HK$70.00

Plus:RMBDevaluation impacts CFOs

Forensic accountingDigging through data

LifeCPAs dance away stress

President’smessage

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October 2015 1

Dear members,

Earlier this month, we held a mem-bers’ forum with our professional accountants in business, the largest group that makes up more than 70 percent of our membership. The occasion enabled the Institute to strengthen its connection with them by highlighting our important sup-port services and listening to their views on any enhancements needed. One of the new initiatives is the upcoming “Future CFO’s DNA” conference, which will provide insight and useful tips about han-dling challenges facing PAIBs and key attributes of future chief finan-cial officers. At the forum, we also underlined international resources such as those provided by the Inter-national Federation of Accountant’s Global Knowledge Gateway and its PAIB Committee.

PAIBs are an important sector of the Institute’s membership as they come from a diverse range of businesses representing a range of different expertise. Collectively they exert important professional influence on many public issues and have demonstrated this over the years.

I would like to thank the members who attended the forum and gave us their views on what areas and resources we can further enhance.

Meanwhile, we continue to support member development

in many other areas in response to the Institute’s annual membership survey. Activities include organizing seminars that focus on specific themes. The second seminar under the Current Affairs Series was held last month featuring Secretary for Development Paul Chan, who talked about Hong Kong’s connectivity with the Pearl River Delta and opportunities for a bridgehead economy.

The Business Leaders Series will kick off later this month fea-turing Y.K. Pang, Chief Executive of Hongkong Land Holdings and Chairman of Hong Kong General Chamber of Commerce, who will share his valuable insight about changes in China over the past 30 years and his views on why Hong Kong needs to work better with the Mainland under the “One Country, Two Systems.”

The Best Corporate Gover-nance Disclosure Awards Series debuted this month allowing our members to engage with the award winners on how to develop strate-gies in relation to environmental, social and governance practices and reporting.

These specific programmes are on top of our ongoing and popular Corporate Finance Series, Valuation Series and a wide range of other training activities – all aiming to

keep our members competitive in their careers.

Meanwhile, we continued to take care of our next generation of potential members by organizing a career forum, which took place at the beginning of this month at Cyberport. It comprised of a seminar, workshops, a CV doc-tor, an exhibition and interviews for the shadow CPA programme. I was delighted to connect with many energetic and enthusiastic young people, and look forward to welcoming them to the promising accounting profession.

As we enter the last quarter of the year, the Institute is preparing its annual report to take stock of its achievements. As in past years, we take the opportunity to feature a theme that is both special to Hong Kong and relevant to members. This year, we showcase sport – an area in which Hong Kong, like it does as a global financial centre, is punching above its weight. Watch out for the report, which contains a great photo essay and vignettes featuring Hong Kong’s sporting success stories and the roles that CPAs play in them.

Lastly, to reinforce engage-ment with members and other stakeholders, the Institute’s Face-book will be online later this month. Do “like” the page and connect with us.

“ To reinforce engagement with members and other stakeholders, the Institute’s Facebook will be online later this month. Do ‘like’ the page and connect with us.”

Dennis HoPresident

ContentsIssue 10 / Volume 11 / October 2015

01NEWS

01 President’s message

04 Institute news

06 Accounting news

10FEATURES

10 Forensic accountants and big data How forensic accountants detect high-risk activities in staggering amounts of data

17 Thought leadership: Eric Tong The Institute’s Council member and Auditing and Assurance Standards Committee Chairman on the importance of enhanced auditor reporting

18 Leadership: Yu Weiping China’s Vice Minister of Finance talks about the importance of implementing Mainland accounting reform

25 How to… Carol Cheung shares how laid-off accountants can turn around and get back on track

26 Re-evaluating the RMB The uncertain future of the yuan makes CFOs think about their currency risk and turn to hedging strategies

32 Success ingredient: Johnson Ho The CFO of Yip's Chemical Holdings explains how a Hong Kong company can grow with the China market

38 Counting beats We talk to Institute members who let their creativity flow on the dance floor

44SOURCE

44 Refining investigations of corruption that result in dismissal of employees Termination of corrupt staff members needs following-up to protect the company from post-exit risk

46 Bill introduced into LegCo seeks to improve the tax appeal process An overview of the proposed reform to the tax appeal mechanism

48 Technical update Facts and tips for the preparation of a business review

50 TechWatch 155

38Counting beatsInstitute members with a knack for rhythm share their favourite dance styles

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

President Dennis Ho

Vice Presidents Mabel Chan, Ivy Cheung

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

Head of Corporate Communications Stella To

Editorial Advisory Group Daniel Lin (Convenor), Eric Tong (Deputy Convenor), Eugene Liu, Alec Tong, Edward Tsui, Yip Ka-ki, Stanley Yuen, Raphael Ding, Chris Joy

Editorial Manager John So

Editorial Coordinator Maggie Tam

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

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

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

Copy Editor Jemelyn Yadao

Contributors Tigger Chaturabul, George W. Russell, Jane Cooper

Production Manager Jasmine Hu

Designer Trevor Cheng

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

ADVERTISING ENQUIRIESAdvertising Director Derek TsangEmail: derek.tsang@mandl.asiaTel: (852) 2656-2676

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

© Hong Kong Institute of Certified Public Accountants October 2015. Print run: 7,000 copiesThe digital version is distributed to all 39,096 members, 18,370 students of the Institute and 2,252 business stakeholders every month. Subscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

52AFTER HOURS

52 Books The Reckoning: Financial Accountability and the Rise and Fall of Nations reviewed; Interview with author Jacob Soll

54 Life and everything Pumpkin sticky rice balls in ginger soup and tantalizing Tasmania as recommended by Institute members

56 A life in the day Nury Vittachi gets up close and personal with Elvin Chan, Head of APAC Enterprise Business Continuity Management at the Royal Bank of Canada

Book review: The Reckoning: Financial Accountability

and the Rise and Fall of Nations

26Re-evaluating the RMBThe devaluation of the yuan gives CFOs something to think about

News Institute news Accounting news

Institute news

Accounting profession celebratesNational Day with dinner More than 700 CPAs and guests from the Mainland, Macau and Hong Kong joined the accounting profession’s 66th National Day celebration last month. Among the officiating guests were K.C. Chan, Secretary for Financial Services and the Treasury, and Yin Xiaojing, Deputy Director of the Liaison Office of the Central People’s Government in the Hong Kong SAR.

Young members achieve career breakthroughs The Young Members Committee of the Institute is hosting its annual career forum on 7 November to aid and inspire young professional accountants in their career development. This year’s conference has the theme “Career Breakthrough,” and aims to help young members reach new heights as a CPA.

Speakers include exemplary young members who will share their career paths, the challenges they faced and how they overcame them. Consultants from two reputable recruitment companies will talk about the latest trends and opportunities in

the job market, as well as offer tips on career growth. This year, a newly added panel session will provide advice to budding young entrepreneurial CPAs on how to start their own business.

Enrolment information is available on the Institute’s website.

2015 SMP SymposiumThe Institute’s annual symposium for small- and medium-sized practitioners will be held on 27 November. The event will feature topics that are top-of-mind for SMPs, such as taxation and implementation of the Companies Ordinance, updates to major accounting and auditing standards, and prac-tice review findings. Another talking points will be practice management, providing advice on data privacy, electronic risk and professional indemnity insurance. There will also be a session for attendees to meet the accounting profession’s LegCo representative.

Details on how to enrol are available on the Institute's website.

4 October 2015

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Disciplinary findingIp Wing Lun, Allan, CPA (practising), Chang Kin Man, CPA (practising) and Wong Po Ling, Pauline, CPA

Complaint: Failure or neglect to observe, maintain or otherwise apply namely sections 100.4(e) and 150 of the Code of Ethics for Professional Accountants.

The respondents were directors of a Hong Kong listed company. They failed to obtain the shareholders’ prior approval for making a deposit payment for a proposed acquisition. Under the listing rules, the deposit was regarded as a major transaction, which requires shareholders’ approval. The Listing Committee of the Stock Exchange of Hong Kong found that the respondents were in breach of their director’s undertakings for failing to use their best

endeavours to procure the company to comply with the listing rules. The Listing Committee imposed a public censure on the company and the respondents and required the respondents to undergo 24 hours of relevant training.

Decision and reasons: The respondents were reprimanded and ordered to pay a penalty of HK$1,000 each to the Institute. In addition, they were ordered to jointly pay the costs of the disciplinary proceedings of HK$79,000. When making its decision, the Disciplinary Committee took into consideration the particulars in support of the complaint, the respondent's personal circumstances, the parties’ submissions and their conduct throughout the proceedings.

Details of the disciplinary finding are available at the Institute's website: www.hkicpa.org.hk.

The Institute in numbers

72%

Approximately one-third of respondents play a major role in Hong Kong’s capital market as

employees of the city’s listed entities

Value in leadership and professional life

say they are required to work seasonal overtime

56%

of them say the busiest quarter is January to March41%

Work-life balance: fact or fiction

A profession on the move

of respondents manage staff as part of their job function

40%of respondents report spending a portion of their working hours

beyond their home base

52%of this demographic identify the Guangdong/Pearl River Delta region as a work destination

Current state of professional development

of respondents have attended CPD courses

organized by the Institute

66%

of them have been satisfied with their learning experience74%

A snapshot of members’ views on matters including the Institute’s services according to annual membership survey

October 2015 5

Internet giant Yahoo said last month that it will move forward with plans to spin off US$23 billion worth of shares in Alibaba Holding Group even if the Internal Revenue Service doesn’t provide a “favourable rul-ing” on the tax-free transaction.

The news comes weeks after the United States’ tax regulator denied Yahoo’s request for a letter ruling that the company’s spin-off of its shares in Alibaba would be tax-free.

On 28 September, Yahoo’s shares rose as much as 6 percent in after-hours trad-ing following the company’s decision to proceed with the plan. The deal, which is

expected to be completed before the end of the year, could save the company billions of dollars in taxes.

“Neither this ongoing guidance project nor the IRS’s decision not to rule with respect to the Aabaco spin-off transaction changes the current law applicable to the proposed spin-off,” Yahoo said in a filing, referring to the name of the corpo-rate entity that will hold the shares after the spin-off.

Yahoo also said that the transaction will still be subject to “a legal opinion with respect to the tax-free treatment of the

transaction under U.S. federal tax laws and regulations.” However, it did not clarify how that would work if the IRS were to rule against its tax-free treatment.

In January, the California-based company announced its scheme to spin off its 384 million shares, or 15 percent stake, in the Chinese e-commerce giant into a separate company in a transaction that will ultimately give back much of the value to Yahoo’s shareholders. The plan hit a roadblock in May when the IRS said it was considering changes to how it treats tax-free spinoffs.

Yahoo to stick to Alibaba spinoff plan without IRS backing

Illus

trat

ion

by H

arry

Har

rison

NewsAccounting

6 October 2015

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FRC consults on EU’s accounting shake-upBritain’s Financial Reporting Council kicked off a public consultation last month to apply European Union reform of company accounting from next June in the United Kingdom. The EU rules will mean that 50 accounting companies will come under the supervision of the watchdog, and will require companies to change their auditor at least once every 20 years to avoid “cosy” relationships, reported Reuters. “The most instant change is that things we have developed as best practice will be a matter of legal requirement, such as re-tendering of auditors,” FRC Executive Director of Codes and Standards, Melanie McLaren, told the newswire.

Brazil’s audit court finds government broke finance lawBrazil’s federal audit court said earlier this month that President Dilma Rousseff’s government violated accounting practices last year and broke the country’s finance law by using money from state banks to hide a budget deficit. The decision from the Federal Court of Accounts of Brazil (also known as TCU) paves the way for Rousseff’s opponents to begin impeachment proceedings against her in congress amid widespread anger among Brazilians over the country’s economic troubles, media reported. Rousseff’s legal team denies the charges. The court’s finding is not judicially binding, but may help congress decide whether Rousseff violated fiscal rules.

A world of numbers

PwC leads the Big Four PwC is now the world’s largest professional ser-vices firm, topping Deloitte, the Financial Times reported last month. Driven by the rapid expan-sion of its consulting business, the firm recorded a 10 percent increase in gross revenues to US$35.4 billion, helping PwC leapfrog Deloitte. PwC’s consulting arm now accounts for more than 30 percent of its total revenue after growing 18 percent to US$11.2 billion during the fiscal year. Much of the rapid expansion is a result of PwC’s acquisition in 2014 of the consulting firm Strategy& (formally Booz & Company).

Divorce brings the rich and forensics togetherA burgeoning need by the wealthy to hire forensic accountants is driven by them divorc-ing, according to James DiGabriele, Professor of Accounting at Montclair State University, reported Forbes. “High-net-worth couples gen-erally have a number of types of assets such as investment portfolios, businesses, collectables, partnerships, and the list goes on,” DiGabriele told the publication. “Divorce lawyers are not the professionals that are going to be able to determine the value of all the different assets. That’s the job of the forensic accountant.”

