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Issue 8 Volume 18 August 2022 DRIVING BUSINESS SUCCESS VALUE AT STAKE With stakeholders now expecting more from companies, especially in the areas of environmental, social and governance, how can investor relations experts deliver better engagement? FAMILY OFFICES How are accountants helping to manage the wealth of highnet-worth individuals in today’s volatile business environment? PROFILE James Liu FCPA, Finance Director, IKEA at DFI Retail Group Holdings Limited SECOND OPINIONS As we trend towards deglobalization, how can companies adapt? PLUS:

PRESIDENT’S MESSAGE APLUS August 2022 1 This month, I participated in a series of interviews with the media to talk about the latest industry developments, the Institute’s implementation of Strategic Plan 2022 so far, as well as a wide range of issues related to the Institute’s operations. We reported on the smooth transition of the Institute’s regulatory role to the Financial Reporting Council (FRC) and further explained how the COVID pandemic has hindered the progress of the review between members of the Global Accounting Alliance, which has led to a temporarily shortened mutual recognition agreement renewal period. We also spoke about the ways accounting firms have been handling the issue of talent retention, which has also affected many industries and regulators in Hong Kong, as well as the opportunities for Hong Kong accountants in the Greater Bay Area. During the interviews, I also touched on the two exposure drafts setting out proposed International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards published by the International Sustainability Standards Board (ISSB) in March. With the period for comment having ended on 29 July, the ISSB must now analyse the comments received from more than 1,300 comment letters from jurisdictions spanning six continents, and deliberate how they will adjust the current proposals. A summary of the Institute’s response can be found on page 33 of this issue of A Plus while the full response has been made available on the Institute’s website. The Institute will continue to participate in the global discourse and will work closely with the relevant authorities to introduce the international sustainability reporting standards to Hong Kong. In late August, it was announced that the Ministry of Finance of The People’s Republic of China and the China Securities Regulatory Commission signed a Statement of Protocol with the United States Public Company Accounting Oversight Board (PCAOB). The landmark agreement allows the PCAOB’s access to audit workpapers of Chinese companies registered with the U.S. Securities and Exchange Commission and breaks a longstanding deadlock between the regulators of the two countries. While details of the arrangements have yet been announced, there is likely not much time before inspections are to be carried out. Without much detail at the moment of writing, the role of the local profession may likely involve coordinating, arranging, and centralizing audit workpapers from the Mainland to Hong Kong to facilitate the inspection process. Preparations will surely be underway as the U.S. has indicated its inspectors must be on the ground by mid-September for their work to be completed by the end of this year. On 16 August, the Institute and the FRC, which will be renamed the Accounting and Financial Reporting Council’s (AFRC), signed a Revised Statement of Protocol on Oversight Arrangement. The revised statement includes the AFRC’s broader responsibilities to oversee the Institute’s performance of its statutory functions under the further reform of the regulatory regime of the accounting profession, which commences on 1 October. The Institute has been closely working with the FRC over the past year to steer a smooth transition of the Institute’s statutory functions of regulating the accounting profession to the AFRC. After the completion of reform, the Institute will continue to shoulder the responsibilities of incubating talent and developing Hong Kong’s accounting profession, as well as the crucial role of setting industry standards. We will continue to ensure the profession’s dedicated contribution to maintaining Hong Kong’s status as an international financial hub. As the Mid-Autumn Festival approaches, I would like to wish our members and readers good health and joyful days ahead with their loved ones. Loretta Fong CPA (practising) President Dear members, “ After the completion of reform, the Institute will continue to shoulder the responsibilities of incubating talent and developing Hong Kong’s accounting profession, as well as the crucial role of setting industry standards.”

