder to achieve.

The appointment of managers from outside the family usually brings wider expertise, a global focus and opportunities

fair to say, that where the family owners may have not always agreed with strategy among

themselves, the external senior management

Such managers often therefore become extremely trusted by owners – sometimes almost close

issues too for owners.

Regrettably, that trust by the owner in the manager may not necessarily be reciprocated. For various reasons, whether greed, opportunity or some other perceived dissatisfaction, some members of the senior management might abuse that trust.

When we look at reasons why fraud or other business misconduct happens, we will often hear that the fraudster considered they were

A lack of correct corporate governance

in owner managed businesses is likely to

accentuate risk of rogue senior managers doing what they want and for

their personal bene!t

HEAD OF FRAUD AND FORENSIC, GRANT THORNTON UAE

DANNY MCLAUGHLIN

FORENSIC AUDITING

36 December 2012

not being paid enough, that the rewards they expected were not coming their way. A recent investigation we have been working on shows us that the chief executive concerned was extremely well rewarded by the owner. He had acquired many tens of millions worth of assets in less than 10 years having previously been a junior auditor. The owner would regularly pay him very sizeable bonuses and yet all of this appears not to have been enough for him.

He had acquired a virtual blank cheque to increase his pay, authorise bonuses and accept commissions from his employer’s Group companies without any reference to or oversight by the owner. He agreed settlements with indebted customers and appears to have taken portions of the settlements in cash.

He appointed relatives to various jobs and he created a parallel management structure in group businesses answering solely to him so as to circumvent effective scrutiny by general managers of the group companies. The owner trusted him like a son, and this was how that trust was betrayed.

In another case, an outsourcing arrangement to run a key part of an owner’s group saw the appointment of a general manager from the outsourced supplier’s business. It raised obvious questions about where that manager’s loyalty truly lie.

These questions were answered in what appears to have been a ten year reign of working primarily

management, hiding the fact that the general manager also managed two other businesses for his original managers and embroiling the company in a series of serious regulatory and compliance breaches.

Throughout the ten year period that he acted in this underhand way, the owner had no idea of what was really going on until a partner ceased to do business with them because they recognised they were also at serious exposure to regulatory and compliance sanctions.

a CFO had agreed a number of joint venture arrangements, all of which turned out to be utter

underlying issue but rather a lack of effective due

diligence and a disregard for the alarm bells raised by pre-‐acquisition audit reports which led the group into deals that it should have walked away from.

Unfortunately in this case, the owner and most other members of the management team were unable to penetrate the shield the CFO’s seems to have erected to prevent scrutiny. Only with a rigorous and detailed forensic review of the facts, looking carefully at the timeline of the various joint venture deals, email trails, putting

for information and to provide rationale for the decision making process, did the CFO see that their position was untenable and resign.

In all these cases the owners had appointed apparently talented and trustworthy people to run their business for them. In all cases, this trust appears to have been misplaced. Trust is as we said at the beginning vital in our daily lives for healthy relationships. But that trust has to be earned and once earned, that trust needs to continually be maintained.

The adoption of what is called professional sceptisim is vital. An owner needs to be able to ask questions and ask for more evidence or

should be prepared to provide such information without it being requested.

Big problems lie ahead when senior management believe they no longer have any need to justify their actions or plans to the owner. The fact that owner managed businesses are less likely to have mature forms of corporate governance in place only accentuates the risk of rogue senior managers doing what they want and for their personal

In one case, the owner poignantly told us, that by the end, and just prior to a fraud being exposed, he felt, as owner, as if the CEO was in fact acting as the owner.

The appointment of managers from outside the family usually brings wider expertise, a global focus and opportunities for cost savings and efficiency gains.

37

FORENSICAUDITING

PERSONALITY & PRACTICE

38 December 2012


38 December 2012

CURIOSITY AUDACITY self assurance, intelligence and brilliance. These traits are easily discerned as I settle down

for an interview with Jennifer Mathias.

Sitting across a large mahogany table in Coutts’ newly-‐opened premises at Dubai International Financial Centre (DIFC), of course I’m curious to know how a young woman rose through the ranks to head the Wealth division of one of the oldest and most prestigious banks in the UK, as Chief Financial Officer.

While admitting that the vast percentage of CFOs in the banking community are male, Jennifer says many women have also advanced a great deal in the business world, however they face more social and personal challenges than men, and this often affects their ability to move up the corporate ladder and gain the experience needed to become top managers.

“From my perspective, I have seen and worked with women who are equally technically brilliant [as men]. However, they often do not possess self assurance. Showing confidence in the boardroom, which, more often than not is male dominated, is essential in demonstrating that you have the right skill set for the job,” the executive says.

The Chartered Institute of Management Accountant (CIMA) qualified accountant joined Coutts earlier this year, where she was appointed to head the bank’s finance division, as Chief Financial Officer.

In her new role, she is responsible for building a centre of excellence for Coutts’ finance teams,

39


and also works closely with colleagues in RBS Group Finance “to ensure consistency and alignment across the function.”

Jennifer talks proudly about being part of a team that was at the front line in implementing measures that would help bring the banking industry back to becoming reputable.

“I have been lucky and operated in two banks

TSB] CFO’s office, Commercial Banking and Wholesale Banking Finance Executive.

Speaking about her key career defining moments in the journey to her current position, Jennifer recounts her experience vividly.

“There were two career defining moments for me. Shortly after qualifying from the Graduate programme, I was working in the SME banking business. The managing director of that unit was a very bold and inspiring leader, who implemented a brand new strategy that I thought, was really ahead of its time.”

“I had observed leaders in the finance community in action but this was my first exposure of truly inspiring and commercial leadership. I was three years into my career and his approach really motivated me. So, because of my interest in the strategy and my eagerness

Post the financial crisis, there is a huge shift focus from the balance sheet, where the CFO is looking at the financial books to ensure there’s enough liquidity, funding and capital to guarantee smooth operations of the business.

that have strong audit and accounting functions. I went through a period where we implemented the Sarbanes-‐Oxley Act, a rule that was created to rebuild public trust, in the wake of corporate and accounting scandals,” she says.

The Sarbanes-‐Oxley federal legislation requires publicly traded businesses conform to enhanced standards in audit procedures and financial transactions and, in Jennifer’s opinion, “the act has become standard practice by making a fundamental improvement to the baseline controls across the industry.”

Hers has been a journey that has largely been in the banking industry.

“I started my banking career straight from university, where I joined the Lloyds TSB Finance graduate programme and qualified as an accountant under their sponsorship, thereafter moving into a range of finance and risk leadership roles at Lloyds Banking Group, and most recently as Finance Director of Corporate Banking,” she says.

Her previous positions include Head of Credit Risk and Compliance for the Lloyds TSB Commercial Banking division. She has also held a number of senior finance roles, working with board level teams including the Group (Lloyds

WOMAN ON TOP:

Coutts Chief Financial

40 December 2012


41

to be involved in everything, I in turn acquired a number of executive sponsors who coached, trained, inspired and really pushed me into the roles that normal career pursuits may not have.”

“This experience later provided me with an opportunity to work with the board team as Executive Assistant to the (Lloyds TSB) Group CFO,” the banker says.

“The other defining moment took place three years before the global financial downturn, I assumed a Head of Risk role, running a large part of the Risk division for the SME banking unit, supervising all the credit risk models, implementation of Basel II, impairments and all matters of Compliance and AML (Anti Money Laundering) management. Challenges were aplenty but I was well prepared to face them.”

“So those were the key defining moments that spurred me on and prepared me for my next role as Finance Director for the Corporate Division (including the integration of Lloyds TSB and HBOS) which ultimately prepared me for an external move in private banking and wealth management, at Coutts,” she adds.

Jennifer took over the CFO role at Coutts when the banking industry was still in a challenging and strategic repositioning phase following the market downturn that began in 2008. She says the subsequent events after the difficult period shaped and redefined the responsibilities of the CFO a great deal.

in focus to the balance sheet, not just in banking but across the industry, where the CFO is looking

there’s enough liquidity, funding and capital to guarantee smooth operations of the business.”

“In particular, there are a lot of new regulations that have been issued, some of them need to be implemented instantaneously and some of them gradually. Compliance it not optional so implementation of new regulations have to take place at the same time, ensuring that the business is functioning properly.,” Jennifer says.

“The other main challenge is leadership; leading your team and your business through the constant pipeline of change. There are technical changes that you need to educate across the business and the board teams, calling out the impact regulatory changes may have on business strategy, product design, customer strategies and financial planning objectives.”

“We have to interpret the new technical definitions, identify how material the compliance gap might be and then build consensus on the best and most practical approach to implementation, whilst still maintaining commercial viability and full compliance with internal risk appetite and the intention of the external regulation.”

CFOs are ultimately evaluated by the business’ overall financial outlook, but Jennifer says pressure to achieve the objectives set by the board “is part of the daily CFO routine.”

“At Coutts we have been fortunate because the bank has held steady during the banking crisis, unlike what was witnessed in some other organisations,” she says.