The total amount in additional federal taxes 57 Fortune 500 companies

would owe if they were not to book offshore, according to a report on the use of tax havens by United States-based multinational corporations in

2014, released by non-profit research and advocacy group Citizens for Tax

Justice this month.

US$184billion

How many data scientists EY’s French firm approximately now

has on its staff following the acquisition of analytics and big data consultancy Bluestone, announced earlier this month. The deal, which is the third the firm has done over the last two years to build up its

data analytics capabilities, comes as today’s organizations are becoming

increasingly data-driven.

130

AFP Dilma Rousseff

How much Grant Thornton LLP, the United States-based member firm of the accounting network, earned in revenues for the 2015 fiscal year. It represents a 6.9

percent increase over the previous fiscal year under new Chief

Executive Officer Mike McGuire.

US$1.45billion

October 2015 7

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Forensic accountant TV show debuts soonAn upcoming American thriller television series puts accountants under the spotlight as it follows a fraud investigator, played by Mireille Enos, who discovers she is about to get conned by her fiancé and is determined to turn the tables on him, according to AccountingToday. The series, called The Catch, is scheduled to premiere on ABC TV later this year. The show is said to potentially be the CPA version of Grey’s Anatomy, as it is made by the same producer.

Apple tops list of tax-avoiding U.S. companies Apple holds the no.1 spot in a list of top 30 United States-based multinational corporations exploiting global tax havens, Quartz reported last month, citing the results of a study by lobbying group Citizens for Tax Justice, which examined Fortune 500 companies in 2014. The analysis found that Apple booked US$181.1 billion offshore, more than any other company, and would owe US$59.2 billion in U.S. taxes if it didn’t. General Electric and Microsoft came in second and third place respectively.

Deloitte to hide university of job applicantsDeloitte has decided not to know the names of job applicants’ schools and universities next year in the United Kingdom as it aims to tap a more diverse “talent pool,” BBC News reported last month. Using the Contextual Recruitment System, a technology that gathers background data, the firm will take into account dis-advantages such as attending a less prestigious school or coming from a deprived area.

Three Gorges Dam issues uncoveredAccounting problems related to projects linked to the Three Gorges Dam, the world’s largest hydropower project that spans the Yangtze River, were uncovered by China’s National Audit Office last month. An investigation by the state audit office found almost 2 billion yuan worth of accounting problems in the final accounts for a 7.1 billion yuan underground hydroelectric plant, including 1.54 billion yuan from improper bidding and 337 million yuan in duplicate calculations, it said.

NewsAccounting

AFP

October 2015 9

Forensic accountingData analytics

Electronic data analysis is not new to CPAs in forensic accounting. But as companies today collect staggering amounts of information, forensic accountants are being increasingly relied on to dig deeper to detect high-risk activities or worse. Jemelyn Yadao finds out how big data is making their jobs both harder and easierIllustrations by Kouzou Sakai

10 October 2015

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October 2015 11

Forensic accountingData analytics

“ W here’s my cake?” is almost always a harmless question.

But for a team of forensic accoun-tants sifting through emails sent by a trader over two years, this phrase raised eyebrows – especially since it popped up 20,000 times.

“We all know that if you want to commit fraud, you’re not going to write [in an email] ‘I’m about to make an inside trade’,” says Eric Young, Partner of Fraud Investiga-tion and Dispute Services Greater China at EY Hong Kong. As part of an insider trading investigation, forensic specialists at the Big Four firm profiled a trader’s emails to find out the most common words used and checked it against trading system data. They discovered that the times the cake-seeking emails were sent out matched certain time stamps on the trading system. “Every time he made a trade, the email came up,” says Young. “We looked at trading system data, email system data and any other communication system data hap-pening in that investment bank by the trader and others involved. When you put all that together, you find out things that you didn’t know before.”

Until recent years, such subtle code words and phrases might have passed by unnoticed. The rise of big data comes with an increased risk of fraud – it’s harder to detect thanks to the sheer amount of information available. Increasingly, businesses are putting pressure on forensic accountants to better use big data to accomplish their goals and protect them.

Indeed, data analytics as a fraud prevention tool is becoming

the norm for forensic accountants around the world. According to the 2014 AICPA Survey on Interna-tional Trends in Forensic and Valuation Services, most of the CPA respondents who specialize in forensic and valuation services pointed to electronic data analysis, or big data, as the most pressing issue they will face in the next two to five years. Also, 85 percent of respondents expected an increase in the amount of time they spend on electronic data analysis in the near future.

This demand for a high level of data analysis capabilities from forensic accountants was evident in August as prosecutors in the Man-hattan District Attorney’s Office were wrapping up their fraud case against former leaders of the now-defunct global law firm Dewey & LeBoeuf. During the trial, forensic accountants painstakingly pored over the firm’s books for the years leading up to its 2012 bankruptcy. Andrea Gonzales of consulting firm Alverez & Marsal and her team reportedly spent about 1,300 hours on the project, reviewing more than 150,000 line items in Dewey’s accounting system.

In an increasingly global economy, data analytics have become especially vital as compa-

nies expand off-shore operations, which can potentially create new and unfamiliar risks. Companies are actively addressing a need to get data-collecting systems in different locations talking to each other. “The challenge right now is how can we centralize all the data into one location and analyse it globally rather than country by country,” says Young. “Companies are looking into this and that’s why there’s a big talk around big data, which is growing from giga-bytes towards zettabytes (1 trillion gigabytes) from structured and unstructured data.”

100 percent proof While it is well known that big data presents great opportunities for businesses to get actionable insights, experts point out the downsides. “A higher volume of data increases the workload and requires a larger team of forensic accountants, both mak-ing it harder to manage the project,” says Benny K.B. Kwok, Founder of Hong Kong-based independent practice Benny K B Kwok Forensic Expert and a Hong Kong Institute of CPAs member.

Challenges include not only big data being large in terms of volume, but also in variety. “The data to be analysed is typically a combination of structured, semi-structured data and unstructured data,” says Barry Tong, Partner of Advisory at Grant Thornton and an Institute member, who describes structured data as well-defined information such as transactions recorded in the database of a point-of-sales system, date and time of sales, and product names. Examples of unstructured data

“ Big data is growing from gigabytes towards zettabytes rom structured and unstructured data (1 trillion gigabytes).”

12 October 2015

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include emails, word documents, social media posts and voice mails.

Time is also an obstacle as it is not easy to quickly obtain an overall picture due to large volumes of data. “Planning on how to mine from the data and accurate execu-tion of the data mining plan could be a challenge to forensic account-ing work,” says Tong.

With new types of data throw-ing up new challenges for forensic accounting professionals, experts agree that it’s crucial for them to embrace data analytics. “Data analysis tools allow you to look at the data from different angles to get to the root cause of fraud. Some of the ways data analysis is being used include trend and pattern analysis to look for indications of diver-sion of funds or theft, behavioural analysis and monitoring of spend-ing trends,” explains Tong.

Many forensic accountants are therefore moving away from traditional statistical sampling methods, which look at only a relatively small amount of data. This is a result of an increasingly sophisticated understanding of the potential of reviewing all informa-tion available. “Now companies are starting to realize that sampling doesn’t work. Clients in Asia have asked, ‘How do I use 100 percent of my data in order to understand where the challenges are in my business?’” says Young at EY.

“They can analyse 20 percent of their data, which is structured, but are unable to manage the remaining 80 percent, which is unstructured,” Young adds. While unstructured data is the most difficult to handle, the answers forensic accountants are looking for often lie within it.

October 2015 13

Forensic accountingData analytics

With the increased complex-ity of engagements, Y.L. Cheung, Partner of Financial Advisory at Deloitte and an Institute member, has witnessed his team go through an abrupt transformation. “We didn’t used to have a dedicated data analytics team within the forensics team until just two years ago,” he says. The task of catching out any standout patterns, anomalies or relationships between different databases was also unimaginable. “Many years ago, we couldn’t dive into the details of employee data or suppliers’ data to find anything that might indicate a strong connection between a particular employee and a supplier,” he adds. “It was basically impossible for humans to do this.”

Thanks to new technologies and forensic technology labs embedded in firms, some forensic CPAs are now used to dealing with tasks that require a higher level of data analy-sis. As an example, Tong at Grant Thornton cites a recent merger and acquisition case involving a China-based retail chain, which appointed the firm to verify the revenue and net profit of the target. The firm performed the once-impossible task of analysing millions of sales transactions. In the end, further investigation revealed fictitious sales that resulted in an overstate-ment in the target’s revenue of 20 percent. “By applying data analytic techniques we were able to pin-point the exact cause of irregularities in a timely manner.”

Reading between the linesBig data, over the next few years, will create new opportunities for

14 October 2015

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forensic accountants to take a more proactive role in organiza-tions. It forces them, says experts, to develop new skills not only in analytics, but even in areas such as linguistics.

“We leverage a group of lin-guistic PhDs within EY to define phrases or ‘slang’ words that are used. Fraud can be described in ‘fraud triangle’ analytics tests,” says Young. The framework of a fraud triangle, as Young puts it, includes three areas – opportunity, pressure and rationalization – that explain the reasoning behind what drives a person to commit fraud.

“You can look at all this unstructured data, tap into the type of wordings used and how they represent the person’s current state of mind and behaviour,” he says. For example, he explains, phrases such as “my wife just delivered our baby” or “I just bought a house” potentially represent that the person is under pressure, whereas phrases like “I think it’s OK” or “let me give it a try,” could indicate that the person is rationalizing in his mind the act of cheating. “If you put all three [stages] together and then profile it, you may realize that whenever this person is aggres-sive or is emotionally unstable, his trading is aggressive. To a company that is a big risk.”

The use of important mathemat-ical tools is also increasingly taking place within forensics teams. “We have been applying advanced analytics, statistic modelling, into forensic data analytic solutions. You take all the population data, apply it to your statistic models with mathematic calculations and translate it into a risk number,”

says Young. This number churned out from huge amounts of data represents high risk, medium risk, low risk, allowing top-level management to understand and use it in decision-making. “A human mind can’t comprehend 1 billion transactions that a trading company makes everyday, but if you can summarize all that into a number, people will be able to know where the risks are.”

Science and artThe ability to collaborate closely with statisticians, mathematicians and IT specialists is also essential, particularly as forensic accountants move towards providing a new and critical service: making big data smaller. “To make big data useful, forensic accountants have to distill information into insights in a timely manner,” explains Tong at Grant Thornton.

Some forensic teams currently work with a business intelligence team to create user-friendly, easy-to-understand “dashboards” that graphically represent the data. “We divided the data sets into five categories: who, what, where, why

and how – This is combining sci-ence and art, better understanding the data sets through graphically structured format,” says Young. “The dashboard may look easy to the viewer but it’s actually derived from a million transactions, and data sets that don’t represent an issue or risks to the senior manage-ments are removed.”

Observers foresee forensic accountants becoming more future-facing, focusing on methods that leverage on previously recorded data, and identifying patterns to predict potential future behaviour or trends. This is so-called predic-tive modelling.

“During an analysis, we put that behaviour into the database so that next time that behaviour happens again, we can see that, ‘Here’s potentially an issue that happened in the past’,” says Young.

The drawback is that at the moment, in many cases, forensic accountants are still required to input this data manually. “Input-ting from scratch means the risk of more clerical errors, and the process would be more tedious and time-consuming, which may cause undue delay,” explains Kwok, the forensic practitioner.

Despite these challenges, many believe forensic accountants will continue to take up the oppor-tunity, offered by big data, to reinvent themselves. “The skills and expertise of forensic accoun-tants can be effectively applied to a more strategic role,” says Kwok. “While the traditional role of forensic accountants is to serve as an expert witness and investigator, now we’re moving beyond that.”

“ You can look at all this unstructured data, tap into the type of wordings used and how they represent the person’s current state of mind and behaviour.”

October 2015 15

Thought leadershipEric Tong

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October 2015 17

E nhanced auditor reporting is viewed as critical to the per-ceived value of the financial

statement audit and is designed to enhance auditor’s reports for inves-tors and other users of financial statements. Especially after the global financial crisis, many have called for the auditor’s report to be more informative.

Enhanced auditor reporting was a topic being explored by the profession even before the finan-cial crisis, when the International Auditing and Assurance Standard Board and the Auditing Standards Board of the American Institute of Certified Public Accountants commenced a joint initiative in 2006. They commissioned aca-demic research on user perceptions regarding the financial statement audit and the auditor’s report. The research was completed in 2009 and, together with the IAASB’s outreach activities, presented com-pelling evidence of strong demand from investors and other users for a change in auditor reporting.