CONTENTS Issue 8 Volume 18 August 2022 NEWS 01 President’s message 04 Institute news 07 Business news FEATURES 08 Generating wealth With family offices seeing a boom in Hong Kong, how can accountants add value in this burgeoning industry? 14 Leadership: James Liu FCPA The Finance Director, IKEA at DFI Retail Group Holdings Limited, on the need for physical stores to sell furniture 20 Enhancing engagement How can investor relations professionals help companies to better engage with stakeholders and build long-term trust? 26 Second opinions As we trend towards deglobalization, how can companies adapt? 28 How to Catherine Wong, Chief Development Officer, Chorev Consulting International Ltd., on how to build strong business relationships with clients 29 Thought leadership: Pat Woo CPA (practising) The Partner and Head of ESG, Hong Kong at KPMG China on how corporates can eliminate greenwashing 30 Q&A with a PAIB Gigi Lee CPA, Senior Manager – ESG and Corporate Services at Dah Sing Bank, Limited 31 Q&A with a PAIP Adele Yim CPA, Head of Risk Advisory Services at Mazars 32 Meet the speaker What to expect from a webinar that covers the latest anti-money laundering and counter-terrorist financing obligations SOURCE 33 The Institute’s response to the ISSB’s exposure drafts on general and climaterelated disclosures A summary of the Institute’s 08 With recent announcements seeking to fortify Hong Kong’s status as a family office hub, experts look at other steps the city could take to promote itself as an attractive base for family offices 30 Q&A with a PAIB 31 Q&A with a PAIP Generating wealth

DRIVING BUSINESS SUCCESS About our name A Plus stands for Accounting Plus. It represents a profession that is rich in career options, stays relevant amid rapid changes, and adds value to business. This magazine strives to present the global mindset and varied expertise of Institute members – Accountants Plus. Editor Gerry Ho Email: gerry.ho@mandl.asia Managing Editor Jemelyn Yadao Copy Editor Jeremy Chan Associate Editor Nicky Burridge Contributor Thomas Lo Registered Office 2/FWang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia ISSN 1815-3380 President Loretta Fong Vice Presidents Roy Leung Edward Au Chief Executive and Registrar Margaret W. S. Chan Director of Corporate Communications Dr Wendy Lam Publication Manager Michael Wong Editorial Coordinator Maggie Tam Office Address 37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2287-7228 Fax: (852) 2865-6603 Member and Student Services Counter 27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Website: www.hkicpa.org.hk Email: hkicpa@hkicpa.org.hk response to two exposure drafts setting out proposed IFRS Sustainability Disclosure Standards by the ISSB 35 The SFC’s new regime for climate-related risk management and disclosure under the FMCC A step-by-step guide for smaller fund managers who will need to follow new guidelines in managing climate-related risks from this November 37 Technical news WORK-LIFE BALANCE 40 Finding inner peace CPAs yogis share the benefits that come with taking a deep breath and learning how to slow down 46 Young member of the month Ivan So CPA, Risk Advisory Manager at BDO 48 After hours Institute members recommend their favourite ways to unwind 48 40 Finding inner peace After hours 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 August 2022. Print run: 6,925 copies The digital version is distributed to all 47,258 members, 13,735 students of the Institute and 2,358 business stakeholders every month. 14 Room for growth James Liu FCPA, Finance Director, IKEA at DFI Retail Group Holdings Limited, on how he finds ways to grow the global furniture company’s footprint in Hong Kong, and the importance of driving sustainability initiatives within companies

On 16 August, the Institute and the Financial Reporting Council (FRC), which will be renamed the Accounting and Financial Reporting Council (AFRC), signed a Revised Statement of Protocol on Oversight Arrangement (Revised Statement of Protocol) which was witnessed by Christopher Hui, Secretary for Financial Services and the Treasury. The Revised Statement of Protocol includes the AFRC’s broader responsibilities to oversee the Institute’s performance of its statutory functions under the further reform of the regulatory regime of the accounting profession which commences on 1 October 2022. Institute responds to the ISSB’s exposure drafts The Institute has responded to the International Sustainability Standards Board’s (ISSB) exposure drafts on its International Financial Reporting Standard (IFRS) S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climaterelated Disclosures. Overall, the Institute is supportive of the ISSB’s proposals but has made several suggestions to ensure the smooth transition to the standards, especially for small- and