“I am lucky that my division’s performance has been robust and not lost sight of the client in the turmoil. I’m a very forward-‐looking CFO and I take responsibility for informing our

The Sarbanes-Oxley federal legislation requires publicly traded businesses conform to new standards in audit procedures and financial transactions.


41

to be involved in everything, I in turn acquired a number of executive sponsors who coached, trained, inspired and really pushed me into the roles that normal career pursuits may not have.”

“This experience later provided me with an opportunity to work with the board team as Executive Assistant to the (Lloyds TSB) Group CFO,” the banker says.

“The other defining moment took place three years before the global financial downturn, I assumed a Head of Risk role, running a large part of the Risk division for the SME banking unit, supervising all the credit risk models, implementation of Basel II, impairments and all matters of Compliance and AML (Anti Money Laundering) management. Challenges were aplenty but I was well prepared to face them.”

“So those were the key defining moments that spurred me on and prepared me for my next role as Finance Director for the Corporate Division (including the integration of Lloyds TSB and HBOS) which ultimately prepared me for an external move in private banking and wealth management, at Coutts,” she adds.

Jennifer took over the CFO role at Coutts when the banking industry was still in a challenging and strategic repositioning phase following the market downturn that began in 2008. She says the subsequent events after the difficult period shaped and redefined the responsibilities of the CFO a great deal.

in focus to the balance sheet, not just in banking but across the industry, where the CFO is looking

there’s enough liquidity, funding and capital to guarantee smooth operations of the business.”

“In particular, there are a lot of new regulations that have been issued, some of them need to be implemented instantaneously and some of them gradually. Compliance it not optional so implementation of new regulations have to take place at the same time, ensuring that the business is functioning properly.,” Jennifer says.

“The other main challenge is leadership; leading your team and your business through the constant pipeline of change. There are technical changes that you need to educate across the business and the board teams, calling out the impact regulatory changes may have on business strategy, product design, customer strategies and financial planning objectives.”

“We have to interpret the new technical definitions, identify how material the compliance gap might be and then build consensus on the best and most practical approach to implementation, whilst still maintaining commercial viability and full compliance with internal risk appetite and the intention of the external regulation.”

CFOs are ultimately evaluated by the business’ overall financial outlook, but Jennifer says pressure to achieve the objectives set by the board “is part of the daily CFO routine.”

“At Coutts we have been fortunate because the bank has held steady during the banking crisis, unlike what was witnessed in some other organisations,” she says.

“I am lucky that my division’s performance has been robust and not lost sight of the client in the turmoil. I’m a very forward-‐looking CFO and I take responsibility for informing our

The Sarbanes-Oxley federal legislation requires publicly traded businesses conform to new standards in audit procedures and financial transactions.


people about where the business is heading financially and how it intends to continue that momentum. I spend a lot of time discussing our forecasts with my teams and executive colleagues, preferring to focus on how we are going to deliver in the next six months rather than dwelling too long on what happened, for instance six months ago,” the banker adds.

CFOs are generally known to focus more on reducing operational expenditure and Jennifer supports this approach, saying that cost cutting is a critical measure in any business, however, “if you just focus on pure cost cutting today I do not think you would deliver the same results as you would say, ten years ago. You need to think of costs in terms of how they drive value for money, service levels and influence the overall client experience and meeting of their needs.”

“If you’re delivering a trusted and highly valued service to your clients, that in turn earns you the right to secure a deeper relationship with your customer, thereby securing long term advocacy and reduced volatility in revenues. For that reason, maximising the servicing of needs to a long term client base, as opposed to chasing a broad category of new clients every year, provides a stable base line from which to grow and invest in your business. So for me it’s the long term gain and a more strategic focus on costs.”

Elucidating how the relationship between the CFO and the CEO has changed over the recent years, the banker says that she feels the bond is now a lot closer, “not only between the CFO and the CEO, but also with the Chief Risk Officer (CRO).”

“It comes back to the roles that are guiding the business through regulation and that requires the technical expertise of both the Risk and Finance officers, driving the business and the functions in tandem.

As a female CFO, finding the right balance and managing time to be successful in a demanding career can be tough, but Jennifer takes it all in her stride.

“My biggest challenge is finding the time to go to the gym,” she says with a chuckle, before swiftly interjecting… “The main challenge I face is finding quality time to listen to people and be able to advise them on the many various areas of our business. Since arriving at Coutts, I have

very quickly found that there’s often a queue outside my door. I love to hear and understand how the business solves its problems and where I can help. There is a constant pipeline of new challenges facing banking and I am keen to offer guidance and support, whether it’s technical, business performance related, or strategic and project related.”

“So Coutts has definitely provided a platform where my commercial skills seem to be valued more than just counting and taking care of the numbers and figures,” Jennifer says.

While giving an assessment of the current state of global economy, the executive expresses concern over the slow pace of recovery, particularly in the Eurozone.

“There’s still volatility in that market, however in London we are seeing a lot of clients and businesses moving from the Eurozone and into the UK particularly from Italy, France, Spain and Portugal.”

NUMBER CRUNCHER:


42 December 2012

“Ironically, that is actually good for us because it presents an opportunity to capitalise on the non-‐domiciles.”

“We are also seeing more opportunities in our growth markets including the Middle East, Russia and Asia, and hence our commitment to the region here. That is what has prompted us to expand our operations and open the new office at the Dubai International Financial Centre (DIFC), combined with the broader strategy to target and serve the high net worth clients in this region.” the executive says.

And what does the high-‐f lying banker consider key factors to becoming a successful CFO?

“Being commercial; being interested in the business; being a trusted advisor, having integrity, having a plan… and sticking to it, (unless there’s a good reason that warrants a detour from that plan); building and motivating a committed team that fully supports you, understands what you are trying to achieve and allows you to lead them towards what needs to

The subsequent events following the market downturn that began in 2008 shaped and redefined the responsibilities of the CFO a great deal.

be delivered.” she says.

At Coutts, Jennifer is also responsible for building

teams. While offering vital tips on the hiring,

talent, she emphasises that taking on tough assignments is key in advancing one’s career.

“I’ve built up a number of teams during the last ten years and my key ingredients in trying to attract and retain high quality staff include; sponsorship, demonstrating and investment in their development, coaching and giving them the opportunity to believe in themselves by allowing them to take on some testing deliverables.”

“When you hire raw talent, the individuals may not always be confident that they will be able to fulfill certain tasks. To encourage individuals to develop it is important to provide roles that allow them to challenge their ability, always raising the bar but ensuring they know they have your support.” she advises.

All work and no play would make Jennifer's life dull, and for that reason the CFO likes to unwind with her favourite game of polo. She has been

handicap, and “for the better part of last season, I spent a good amount of time learning the hard way, with lots of bruises and tired muscles.”

“I’ve been playing polo for nearly two years, having learnt the ropes when I was staying on a polo farm in Argentina. I got hooked on to the sport, then after a while I went back to London where I joined a small polo club near Windsor to train and perfect my game,” she says.

And how does she manage to balance her work-‐life?

“Finding a balance is a constant challenge but I can honestly say I’m enjoying all the experiences my career is throwing at me right now,” she says.


43

The Islamic finance industry has reached a new stage of maturity. It has a wider variety of customers and stakeholders and a presence in more countries around the world than ever before.

KPMG and ACCA report calls on standard setters and Islamic banks to work together to harmonise !nancial reporting

THE RAPID global growth in Islamic finance means that action must be taken to ensure that the way in which it is reported financially is

harmonised and made more consistent, a report, based on a series of high level international roundtables, by KPMG and ACCA (the Association of Chartered Certified Accountants), has concluded.

for Islamic

Kuala Lumpur,

GLOBALALIGNMENT

FINANCIAL REPORTING

44 December 2012

The Islamic finance industry has reached a new stage of maturity. It has a wider variety of customers and stakeholders and a presence in more countries around the world than ever before.

KPMG and ACCA report calls on standard setters and Islamic banks to work together to harmonise !nancial reporting

THE RAPID global growth in Islamic finance means that action must be taken to ensure that the way in which it is reported financially is

harmonised and made more consistent, a report, based on a series of high level international roundtables, by KPMG and ACCA (the Association of Chartered Certified Accountants), has concluded.

for Islamic

Kuala Lumpur,

GLOBALALIGNMENT

FINANCIAL REPORTING

44 December 2012

As the IASB seeks to establish IFRS as a single high quality set of global financial reporting standards now is the right time to consider how Islamic finance fits into this global framework.

45

FINANCIAL REPORTING

ASSESING THE

CFO Executive job search consultant Shane

Phillips examines critical areas in the hiring and selection process of top

management employees

BUSINESS INSIGHTS

46 December 2012

This interview guide looks at eight critical areas and is designed only as the beginning of an exhaustive selection process. The assessment is generic and a proper selection process should

needs of the organisation.

The eight critical areas are the following:

Organisational Fit Leadership Vision and Creating Shareholder Value Financial Strategy Controls Mitigating Risk

Resource Allocation

It is important to be thorough and the initial interview should take approximately two hours.

but it is not important where one starts the assessment.

1. Organisational Fit CXO executives (the highest level managers) often use a gut check of whether or not they would like working with a candidate during the small talk at the beginning and conclusion of an interview. Use this accepted phase of the interview to retrieve key information about the candidate.