In January of this year, the IAASB, after rounds of public con-sultations, global roundtables and outreach activities, issued new and revised auditor reporting standards. As part of international conver-gence, we, in Hong Kong, will adopt these standards, which will

be effective for audits of financial statements of listed entities for peri-ods ending on or after 15 December 2016.

These changes to auditor report-ing will increase transparency, enhance informational value of the auditor’s report and lay the foun-dation for the future of improved auditor communications.

So, what are the key enhance-ments to the auditor’s report?

• The Opinion section will be required to be presented first.

• A new section to communicate Key Audit Matters will be added. These are matters that, in the auditor’s judgment, are of most significance in the audit of the financial statements.

• Enhanced auditor reporting on going concern includes a separate section where a mate-rial uncertainty exists and is adequately disclosed under the heading “Material Uncertainty Related to Going Concern,” as well as a new requirement to challenge the adequacy of disclosures for “close calls” in view of applicable financial reporting framework when events or conditions are identi-fied that may cast significant doubt on an entity’s ability to continue as a going concern.

• An affirmative statement about the auditor’s independence and fulfilment of relevant ethical responsibilities will be included.

• Enhanced description of the responsibilities of the auditor and key features of an audit may be presented in an appendix to the auditor’s report or by refer-ence to the Institute’s website.

• Last but not least, the name of the engagement partner will be shown.

A new auditing standard, HKSA 701 Communicating Key Audit Matters in the Independent Audi-tor’s Report, has been developed to provide further guidance as to what issues are determined and com-municated as key audit matters, to ensure that those communicated in the auditor’s report are as entity-specific and relevant as possible.

It is encouraging to note that the United Kingdom’s Financial Reporting Council, which has led the changes since 2013, has found market feedback from extended audit reporting to be positive. To ensure successful implementation of the new and revised standards in Hong Kong, the Institute will con-tinue to inform and educate stake-holders about these changes and open a dialogue to learn about the experiences of the practitioners.

“ These changes to auditor reporting will increase transparency, enhance informational value of the auditor’s report and lay the foundation for the future of improved auditor communications.”

The Institute’s Council Member and Chairman of the Auditing and Assurance Standards Committee explains the importance of enhanced auditor reporting

Making audits more communicative

Leadership prof ileYu Weiping

SUSTAINING THE BOOM ACROSS THE BORDER

Yu Weiping spent most of his career

in the Ministry of Finance's personnel

and education division, of which

he was promoted to director in 2005

18 October 2015

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T he Chinese government has few doubts about the abilities of Hong Kong

Institute of CPAs members. After all, the Ministry of Finance has put several on its advisory committees. Last year, the ministry recruited 14 Hong Kong accounting profes-sionals to serve as consultants on management accounting and internal control.

For China’s recently appointed Vice Minister of Finance, Yu Weiping, the development is part of the ministry’s policy of fostering exchange and cooperation with the Hong Kong accounting profession.

In addition, the ministry has been making progress under the Closer Economic Partnership Arrangement about opening up China’s accounting services market. Under an agreement on achiev-ing basic liberalization of trade in services in Guangdong, Hong Kong audit experience is recognized.

“In standards revision, cross-border regulation and other related issues, the ministry will continue to keep up communication and cooperation with Hong Kong, and

through regular visits, experience sharing and working meetings, to deepen and extend our collabora-tion,” says Yu in an interview with A Plus.

Cross-border regulationAfter consultation with the China Securities and Regula-tory Commission, the National Administration for the Protection of State Secrets, the State Archives Administration and related depart-ments, the ministry is considering to set up a mechanism to allow audit working papers developed by Hong Kong CPAs in the Mainland to be confidentially examined in Hong Kong. “This is to meet the reasonable needs of Hong Kong regulatory bodies and we have been going through many discus-sions,” says Yu.

Such mechanism will of course be subject to administration feasi-bility, confidentiality review and other legal procedures, according to Yu.

Indeed, the cooperation on cross-border audit regulation can date back to 2010 when Mainland

and Hong Kong signed a memoran-dum of cooperation to officially set up a mechanism based on mutual reliance.

Under the agreement, the min-istry inspected, upon Hong Kong’s request, 15 H-share companies (Mainland-incorporated entities listed in Hong Kong) and their auditors during 2013 and 2014. Hong Kong has been informed about the inspection results and rectifying actions of Mainland accounting firms.

“The ministry also kicked off a forum at the end of last year to review developments of H-share enterprise audit engagements, helping to resolve any practical dif-ficulties and improve audit quality of H-share in Hong Kong capital market,” says Yu.

Working with provincial-level finance departments, the ministry is making provisional audit licens-ing approval process for Hong Kong accounting professionals more efficient. “This is in accor-dance with the country’s reform direction to simplify administra-tion and delegate authorities to

Yu Weiping, China’s recently appointed Vice Minister of Finance, tells A Plus about the importance of implementing Mainland accounting reform, the country’s plans for convergence with international standards and how Hong Kong Institute of CPAs members can participate in the “new normal” economyIllustrations by David Mahoney

October 2015 19

Leadership prof ileYu Weiping

unleash market vitality,” says Yu.Internationally, the ministry’s

cooperation principles have been manifested in its ongoing discus-sions with the United States over access to audit working papers of U.S.-listed Mainland companies. “Since 2009, the ministry, in conjunction with the CSRC, has maintained communication with the U.S. Public Company Account-ing Oversight Board in relations to audit regulatory cooperation.”

Yu says there are two areas of cooperation with the U.S.: routine inspection and law enforcement investigation. “We advocate mutual respect for sovereignty and basing on law in regulatory cooperation, and adopt a pragmatic and flexible attitude to conduct dialogue on routine inspections of accounting firms, so as to enhance mutual trust to reach a consensus on cooperation model.”

As for law enforcement inves-tigation, it will be in accordance with the memorandum of coopera-tion signed in May 2013 to allow provision of audit working papers to U.S. through a law enforcement cooperation channel, he says.

Building standardsMutual cooperation is the key to success, avers Yu, who looks back at 2007 when accounting standards in Mainland and Hong Kong were substantially converged. Since

then, the ministry, together with the Institute and others, has established mechanisms to monitor the progress of Mainland and Hong Kong stan-dards, as well as the International Financial Reporting Standards.

“In recent years, the minis-try has revised and enacted new Chinese accounting standards in accordance with the roadmap for continuing convergence with IFRS,” Yu says, adding that such development will further opti-mize the cooperation mechanism between the Mainland and Hong Kong on continuing convergence of accounting standards.

At the same time, he adds, both the Mainland and Hong Kong can make use of the multilateral and bilateral working relationships arising from China-Japan-Korea meetings and the Asian-Oceanian Standard-Setters Group, to par-ticipate in the setting of IFRS. “It will extend China’s influence in international accounting,” says Yu.

Adopting accrualDomestically, one priority for the ministry, says Yu, is to support the government’s shift, under the Budget Law that took effect on 1 January, to an accrual-based financial reporting system. (China has been a member of the Interna-tional Public Sector Accounting Standards Board since 2012.)

“The goal is, via creating a unified, scientific and regulated government accounting stan-dards regime, to establish a sound government financial reporting system, and appropriately separate financial accounting and budget accounting to comprehensively reflect information in both areas,” says Yu, adding that this will also support initiating the government credit ratings system, strengthen-ing asset and liability management, enhancing performance monitor-ing and evaluation, and prevent-ing financial risks, to enhance financial management quality and finance and economic sustainabil-ity development.

To support the reform, Yu says, the ministry has two important missions: establishing government accounting standards, both basic and specific, and providing appli-cation guidance; and improving the government accounting system.

The ministry has also spe-cifically set up a Government Accounting Standards Board,

“ Multilateral and bilateral working relationships will extend China’s influence in international accounting.”

In May 2013, the United States

Public Company Accounting

Oversight Board announced that it has entered into a memorandum

of understanding on enforcement

cooperation with the China

Securities Regulatory

Commission and the Ministry of Finance. The memorandum establishes a cooperative framework

between the parties for the production and

exchange of audit documents

relevant to investigations in both countries’

respective jurisdictions.

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October 2015 21

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chaired by the ministry leadership and with representatives from the accounting regulatory and treasury departments, and other units.

“With regard to committee’s composition, we will further absorb personnel from other relevant departments and units and set up expert advisory panels, leveraging on their expertise and community resources to imple-ment the government accounting reform,” says Yu.

Focus on efficienciesPart of the goals for such reform and development is to cre-ate efficiencies in the Chinese economy as it rebalances from an investment-led to a consumption-led focus with possibly lower but more sustainable gross domestic product growth – the so-called “new normal” economy.

“To adapt to the new require-ment of improved efficiency under the ‘new normal’ economy, we have started the establishment and application of management accounting systems, and have invited highly qualified profes-sionals, including those from Hong Kong, to form an expert panel,” Yu notes.

He says the ministry will nurture a class of management account-ing personnel in three to five years

under the guidance on extensive implementation of a management accounting system issued on 27 October 2014. “This is a content-rich document that establishes a framework pointing to the overall objectives of creating a manage-ment accounting system that aligns with China’s socialist market economy.”

The following five to 10 years, Yu adds, would see the establish-ment of a world-class manage-ment accounting profession with Chinese characteristics. “The ministry’s guidance has scientifi-cally and innovatively created an organic development model for management accounting through theory, guidance, talent develop-ment, information technology and consulting services,” he says.

Market opportunitiesYu, who holds a doctorate in eco-nomics from the Central University of Finance and Economics in Bei-jing, understands the importance of getting the right people. He spent most of his career in the ministry’s personnel and education division, of which he was promoted to director in 2005. He was appointed an assis-tant minister of finance in 2012.

Yu also stressed the need to adopt modern technology to bolster the country’s financial reporting

system. “We must further strengthen internal controls and adapt to information technology developments such as mobile Inter-net, cloud computing and big data and promote the use of eXtensible Business Reporting Language in our financial reporting and internal management,” he says.

China, he acknowledges, will require international standards expertise to achieve such goals. “That means hiring more expe-rienced Hong Kong accounting professionals to be Mainland consultants,” he says.

“We encourage Hong Kong accounting colleagues to develop their interests and careers in the Mainland, and to exchange and build up connections with the Mainland accounting profession. Together, they will be able to upgrade their quality and service capability, and reach out to the international market.”

This article is developed and translated with permission from an original set of Chinese Q&As provided by the Ministry of Finance which is available from the A Plus website www.hkicpa.org.hk/aplus/2015/10/index.php. If there are different interpretations between the English version and the Chinese version, the Chinese version shall prevail.

“ We encourage Hong Kong accounting colleagues to develop their interests and careers in the Mainland, and to exchange and build up connections with Mainland accounting profession.”

October 2015 23

How to...Carol Cheung

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October 2015 25

Being made redundant is often a painful experience. However, whether it comes as a total shock or it occurs after warning signs that have been witnessed, it is important for laid-off employees to pick them-selves up as quickly as possible and get back on the career ladder.

Refresh the CVBefore blasting out resumes to recruiters and companies, job hunt-ers should update it with the most recent experience and achieve-ments. It’s important for people to secure reference letters from those they have worked with – apart from line managers, other internal and external contacts who are happy to give good feedback can also be approached for letters.

Network activelyNetworking is a great way to help people gain an idea of how companies are hiring and the types of positions and skill sets in demand. Therefore they should actively attend events and seminars organized by the Hong Kong Institute of CPAs and other organizations. A presence at work-related functions also allows job-seekers to stay in touch with the market and learn about any changes in practice or new rules or regulations that might be relevant to future employment.

Consider temporary positionsMany people have a preference for permanent positions because of job security. However, those who still haven’t had much luck after a few months of searching should consider temporary or contract roles as employers often look less favourably on candidates who have been out of the job market for more than nine months. More importantly, there is always a chance for temporary roles to turn into permanent jobs if individuals can prove that they are a good fit within the company.

Demonstrate ability to add valueWhen a new job has been success-fully landed, that doesn’t mean it’s time to celebrate, sit back and relax. Companies are becoming more cost-conscious nowadays and a lot of book-keeping work is being offshored to countries where costs are lower. New employees should develop and demonstrate their ability to add value to the business to avoid being dealt the redundancy card again. For example, if there is a new product or business launch, try to think about its accounting implications and give relevant advice to the business. It is essential to have a strong understanding of the busi-

ness in order to perform advisory work effectively. This means get-ting involved in business partner-ing and developing good working relationships with various internal stakeholders so that their needs can be better addressed.

Gain exposure to in-demand areasAccounting qualifications are very useful in many industries and functions. Apart from build-ing up business partnering skills, people should also try to gain experience in technical areas that are sought-after. For instance, professionals with experience in financial reporting – such as Hong Kong Monetary Authority and Securities and Futures (Financial Resources) Rules reporting – are in high demand but short supply. For those working in financial institutions, exposure to different regulatory requirements will make them a more valuable asset to the organization and a good addition to their CV.