medium-sized entities. A summary of the response can be found on page 33 in this issue of A Plus while the full response has been made available on the Institute’s website. The Global Accounting Alliance, of which the Institute is a member body among 10 of the world’s leading accounting institutes, also responded to the request for comments, stating it believes there is an urgent need for global sustainability reporting standards, and that a single set of high-quality sustainability reporting standards will serve the public interest and bring significant benefits to the global economy, capital markets, and society at large. In addition, Accounting for Sustainability (A4S), a charitable organization under The Prince of Wales’s Charitable Foundation, has coordinated responses by 86 chief financial officers from around the world and institutional investors representing more than £620 billion in assets under management to the consultation. The Institute is a member of A4S’s Accounting Bodies Network. Membership renewal for 2023 The next date of expiry for CPA memberships with the Institute is on 31 December. If you are a practising member, the renewal of your practising certificate, practice unit and registered public interest entity auditor registration (where applicable) with the AFRC (currently known as the FRC) will be subject to the successful renewal of your membership with the Institute. In order to allow more time for members who may need to complete the renewal procedures with the Institute before completing the renewal procedures with AFRC, the Institute will be allowing members to renew NEWS Institute news Business news 4 August 2022 HKICPA and FRC sign Revised Statement of Protocol on Oversight Arrangement (From left) Loretta Fong CPA (practising), President of the Hong Kong Institute of CPAs; Margaret Chan CPA, Chief Executive and Registrar of the Institute; Christopher Hui, Secretary for Financial Services and the Treasury; Marek Grabowski, Chief Executive Officer of the Financial Reporting Council and Kelvin Wong, Chairman of the FRC.

APLUS Resolution by agreement Lau Siu Wah CPA Complaint: Guilty of dishonourable conduct. Lau was convicted of criminal intimidation under sections 24 and 27 of the Crimes Ordinance (Cap. 200) in December 2020. The conviction was likely to have brought discredit upon Lau himself, the Institute or the accounting profession. As a result, he was guilty of dishonourable conduct under section 34(1)(a)(x) of the Professional Accountants Ordinance (Cap. 50). Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. Lau acknowledges the facts of the case and his non-compliance with the Professional Accountants Ordinance; 2. Lau be reprimanded; and 3. Lau pays costs of the Institute of HK$15,000. Settlements Fan Kin Nang CPA (practising) and Ken Fan & Co. The Hong Kong Institute of CPAs has withdrawn the complaint against Fan Kin Nang CPA (practising) and Ken Fan & Co. before a Disciplinary Committee paid a sum of HK$2,800,000 as a contribution to the respondents’ costs of and incidental to the investigation and disciplinary proceedings and discontinued the disciplinary proceedings. The Institute arrived at this decision in the interests of the public and the profession after further considering the merits of the case, the duration of the proceedings, and the potential impact on the application of the relevant professional standard. In the course of the disciplinary proceedings, the Disciplinary Committee gave directions in relation to disclosure to the respondents of certain unused materials held by the complainant. Cheng Sin Bun, Benson CPA (practising) The Institute has settled regulatory proceedings with Cheng Sin Bun, Benson CPA (practising) concerning alleged non-compliance with professional standards. The matter concerns audit deficiencies identified in a practice review conducted on PricewaterhouseCoopers (practice). The review covered the audit of the financial statements of a regulated entity for the year ended 31 December 2020, on which the practice expressed an unmodified opinion. Cheng was the engagement partner of the audit. The practice reviewer found that Cheng failed to exercise adequate professional scepticism in the audit their membership beginning on 1 October. Members will thus be able to do so one month earlier than the usual practice. To ensure that you are able to receive the annual renewal notice, please check and update your contact details in MyCPA on or before 9 September. Keeping CPD records and documentary evidence Members are reminded that they are required to keep their continuing professional development (CPD) records and documentary evidence of their verifiable CPD hours for a minimum of five years. Members selected for CPD compliance audit will need to produce the records and supporting documents to verify their CPD activities. 