When the candidate answers the questions below take note of not just what they are saying but how they are saying it. Do they present the answer with

-‐What was your favourite class in school (or

(Look for key milestones.)

-‐What are your salary expectations in the short

SEPARATING THE chaff from the wheat is not an easy process for any recruiting agent or employer.

and only 8% passed their initial assessment for the position.

One CFO balked when I asked him to describe his

explained that creating a vision was not the job

Before I go into the eight critical areas of a CFO

advertising boutique called CramerSaatchi that grew to become one of the largest advertising

Under the creative vision of their Financial

times in less than seven years.

The second and more recent example is Mark

invest cash.

He has championed more than eighty acquisitions

CFOs are visionaries. They are strategic leaders who take initiative and are critical impact players

have vision and a sense of direction. An executive cannot transmit something they do not have and

they will not be able to give direction to a large and complex team of executives. Top performers begin

they are meticulous with their execution.

MANAGING DIRECTOR, SHANE PHILLIPS CONSULTANTS

SHANE PHILLIPS

8%CFO CANDIDATES WHO PASSED INITIAL ASSESSMENT OUT OF 250 INTERVIEWED

47

BUSINESS INSIGHTS

ASSESING THE

CFO Executive job search consultant Shane

Phillips examines critical areas in the hiring and selection process of top

management employees

BUSINESS INSIGHTS

46 December 2012

This interview guide looks at eight critical areas and is designed only as the beginning of an exhaustive selection process. The assessment is generic and a proper selection process should

needs of the organisation.

The eight critical areas are the following:

Organisational Fit Leadership Vision and Creating Shareholder Value Financial Strategy Controls Mitigating Risk

Resource Allocation

It is important to be thorough and the initial interview should take approximately two hours.

but it is not important where one starts the assessment.

1. Organisational Fit CXO executives (the highest level managers) often use a gut check of whether or not they would like working with a candidate during the small talk at the beginning and conclusion of an interview. Use this accepted phase of the interview to retrieve key information about the candidate.

When the candidate answers the questions below take note of not just what they are saying but how they are saying it. Do they present the answer with

-‐What was your favourite class in school (or

(Look for key milestones.)

-‐What are your salary expectations in the short

SEPARATING THE chaff from the wheat is not an easy process for any recruiting agent or employer.

and only 8% passed their initial assessment for the position.

One CFO balked when I asked him to describe his

explained that creating a vision was not the job

Before I go into the eight critical areas of a CFO

advertising boutique called CramerSaatchi that grew to become one of the largest advertising

Under the creative vision of their Financial

times in less than seven years.

The second and more recent example is Mark

invest cash.

He has championed more than eighty acquisitions

CFOs are visionaries. They are strategic leaders who take initiative and are critical impact players

have vision and a sense of direction. An executive cannot transmit something they do not have and

they will not be able to give direction to a large and complex team of executives. Top performers begin

they are meticulous with their execution.

MANAGING DIRECTOR, SHANE PHILLIPS CONSULTANTS

SHANE PHILLIPS

8%CFO CANDIDATES WHO PASSED INITIAL ASSESSMENT OUT OF 250 INTERVIEWED

47

BUSINESS INSIGHTS

candidates and can sometimes be asked at the end of the interview.)

-‐What are your salary expectations in the long

mentors and gurus.)

-‐Community involvement / Non-‐vocational

-‐Are you on any boards or management

2. LeadershipDriving a team to achieve goals in a competitive market is one of the most challenging tasks a senior executive can face. Individuals who score high in this section will have a clear idea of what leadership

underperforming team.

-‐What are the key attributes of a successful

3. Vision and Creating Shareholder ValueThe raison d’être of the CFO is to use his or her

the shareholders. This will require the savvy CFO

creative business partner.

these decisions cannot be relegated to anyone else.

Below are a few questions I suggest to test a

-‐Give me an example of your biggest impact as it relates to building shareholder value.

-‐Give me an example of a time when you were able to successfully create and communicate a compelling

The pressures of the CFO position are tremendous and only seasoned candidates who can handle the intense heat of the boardroom should be considered for the position.

leader should epitomise. An organisation can never outperform the capabilities of its leadership so the purpose of leadership should be to create more leaders.

leadership itself. Please see some suggested questions below:

-‐How do you embed your team building philosophy

-‐What do you think of the phrase “You cannot be

you embed this philosophy into your organisation

-‐Describe a time you were able to turn around an

48 December 2012

BUSINESS INSIGHTS

49

-‐Describe a time you had an innovative idea that

-‐Describe a time you felt the vision of your company

4. Financial StrategyFinancial strategy is the bedrock of any top

pillar of any competitive business. It threads throughout every department and every area of the business. A successful strategy will describe

that delivers a sustained competitive edge.

Below are some suggested questions to test a

-‐Have you ever had an idea that has allowed your company to enjoy a sustained

-‐Give me an example of a project you worked on in which you had to switch strategies mid-‐project. How did you recognise a change in strategy was

-‐What is the toughest thing about implementing a

-‐Give me an example of a time you were able to reduce working capital in your organisation.

-‐Your company has requested you to increase the return on assets. What are two strategies to

-‐Describe a time you developed a strategy from scratch. What is your philosophy of strategic development

-‐Do you include outsiders in your strategic

-‐Describe the most exciting acquisition of your

5. Controls

controls to direct human behavior under the

transactions to see where there is a risk of losing assets and then install controls to reduce the

This type of re-‐engineering requires an

The position of CFO is the least forgiving CXO position in many ways, and the failure to perform one’s duties effectively can result in imprisonment.

BUSINESS INSIGHTS

candidates and can sometimes be asked at the end of the interview.)

-‐What are your salary expectations in the long

mentors and gurus.)

-‐Community involvement / Non-‐vocational

-‐Are you on any boards or management

2. LeadershipDriving a team to achieve goals in a competitive market is one of the most challenging tasks a senior executive can face. Individuals who score high in this section will have a clear idea of what leadership

underperforming team.

-‐What are the key attributes of a successful

3. Vision and Creating Shareholder ValueThe raison d’être of the CFO is to use his or her

the shareholders. This will require the savvy CFO

creative business partner.

these decisions cannot be relegated to anyone else.

Below are a few questions I suggest to test a

-‐Give me an example of your biggest impact as it relates to building shareholder value.

-‐Give me an example of a time when you were able to successfully create and communicate a compelling

The pressures of the CFO position are tremendous and only seasoned candidates who can handle the intense heat of the boardroom should be considered for the position.

leader should epitomise. An organisation can never outperform the capabilities of its leadership so the purpose of leadership should be to create more leaders.

leadership itself. Please see some suggested questions below:

-‐How do you embed your team building philosophy

-‐What do you think of the phrase “You cannot be

you embed this philosophy into your organisation

-‐Describe a time you were able to turn around an

48 December 2012

BUSINESS INSIGHTS

49

-‐Describe a time you had an innovative idea that

-‐Describe a time you felt the vision of your company

4. Financial StrategyFinancial strategy is the bedrock of any top

pillar of any competitive business. It threads throughout every department and every area of the business. A successful strategy will describe

that delivers a sustained competitive edge.

Below are some suggested questions to test a

-‐Have you ever had an idea that has allowed your company to enjoy a sustained

-‐Give me an example of a project you worked on in which you had to switch strategies mid-‐project. How did you recognise a change in strategy was

-‐What is the toughest thing about implementing a

-‐Give me an example of a time you were able to reduce working capital in your organisation.

-‐Your company has requested you to increase the return on assets. What are two strategies to

-‐Describe a time you developed a strategy from scratch. What is your philosophy of strategic development

-‐Do you include outsiders in your strategic

-‐Describe the most exciting acquisition of your

5. Controls

controls to direct human behavior under the

transactions to see where there is a risk of losing assets and then install controls to reduce the

This type of re-‐engineering requires an

The position of CFO is the least forgiving CXO position in many ways, and the failure to perform one’s duties effectively can result in imprisonment.

BUSINESS INSIGHTS

experienced individual who is able to identify legacy controls which are no longer needed, and has the foresight to see where the gaps in the system are as markets change direction. What is critical to assess are the candidate’s creative problem solving skills and his or her understanding of human psychology.

Below are some suggested questions regarding controls:

-‐Give me an example of a project you worked on that was suffering from control problems. How did

-‐The CFO often inherits a companywide measurement system that is based on historical needs, rather than the requirements of its current strategic direction. How do you prune out those measurements that are not resulting in behavior

-‐What was your most challenging assignment as it

-‐What is the toughest part about constructing

-‐Give me an example of a project where you were able to design new controls for new systems from scratch.

-‐Give me an example of a time when you were able to create a measurement and reward systems to channel behaviours into correct areas.

-‐Describe a time you effectively removed a control from the business with positive results.

6. Mitigating Risks

the achievement of the business’s objectives as

not only be aware of all past risks to the business but should be proactively seeking the probability that new unknown risk events may occur.

Traditionally companies buttress their risk policies with layers and layers of preventive actions aimed at dealing with risk events that have already occurred. In today’s environment

even so the CFO should be heavily involved in risk assessment and have a deep understanding of risk management. Suggested questions to assess a CFO’s risk competency are listed below:

-‐Give me an example of a time you were able to

for your company.