A lot can be done to get back on track after being made redundant. People dealing with this issue should not take it too personally or be too stressed about it, but focus on how they can improve them-selves. With that, a brighter future will certainly follow.

“ There is always a chance for temporary roles to turn into permanent jobs if individuals can prove that they are a good fit within the company.”

…deal with redundancy

Carol Cheung, Associate Director of Financial Services at Robert Walters and a Hong Kong Institute of CPAs member explains how laid-off accountants can get back in the saddle

RMBYuan’s devaluation

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A ugust 11 was a watershed moment for companies in Hong Kong that had

assumptions about the stability and predictability of the RMB-USD exchange rate. The People’s Bank of China changed the way the reference rate was calculated, a move that resulted in a drop of 4.5 percent in three days – more than the currency had moved in four years.

The move was interpreted by some as the beginning of a currency war, an effort to prop up China’s slowing economy. Or it was viewed as a measure to liberalize and inter-nationalize the renminbi so that it can become a reserve currency. Regardless of the PBoC’s inten-tions, the impact was immediate. The devaluation caused many chief financial officers’ assumptions to unravel and reconsider whether they should start hedging their foreign exchange exposure.

Over the last five to six years, the RMB-USD exchange rate was viewed as a one-way bet, says Keith Pogson, Senior Partner, Financial Services, Asia Pacific at EY and a Past President of the Hong Kong Institute of CPAs. The view that the RMB would only get stronger meant that many did not consider

hedging their currency exposure. The PBoC’s action, however, “was a wake up call around the financial markets,” says Pogson.

“It is safe to say a lot more people have shown more interest in hedging since 11 August” and they have moved “away from being naked to at least thoughtful” about the need to hedge, he adds.

Hedging on the horizon The devaluation has resulted in winners and losers. Exporters with costs and debt-servicing in RMB and sales in a foreign currency should benefit. Meanwhile com-panies with excessive U.S. dollar debt stand to lose out as the value of their interest payments on the debt will increase.

The impact of the RMB depre-ciation on the overall business is not always clear. For example, Morningstar Equity Research notes that Chinese technology company Lenovo, as an exporter, should gain. However, the company has factories outside China and many of its sales are to Chinese consum-ers in RMB, which undermines the gain from the depreciating RMB.

PwC notes in its Managing Cur-rency Risk report that a hedging

strategy has to be aligned with the overall business goals, and states that in some cases it may be better to do nothing. Ada Siu, Senior Manager in Corporate Treasury Solutions at PwC and co-author of the report, agrees with Pogson that more clients are considering hedging. “Even at the beginning of last year most of our clients did not do much hedging,” says Siu, who is also an Institute member. Corpo-rates that were already hedging, such as manufacturing companies with significant foreign exchange risk, are now likely to expand fur-ther their activity, she adds.

Allen Cheng, an Institute mem-ber at the Bank of China (Hong Kong), says “For those customers that will repay their USD loans with RMB income source, it is suggested they can lock up foreign currency risk in full or partially through purchasing of foreign cur-rency forward contracts. This will avoid the uncertainty in finance cost caused by the future two-way fluctuation in RMB.” Hedging is likely to increase as the RMB becomes more volatile. Xuong Liu, a Managing Director at A&M Transaction Advisory Group in Shanghai, expects the depreciation

Re-evaluating the RMB

The devaluation of the renminbi after the People’s Bank of China changed the USD-RMB fixing mechanism caught many Hong Kong

companies off-guard and left some exposed. The new volatility in the exchange rate has pushed chief financial officers to re-evaluate the

yuan and reconsider their hedging strategies, as Jane Cooper reportsIllustrations by Takeo Chikatsu

October 2015 27

RMBYuan’s devaluation

to continue. “Given the continuing headwinds domestically, it may not be unreasonable to assume that the RMB will continue to depreciate in the short to medium term, particu-larly if the effects of increases in commodity prices, as a result of unfavourable FX movements, are negated by the historically low oil price,” says Liu.

The expected increase in hedg-ing is good news for Hong Kong, says Thomas Wong, Partner at CWCC Certified Public Accoun-

tants and an Institute member. “We are an international hub – a lot of international currency settlement can be done here in Hong Kong,” he says.

Hedging strategyHowever, as Pogson at EY points out, RMB hedging is very expen-sive to do. There is also more discussion, he says, about the right price of the RMB. Prior to 11 August there was confidence in the predictability and stability of the

exchange rate because the PBoC was controlling the fix within a tight range. The central bank announced that it would be chang-ing the way the fix is calculated, which means that market rates and the previous day’s close would be considered when setting the daily reference rate. The PBoC wasn’t technically devaluing the RMB, but rather letting the market devalue it. The expectation of stability and predictability, a “bubble,” has been burst, says Pogson. He notes there

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are different ways to hedge. One is for foreign companies to borrow onshore in China so that their assets and liabilities are in the same currency. This, however, has its downside as interest rate margins are wider in Mainland China than they are elsewhere, and borrowing in Hong Kong is much cheaper.

“A smarter approach is to look for pseudo hedge currencies as a proxy [for the RMB],” says Pogson. By looking at the correlations between the RMB’s depreciation

and other currencies – such as the Korean won, Malaysian ringgit or Singapore dollar – companies can hedge those currencies instead.

Becoming more agile Siu of PwC and Ian Farrar, the firm’s Corporate Treasury Leader for China and Hong Kong, and co-author of the firm’s Managing Currency Risk report, note there are a number of things that companies can do to better respond to foreign exchange uncertainty. One is to

become more agile. Some compa-nies already have finance or risk committees, which report to the company’s board, and set the strat-egy for responding to currency risk.

For companies that do not have such a committee, they should con-sider establishing one to increase their agility in responding to an event like the RMB devaluation. Also, it is important that the deci-sion makers on this committee are empowered and not restricted by a company’s bureaucracy and do not

October 2015 29

RMBYuan’s devaluation

have to wait until the next board meet-ing for every financial decision to be approved, the PwC report explains.

In addition, companies can enhance their internal reporting so that senior managers can be briefed more effec-tively on the company’s currency risk. PwC notes that qualitative reporting of risks is rarely included in the notes that are sent to the board members. One solution would be to give senior managers briefings on scenario analysis – if the RMB drops by X, the financial impact would be Y – or to use more sophisticated value-at-risk or cash-flow-at-risk models that show how exposed a company is to RMB volatility.

RMB trade settlementAlthough the August devaluation may have shocked some, the longer-term strategy of the PBoC to international-ize the currency should come as no surprise. Many viewed the change of the fix as a bid for the RMB to be included in the International Monetary Fund’s basket of special drawing rights currencies, thus making it a global reserve currency.

Siu of PwC notes that with the internationalization and liberalization of the RMB, companies will try to avoid foreign exchange borrowing as much as possible and will borrow in RMB to reduce their currency exposure. Liu of A&M agrees: “As the RMB continues to gain traction as a global currency, the impact to Chinese businesses – and of interest to Hong Kong and China-based CFOs – is that ultimately, it will cost them less to borrow. And it will become easier for companies to raise money, because

there would be a stronger global demand for RMB denominated assets.”

The internationalization of the Chinese currency so far has meant that companies trading with China are able to settle their transactions in RMB. The devaluation has prompted companies that are not already settling trade in RMB to reconsider doing so, says Pogson at EY.

Rather than converting payments from their home currency into U.S. dollars and then RMB, they can pay their Chinese trading partner in RMB

from an offshore RMB account, thus removing the USD exchange risk. Also, invoicing in RMB can increase sales, says Michael Vrontamitis, Head of Trade Product Management at Standard Chartered Bank. He gives an example of a foreign watch manufac-turer that gained new buyers in China because those buyers were excluded from the foreign exchange market and could only pay for goods in RMB.

More companies in other regions, such as Latin America and Africa, are considering settling their trade

“ In the long term, we also want to see more companies using RMB as the functional currency in financial statements and contracts.”

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payments in RMB. Wong at CWCC notes that his firm has seen an increase of enquiries from international companies looking to expand into China. Many of his clients are from Latin America, a region that has been increasing its trade with China in recent years. Delilah Li, a Senior Manager in the Latin department at CWCC, also notes that RMB internation-alization will make it easier for foreign companies to hold the cur-rency and set up business in China.

“In the long term, we also want to see more companies using RMB as the functional currency in financial statements and contracts,” she says.

For now, companies in Hong Kong must grapple with their immediate exposure from the devaluation in the RMB and rethink their assumptions about the currency’s predictability. Even if they decide not to hedge just yet, at least they are now more self-aware and realize how exposed they actually are.

October 2015 31

Success ingredientJohnson Ho

Hong Kong-based Yip’s Chemical Holdings is a leader in its core fields of coatings, solvents, inks and lubricants. Its Chief Financial Officer, Johnson Ho, explains how the company continues to grow along with the China marketPhotography by Anthony Tung

Y ip’s Chemical Holdings is not your average Hong Kong company. Unlike

many large entities, Yip’s Chemi-cal concentrates on a narrow range of business in which it does well: solvents, coatings, inks and lubri-cants. Not only is all of its produc-tion located in China, but also the vast majority of its customers.

“I was impressed by Yip’s Chem-ical management,” says Executive Director and Chief Financial Officer Johnson Ho, referring to the meet-ings that led to his recruitment in 2010. “They are focused.”

Their major target then was to double revenue to HK$10 billion within five years. After Ho, a Hong Kong Institute of CPAs member, took over, that goal was reached in just four years. “They stress good corporate governance as well as very aggressive sales growth,” says Ho, “and I’m here to balance risk management versus operational excellence.”

Founded in Hong Kong in 1971 as the Hang Cheung Hong Com-pany, Yip’s Chemical was listed on

the Hong Kong stock exchange in 1991. Over that time the company established itself as the world’s largest manufacturer of acetate solvents and China’s largest manu-facturer of inks. It owns several plants in China and has created a distribution network that covers all major provinces and cities.

Like most manufacturers in China, Yip’s Chemical is very aware of rising input costs, especially wages as well as slow-ing economic growth. “We do try to control staff costs, but it is not easy,” Ho says, adding that the company has tried to boost productivity. “We have introduced performance-based pay and we do some outsourcing,” he says.

However, the company’s domi-nant market gives it leverage in some quarters. “For raw materials, we rely on economy of scale,” says Ho. “Our annual acetate capacity is close to one million tonnes, so we can push our suppliers,” adding that some of the company’s smaller fac-tories were closed and merged with others to improve efficiencies.

PAINTING BY NUMBERS

Before joining Yip’s Chemical, Ho was finance director at the Chevalier conglomerate and helped set up systems from scratch at Van Shung Chong Holdings

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October 2015 33

Success ingredientJohnson Ho

Technology has also helped. “We have improved product formulas through better use of raw materials and methods to cut down on process-ing,” says Ho.

Ho thanks the company’s research and development centre in Shanghai for its high-tech edge. “We set up our R&D centre in a place called Zhangjiang, right next to Fudan University, so it’s easy for us to recruit the right talent,” he says. “A lot of the big foreign chemi-cal companies have their R&D centres there, too.”

Do it yourself boomThe company’s interest in China extends to the beginnings of the country’s first market reforms in the 1970s. “Our Co-founder and Chairman Ip Chi-shing under-stands the Mainland market,” says Ho. “We know the history and the background and we are comfortable doing business in China.”

The company, which started as a single store selling lubricants at 425 Queen’s Road West in Shek Tong Tsui (still in the family as the Chong Yip Centre) soon began to purchase raw materials from China. As the country opened, the company expanded its presence over there as well as its product range and created its own brands. In the mid-1980s, the company set up its first factory in the Buji area of Shenzhen.

Today, the Mainland market

accounts for 95 percent of the com-pany’s revenues. Despite China’s real estate boom, Ho says few of the com-pany’s products are sold to property development companies. Instead, the bulk of its consumer coatings are sold directly to retail customers, who are either professional painters or the increasing number of Chinese do-it-yourself household project enthusiasts. “That’s why we have more than 6,000 points of sale in China and more than 1,000 distribu-tors,” says Ho.

Although Yip’s Chemical is not a household name in its home city Hong Kong, the company’s brands are sought after in the Mainland. Its Bauhinia paints are popular with both housepainters and DIY enthusiasts, while China’s grow-ing driving community are among the fans of its Hercules automotive lubricants. Other business lines are its Bauhinia Variegata industrial inks, Hang Cheung industrial paints and Pacoil specialty lubricants.

Even more important is Yip’s Chemical’s business-to-business market. “Our industrial paint business includes buyers such as toy manufacturers and telecom-munications companies for mobile phones, while ink is mostly for food packaging. Big manufacturers use a lot of our inks.”

Toys and food are among the most sensitive consumer market seg-ments in China, given the constant

scares over quality and safety issues. “We do a lot towards ensuring the quality of our products meets all the environmental, health and safety regulations,” says Ho. “For example, water-based paints and inks are really hot in the market now.”