73rd National Day Celebration for the accounting profession The commemoration of the National Day of the People’s Republic of China is an important annual event for the accounting profession in Hong Kong. To celebrate the 73rd National Day this year, the Institute is co-hosting a celebration with the Association of Hong Kong Accounting Advisors, Hong Kong Association of Registered Public Interest Entity Auditors Limited, Hong Kong Business Accountants Association and The Society of Chinese Accountants and Auditors. In light of the current situation under the pandemic, no food or beverage will be provided during the celebration. Book your seat and subscribe for the newspaper supplement, or become a prize sponsor now. Council meeting minutes The abridged minutes from the July Council meeting are now available in the “Members’ area” of the Institute’s website. August 2022 5

due to his failure to obtain sufficient and appropriate audit evidence on the valuation of an investment and the accuracy of a bank balance. He also failed to prepare adequate audit documentation in support of the audit conclusion. As a result of the above, Cheng failed or neglected to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing; HKSA 230 Audit Documentation; HKSA 500 Audit Evidence; and HKSA 540 (Revised) Auditing Accounting Estimates and Related Disclosures. Settlement agreement: The Council of the Institute has agreed with Cheng that: 1. Cheng acknowledge the facts of the case and areas of non-compliance with professional standards; 2. Cheng be reprimanded; and 3. Cheng pay a financial penalty of HK$90,000 and costs of HK$35,100. Ip Pui Sum CPA (practising) The Institute has settled regulatory proceedings concerning alleged non-compliance with its professional standards by Ip Pui Sum CPA (practising). The matter concerns the compliance reporting and financial statements audit conducted by Sum, Arthur & Co. on an insurance broker for the year ended 31 December 2018. The firm expressed an unmodified auditor’s opinion on each of the two engagements. Ip was the engagement partner. The Institute concluded a practice review of Sum, Arthur & Co. in November 2021 and identified deficiencies in the above two engagements. There were inadequate procedures carried out in testing the insurance broker’s compliance with statutory requirements on professional indemnity insurance, handling of client monies and reconciliation of brokerage debtor and creditor balances. Deficiencies pertaining to the audit of the financial statements were also found in the firm’s procedures relating to planning and tests of internal controls, material account balances and maintaining of proper audit documentation. As a result of the above, Ip failed or neglected to observe, maintain or otherwise apply the following professional standards: • HKSA 230 Audit Documentation; • HKSA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements; • HKSA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment; • HKSA 320 Materiality in Planning and Performing an Audit; • HKSA 330 The Auditor’s Responses to Assessed Risks; • HKSA 500 Audit Evidence; • HKSA 530 Audit Sampling; and • The fundamental principle of professional competence and due care as specified in section 110.1 A1(c), as elaborated in section R113.1, under Chapter A of the Code of Ethics for Professional Accountants. Settlement agreement: The Council of the Institute has agreed with Ip that: 1. Ip acknowledge the facts of the case and areas of noncompliance with professional standards; 2. Ip be reprimanded; and 3. Ip pay a financial penalty of HK$120,000 and costs of HK$50,000. Yen Ching Wai, David CPA The Institute has settled regulatory proceedings concerning alleged non-compliance with its professional standards by Yen Ching Wai, David CPA. The complaint concerns the removal of Yen as one of the joint and several liquidators of a private company by the Court of First Instance in 2017 due to his conduct during the liquidation of the company. Yen appealed against the removal order but the Court of Appeal upheld the decision of the Court of First Instance and dismissed his appeal. The decision of the Court of First Instance brought discredit to Yen and the profession. As a result of the removal order, Yen failed or neglected to observe, maintain or otherwise apply the fundamental principle of professional behaviour under sections 100.5(e) and 150.1 of the Code of Ethics for Professional Accountants. Settlement agreement: The Council of the Institute has agreed with Yen that: 1. Yen acknowledge the facts of the case and areas of noncompliance with professional standards; 2. Yen be reprimanded; and 3. Yen pay a financial penalty of HK$100,000 and costs of HK$80,000. The Institute considers a settlement on the agreed basis to be in the public interest. In the circumstances, the Institute is satisfied that there is no purpose to be served in pursuing disciplinary proceedings. Details of the resolution by agreement and the settlements are available on the Institute’s website. NEWS Institute news 6 August 2022