-‐Looking at our current business model, what do

-‐Describe a time when you aligned your board and stakeholders on the appropriate risk appetite for the business.

-‐Describe a time when you process re-‐engineered

7.

that aims to be competitive and CFOs must become innovative agents of change. The most obvious is in

Today companies are delivering multi-‐billion dollar revenues with a fraction of the staff and the cost than that of even ten years ago.

50 December 2012

BUSINESS INSIGHTS

Here are some questions focused on a CFO’s ability

-‐What is your philosophy of cost reduction and

bottlenecks in the production process affected

8. Resource Allocation

Investing retained earnings effectively requires

This list of investment needs is never ending

gatekeeper to the company’s annual budget and

biggest mistakes a CFO makes as it relates to

-‐Describe a time your investment allocation has

The bedrock of a prosperous society is strong

article enables you to make a better selection of

The CFO role requires mature individuals with the gravitas to create impact with senior stakeholders and the political acumen to manage the sophisticated undercurrents of a global arena.

51

BUSINESS INSIGHTS

experienced individual who is able to identify legacy controls which are no longer needed, and has the foresight to see where the gaps in the system are as markets change direction. What is critical to assess are the candidate’s creative problem solving skills and his or her understanding of human psychology.

Below are some suggested questions regarding controls:

-‐Give me an example of a project you worked on that was suffering from control problems. How did

-‐The CFO often inherits a companywide measurement system that is based on historical needs, rather than the requirements of its current strategic direction. How do you prune out those measurements that are not resulting in behavior

-‐What was your most challenging assignment as it

-‐What is the toughest part about constructing

-‐Give me an example of a project where you were able to design new controls for new systems from scratch.

-‐Give me an example of a time when you were able to create a measurement and reward systems to channel behaviours into correct areas.

-‐Describe a time you effectively removed a control from the business with positive results.

6. Mitigating Risks

the achievement of the business’s objectives as

not only be aware of all past risks to the business but should be proactively seeking the probability that new unknown risk events may occur.

Traditionally companies buttress their risk policies with layers and layers of preventive actions aimed at dealing with risk events that have already occurred. In today’s environment

even so the CFO should be heavily involved in risk assessment and have a deep understanding of risk management. Suggested questions to assess a CFO’s risk competency are listed below:

-‐Give me an example of a time you were able to

for your company.

-‐Looking at our current business model, what do

-‐Describe a time when you aligned your board and stakeholders on the appropriate risk appetite for the business.

-‐Describe a time when you process re-‐engineered

7.

that aims to be competitive and CFOs must become innovative agents of change. The most obvious is in

Today companies are delivering multi-‐billion dollar revenues with a fraction of the staff and the cost than that of even ten years ago.

50 December 2012

BUSINESS INSIGHTS

Here are some questions focused on a CFO’s ability

-‐What is your philosophy of cost reduction and

bottlenecks in the production process affected

8. Resource Allocation

Investing retained earnings effectively requires

This list of investment needs is never ending

gatekeeper to the company’s annual budget and

biggest mistakes a CFO makes as it relates to

-‐Describe a time your investment allocation has

The bedrock of a prosperous society is strong

article enables you to make a better selection of

The CFO role requires mature individuals with the gravitas to create impact with senior stakeholders and the political acumen to manage the sophisticated undercurrents of a global arena.

51

BUSINESS INSIGHTS

ACCOUNTINGFOR HIS

LIFEHaving been in the business for over 60 years, BDO Founder and Managing Partner Russi Patel says for him, his career is more than a game of numbers

IT ALL began in Mumbai, India, where I started my professional career as an accountant during the late 1950s.

In 1962 I moved to Aden, in South Yemen. I kept my practice going in Mumbai at the same time. In the early days, Aden, as a free port, was a key location in the Middle East in terms of trade with neighbouring countries and a number of multinational businessmen, industrialists and bankers had located there to capitalise on this opportunity.

In a short span of time, I had established a name

business and professional community in Aden. In 1968, political unrest started to boil over in Aden

expatriate businesses which were serviced by

me and my business.

A quick trip to Northern Yemen was therefore organised by the client to get me out of Aden and so with only my briefcase, I managed to make it out of the country in a very daring escape. As a matter of good fortune,

I had already obtained a professional auditor’s

44NUMBER OF YEARS BDO HAS BEEN DOING BUSINESS IN THE UAE

MOVERS & SHAKERS

52 December 2012

ACCOUNTINGFOR HIS

LIFEHaving been in the business for over 60 years, BDO Founder and Managing Partner Russi Patel says for him, his career is more than a game of numbers

IT ALL began in Mumbai, India, where I started my professional career as an accountant during the late 1950s.

In 1962 I moved to Aden, in South Yemen. I kept my practice going in Mumbai at the same time. In the early days, Aden, as a free port, was a key location in the Middle East in terms of trade with neighbouring countries and a number of multinational businessmen, industrialists and bankers had located there to capitalise on this opportunity.

In a short span of time, I had established a name

business and professional community in Aden. In 1968, political unrest started to boil over in Aden

expatriate businesses which were serviced by

me and my business.

A quick trip to Northern Yemen was therefore organised by the client to get me out of Aden and so with only my briefcase, I managed to make it out of the country in a very daring escape. As a matter of good fortune,

I had already obtained a professional auditor’s

44NUMBER OF YEARS BDO HAS BEEN DOING BUSINESS IN THE UAE

MOVERS & SHAKERS

52 December 2012

In 1975, BDO International, a worldwide network of public accounting firms, appointed Patel & Co as its representative in the UAE.

was the presence of some of my former clients in Aden, and the prospects of growth of trade and commerce in the UAE, at the time. Honesty and sincerity combined with determination and sheer hard work were the core of my new

resolved to build up the practice anyhow. My

towers for cool air.

business, albeit a very small one. Many young businessmen and professionals greeted one another almost everyday as they walked past each other to work. It was indeed a beautiful and tightly knit community where everyone knew each other.

Northern Yemen and, after a few years, another branch was also opened in Muscat, Sultanate

however, closed down after about 10 years, and very recently I also gave up on my interest in

for the coordination of all international client-‐work in UAE.

contribution to the development and promotion

Middle East region led to my being awarded the

53

MOVERS & SHAKERS

to practice public accountancy in the State of

of the Institute of Management Accountants,

member and chairman for more than one period

The main incentive for me to start a new life and practice in the Emirate of Sharjah was the prospects of growth of trade and commerce in the UAE.

rendered as founder chairman. I also received

recognition of my services to Humanity and

India and the country of my adoption, UAE.

existence and I have dedicated my entire professional career to its growth and achievements. So when I

several publications on business, including the “Investment and Tax Incentives for Non-‐Resident Indians” and “Strategic Planning for doing Business in the United Arab Emirates”.

Many awards and honours have been conferred

BLAZING THE TRAIL:

54 December 2012

MOVERS & SHAKERS

SUBSCRIBE NOW TO THE REGION'S FIRST MIDDLE EASTERN FOCUSED ACCOUNTANCY MAGAZINE.Complimentary subscription for any accountants currently working or studying in the UAE.

Every month we will bring you the latest news, expert opinion, interviews with regional influencers and policy makers, as well as CPD advice, job opportunities and moves.

Accountant ME will also feature regular articles and reports on auditing, legislation, management advisory services, ethics, professional development and practice management.

To subscribe visit

accountancyme.com/subscribe

Contact us today for more information about this brand new title.

SALES EDITORIALChristopher Stevenson Joyce NjeriTel 04 440 9138 Tel 04 440 9140Email [email protected] Email [email protected]

ROAD TOCONVERGENCEWill IFRS ever succeed in becoming the dominant world accounting standard? Gerald Santing the Managing Director of Markets at DFSA, asks

IFRSSPECIAL

56 December 2012

The global financial crisis brought home that accounting standards will never be left alone to the accounting intellectual elite.

BEING A market regulator, I like to use this opportunity to share with you some thoughts. Maybe I am getting too old and cynical but I am

beginning to despair.

When I was a younger man I anticipated with enthusiasm the heralding of International Financial Reporting Standards (IFRS) as the world accounting standard and all other accounting standards known as the country GAAPs (standards for Generally Accepted Accounting Principles) would eventually be assimilated by IFRS.

The most anticipated and celebrated assimilation was the convergence of US GAAP with IFRS. However as the years have rolled on my enthusiasm has turned to apathy. It reminds me of a young couple getting engaged to be married and are looking forward to a bright future together but then they keep on delaying their wedding date. Over time, both become disenchanted and their love for each other fades.

Much of my enthusiasm for convergence has also faded because of the protracted negotiations between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) on convergence, similar to the young couple, not agreeing on where and when the reception should be held and who to invite.

But what went wrong? To answer that, one must

the changing roles of the IASB and the FASB.

The concept of convergence of accounting standards can be traced back to 1904. Yes 1904! The idea of “International Accounting Standards”

Congress of Accountants held at St Louis in 1904, according to a paper published in the International Journal of Business and Management.