Ho acknowledges that negotiat-ing China’s regulatory structure presents challenges. “China still has less developed regulation, so you have to be extra careful setting up more controls,” he says. “At the same time we have to give our people in the Mainland the necessary trust and freedom so we can compete.”

Taxing introductionHo is particularly conscious of trust due to the confidence extended to him as a young accountant. Ho became interested in accounting during secondary school. “The teacher asked who wants to be class treasurer and somehow, I don’t know why, I raised my hand.”

Born in Macau, Ho and his fam-ily moved to Hong Kong when he was 13. “It was in 1979, the year my dad passed away. I thought I should at least try to understand what he did and when I did it was interest-ing. So I studied accounting at the University of Hong Kong.”

Ho’s introduction to working life was unusual. Arthur Andersen, one of the Big Six at the time, was one of only two firms to offer graduates an entry-level job as a tax junior, rather

“ We know the history and the background and we are comfortable doing business in China.”

Yip’s Chemical Holdings started as a store named

Hang Cheung Hong at 425 Queen’s

Road West, which opened in 1971 and sold petrochemical

products

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October 2015 35

Success ingredientJohnson Ho

Before entering the commercial world, Ho had spent more

than six years at Arthur Andersen

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than an audit junior. “It was quite different from most people,” he acknowledges.

He enjoyed the experience enough to spend more than six years at Andersen before being lured to the commercial field. “The daughter of a company’s founder was in our tax division and my colleague,” Ho recalls. “She knew me and believed in me, even though I had no experience in audit or as a company secretary.”

The company was Van Shung Chong Holdings, a Hong Kong-based steel trading and distribution company serving the construction industry. “This was a really good challenge for me. When I joined VSC, it was in the final stages of its initial public offering.”

Ho says he had to learn quickly. “Unlike auditors, who normally have more contact with people and companies, as a tax guy I did not have that opportunity. So you ask people. You ask colleagues, you ask ex-colleagues and somehow a lot of things are just common sense.”

Unlike in large and established companies, where systems and policies are already in place, Ho says building up a newer, smaller company can be an exercise in trial and error. “We don’t know what the choices are, the good things or the bad things, so you have to learn from mistakes and experience.”

The IPO was a success and Ho says the experience was invalu-able to his future career. “The good thing was that at the end of it, I

could do everything,” he says. “I set up a factory in China. I set up the accounting function. I set up credit controls from scratch.”

Agent of changeHo acknowledges that he wasn’t completely alone in building the new company’s systems. “Being an Institute member always reminded me to uphold the highest standards of professionalism and integrity,” he says. “The other thing is it offers me the oppor-tunity for lifelong continuous learning. I use all kinds of Institute training opportunities to update and upgrade myself.”

That, Ho adds, helped him in his post-VSC career, which included stints as finance director of the diversified Hong Kong-based Chevalier conglomerate. “That was quite different from VSC, being established businesses. I was there to improve efficiency of the finan-cial and accounting process and work as a change agent,” he says.

Chevalier helped expand his vision beyond Hong Kong and China. “They were very multicul-tural,” he says. “They did a lot of mergers and acquisitions and one deal involved entities in Australia, China, Germany and Singapore and the buyer was Japanese.”

It was also his first experience of a diversified company. “You must have a very broad sense and understand what the businesses are about,” Ho says. “Know the key drivers, the market, customers and

suppliers, and then apply your basic accounting knowledge.”

Ho is unsure of the future for conglomerates like Chevalier, despite the company’s success. “That business model is not easy to follow,” he says. “I guess somehow the world is so complicated that you have to be focused on one industry.”

As for Yip’s Chemical, he believes there is much more to do despite its market leadership posi-tion in some sectors. “We need to stay competitive and there are a lot of new areas to explore,” says Ho. “For example, in household paint we only have 3-4 percent of the market share. As long as we develop our distribution and branding better we can get 1-2 percent more, or even double our market share.”

Guided by its R&D centre, Ho expects Yip’s Chemical to also evolve in terms of technological applications. “While our industry is not like electronics – we don’t need such high precision – we do use automation to get fewer errors and better quality.”

The China market will remain the focus, both for production and sales. “Sure, cheap labour costs were an advantage that attracted us in the beginning but that’s no longer the case today. We know that Vietnam or other Southeast Asian countries may be better in that sense, but outside China we don’t know the culture, we don’t know the people, so let’s keep our eggs in one basket.”

“ We don’t know what the choices are, the good things or the bad things, so you have to learn from mistakes and experience.”

October 2015 37

Work-life balanceDancing

Cynthia Chan dancing Argentine tango

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E very turn is sharp. Every glide is sensual. When Cynthia Chan dances, her

mind is focused and her body is responsive.

The General Manager at a United States-based medical device manufacturing company and member of the Hong Kong Institute of CPAs discovered a love for Argentine tango’s dramatic move-ments and intensity earlier this year through the Institute’s Dance Inter-est Group, of which she is Deputy Convenor. “It’s a challenging and attractive dance style,” says Chan, “and it requires a sensitive connec-tion between partners so you really need to concentrate.”

Accountants by day, dancers by night. CPAs like Chan, who are at-tuned to the way their bodies move, find dance to be the perfect outlet for creative release and healthy relaxation. Their passion drives them to take their interest a step further and improve their technique each passing week, giving them

something to look forward to as the weekend approaches. These Insti-tute members shed the stereotype of dance being a niche hobby among accountants and embrace the music with their body and soul.

Chan credits the conception of the Dance Interest Group in 2009 to fellow Institute member Sara Chu and her experience in ballroom dance. Today, Simty Yau is Con-venor of the interest group, which has more than 1,300 members, although only a portion of them actively participate in dance classes and monthly dance dinners.

Chan’s interest piqued after at-tending a Latin dance performance five years ago as she was search-ing for a studio to take Latin dance lessons. “I found out about the interest group from the Institute’s e-circular and was surprised to know that the Institute offered the same kind of course I was looking for,” she says.

Her experience began with Latin and ballroom dance lessons

before moving on to Jazz and Argentine Tango. “I love Jazz be-cause we take the class together as a team,” she says. “Argentine tan-go is also great because you don’t need a stable, consistent partner like you do for ballroom dance.” Chan especially enjoys Argentine tango’s improvisation aspect, expressing that the freestyle dance allows her to move however she wants. “It’s very different from following the set accounting stan-dards at work,” she says. “I just concentrate on the music and the leading of my partner, but since there are no standard routines, I can completely be myself.”

Regardless of Chan’s busy schedule, she finds ways to make time for dance. “It also helps that some classes start later in the eve-ning so I can still make it,” she says. “We currently have a Jazz Funk class on Fridays for new dancers and more advanced Jazz classes on the weekends so we can accommo-date members of all levels.”

Whether they’re gliding across polished hardwood or improvising in high heels, some CPAs just can’t get enough of the dance floor. Tigger Chaturabul

talks to Institute members with rhythm to find out what gets them moving to the music

Photography by Gareth Brown

COUNTING BEATS

October 2015 39

Work-life balanceDancing

Revitalizing energyLucia Fan’s feet tend to get carried away with the beat. The Manager in Accounting and Administra-tion at an automotive company and Institute member finally found the time and opportunity to court her interest in dance two years ago in Jazz and Latin classes with the Dance Interest Group.

“I took traditional Chinese dance classes in secondary school and wanted to do more but was always too busy with other ac-tivities,” says Fan. “I met Cynthia Chan at the Institute’s booth at the Standard Chartered Hong Kong Marathon and noticed she posted a lot of beautiful dance photos. When I asked her about them, she asked me to give the interest group a try.”

Fan dances for health and hap-piness. “Whenever I dance, I feel more energetic both during class and at work,” she says. “As a CPA,

I’m a lot more careful about being accurate and quick at work but when I’m dancing, I get to relax and just have fun.”

When Fan dances with the inter-est group’s Jazz team, she feels a sense of satisfaction in their friend-ship and, sometimes, honesty. “When we train for a performance, we work together towards a goal and we help each other find out what we are not doing well on,” she says. “That’s why the dance practice process is my favourite part about dancing. As CPAs, we take our goal seriously and don’t mind putting time and effort into perfecting a routine.”

Fan also participates in Latin dance competitions with her part-ner and fellow Institute member Gary Lam, a former convenor of the interest group. The monthly competitions are organized by the Hong Kong International Profes-sional Dance Sports Council and

participants are judged on their per-formance in Rumba, Samba, Paso Doble, Cha-Cha-Cha and Jive.

“At first, we had trouble catch-ing the beat because we never know what song they’ll play during the competition,” says Fan. “But after working harder to pay attention to the music, we were able to improve so we can really enjoy and dance with the music.”

For Fan, the biggest challenge is picking up tricky choreography. “I wasn’t able to remember the steps taught during the class before,” she admits. “But after a while, I started thinking about the patterns and logic in the dance steps, which allowed me to stop focusing on simply memorizing them.”

“Accountants learn faster be-cause we know how to focus,” Fan adds. “When we apply the logical thinking training we’ve received into learning dance choreography, it can really make a difference.”

Lucia Fan at an Institute’s Dance Interest Group Jazz class

40 October 2015

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On pointeShirley Luo is no longer an outsider to the world of ballet. As disci-plined as it is elegant, ballet has captured Luo’s imagination since she was a little girl in awe of the beauty and grace of ballerinas. After five years of dance training in studios around Hong Kong, the Fi-nancial Analyst at Bank of America Merrill Lynch and Institute mem-ber now enjoys ballet for more than aesthetics – she also appreciates the complexity of each move and the hard work that goes into it.

Luo signed up for ballet classes to balance her daily routine be-tween work and sports activities. “I’m not an athletic person so dance was a good option for me to build my strength and body shape,” says Luo. “My flexibility also improved over time, which wouldn’t have been possible without dance.”

Over the past five years, Luo has not only learned how to shift all her body weight onto her toes or coordinate herself to move smoothly, she has also passed Level 6 in the United Kingdom’s Royal Academy of Dance ballet examinations. “I dance for my-self,” she says. “It was difficult in the beginning, with no experience, but I could commit to the classes after work and I learned to never give up too early.”

It’s important for beginners to take ballet slowly, Luo cautions, and not be allured by the seemingly effortless movements of professional dancers. “Ballerinas look amazing, but don’t rush into it because danc-ing on pointe can be both difficult and dangerous,” she says.

“ You need to train up and should only begin dancing on pointe when your teacher thinks your legs are strong enough.”

Shirley Luo practises ballet

October 2015 41

Work-life balanceDancing

“You need to train up and should only begin dancing on pointe when your teacher thinks your legs are strong enough.”

As a CPA, Luo finds that being detail-oriented is an advantage in the dance studio, especially when practising an art that is as precise as ballet. “When the teacher says your leg should be at 45 degrees, any-thing other than that will look odd,” she says. However, the importance of precision goes beyond form in ballet. “Many movements and linking steps are actually designed to avoid injury so you need to give demonstrations your full attention,” says Luo.

Despite the amount of con-centration Luo puts into dance practices, she leaves the studio each time with a refreshed mind and a re-laxed mood. “The classical practice music is enjoyable itself, but when I dance, there’s no time to think of anything but the rhythm and con-trolling my body,” she says. “I can unwind and even if I get the steps wrong, there’s no consequence. But if I get the numbers wrong as a CPA, I would have to start worry-ing about my career,” she laughs.

Inhabiting space“When I can dance, I can breathe freely,” says Jennifer Lai, Audit Assistant Manager at KPMG and

Institute member. While Lai spends her days fixed in the posture of an office worker, outside of office hours she is stretching to the limits of her body at her favourite dance studio. “My range of motion gets really big when I dance,” she says, “but when I work, I keep in this pose,” she says as she assumes a healthy posture recommended for sitting at a computer for long periods of time.

Lai is a contemporary dancer, focusing on the style that brings her the most relaxation. Although Lai began as a ballerina in secondary school and has passed the Advanced 1 exam level, she prefers the freedom offered by contemporary dance.

“When I did ballet, it was the exact count and position that mat-tered,” she says. “However my cur-rent contemporary teacher taught us that it’s all about body movement and everything made more sense. In contemporary, my body weight determines the direction of my movement and I need to shift that weight around if I want to move in a certain way,” Lai explains.

At the University of Hong Kong, Lai joined the dancing club, also known as HKU Danso, and picked up Hip Hop, Locking, House, Jazz and other dance styles, practis-ing daily with her teammates for

“ Every [dance] has their own style and there’s a lot we can learn from each other.”

KK Yeung and Angela at their firm

Jennifer Lai practises contemporary dance

42 October 2015

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“Through my children, I moved away from seeing the world in black and white.”