NEWS Business The drop in net profit the Hong Kong Exchanges and Clearing (HKEX) recorded for the first half of the year. The figure, which sees the city’s bourse netting a profit of HK$4.84 billion, is lower than the HK$5.15 billion forecast by Bloomberg analysts, and its lowest interim profit in five years. The fall is the result of investment losses and lower fees from securities trading and initial public offerings, the HKEX unveiled in a post-results briefing on 17 August. HK$4.99 billion The loss Cathay Pacific Airways reported for the first half of the year. The figure, announced on 10 August, is 33.9 percent down from the same period in 2021 amid a rebound in passenger flights. Hong Kong’s strict travel measures for airline crewmembers remain the “single biggest impediment” to the company’s plans to operate more flights, according to its Chairman, Patrick Healy. Hong Kong’s unemployment rate dropped to 4.3 percent for May to July, 0.4 percent lower than the previous three-month period of April to June, according to figures released by the Census and Statistics Department on 17 August. The drop is attributed to the rise in local economic activity and the Hong Kong government’s wage subsidy scheme, according to Chris Sun, Secretary for Labour and Welfare. August 2022 7 The date the IFRS Foundation completed its consolidation with the Value Reporting Foundation. The consolidation follows a commitment made at 2021 United Nations Climate Change Conference to merge staff and resources of leading global sustainability disclosure initiatives. It will support the IFRS Foundation’s new International Sustainability Standards Board’s work to develop a comprehensive global baseline of sustainability disclosures for the capital markets. Norman Chan The former chief executive of the Hong Kong Monetary Authority and majority shareholder of a special purpose acquisition company (SPAC) that listed on the main board of the HKEX on 15 August. More than half of the SPAC, HKAcquisition Corp, will be owned by Chan, while the other 49 percent will be owned by Katherine Tsang, the sister of former Hong Kong chief executive Donald Tsang, and her nephew, Thomas Tsang. It is the third SPAC to complete an initial public offering under HKEX’s new listing regime for SPACs, which rolled out in January. “Make no mistake, though: The proof will be in the pudding.” The percentage gain in stock price AMTDDigital saw on 3 August, three weeks after listing on the NewYork Stock Exchange. This valued the Hong Kong-based company, which develops digital businesses, including financial services, at more than US$407 billion by the end of trading day, before losing value a week later. Though the cause of the surge in value is unclear, it meant the three-year-old company was briefly worth more thanWells Fargo &Co., Morgan Stanley and Goldman Sachs Group Inc., despite reporting just US$25 million in revenue for the year ended April 2021. 27% 1 August – Gary Gensler, Chair of the U.S. Securities and Exchange Commission, said in a statement after regulators in the U.S. and Mainland China reached a landmark deal this month. The agreement will allow the Public Company Accounting Oversight Board, the U.S. auditor watchdog, to access audits of Chinese companies listed on American exchanges. The agreement breaks a longstanding deadlock between the two countries. Mainland China has not allowed foreign regulators to scrutinize the audits of Chinese companies, citing state secrets, while the U.S. has said it will delist Chinese companies that fail to comply. The number of Chinese state-owned enterprises (SOEs) that plan to delist from the New York Stock Exchange this month. The voluntary delisting of the five SOEs, one of which is Mainland China’s leading energy and chemical company Sinopec, comes after all five were flagged by the United States Securities and Exchange Commission in May for failing to meet U.S. auditing standards. 5 The title of the statement published by the International Accounting Standards Board (IASB). The statement outlines the IASB’s priorities for the next five years and three main strategic priorities. More information can be found in Technical news on page 37. Third Agenda Consultation Feedback Statement 14,000% APLUS

Family offices WEALTH MANAGEMENT 8 August 2022