However, it was the Dutch who should be called the “fathers of convergence” when in 1957, Jacob Kraayenhof, one of the founding fathers of KPMG,

The Dubai Financial Services Authority (DFSA)

ancillary services conducted in or from the Dubai International Financial Centre (DIFC),

The DFSA’s regulatory mandate covers asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities

an international equities exchange and an international commodities derivatives exchange. -‐ www.dfsa.ae

spoke on the need of international accounting co-‐operation and standardisation at the 7th International Congress of Accountants held in Amsterdam.

International Accounting Standards Committee (IASC) the predecessor of the IASB was founded in June 1973, in London, and replaced by the IASB in 2001. It was responsible for developing the International Accounting Standards and promoting the use and application of these standards.

It was created by the professional accounting bodies of Australia, Canada, Netherlands, Germany, UK, Ireland, France, Japan, Mexico and the US. The IASB is controlled by the IFRS Foundation which is an independent organisation having two main bodies, the Trustees and the IASB, as well as an IFRS Advisory Council and the IFRS Interpretations Committee.

The IASC Foundation Trustees appoint the IASB members, exercise oversight and raise the funds needed, but the IASB has responsibility for setting International Financial Reporting Standards (international accounting standards) and is independent from professional bodies and governments.

In the 1995, IASC entered into an agreement with International Organisation of Securities Commissions (IOSCO) to complete “comprehensive core set of Standards” that could be used for cross-‐border and national listings.

In May 2000, IOSCO adopted 30 core International Accounting Standards (IASs) that led to the acceptance and recognition of the International Accounting Standards Committee (IASC) as a

MANAGING DIRECTOR, MARKETS, DUBAI FINANCIALSERVICES AUTHORITY

GERALD SANTING

57

IFRSSPECIAL

The global financial crisis brought home that accounting standards will never be left alone to the accounting intellectual elite.

BEING A market regulator, I like to use this opportunity to share with you some thoughts. Maybe I am getting too old and cynical but I am

beginning to despair.

When I was a younger man I anticipated with enthusiasm the heralding of International Financial Reporting Standards (IFRS) as the world accounting standard and all other accounting standards known as the country GAAPs (standards for Generally Accepted Accounting Principles) would eventually be assimilated by IFRS.

The most anticipated and celebrated assimilation was the convergence of US GAAP with IFRS. However as the years have rolled on my enthusiasm has turned to apathy. It reminds me of a young couple getting engaged to be married and are looking forward to a bright future together but then they keep on delaying their wedding date. Over time, both become disenchanted and their love for each other fades.

Much of my enthusiasm for convergence has also faded because of the protracted negotiations between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) on convergence, similar to the young couple, not agreeing on where and when the reception should be held and who to invite.

But what went wrong? To answer that, one must

the changing roles of the IASB and the FASB.

The concept of convergence of accounting standards can be traced back to 1904. Yes 1904! The idea of “International Accounting Standards”

Congress of Accountants held at St Louis in 1904, according to a paper published in the International Journal of Business and Management.

However, it was the Dutch who should be called the “fathers of convergence” when in 1957, Jacob Kraayenhof, one of the founding fathers of KPMG,

The Dubai Financial Services Authority (DFSA)

ancillary services conducted in or from the Dubai International Financial Centre (DIFC),

The DFSA’s regulatory mandate covers asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities

an international equities exchange and an international commodities derivatives exchange. -‐ www.dfsa.ae

spoke on the need of international accounting co-‐operation and standardisation at the 7th International Congress of Accountants held in Amsterdam.

International Accounting Standards Committee (IASC) the predecessor of the IASB was founded in June 1973, in London, and replaced by the IASB in 2001. It was responsible for developing the International Accounting Standards and promoting the use and application of these standards.

It was created by the professional accounting bodies of Australia, Canada, Netherlands, Germany, UK, Ireland, France, Japan, Mexico and the US. The IASB is controlled by the IFRS Foundation which is an independent organisation having two main bodies, the Trustees and the IASB, as well as an IFRS Advisory Council and the IFRS Interpretations Committee.

The IASC Foundation Trustees appoint the IASB members, exercise oversight and raise the funds needed, but the IASB has responsibility for setting International Financial Reporting Standards (international accounting standards) and is independent from professional bodies and governments.

In the 1995, IASC entered into an agreement with International Organisation of Securities Commissions (IOSCO) to complete “comprehensive core set of Standards” that could be used for cross-‐border and national listings.

In May 2000, IOSCO adopted 30 core International Accounting Standards (IASs) that led to the acceptance and recognition of the International Accounting Standards Committee (IASC) as a

MANAGING DIRECTOR, MARKETS, DUBAI FINANCIALSERVICES AUTHORITY

GERALD SANTING

57

IFRSSPECIAL

worldwide standard-‐setter. With the formation of the IASB in 2001, it took over the work of the IASC.

The IASs were renamed the IFRS. More importantly in the same year, the US Securities and Exchange Commission (SEC) suggested the acceptance of IAS for use in cross-‐border listings in the US, without reconciliation to results under the USGAAP. Things were looking up.

The fore-‐runner of the FASB was the Accounting Principles Board (APB) which was established in

Accountants (AICPA). Up until the 1970s, the APB

of remarkable progress … with more than 100 countries using IFRS including more than two-‐thirds of the G20”, in his recent speech at the London School of Economics.

The reason for my view is that the US and the FASB have differing agendas. What went wrong?

I think two important factors played a major role: the Global Financial Crisis and the US’ inability to

is evident in the recent SEC announcement in June 2012 and referred to Hans’ speech wherein he said “The SEC has intended to make a decision on IFRS during 2011, but announced in July that it would postpone this decision.” I can’t help but interpret Hans’ comments of “For the call of the G20 for a single set of global accounting standards to remain credible, it is important that progress is made soon”

for the Americans. I think it is already too late.

The crisis brought home that accounting standards will never be left alone to the accounting intellectual elite. Politicians will always play an important role in what is acceptable.

One major example during the crisis that brought

It is important for emerging economies like China to converge to IFRS, thus, allowing the market participants to look at useful financial information in a universal way.

had a virtual monopoly on setting the US GAAP when the FASB took over this task.

Then there was a divergence, as the IASB was taken over by a foundation independent of the profession

be said for the FASB. While it was an independent

the SEC.

For example, from1972 to 1976, the SEC issued 70 Accounting Series Releases (more than a

standards developed. The FASB standards are very much more prescriptive whereas the IASB’s standards (IFRS) are more principles-‐based.

In October 2002, a Memorandum of Understanding (MoU) was signed between the IASB and the FASB, the two major players in the accounting standards arena, which is better known as the Norwalk agreement. Things were looking up.

However, the next 10 years were what I would call the “lost years” in contrast to Hans Hoogervorst, current chairman of the IASB and a Dutchman who describes the same period as “ten years

58 December 2012

IFRSSPECIAL

59

much pressure to bear on the standard-‐setters (including the IASB and the FASB) was the mark to market issue.

In dysfunctional markets, fair value accounting comes under extreme pressure and there was an argument put forward that fair value accounting should take a holiday in such situations. The accounting elite eventually won over but not without much hand-‐wringing and explanation.

It is fair to say that the FASB has worked tirelessly with the IASB in trying to bring about convergence but they were never really in charge and I refer you to my comments about politicians and the SEC above.

This is clearly evident from the work on particular standards. Fundamentally, it was always going

standards with a rules-‐based one. I believe the recent announcement from the SEC has sent a clear signal that convergence is no longer a priority.

In July 2012, a staff report of the SEC stated "it became apparent to the staff that pursuing the designation of the standards of the IASB as authoritative was, among other things, not supported by the vast majority of participants in

the US capital markets.”

DC meeting on April 19, 2012 urges the IASB and the FASB to meet their target of issuing standards on key convergence projects by mid-‐2013 (at the latest). Hans referred to it in his speech on November 6 of this year.

I agree that it is important that both the IASB and the FASB continue to work together towards the goals of the G20, it is equally important that a robust due process (free from

Let me now turn to the Middle East and try to summarise the state of play here in this region. In my view the Middle East, with the exception of Saudi Arabia, has been fairly compliant with the use of the IFRSs since inception.

This is evident when one sees how the accounts are being published. This has come about more so from legislative decree rather than exertion from the accounting profession or from global

For instance the Dubai International Financial Centre (DIFC) since its formation in 2004, has always required IFRS as the de-‐facto standard. With respect to the Dubai Financial Services Authority (DFSA) Authorised Firms, all are

in accordance with IFRS except for 26 branches which have received a waiver and can produce their accounts in their home state GAAP.

These waivers are issued in favour of 9 jurisdictions. However, before a waiver is granted, the DFSA conducts a thorough analysis to identify and measure the differences to ensure that those differences are understood.

I would encourage the national standard-setters from the Middle East region to join hands at one of the already existent regional bodies. This will give the region a stronger voice in the setting of IFRS.

IFRSSPECIAL

59

much pressure to bear on the standard-‐setters (including the IASB and the FASB) was the mark to market issue.

In dysfunctional markets, fair value accounting comes under extreme pressure and there was an argument put forward that fair value accounting should take a holiday in such situations. The accounting elite eventually won over but not without much hand-‐wringing and explanation.