Kenneth Morrison holding a collage of his son Graeme's wedding photos

inter-university performances. “In my second year, I got involved in planning the annual performance so there was more administrative work, but I also got the opportunity to get to know the teachers better and find out more about what they wanted to express with each dance piece,” says Lai.

Although Lai and her classmates at her dance studio today are preoc-cupied with their various careers, they still find time to meet and practise for studio showcases, com-

ing together to choreograph con-temporary pieces. “Our most recent piece is about a girl who is trying to get to the other side of the stage, but the rest of the dancers keep pulling her back. With every movement we do, we need to understand that our direction is heading one way, while she’s the only one who’s going the opposite way and somehow get the audience to understand this mes-sage,” she says.

Dance has taught Lai to be humble, a trait that has become an

asset when working with team-mates from different backgrounds when doing audit work. “I’m not a great Hip Hop dancer but I know that no one is really laughing at me. We know that everyone has their own style and there’s a lot we can learn from each other,” she says. “Quite a few of my team-mates are not accountants so they tend to solve problems in a differ-ent way from CPAs – I can also learn a lot from them as well.”

October 2015 43

SourceMainland labour law

Allegations, evidence and expecting the unexpected

Real world examplesAn employee we shall call Wang headed the purchasing department of his division in a Shanghai-based multinational advertising company. He was also a shareholder in a small technology company, a fact that he kept secret from his employer but which came to light following a whistleblowing letter sent to senior management.

The advertising company’s labour contract and employee handbook made it clear that employees were not permitted to have conflicting interests involving supplier companies. Wang’s employer was ready to take action if they found that Wang had been sending orders to his own company, but the internal investigation hadn’t actu-ally uncovered any concrete evidence that Wang’s company was directly a supplier to the advertiser.

In fact, the technology company’s main business was giving strategic advice to internet start-ups, which had little overlap with advertising, a point Wang made when he was interviewed for the investigation. He also noted that he was only a shareholder, and not technically working at the technol-ogy company, which meant he was not in violation of his contract.

Despite these arguments, the board had lost faith in Wang. They wanted to remove him but found they were lacking enough real evidence to do it, and they did not want to pay him compensation under a struc-tured termination package. Sensibly, the board had continued with the investigation

into Wang beyond the initial accusations. As a result, the investigation went on to uncover two key pieces of information. First, it was discovered that another share-holder in the technology company was also a shareholder in a current supplier to the advertiser. Second, and very unexpectedly, it transpired that Wang had forwarded com-pany customer information to a competitor. Wang was confronted with the evidence and chose to resign immediately.

 LessonsIt is difficult to predict what type of evi-dence will be found during an investigation. Some investigation reports confirm suspi-cions but don’t uncover the hard evidence needed for termination with cause, which is particularly difficult within China’s opaque legal framework.

Understandably, businesses don’t want to throw good money after bad, especially when investigating small fraud cases that don’t involve large sums, and want inves-tigations to be concluded in a reasonable timeframe. Sometimes, however, this won’t actually allow sufficient time to exhaust every possible avenue of investigation into the allegations. In some situations, you need to keep looking beyond the first evidence of wrongdoing to eventually find the silver bullet that will enable you to terminate a corrupt employee.

 Legal landscapeWhat if Wang did not resign when he was presented with the evidence? The management would then need to ask if the evidence is sufficient under Chinese labour

law to terminate his contract. Unless expressly prohibited by law or regulation, or by the company’s written rules, such as the employee handbook, unethical conduct may not actually be legal grounds for termination. 

Under the Labour Contract Law, an employee may be legally terminated for “serious violation of the company’s rules” (Article 39(2)) or “causing major losses to the employer due to serious dereliction of duties, or malpractice for personal gain” (Article 39(3)).

The statutory concepts are fairly vague so the employer should use the employee handbook to spell out what conduct is considered to be unacceptable and make it explicit that violation of the handbook’s rules is deemed a serious violation that justifies termination under Article 39(2). In order to terminate an employee for malpractice for personal gain under Article 39(3), the evidence must show “major losses” to the employer resulting from the wrongful conduct. The rule of thumb estab-lished by case law is that 5,000 yuan is the threshold for a major loss.

In addition, the actual process of finding evidence of corruption or fraud by investi-gations must meet the evidential standards imposed by the labour arbitration tribunals or the courts. For example, if investiga-tors obtain a general manager’s laptop and retrieve files stored in that laptop which record kickbacks the manager has received, those files may not be admissible evidence if the process of accessing the laptop and retrieving the files was not certi-fied by a notary public.

Refining investigations of corruption that result in dismissal of employees

Nicholas Blank and Frank Hong warn that termination of Mainland staff members is not always the end of a human

resources matter that involves fraud or graft

44 October 2015

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Post-termination risk management

 A corrupt office manager is terminated but that is not the end of the matter. Remov-ing a crooked employee is the first step, but follow-up is needed to ensure the company doesn’t face post-exit risk from the employee.

 Real world examplesExample 1A multinational garment manufacturer’s trusted China country manager was caught red-handed taking kickbacks. She had pressured suppliers to give “donations” to cover renovation costs at the garment company’s new Guang-zhou office. She had told her European headquarters that “supplier donations to pay for renovation costs is just part of Chinese business culture” and secured their written approval to proceed. Inves-tigators interviewed the suppliers, one of whom came forward with a bank deposit slip showing that renovation payments first went to the manager’s personal account. The manager dug herself in deeper when she lied and claimed she had never received supplier payments to her personal account. The client terminated her contract with cause.

Although the investigation had been effective at proving the fraud, investigators hadn’t looked deeper into the manager’s background. During the final exit interview, she began making reference to her local relationships and telling interviewers to “watch themselves.” Enquiries confirmed that she had certain local relationships that might be used to damage the company’s interests.

The manufacturer acted quickly to smooth those relationships and introduce new points of contact. Management from Europe worked in Guangzhou to give reas-surance to staff and gather more first-hand experience in China to avoid falling into future traps. Finally, office security was updated to prevent the manager from returning to the office.

Example 2A director at a technology company in Beijing had forged signatures and was preparing to establish a competitor company. As a result, he was voted out by a board resolution. The investors, who had previously played a passive role, raided the ex-director’s office, securing the company chop and important documents.

While the raid was necessary to prevent the director from committing an even bigger fraud, the events were highly disconcerting to the office staff.

Friendly interviews were subsequently conducted with staff. Several came forward with details about other frauds committed by the ex-director and a few employees with personal loyalties to the ex-director were investigated in relation to these new allegations.

Within a few months, the new manage-ment team had secured staff loyalty and put new incentives in place to retain key talent. As a precaution, investigators con-tinued monitoring the ex-director and his efforts to establish a competing business.

 Best practice for post-termination managementIt is one thing to uncover corruption within a company, but quite a different thing for the company to remove the corruption practices without causing major and lin-gering collateral damage to the business.

While it may be reasonably straight-forward to keep a low public profile, the internal disruption is more difficult to minimize, especially when the corrupt employees are senior or general manag-ers. For this reason, before terminating the corrupt manager, companies should determine who would step into his or her place until a permanent replacement can be found.

Immediately after the corrupt manager leaves the premises, someone else must assume their role and responsibilities so employees and the business can experience a transition that is as seamless as possible. 

In many situations, corruption involves more than one person at the company. Where there is enough evidence to

terminate a whole group of corrupt employees, the employer may end up hav-ing to manage multiple employee terminations at the same time as maintaining continuity of business. To be fully prepared, management should formulate exit strategies and plans for replacing employees at the same time as they pursue the investigation.

The employer may, however, only have enough evidence to immediately terminate the most culpable person for cause, and can therefore only remove other corrupt employees gradually, either by offering compensation pay through a structured termination package, or being vigilant in finding other legitimate reasons to termi-nate the employment for cause.

There is also a risk that a terminated employee may harass the employer from the outside by whistleblowing to authori-ties with help from accomplices who are still employed at the company and can supply fresh information about compli-ance deficiencies.

There is no way to prevent this but a company can immediately start address-ing the compliance failings that enabled the corrupt activity to take place. If a vengeful employee does then attempt to stir up trouble, the company can truthfully claim to already be taking steps to prevent such activity from happening again.

Nicholas Blank

is Director of

Investigations at

Blackpeak in Hong

Kong and Frank Hong

is Partner at Dorsey &

Whitney in Shanghai

October 2015 45

At present, when a tax appeal has been decided at the tribunal level of the Board of Review, either party to the appeal can require the board to frame a question of law for their further appeal to the courts in a case stated procedure.

A legislative bill now proposes to abolish this case stated procedure by the board. Under the bill, either party could apply directly to the court for approval to appeal (i.e. leave to appeal) on a question of law. Where the Court of First Instance grants leave to appeal, the Court of First Instance will then proceed, by way of separate proceedings, to determine the substantive issue of the appeal.

In addition, the bill proposes to (i) em- power the board to give pre-hearing direc-tions to the litigating parties specifying the time for submission of documents and information failing which sanctions may apply; (ii) provide privileges and immuni-ties to the parties involved in a board hear-ing; and (iii) raise the maximum costs that the board can order a party to pay for a frivolously unmerited case from HK$5,000 to HK$25,000.

The procedures and legal issues involved in a tax appeal are by their nature complicated matters. Taxpayers should seek professional advice where necessary.

Existing tax appeal mechanismUnder the existing tax appeal mechanism, a taxpayer who is aggrieved by an assess-ment issued by an assessor can within a stipulated time object to the assessment. If the taxpayer and the assessor cannot come to an agreement on the disputed assessment, the assessor would submit the case to the Commissioner of Inland

Revenue for a determination. If still not satisfied, the taxpayer can

within a stipulated time appeal to the board against the CIR’s determination. The decision of the board on the disputed case as regards any questions of fact will be final and not further appealable. How-ever, if either party to the appeal consid-ers that the board’s decision on a question of law is wrong, the relevant party can within a stipulated time require the board to state a case for their further appeal to the courts.

However, because board chairmen and members are not full time judicial personnel, obtaining the board’s agree-ment to the terms of a stated case can sometimes involve protracted corre-spondence and resultant delays. If the board were to refuse to state a case on the grounds that no point of law was involved, an aggrieved party would have to seek a judicial review from the courts as regards the decision by the board to refuse to state the case.

Furthermore, when a case stated by the board is heard, the courts are generally bound by the question of law as framed in the stated case. As a result, the courts may not be able to consider other questions of law that may arise during the hearing of the case. These restrictions may not do justice to the case.

This limitation of the case stated procedure was criticized by a judge of the Court of Final Appeal a recent tax appeal case. Taking on board the criticism and recommendations made by the Court of Final Appeal judge, the government has now introduced the bill to abolish the case stated procedure by the board.

Reformed tax appeal mechanism under the billThe bill proposes that either party to an appeal who is dissatisfied with the decision of the board on a question of law can within a stipulated time apply to the Court of First Instance directly for leave to appeal. The application has to be made in writing, stating the grounds of appeal and reasons why leave to appeal should be granted. The other party may nonetheless seek to quash the application by filing to the Court of First Instance counter arguments as to why leave to appeal should not be granted. The Court of First Instance may determine the leave application based solely on written submissions of the two parties concerned or convene a hearing for the leave application. If the Court of First Instance determines the leave application solely on the basis of the written submissions and a party is aggrieved by such a determination, the Court of First Instance must then at the request of the aggrieved party convene a hearing to reconsider the application.

The bill provides that the Court of First Instance must not grant leave to appeal unless it is satisfied that a question of law is involved and the proposed appeal has a reasonable prospect of success, or there is some other reason in the interests of justice that the proposed appeal should be heard.

If the Court of First Instance refuses to grant leave to appeal, an aggrieved party may appeal to the Court of Appeal against the decision of the Court of First Instance. The Court of Appeal’s decision in this regard will be final. Depending on the

Bill introduced into Legislative Council seeks to improve the tax appeal process

Tracy Ho and Patrick Kwong give an overview of the proposed reform to the tax appeal mechanism

46 October 2015

SourceHong Kong tax

Tracy Ho is Tax

Managing Partner

of Hong Kong and

Macau, and Patrick Kwong is Executive

Director of EY

nature and complexities of the case, one or more Court of Appeal judges may be involved in determining such an appeal. If the Court of Appeal grants leave to appeal, the substantive issue of the case will then be heard and determined by the Court of First Instance .

In hearing the substantive issue of a case under this proposed reformed tax appeal mechanism, the Court of First Instance would have greater flexibility in dealing with any questions of law arising from the case. Nonetheless, the Court of First Instance (and the Court of Appeal where the case is further appealed) would not receive any further evidence (fact finding being the primary function of the board), nor would the Court of First Instance or Court of Appeal vary any con-clusions made by the board on questions of fact unless the Court of First Instance or Court of Appeal found such conclu-sions to be erroneous in point of law.