Despite the economic challenges created by the COVID-19 pandemic, the number of ultra-wealthy individuals in Asia is continuing to grow at a significant rate. A total of 87,460 people in Asia have amassed a fortune of at least US$30 million each, with this group collectively sitting on wealth worth US$10.2 trillion, according to wealth insight company Wealth-X’s World Ultra Wealth Report 2021. These ultra-high-net-worth individuals (UHNWI) are increasingly turning to family offices to help manage their wealth and assist with succession planning, creating significant opportunities for the financial services sector. In a bid to cement Hong Kong’s status as a family office hub, Financial Secretary Paul Chan FCPA announced plans to introduce a tax concession for family offices in the 2022-23 Budget. Under the proposal, which is expected to come into effect for the 2022/23 tax year, family-owned investment holding vehicles managed by single family offices in Hong Kong would be exempt from profits tax on qualifying transactions. In order to benefit from the exemption, the family office must have its central management in Hong Kong, be owned by members of the same family, have assets under management of at least HK$240 million and not be engaged in commercial or industrial activities. Dixon Wong FCPA, Head of Financial Services and Global Head of Family Office at InvestHK, says: “The proposed tax exemption would attract family offices to domicile in Hong Kong, creating more demand for investment management and other related professional services, including financial, legal, and accounting services. It will also deepen Hong Kong’s funding pool and create more business opportunities for the financial services industry.” Roy Phan CPA, Tax Partner at Deloitte China, agrees the change will make Hong Kong more attractive as a location for family offices, in part due to the tax certainty it provides. “Given the rapidly changing tax landscape, such as the refinement to the Foreign Source Income Exemption regime in Hong Kong, which is expected to be effective from 1 January 2023, it is important to have certainty on the tax exemption treatment for family offices,” he says. But Simon Ng CPA, Senior Partner at Consortium Family Office Limited, points out that the exemption would only apply to family-owned investment holding vehicles, which likely cover single family offices managing the assets of a single family, and not multi-family offices, which work on behalf of several families. “Some professionals and practitioners have commented that the scope is too narrow and won’t help to build Hong Kong up as a family office hub, as by only applying to single family offices, it misses out a major part of the business,” he says. GENERATING WEALTH With family offices being an important growth segment in the wealth and asset management industry in Hong Kong, the city is focused on cementing its status as a family office hub. Nicky Burridge finds out the challenges of maintaining Hong Kong’s competitive edge in this area, the evolving needs of high-net-worth families, and how accountants can play a role in this booming industry Illustrations by Axel Rangel García APLUS August 2022 9

Family offices WEALTH MANAGEMENT A competitive advantage Hong Kong was already a popular destination for both single and multifamily offices before the proposed new tax exemption was announced. Gigi Chan CPA, Founder and Chief Executive Officer of Wonder Capital Group, a boutique investment firm specializing in family offices, points out that Hong Kong’s status as an established financial centre with a diverse range of financial services and access to a wide range of investments, as well as all the necessary professional services needed to build and maintain an efficient family office, makes it a compelling base for family offices. Ng adds that Hong Kong’s role as a gateway to Mainland China, and the significant business and investment opportunities this creates, also gives it a unique advantage. He points out that there are two aspects to managing family assets, namely: wealth preservation and wealth creation. “Preservation is largely dependent on the principles and operation of law, as well as the integrity and effectiveness of the law and court system. I think most common law jurisdictions would argue that their system and infrastructure are the best,” he says. “So for Hong Kong, our unique position is acting as the front door to the Greater Bay Area, in particular, and in Mainland China in general, which gives us the edge over the others under one country, two systems.” Travis Lee CPA, Tax Partner, KPMG, and member of the Institute’s China Tax Subcommittee, adds that as family offices not only manage a family’s wealth, but also assist with succession planning, Hong Kong’s robust legal system and established trust structures also make it an appealing place in which to set up a family office. While not directly related to the running of a family office, Lee thinks Hong Kong’s diversified education sector, with top-tier government schools and a wide range of international