It is fair to say that the FASB has worked tirelessly with the IASB in trying to bring about convergence but they were never really in charge and I refer you to my comments about politicians and the SEC above.

This is clearly evident from the work on particular standards. Fundamentally, it was always going

standards with a rules-‐based one. I believe the recent announcement from the SEC has sent a clear signal that convergence is no longer a priority.

In July 2012, a staff report of the SEC stated "it became apparent to the staff that pursuing the designation of the standards of the IASB as authoritative was, among other things, not supported by the vast majority of participants in

the US capital markets.”

DC meeting on April 19, 2012 urges the IASB and the FASB to meet their target of issuing standards on key convergence projects by mid-‐2013 (at the latest). Hans referred to it in his speech on November 6 of this year.

I agree that it is important that both the IASB and the FASB continue to work together towards the goals of the G20, it is equally important that a robust due process (free from

Let me now turn to the Middle East and try to summarise the state of play here in this region. In my view the Middle East, with the exception of Saudi Arabia, has been fairly compliant with the use of the IFRSs since inception.

This is evident when one sees how the accounts are being published. This has come about more so from legislative decree rather than exertion from the accounting profession or from global

For instance the Dubai International Financial Centre (DIFC) since its formation in 2004, has always required IFRS as the de-‐facto standard. With respect to the Dubai Financial Services Authority (DFSA) Authorised Firms, all are

in accordance with IFRS except for 26 branches which have received a waiver and can produce their accounts in their home state GAAP.

These waivers are issued in favour of 9 jurisdictions. However, before a waiver is granted, the DFSA conducts a thorough analysis to identify and measure the differences to ensure that those differences are understood.

I would encourage the national standard-setters from the Middle East region to join hands at one of the already existent regional bodies. This will give the region a stronger voice in the setting of IFRS.

IFRSSPECIAL

Canada Hong Kong India

Japan UK US Singapore Italy

Saudi Arabia has its own accounting standards, known as Saudi GAAP. While similar to IFRS, it does have a number of differences. Most notably is the inability to re-‐value assets. Although I understand that banks in Saudi Arabia do apply IFRS.

So what is their position on IFRS?

ChinaChina is more favourable in accepting IFRS than India, in my opinion. It is important for emerging economies like China to converge to IFRS, thus, allowing the market participants to look at useful

particularly important as China has a precedent of localising global practices.

I suspect that same will apply with IFRS. In May 2012, China amended its regulation requiring the

The IASB also sees the importance of the East with China providing the IASB’s secretariat for the

IndiaIndia is equally important, with a population of over 1.2 billion people and a GDP of over $1.8 trillion and more than 6,000 listings on its major exchanges. It is important that India converges to a

In February 2011, India issued a set of standards called Ind-‐AS. The implementation of these new standards also requires changes to the Companies

Stakeholders, including industry and tax authorities, have raised arguments against Ind-‐AS and its implementation roadmap. At present, India's move to IFRS has moved into a more

Given the growing power of these two (China and India), I doubt that they are willing to accept a western-‐centric view of accounting again for the same reasons why the US’ has prevented the FASB from converging with the IASB. It is a question of sovereignty and whoever has the power will want to retain it.

Here, I would like you to take a pause and think. Why are countries like the US, India, China, Japan and Saudi Arabia on a wait and watch approach for convergence with IFRS?

When IFRS was initially introduced a decade ago, around the world, the Board made a commitment to provide a “stable platform.” Companies adopting IFRS had the comfort that the standards would not change in the near term, easing their transition. That is no longer true.

The Board has been working on a slew of measures to change several standards including those for

IASB become too engrossed in trying to please the FASB and lost sight of the main goal?

It is time that regional standard-‐setting bodies take part in the IASB's standard-‐setting process. They are a valuable source of information and can assist the IASB to ensure that IFRSs are appropriate for regional

Over the past years, many regions decided to create regional representative bodies to discuss regional accounting standards issues, share experiences on the adoption of IFRSs and provide input to the IASB's standard-‐setting process. To name a few:

60 December 2012

IFRS SPECIAL

Canada Hong Kong India

Japan UK US Singapore Italy

Saudi Arabia has its own accounting standards, known as Saudi GAAP. While similar to IFRS, it does have a number of differences. Most notably is the inability to re-‐value assets. Although I understand that banks in Saudi Arabia do apply IFRS.

So what is their position on IFRS?

ChinaChina is more favourable in accepting IFRS than India, in my opinion. It is important for emerging economies like China to converge to IFRS, thus, allowing the market participants to look at useful

particularly important as China has a precedent of localising global practices.

I suspect that same will apply with IFRS. In May 2012, China amended its regulation requiring the

The IASB also sees the importance of the East with China providing the IASB’s secretariat for the

IndiaIndia is equally important, with a population of over 1.2 billion people and a GDP of over $1.8 trillion and more than 6,000 listings on its major exchanges. It is important that India converges to a

In February 2011, India issued a set of standards called Ind-‐AS. The implementation of these new standards also requires changes to the Companies

Stakeholders, including industry and tax authorities, have raised arguments against Ind-‐AS and its implementation roadmap. At present, India's move to IFRS has moved into a more

Given the growing power of these two (China and India), I doubt that they are willing to accept a western-‐centric view of accounting again for the same reasons why the US’ has prevented the FASB from converging with the IASB. It is a question of sovereignty and whoever has the power will want to retain it.

Here, I would like you to take a pause and think. Why are countries like the US, India, China, Japan and Saudi Arabia on a wait and watch approach for convergence with IFRS?

When IFRS was initially introduced a decade ago, around the world, the Board made a commitment to provide a “stable platform.” Companies adopting IFRS had the comfort that the standards would not change in the near term, easing their transition. That is no longer true.

The Board has been working on a slew of measures to change several standards including those for

IASB become too engrossed in trying to please the FASB and lost sight of the main goal?

It is time that regional standard-‐setting bodies take part in the IASB's standard-‐setting process. They are a valuable source of information and can assist the IASB to ensure that IFRSs are appropriate for regional

Over the past years, many regions decided to create regional representative bodies to discuss regional accounting standards issues, share experiences on the adoption of IFRSs and provide input to the IASB's standard-‐setting process. To name a few:

60 December 2012

IFRS SPECIAL

The DFSA is a member of AOSSG and we have seen the value of such a regional body in voicing our opinion individually and collectively to the IASB.

Besides the DFSA, Saudi Arabia is also a member of AOSSG. I would like to ask if this region needs its own regional standard-‐setting body.

Care should be given in not replicating the efforts already undertaken by other existing bodies, however, I would encourage the national standard-‐setters from the Middle East region to join hands at one of the already existent regional bodies. This will give the Middle East a stronger voice in the setting of IFRS.

The Board’s work plan has been overloaded in the last couple of years resulting in the Board changing plans quite frequently. Although an ambitious timetable sometimes serves as a catalyst to maintain momentum, it might strain the IASB’s ability to cope with important issues.

Considering the rapidly changing environments

to deal with unanticipated issues by sketching out a realistic workplan to demonstrate the Board’s responsiveness to its stakeholders worldwide.

The IASB should also consider the relevance to

transactions, are not necessarily consistent. The IASB should, at least, examine issues by undertaking studies in the area and via outreach activities with major stakeholders.

I would like to stress that the most important user

Getting everyone on board with IFRS provides the baseline, but it is not the end of the story. Standards must also be endorsed, implemented and enforced on a consistent basis, by regulators. Feedback from investors is very important.

We now have a truly inter-‐connected world economy and cannot rely on national standards, we need a truly global set of accounting standards. IFRS is the obvious answer.

As Hans Hoogervorst said; “Capital no longer respects

and investment opportunities on a global basis. In such a globalised environment it makes no sense to maintain national accounting standards.”

I am aware that the IASB, has managed to attract the attention of the investor community but are we successful enough to keep them engaged? If you look at the volume of comments received from this very important stakeholder, it is evident that the majority are still silent.

We need to identify ways to engage them in a more meaningful way.

So where does this all lead to?

We now have a truly inter-connected world economy and cannot rely on national standards, we need a truly global set of accounting standards. IFRS is the obvious answer.

The IASB should look to the East and engage the emerging Asian powerhouses. That is where IFRS is going to take its direction. As the markets of the

set of accounting standards. This will become

role, however, it needs to engage more.

Will the IASB be able to achieve this? Would we witness the fall of another Berlin Wall?

leadership of Hans Hoogervorst, will break this

an issue of convergence with US GAAP alone but being accommodative enough to assimilate all of the Eastern GAAPs into IFRS. The US will have no choice but to assimilate as well.

Disclaimer:Any opinions, statements or other information or

content expressed or made in this article are those

of the author and not the Dubai Financial Services

Authority, and the author's opinions, statements

or other information or content expressed in this

article should not be viewed as any indication of

the opinion, view or policy of the Dubai Financial

Services Authority.