There will also be certain transitional arrangements for this proposed reformed tax appeal mechanism such that an appeal lodged before the commence-ment date of the law, if enacted based on the terms of the bill, would continue to be governed by the current case stated procedure.

Bypassing the Court of First Instance to take an appeal direct to the Court of AppealUnder section 69A of the Inland Revenue Ordinance, provided the Court of Appeal has granted leave to either the taxpayer or the CIR, an appeal by way of the case stated procedure can bypass the Court of First Instance and be heard directly by the Court of Appeal.

This existing leapfrog arrangement would be preserved under the proposed reformed tax appeal mechanism, the only change being that the case stated procedure will be substituted by the leave to appeal mechanism explained above.

Other proposed amendments under the billEmpowering the board to issue pre-hearing directions and to sanction non-complianceAt present, unlike other statutory appeal boards, the board does not have any statutory power to issue pre-hearing directions requiring the litigating parties to provide documents and information for the purposes of the hearing within a spec-ified time frame. This anomaly sometimes causes delays and the rescheduling of an originally agreed hearing date as a result of the parties involved not providing the necessary documents and information in time. This state of affairs is not conducive to the efficient and effective conduct of the board proceedings.

The bill proposes to add provisions in the Inland Revenue Ordinance to confer on the presiding person at a board hearing the power to give directions on the provi-sion of documents and information for the hearing. As sanctions, the presiding person can refuse to admit any documents and information as evidence in the hearing of an appeal if they are not produced in compliance with the directions given. The party in default may nonetheless apply to the presiding person for relief from any sanctions, the decision of the presiding person in this regard being an administra-tive one that could form the subject of a judicial review if necessary.

Granting privileges and immunities to parties involved in a board hearingTo align with the arrangements of other statutory and advisory bodies, the bill proposes to provide in the Inland Revenue Ordinance that:a. The chairman, deputy chairmen

and other members of the board will have, in performing their duties under the ordinance, the same privileges and immunities as a judge of the Court of First Instance in civil

proceedings in that court; andb. The witnesses, parties to any

proceedings and representatives or other persons appearing before the board will have the same privileges and immunities as they would have in civil proceedings in the Court of First Instance.

This proposal would protect the parties involved from any form of legal action, e.g. libel actions for their conduct in a board hearing, thus facilitating the pur-suit of justice and the ability of the board to determine tax appeals impartially without fear or favour.

Increasing the maximum costs to pay for a frivolously unmerited caseGiven that the current ceiling of HK$5,000 that the board can order a party to pay for lodging a frivolously unmerited case has not been adjusted since 1993, the bill proposes to raise the ceiling to HK$25,000 and thereby its deterrent effect.

CommentaryWe welcome the proposed reform to the tax appeal mechanism which we consider would enhance the efficiency and effectiveness of the board in hearing tax appeals and facilitate the pursuit of justice for the parties concerned.

Taxpayers should nonetheless be aware that the procedures and legal is-sues involved in a tax appeal are by their nature complicated matters. Professional advice should be sought where necessary.

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October 2015 47

In accordance with section 388 of the new Companies Ordinance, a Hong Kong incorporated company is required to include a business review that complies with Schedule 5 as part of its directors’ report, unless:a. The company falls within the report-

ing exemption for the financial year; orb. The company is a wholly owned sub-

sidiary of another body corporate in the financial year; or

c. The company (that is a private company) does not meet the reporting exemption for the financial year, but passes a special resolution that exempts the directors of the company from preparing a business review for the financial year. This special resolution must be passed at least six months before the end

of the financial year to which the directors’ report relates.

A business review should provide information to members of a com-pany that helps them assess how the directors have performed their duties. The information should analyse the business through the eyes of the board of directors, consistent with the scope of the financial statements, both complementing and supplement-ing the financial statements and be forward-looking. It should be written in an understandable manner and be bal-anced and neutral, dealing even-hand-edly with both good and bad aspects.

To achieve these objectives a business review should comprise [paragraph 1 of Schedule 5]:

i. A fair review of the company’s business;

ii. A description of the principal risks and uncertainties facing the company;

iii. Particulars of important events affecting the company that have occurred since the end of the financial year; and

iv. An indication of likely future develop-ment in the company’s business.

To the extent necessary for the under-standing of the development, perfor-mance or position of the company’s business, a business review must include [paragraph 2 of Schedule 5]:i. An analysis using financial key perfor-

mance indicators (that is, factors by reference to which the development, performance or position of the com-

Facts and tips for the preparation of a business review

48 October 2015

SourceTechnical update

For a private company For a listed company

1. If a private company misses the deadline for passing a special resolution to exempt its directors from preparing a business review, the direc-tors must prepare a business review unless the company qualifies for the reporting exemption [section 388(3)(a)] or is a wholly owned subsidi-ary [section 388(3)(b)].

2. Companies that fail to meet the deadline in one financial year are not precluded from claiming exemption for the next financial year.

3. The special resolution can be worded such that it grants exemption for more than one financial year or until revoked.

1. While Schedule 5 of the new ordinance states that a directors’ report for the year must contain a business review, a listed company may include a cross refer-ence in its directors’ report to where the business review is located outside of the financial report as long as it is located within the annual report.

2. For example, the business review may be cross-referenced to a company’s Management Discussion and Analysis that is required by the Listing Rules provided that:a. The cross reference is clear and it is clearly stated

that the cross referenced part of the annual report forms part of the directors’ report; and

b. The discussion and analysis found in that MD&A is sufficient to meet the minimum content requirements of Schedule 5.

3. An example of a cross reference from the directors’ report to somewhere else in the annual report is provided on the Institute’s New Companies Ordinance Resource Centre.

Tips for preparing a business review

This article is

contributed by

the Institute’s

Standard Setting

Department

pany’s business can be measured effectively);

ii. A discussion on: • The company’s environmental

policies and performance; and • The company’s compliance with

the relevant laws and regulations that have a significant impact on the company; and

iii. An account of the company’s key relationships with its employees, customers and suppliers and others that have a significant impact on the company and on which the compa-ny’s success depends.

Schedule 5 of the new ordinance outlines the contents of a business review but does not require the disclosure of any information about impending developments or matters

in the course of negotiation if the disclosure would, in the directors’ opinion, be seriously prejudicial to the company’s interests [paragraph 3 of Schedule 5].

Where the directors of a company are required to prepare consolidated finan-cial statements, the business review to be included in the directors’ report should be a consolidated review cover-ing the business of the whole group [paragraph 4 of Schedule 5].

The Institute’s Accounting Bulletin 5 Guidance for the Preparation and Presentation of a Business Review under the Hong Kong Companies Ordinance Cap. 622 provides illustrative examples of financial key performance indicators that might be disclosed in a business review if appropriate to the reporting entity’s circumstances.

The implementation guidance that accompanies AB 5 includes additional examples of non-financial key performance indicators and other quantified data measures that directors may wish to include in the business review to supplement the company’s performance information.

Members are recommended to refer to the Institute's AB 5 and questions and answers on the requirements for a business review and other aspects of the new ordinance.

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October 2015 49

Members’ handbook

Handbook update no. 172Update no. 172 contains new and revised Hong Kong Standards on Audit-ing that (i) enhance auditor’s reports for investors and other users of financial statements; and (ii) clarify and increase the auditor’s involvement with “other information.”

The standards will be effective for audits of financial statements for periods ending on or after 15 December 2016.

Financial reporting

Invitation to comment on IASB consultation documentThe Institute has issued an invitation to comment on IASB Request for Views and requested for comments by 30 November.

This consultation document requests the views of all those inter-ested in financial reporting on (i) the strategic direction and balance of the work plan of the IASB; and (ii) whether three years is the appropriate period between future agenda consultations.

Audit and assurance

Circular on Reporting to Grantees of the Language FundThe circular provides guidance to practising members when undertaking engagements to express an audit opin-ion on whether the project accounts are prepared, in all material respects, in accordance with the Language Fund financial reporting requirements as set out in the “Language Fund Account-ing Policies”; and to issue a report of

factual findings in connection with the internal controls established by the grantee.

Taxation

Announcements by the Inland Rev-enue DepartmentMembers may wish to be aware of the following matters:• The tax treaty between Hong Kong

and Italy has come in force.• A notice on the IRD’s letters and

post office boxes, addressing the concern of any fake “Tax Returns – Individuals” pretended to be issued by the IRD.

• Notices for the public to be aware of fraudulent emails and messages purportedly issued by the IRD.

Australian Tax Office’s announcement on residential real estate and agricultural landAustralian Tax Office tells foreign investors that they have three months to notify any breach of Australia’s foreign investment rules for residen-tial real estate and four months to declare foreign interests in Australian agricultural land. The office has taken over the enforcement of legislation which requires foreign buyers to seek permission to acquire Australian resi-dential land (limited exceptions apply). Substantial penalties apply for breach of these rules, but a reduced penalty period is still available for voluntary disclosure. The office also has respon-sibility for developing a register of for-eign owned agricultural land. Owners have a short period to come forward and register.

Update on base erosion and profit shifting initiative The Organization for Economic Co-operation and Development has issued three reports to help governments and financial institutions implement the global standard on automatic exchange of information.

Legislation and other initiatives

Anti-money laundering noticesMembers may wish to note the following notices and publications in relation to anti-money laundering and counter-terrorist financing:• Government notice 5804: An

updated list of terrorists and ter-rorist associates has been specified under the United Nations (Anti- Terrorism Measures) Ordinance.

• Government notice 6052: An updated list of terrorists and terrorist associates has been specified under the United Nations (Anti-Terrorism Measures) Ordinance.

• United States executive order 13224: The list relating to “Blocking property and prohibiting transactions with persons who commit, threaten to commit or support terrorism.”

The latest standards and technical developments

TechWatch 155

Please refer to the

full version of

TechWatch 155,

available as a PDF on

the Institute’s website:

www.hkicpa.org.hk

50 October 2015

SourceTechWatch

The Organization for Economic Co-operation and Development has issued three reports to help

governments and financial institutions implement the global standard on automatic exchange of information.

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October 2015 51

Pope Francis may have a “great allergy to economic things,” as he told an Italian journalist in July, but some of the greatest figures of Christianity were well versed in the language of business. Although the hoarding of wealth was potentially a sin, bad investments were decried even in the church’s earliest years.

Relating a parable in which a money-lender berates a servant for burying cash instead of investing it, St. Matthew has him declare: “Thou shouldst therefore have entrusted my money to the bankers and on my return I should have got back my own with interest.”

The relationship between money and morality has long been vexed – the pontiff’s “allergy” stems from his father work-ing seven days a week as a Buenos Aires accountant – but for centuries leading

thinkers have believed them to be inelucta-bly intertwined: Luca Pacioli (1445-1517), who codified double-entry bookkeeping, thought accounting was tightly linked to civic humanism.

Pacioli wrote just as Italy’s mediaeval city-states reached the zenith of their power. The merchant classes were often scholars of mathematics and philosophy, and wealthy cities such as Florence owed their prosperity to these Renaissance capitalists and their blending of commerce, classical learning and cultural patronage.

American historian Jacob Soll, who specializes in early modern Europe, is an ideally placed chronicler of how accountancy has played a role in shaping societies. Professor of History and Accounting at the University of Southern California, Soll has written The Reckoning:

Financial Accountability and the Rise and Fall of Nations, a thought-provoking history of how the profession has influenced statecraft over the centuries.

After a brief tour of Babylon, Ancient Greece and Rome, Soll draws heavily on Western Christian tradition. Indeed, China is absent from the narrative except for a reference to The Economist’s description of its data as that of an “aberrant abacus” (See author interview on page 53).

Soll paints illuminating pen portraits of key 17th- and 18th-century figures such as Johannes Hudde, who developed the basics of cash accounting; Jean-Baptiste Colbert, chief minister to King Louis XIV of France, who wrote a law requiring all businesses to keep double-entry books; and Josiah Wedgwood, who introduced mass production to pottery and developed prin-

Author: Jacob Soll Publisher: Basic Books

Book review

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

Title: The Reckoning: Financial Accountability and the Rise and Fall of Nations

The human nature of balancing the books

Caravaggio's The Calling of Saint Matthew, completed in 1600, depicts Jesus Christ

inspiring the financially astute Matthew of Galilee, a tax

collector, to follow him

Phot

o: C

arav

aggi

o Fo

unda

tion

52 October 2015

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ciples of manufacturing accounting.British knowledge was soon taken across

the Atlantic Ocean to the colonies. Benja-min Franklin and Thomas Jefferson were skilled at keeping books, while George Washington struggled to calculate profit on his plantations. It was a good thing that some of America’s founders were numerate, Soll writes, for the United States was born into war and debt.

It took a Liverpool-born magnate in Phil-adelphia, Robert Morris, to combine British mercantilism with the financial innovation that would become an American hallmark. His set of state accounts in the late 1770s restored public confidence and enabled the revolutionaries to access funds to fight the war and build a new nation.

That might have been the last time accounting was seen in a positive light: he says Victorian accounting was opaque. Harvard economist William Z. Ripley wrote a scathing 1926 criticism of financial reporting, noting that leading corporations such as Singer, Gillette and Nabisco did not recognize depreciation and some listed companies hadn’t issued statements in more than 25 years.

Soll is pessimistic about the accounting profession’s future. “Powerful forces are aligned against transparency,” he declares. In the 1970s, he says, CPAs devised impair-ment recognition and the mark-to-market method to assess fair value. “With the idea of value now uncertain, accounting had become more speculative, and account books harder to accurately audit.”

As firms grew into the Big Eight and consulting dominated revenues, oversight of auditing lagged, allowing scandals to proliferate. “Rank and file auditors flagged Enron’s transactions… but [Arthur] Ander-sen management ignored their objections,” Soll writes.

Bad accounting in the 19th century, says Soll, “ruined honest men and opened the door to swindlers.” Given the importance of accounting to public administration, Soll’s largely unflattering portrait is pause for thought: allergies such as the pope’s should not be allowed to become an epidemic.

Jacob Soll joined the faculty of the University of Southern California in 2012 with joint appointments in its History Department and Leventhal School of Accounting. That enables him to present workshops such as “Jacques Necker’s Compte Rendu (1781), Public Calcula-tions, and the Origins of Modern Political Accountability”.

Necker, finance minister to King Louis XVI of France and a pioneer of transparency in public-sector account-ing, features prominently in Soll’s The Reckoning: Financial Accountability and the Rise and Fall of Nations. He is one of the many great European names featured in the book and Soll makes no apologies for his con-centration on account-ing’s Western canon.

“Double-entry accounting was cre-ated by mediaeval Italians,” he says from his office on the univer-sity’s campus in down-town Los Angeles. “Not by anyone else. To understand why it took hold there, and how it crossed to Holland, it is necessary to understand the culture that cradled and sometimes rejected it.”

Double-entry accounting emerged, he adds, from many Christian cultural phenomena specific to the time. “It was a product of a very specific time and place. It’s not like Christian business-men adorn their offices with master paintings about St. Matthew or the dan-gers of poor accounting today. Today things are different.”

Soll acknowledges that China and other Asia-Pacific nations are vital elements of the global narrative when it comes to accounting. “But neither China nor Japan nor any other Asia-Pacific country created double-entry account-ing or the industrial and colonial explo-sion that ensued.”

Recently, Soll has tried to analyse the Chinese economy, looking at paral-lels with the slow collapse of the Span-ish empire. “China,” he adds, “walks a dangerous tightrope of excellent

accounting standards in certain companies, but a total lack of transparency in the sovereign wealth funds. History tells us that this doesn’t work.”

Soll decided to write The Reckoning, partly as a result of the frequent references to double-entry bookkeeping reforms in literature. “From imperial Spain to early America, state builders thought double-entry bookkeep-ing was an essential tool for the stability of

government and commerce.”The other trigger was the global

financial crisis, which began in 2008. “When the financial crash happened, I saw it as a problem exacerbated by poor accounting in the major banks,” Soll says. “I expected a big conversa-tion about valuation and audits. It didn’t happen. I saw this as part of a historical phenomenon in which accounting is often ignored and problems are not solved. I think that’s where we are today.”

Author interview:Jacob Soll

October 2015 53

Life and everythingAs recommended by Institute members

Pumpkin sticky rice balls in ginger soup by Lenny Wong, General Manager of Corporate Governance at Li & Fung and a certified instructor in nutrition and weight management

Ingredients (serving for 3-4 persons):• ½ cup steamed pumpkin, mashed• 2 teaspoons white sugar (optional)• 1 cup glutinous rice flour

Soup:• 1 litre water• 5 slices ginger with skin• ½ piece brown slab sugar• 2-3 small pieces rock sugar

How to make:• Remove the skin and seeds of the pumpkin. Cut and steam

(or boil) for about 15 minutes, then mash and add white sugar for gentle sweetness. Let it cool down.

• Add glutinous rice flour to pumpkin liquid gradually and mix gently until a soft dough forms. Adjust by adding more water or glutinous rice flour.

• Press and massage the dough firmly with palm for 5 minutes. This gives the sticky rice balls a chewier texture.

• Pinch off the dough and roll into small balls.• In 1 litre of hot boiling water, add ginger, brown sugar

slab and rock sugar. Simmer for 5 minutes.• Add the sticky rice balls and cook until they float

(meaning they are fully cooked).

Tips: • Adjust the spicyness and sweetness by adding more or

less ginger and sugar. • Sticky rice balls take a longer time for our body to digest so

watch out the amount of intake, especially at night time.• You can substitute pumpkin with taro, purple or yellow

sweet potato.• Uncooked sticky rice balls can be frozen for storage.

Mid-Autumn Festival has just lapsed and the cool, dry weather reminds us winter is coming soon. A hot ginger soup, together with some chewy sticky rice balls (tang yuan) can be so heartwarming when it’s cold outside. From a Chinese medicine perspective, ginger is known to promote blood and energy circulation and increase our body’s metabolic rates.

The chewy sticky rice balls give a satisfying feeling of feeding the belly. Traditionally, the white sticky rice balls are made with plain water and sticky rice flour, but we can make it more nutritious and glamorous by substituting water with pumpkin. Pumpkin provides a rich source of Vitamin A that promotes good vision, which is espe-cially beneficial for CPAs who use computers and review documents all day long.

Above all, making sticky rice balls together can be a very good so-cializing activity with family and friends and no doubt a fun teamwork exercise as well.

Time by time, within the path of career develop-ment, CPAs may need to expand their knowledge base through lifelong learning. As an Affiliate Centre for the University of London (UoL) Inter-national Programmes, PolyU SPEED offers on-campus preparatory courses for Bachelor of Laws (LLB). This is a part-time study opportunity to develop professional knowledge and potentially a career path pertinent to the legal arena. For another opportunity to study law, the preparatory course for the Certificate of Higher Education in Common Law also leads to a UoL award.

For professionals who are interested in deep-ening their knowledge in business management, human resources management or logistics and

supply chain management on a part-time basis, they can consider the BA (Hons) programmes offered by Northumbria University (UNN), U.K., which can be taken in Hong Kong. Newcastle Business School of UNN is the first in Europe to achieve double accreditation from the reputable AACSB International for their accounting and business programmes. Graduates of their Bachelor of Arts (Hons) in Logistics and Supply Chain Management programme are even eligible for full exemption from the exam requirements for the membership of the Chartered Institute of Logistics and Transport, U.K.

For more information, please visit: www.speed-polyu.edu.hk

Dr. Artie Wong, Deputy Director of the School of Professional Education and Executive Development (SPEED) of The Hong Kong Polytechnic University, shares part-time programmes for knowledge-seeking CPAs

54 October 2015

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If you are a fan of nature, I recommend marking Tasmania in your next itinerary. The heart-shaped island, located south of Australia, is well known for preserving its nature and ecology. Visitors nor-mally fly directly into Hobart or Launceston, but if time permits, you may also take a relaxing cruise from Melbourne.

Tasmania is a place to enjoy a variety of natural and wildlife activities. Apart from the signature koalas and kangaroos, you can also encounter wombats and Tasmanian devils, which are not otherwise found on the Australian mainland. During the summer, kids can enjoy fruit-picking in farms or watching sheep being shaved for wool. Adults would surely love to spend a day in a vineyard and indulge in local wine. Mountaineers will not be dis-appointed with the scenery from the top after a pleasant hike and seafood lovers should not miss the exotic experience of staying in

the shallow waters of an oyster farm to pick their own oysters and consume them directly in the water with a glass of champagne.

For those who wish to enjoy a bit of history, Port Arthur will offer good insight to the convict settlement during the 1800s when Britain stopped sending prisoners to America after its indepen-dence. The penal sites are still maintained in good shape, with educational tours offered to tourists to showcase the life of its inhabitants over 200 years ago. The site was added to the World Heritage List in 2010 and currently remains a top tourist attraction.

The Salamanca Market can be the final stop for some shopping. Only open on Saturdays, the good concentration of small stalls sell handicrafts, homemade honey and other souvenirs ideal for shar-ing with friends.

The sunshine is free for everyone to enjoy.

Lush landscapes in Tasmania by Connie Leong, Finance Director at Metrojet

Magic of colour Colour can make a difference to a wedding, as everyone has his or her own colour tone. Wedding couples can bring out their charm by select-ing a palette that matches with their personal tones.

Korean-styled wedding theme A personalized theme can be a good idea and the Korean style is currently quite hot in Hong Kong. Consider hav-ing a Korean-styled wedding and take the pre-wedding photo shoot in Korea as well.

Engage your guests at the banquet At a wedding banquet, guests often end up leaving early. Prepare some ideas to engage the guests all the way to the end of the banquet to keep them happy.

Use a wedding planner While many wedding couples don’t hire a wedding planner because they think it’s an extra cost, planners can actually make a big difference. An excellent planner can save on cost and time, as well as increase the quality of your experience.

Top wedding tips for a captivating event by Allan Lee, Chief Wedding Planner at Allan Wedding, Chairman of the Association of Image Architects Committee of Wedding Services Professionals and Principal of AIAS School of Wedding

October 2015 55

Hong Kong’s favourite humorist meets a CPA well-versed in survival, whether it’s in the office or the great outdoors

56 October 2015

A life in the day…. with Nury Vittachi

Invisible killer death plague stalks city. Panic buying hits stores. Scores of conferences

cancelled. Hong Kong isolated by raft of travel warnings.

When a global panic over the SARS virus hit Hong Kong in 2003, Elvin Chan found himself drawn into a new aspect of business: deal-ing with crises, an area now known as business continuity management.

He was working as an engineer at PCCW when he and his colleagues realized that if a single staff member was infected, many might have to be quarantined, causing the collapse of vital operations. “We tried to prioritize our operations and contact centres, and then to make different arrangements to split the teams,” he says. By dividing staff, any special-ist team grounded by virus fears could be quarantined while others with the same skill-set could keep the operation going.

At that time, Chan was already a man with multiple talents – the graduate in engineering was study-ing accounting, having decided that a talent with numbers was an essential asset. Yet his role in the SARS crisis gave him a new focus for his cross-disciplinary skills: he became the survival expert – the Bear Grylls of Hong Kong busi-ness. He was the man to turn to when the ability to keep going was at stake, whether it was helping young people climb a mountain or helping large corporations get through financial crises.

Chan, who currently works for Royal Bank of Canada as the Head of APAC Enterprise Business Con-tinuity Management, did not have

an easy road to success. He was a rebellious youngster but found a measure of salvation when he joined the Hong Kong Air Cadet Corps.

After joining the workforce as an engineer, he enrolled as a part-time accountancy student at Hong Kong Polytechnic University, becoming a CPA after nine years.

As a payback to the Air Cadet, he now serves others as a leader in the organization. It’s not easy. On one assignment, he and his team had to carry 20-kilo loads on a three-day hiking expedition, walk-ing from Sai Kung to Tsuen Wan. There were many moments when they wanted to give up. “But self-discipline and team spirit kicked in when we were extremely tired,” he said. They made it.

How does such a busy man bal-ance life and work? “Technology plays a very important role here as I always have to harmonize the work, volunteering family schedules,” he says.

Last year, he felt that it was wrong that crisis management experts tended to deal only with problems of a legal or reputational type and were office-bound: “I started realizing the importance of my professional work does not lie only in the commercial sector,” he says. He visited Tacloban, the wrecked city in the Philippines, which had been levelled by super-typhoon Haiyan, and was deeply moved. “I vowed to devote my life to this so that we may make the world a safer place to live,” he says.

That meant spreading disaster management skills to others. “So I started teaching at the University of

Hong Kong last year, to equip more people with the knowledge and skills to manage risks and disasters.”

But as a man with an eye on the future, he realized that disas-ters come in changing forms – and the humble signals that joined our digital devices to the internet (and helped him sort out his family prior-ities) could be the next great source of major problems.

So, after finishing a law degree last year (Chan seems addicted to difficult self-improvement chal-lenges), he is now pursuing to become a Certified Information System Auditor. “Beside natural disasters, I always believe that tech-nological disasters, also known as cyber-security incidents, are the next most probable and serious crises that we have to manage.”

And what happens if another invisible killer death plague stalks Hong Kong? And travel comes to a halt, quarantine laws are passed, and business is about to collapse?

Skip the panic buying. There’s a CPA in Central who will be happy to help.

Nury Vittachi is a bestselling author,

columnist, lecturer

and TV host. He wrote

three storybooks for

the Institute, May

Moon and the Secrets

of the CPAs, May Moon

Rescues the World

Economy and May

Moon’s Book

of Choices

The Bear Grylls of accounting