61

IFRS SPECIAL

The dynamics of buying real estate property in the UK through a British Virgin Island company, or in a Trust, have changed, o!shore tax expert Christopher Coleridge Cole reckons

PROPERTYQUEST

TAXWATCH

62 December 2012

If you do not possess investment assets in a company but rather own genuine buy-to-let properties in your own name, a QNUPS is a perfect platform for you to build up your retirement wealth.

FOR HIGH net-worth GCC nationals who have over the past 10-20 years invested in the UK’s burgeoning residential property market, the

appeal has been colossal.

The returns in the higher ends of the London’s property market, even in the large sporting estates and Georgian country houses, have proved irresistible in their consistency and stability.

Typically, the large multi-‐national legal and accountancy practices have for decades advised their UAE and Saudi national clients that, to avoid UK Inheritance Tax payable by everyone with UK -‐ situs assets (even the objet d'art in your apartment), the simplest method of buying British real estate was to purchase it through a British Virgin Island company (a BVI) or in a Trust.

That was incontrovertibly sound, perfect advice, up until now.

From April 5 2013, in only four month’s time – that will almost certainly be the worst possible course of action to pursue.

Her Majesty’s Revenue and Customs (HMRC) and Chancellor George Osborne’s attack on currently legitimate tax planning structures involving company or trust-‐owned properties – ‘non natural persons’, -‐ as they now call it, worth in excess of £2 million, now and in the future.

They have taken the following steps:

1. Implemented already a Stamp Duty charge (SDLT) on purchases of 15%

2. Created an increasing Annual Charge/ Tax (AC) on both UK & Offshore corporates. This will be

GRESHAM STREET PARTNERS, DUBAI

CHRISTOPHER COLERIDGE COLE

63

TAXWATCH

The dynamics of buying real estate property in the UK through a British Virgin Island company, or in a Trust, have changed, o!shore tax expert Christopher Coleridge Cole reckons

PROPERTYQUEST

TAXWATCH

62 December 2012

If you do not possess investment assets in a company but rather own genuine buy-to-let properties in your own name, a QNUPS is a perfect platform for you to build up your retirement wealth.

FOR HIGH net-worth GCC nationals who have over the past 10-20 years invested in the UK’s burgeoning residential property market, the

appeal has been colossal.

The returns in the higher ends of the London’s property market, even in the large sporting estates and Georgian country houses, have proved irresistible in their consistency and stability.

Typically, the large multi-‐national legal and accountancy practices have for decades advised their UAE and Saudi national clients that, to avoid UK Inheritance Tax payable by everyone with UK -‐ situs assets (even the objet d'art in your apartment), the simplest method of buying British real estate was to purchase it through a British Virgin Island company (a BVI) or in a Trust.

That was incontrovertibly sound, perfect advice, up until now.

From April 5 2013, in only four month’s time – that will almost certainly be the worst possible course of action to pursue.

Her Majesty’s Revenue and Customs (HMRC) and Chancellor George Osborne’s attack on currently legitimate tax planning structures involving company or trust-‐owned properties – ‘non natural persons’, -‐ as they now call it, worth in excess of £2 million, now and in the future.

They have taken the following steps:

1. Implemented already a Stamp Duty charge (SDLT) on purchases of 15%

2. Created an increasing Annual Charge/ Tax (AC) on both UK & Offshore corporates. This will be

GRESHAM STREET PARTNERS, DUBAI

CHRISTOPHER COLERIDGE COLE

63

TAXWATCH

3. They plan to impose a Capital Gains Tax (CGT) at probably 28%, on the sale of such Offshore Company-‐owned UK residential properties

this CGT punitive charge: the UK Revenue is imposing the charges from the time the property was purchased! Not from April next year when it becomes law -‐ but from the time it was initially acquired, even if that was 10 years ago and is now ‘pregnant’ with Capital Gains. Seriously shocking revelation. Effectively it is a Retrospective piece of legislation; hugely penal.

Whilst the Stamp Duty hike exists already, the AC & CGT implementation is scheduled to come into force in April 2013. A consultation document which has been in the public domain since April, is due to be signed off on December 11. At which point we believe

There is a massive window of opportunity for people either intending to buy investment property or already owning it through a Corporate or BVI, to avoid these costs by placing the assets into a special trust known as a (Qualifying Non-‐UK Pension Scheme) QNUPS. These are held in Guernsey, Malta or Gibraltar (visit www.greshamstreet.com) but there is now less than four months to effect this -‐ with Christmas, New Year and Easter all falling in between now and the D-‐Day (April 2013).

In the last few weeks, accountants, bankers and lawyers have been struggling to advise clients on their best immediate course of actions. Deloitte gave a presentation in Dubai to this effect at the end of November and suggestions have been made to us that the simple way round these penalties is to sell on the entity, the BVI, in its entirety thus avoiding realising CGT and Stamp Duty.

This used to be a viable option up until the current law changes: seriously not a good idea now, because

it’s potentially litigious.

do it, so it limits your market; b) potential for HMRC

avenue, possibly by simply increasing the rate of CGT payable; c) thus thirdly, creating a massive potential CGT liability for the unwitting new purchaser where the property is clearly pregnant with capital gains which he personally never incurred.

As an accountant, lawyer, private banker, would you advise your client to go down this route? I think not.

These penalties will apply to all foreign nationals, UK citizens, all non-‐resident expatriates who own property in this fashion. And if you do not possess investment assets in a company but rather own genuine buy-‐to-‐let properties in your own name, a QNUPS is a perfect platform for you to build up your retirement wealth, to trade your assets, and

outside IHT without the complications of BVIs.

Two additional plus points for a QNUPS trust and the investments held within include: QNUPS are non-‐splittable in divorce proceedings and more importantly in the case of property speculation, they fall outside an individual’s estate in the case of bankruptcy proceedings, providing there was never any intent to defraud at inception.

What we must stress however, that this is not some sham, wishy washy Offshore Trust scheme concocted by clever lawyers in far off BVI jurisdictions. It is an HMRC designed and therefore obviously fully approved platform which they created and has been passed into Statute in the Inheritance Tax Act of 2010.

What more frankly does anyone need for comfort

to this in the Act’s Provisions, not to mention a considerable segment in the HMRC’s own website.

Please treat this seriously. It is the perfect concept for consolidating your wealth entirely legally, outside of Chancellor Osborne's dreaded clutches and should be addressed whilst the opportunity exists -‐ but four months will go very quickly.

I would be delighted to speak with anyone who is concerned by this and would like to take proactive steps to avoid these potential immense costs.

QNUPS investments are non-splittable in divorce proceedings and more importantly in the case of property speculation, they fall outside an individual’s estate in the case of bankruptcy proceedings.

64 December 2012

TAXWATCH

ARABIC ACCOUNTING SYSTEM UPGRADE

DUBAI-BASED software systems provider Bazarsoft has upgraded its ‘Bazar Accounting System’ to the latest 17.090-version, in a

move aimed at helping the firm retain its regular clients and attract new customers in the Middle East.

Walid Bazerji, the founder and director of Bazarsoft says that accounting operations, particularly Arabic, keep changing as technology

to upgrade its products to keep up with the

“The original version of “Bazar Accounting

“However, over the years, we have used software

Software provider Bazarsoft aims to attract new clients in the Middle East with superior technology

WALID BAZERJI, BAZARSOFT FOUNDER

Multi-‐currency general ledger

Multi-‐warehouse inventory and stock control

Sales and purchase ordering process

within the opened year

control reports

TECHNOLOGYTALK

65

3. They plan to impose a Capital Gains Tax (CGT) at probably 28%, on the sale of such Offshore Company-‐owned UK residential properties

this CGT punitive charge: the UK Revenue is imposing the charges from the time the property was purchased! Not from April next year when it becomes law -‐ but from the time it was initially acquired, even if that was 10 years ago and is now ‘pregnant’ with Capital Gains. Seriously shocking revelation. Effectively it is a Retrospective piece of legislation; hugely penal.

Whilst the Stamp Duty hike exists already, the AC & CGT implementation is scheduled to come into force in April 2013. A consultation document which has been in the public domain since April, is due to be signed off on December 11. At which point we believe

There is a massive window of opportunity for people either intending to buy investment property or already owning it through a Corporate or BVI, to avoid these costs by placing the assets into a special trust known as a (Qualifying Non-‐UK Pension Scheme) QNUPS. These are held in Guernsey, Malta or Gibraltar (visit www.greshamstreet.com) but there is now less than four months to effect this -‐ with Christmas, New Year and Easter all falling in between now and the D-‐Day (April 2013).

In the last few weeks, accountants, bankers and lawyers have been struggling to advise clients on their best immediate course of actions. Deloitte gave a presentation in Dubai to this effect at the end of November and suggestions have been made to us that the simple way round these penalties is to sell on the entity, the BVI, in its entirety thus avoiding realising CGT and Stamp Duty.

This used to be a viable option up until the current law changes: seriously not a good idea now, because

it’s potentially litigious.

do it, so it limits your market; b) potential for HMRC

avenue, possibly by simply increasing the rate of CGT payable; c) thus thirdly, creating a massive potential CGT liability for the unwitting new purchaser where the property is clearly pregnant with capital gains which he personally never incurred.

As an accountant, lawyer, private banker, would you advise your client to go down this route? I think not.

These penalties will apply to all foreign nationals, UK citizens, all non-‐resident expatriates who own property in this fashion. And if you do not possess investment assets in a company but rather own genuine buy-‐to-‐let properties in your own name, a QNUPS is a perfect platform for you to build up your retirement wealth, to trade your assets, and

outside IHT without the complications of BVIs.

Two additional plus points for a QNUPS trust and the investments held within include: QNUPS are non-‐splittable in divorce proceedings and more importantly in the case of property speculation, they fall outside an individual’s estate in the case of bankruptcy proceedings, providing there was never any intent to defraud at inception.

What we must stress however, that this is not some sham, wishy washy Offshore Trust scheme concocted by clever lawyers in far off BVI jurisdictions. It is an HMRC designed and therefore obviously fully approved platform which they created and has been passed into Statute in the Inheritance Tax Act of 2010.

What more frankly does anyone need for comfort

to this in the Act’s Provisions, not to mention a considerable segment in the HMRC’s own website.

Please treat this seriously. It is the perfect concept for consolidating your wealth entirely legally, outside of Chancellor Osborne's dreaded clutches and should be addressed whilst the opportunity exists -‐ but four months will go very quickly.

I would be delighted to speak with anyone who is concerned by this and would like to take proactive steps to avoid these potential immense costs.

QNUPS investments are non-splittable in divorce proceedings and more importantly in the case of property speculation, they fall outside an individual’s estate in the case of bankruptcy proceedings.

64 December 2012

TAXWATCH

David J Burns has been promoted as a Partner at UHY, effective January 1, 2013. He now joins Managing Partner Rajiv Saxena and Shivani Saxena

as the new Partner responsible for Marketing and Business Development at

network of independent accounting and

Susie Isaacson joins ACCA Middle East as the new Head of UAE. In this role Susie will focus on building the ACCA presence in the

UAE by supporting the students and members and cultivating relationships with employers, government agencies and policy makers. Susie has a BSc in Computer Science from Newcastle University and worked for BT/Syntegra and then Virgin Atlantic Airways. More recently she has been responsible for managing the membership of the British Business Group in Dubai and brings her knowledge of the local market to this role.

Ritu Nanda joins ACCA as the new Head of Oman and Qatar based in the Dubai office. Ritu’s role will focus on supporting the members

and students in Oman and Qatar while working in partnership with employers, government agencies and policy makers. Prior to joining ACCA, she held senior roles at ICICI bank in India, XEROX India and Genesis Institute, a Chartered Financial

Analyst training institute based in Dubai. Ritu holds a MBA in Marketing from Mumbai University in India and brings to ACCA considerable sales and commercial experience.

Ladislav Hornan has been appointed chair of UHY, an international network of independent accounting and consultancy firms,

with a pledge to continue the UHY Board’s ambition for growth of the UHY network. He formally took over the role from John Wolfgang at the UHY 2012 Annual Meeting held in Chicago, US, in October 2012. Ladislav previously served as UHY chairman between January 2002 and October 2007. He has served on the board since 1996. He joined UHY Hacker Young in the UK as an Insolvency Administrator in 1974, becoming Partner in 1980, and then Managing Partner in 1995.

Amgad Nassif joins Grant Thornton UAE as an Audit Partner. Amgad brings over 20 years of international experience in

audit, working across a wide range of sectors with high profile clients. He has gained his professional experience through working in Deloitte in Egypt, USA, and Algeria. In addition to his role as an Audit Partner, Amgad has held various roles which include: Instructor for the International Standards on Auditing and International Financial Reporting Standards (IFRS) and a CPA and IFRS instructor at the Institute of Professional Accountants -‐ IPA in Egypt.

Hady Younes joins Grant Thornton UAE as an Assurance Executive. Previous to his role at Grant Thornton, Hady worked at BDO where he was

exposed to International Standards on Auditing and International Financial Reporting Standards (IFRS) studies. Hady brings with him a wide range of industry experience gained from

clients. He is currently studying for his

Coutts has announced the appointment of Amir Sadr as Head of the UAE market

in the Middle East. In his new role, Sadr will be instrumental

in developing Coutts’ Ultra High Net Worth (UHNW) proposition in the Middle East – a key area of focus in the business’s current expansion drive. Sadr joins Coutts from Bank of America Merrill Lynch where he worked for the last 12 years. At Bank of America Merrill Lynch, Sadr successfully created and led the business’s Institutional

and brings with him substantial experience and expertise in both the institutional and

Amit Tyagi joins Coutts as a Vice President from HSBC’s private banking division, where he was an

Associate Director. Prior to that, Tyagi was a senior associate Vice President and Relationship Manager in the Wealth Management division of Kotak Mahindra Bank in New Delhi, India, and a Relationship Manager at Citibank in India. He has nearly 10 years experience in the banking industry.

APPOINTMENTSIf you have made a new appointment, promotion or have any relevant hiring

news, please email the details and a photo to [email protected]

66

INDUSTRY APPOINTMENTS

December 2012

We are the new AIG

Bring on tomorrow


www.aig.com

AIG Launch Ad.indd 1 11/8/2012 2:13:23 PM Broadcast Pro B2B GMS 270x207-E.indd 1 10/24/12 6:20 PM

David J Burns has been promoted as a Partner at UHY, effective January 1, 2013. He now joins Managing Partner Rajiv Saxena and Shivani Saxena

as the new Partner responsible for Marketing and Business Development at

network of independent accounting and

Susie Isaacson joins ACCA Middle East as the new Head of UAE. In this role Susie will focus on building the ACCA presence in the

UAE by supporting the students and members and cultivating relationships with employers, government agencies and policy makers. Susie has a BSc in Computer Science from Newcastle University and worked for BT/Syntegra and then Virgin Atlantic Airways. More recently she has been responsible for managing the membership of the British Business Group in Dubai and brings her knowledge of the local market to this role.

Ritu Nanda joins ACCA as the new Head of Oman and Qatar based in the Dubai office. Ritu’s role will focus on supporting the members

and students in Oman and Qatar while working in partnership with employers, government agencies and policy makers. Prior to joining ACCA, she held senior roles at ICICI bank in India, XEROX India and Genesis Institute, a Chartered Financial

Analyst training institute based in Dubai. Ritu holds a MBA in Marketing from Mumbai University in India and brings to ACCA considerable sales and commercial experience.

Ladislav Hornan has been appointed chair of UHY, an international network of independent accounting and consultancy firms,

with a pledge to continue the UHY Board’s ambition for growth of the UHY network. He formally took over the role from John Wolfgang at the UHY 2012 Annual Meeting held in Chicago, US, in October 2012. Ladislav previously served as UHY chairman between January 2002 and October 2007. He has served on the board since 1996. He joined UHY Hacker Young in the UK as an Insolvency Administrator in 1974, becoming Partner in 1980, and then Managing Partner in 1995.

Amgad Nassif joins Grant Thornton UAE as an Audit Partner. Amgad brings over 20 years of international experience in

audit, working across a wide range of sectors with high profile clients. He has gained his professional experience through working in Deloitte in Egypt, USA, and Algeria. In addition to his role as an Audit Partner, Amgad has held various roles which include: Instructor for the International Standards on Auditing and International Financial Reporting Standards (IFRS) and a CPA and IFRS instructor at the Institute of Professional Accountants -‐ IPA in Egypt.

Hady Younes joins Grant Thornton UAE as an Assurance Executive. Previous to his role at Grant Thornton, Hady worked at BDO where he was

exposed to International Standards on Auditing and International Financial Reporting Standards (IFRS) studies. Hady brings with him a wide range of industry experience gained from

clients. He is currently studying for his

Coutts has announced the appointment of Amir Sadr as Head of the UAE market

in the Middle East. In his new role, Sadr will be instrumental

in developing Coutts’ Ultra High Net Worth (UHNW) proposition in the Middle East – a key area of focus in the business’s current expansion drive. Sadr joins Coutts from Bank of America Merrill Lynch where he worked for the last 12 years. At Bank of America Merrill Lynch, Sadr successfully created and led the business’s Institutional

and brings with him substantial experience and expertise in both the institutional and

Amit Tyagi joins Coutts as a Vice President from HSBC’s private banking division, where he was an

Associate Director. Prior to that, Tyagi was a senior associate Vice President and Relationship Manager in the Wealth Management division of Kotak Mahindra Bank in New Delhi, India, and a Relationship Manager at Citibank in India. He has nearly 10 years experience in the banking industry.

APPOINTMENTSIf you have made a new appointment, promotion or have any relevant hiring

news, please email the details and a photo to [email protected]

66

INDUSTRY APPOINTMENTS

December 2012

We are the new AIG

Bring on tomorrow


www.aig.com

AIG Launch Ad.indd 1 11/8/2012 2:13:23 PM Broadcast Pro B2B GMS 270x207-E.indd 1 10/24/12 6:20 PM

SHANE PHILLIPS CONSULTANTS +971 50 940 7537 | [email protected] | www.shanephillips.net

FOR A CEO, CFO OR COO?SEARCHING

THE RIGHT ONEWITH SHANE PHILLIPS.

FIND

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Documents

Accountant Middle East - December 2012