schools, as well as a gateway to world-class universities in the Mainland, further increases its appeal as a location. “Families often choose to be based in the place where they set up their family office, and Hong Kong is well positioned from an education standpoint,” he says. A growing sector Family offices are an important growth component of the wealth and asset management industry in Hong Kong, according toWong. “The family office business is booming. According to an industry report, by 2026, the number of UHNWI in Asia and Australasia is expected to grow by 33 percent from 2021 to 2026, creating a huge demand for family offices. This is a rare and ideal opportunity for the asset management industry.” He adds that the government has introduced a number of initiatives which benefit family offices, including the newly launched Limited Partnership Funds regime, which offers low setup and operating costs, and tax exemptions on carried interest, subject to certain conditions, when the main investment activities of the fund are carried out in Hong Kong. It has also introduced a simplified mechanism to facilitate the re-domiciliation of foreign funds to Hong Kong as Limited Partnership Funds and open-ended fund companies, and has introduced the carried interest tax concession regime. In addition, it has created FamilyOfficeHK, a dedicated team at InvestHK, to provide one-stop support services to people interested in running family offices in Hong Kong. Wong says as of 1 June 2022, the team has been actively processing more than 50 cases from different regions, covering licensing, visa and marketing assistance, and has successfully assisted at least 13 family offices to set up or expand their business in Hong Kong, including Mainland, European, ASEAN, and North America family offices. Phan thinks the proposed profits tax exemption, coupled with the existing unified funds exemption and carried interest tax concession, will be a big step forward in attracting family offices to manage their assets in Hong Kong through different investment holding or fund structures. “The launch of Hong Kong fund vehicles, such as Limited Partnership Funds and open-ended fund companies, which have gained increasing popularity in the past year or so, will also be a catalyst to facilitate the ‘onshorization’ of investment structures,” he says. Lee points out that the increasing demand for succession planning, primarily fuelled by Chinese entrepreneurs’ need to plan, will also help to drive growth in the sector in the years ahead. “Succession planning broadly involves passing on wealth and the family business to the right people, and protecting the family’s wealth so that it can last for generations,” he says. “The number of family offices will increase going forward, particularly as Chinese families are observed to have a much stronger awareness of the reach of their third generation and need to turn their attention to succession planning and wealth protection. They see it equally important as driving business and investment “ Succession planning broadly involves passing on wealth and the family business to the right people, and protecting the family’s wealth so that it can last for generations.” 10 August 2022

APLUS returns.” Lee adds that succession planning varies between families, as no families are the same. For example, some families want to operate the family business over generations as the business stands for the family’s values, while others may prefer to exit the business and use the wealth for other investments to sustain succession. Chan also thinks Hong Kong will benefit from growing wealth in Mainland China. “There is a lot of potential from China that hasn’t been capitalized. The family office segment in China is still at its infancy and there is tremendous demand from Mainland China families looking for offshore asset managers in Hong Kong,” she says. But there are a number of challenges the city needs to overcome to increase further its attractions as a family office hub. Like much of the financial services sector, family offices are currently facing problems recruiting talent, and anti-pandemic measures disrupting mobility, according to Lee. He adds that Hong Kong also undeniably faces significant competition for family office business from Singapore. “Singapore is a very strong rival to Hong Kong in terms of attracting family offices, and it shares many similarities with Hong Kong in terms of positioning itself as a financial centre, therefore it is also attractive to family offices.” Chan adds that increasing connectivity with other markets to grow investment opportunities is also key to helping Hong Kong remain an attractive base. “I would like to see Hong Kong develop a more diversified portfolio of unique financial products and platforms that other competing markets do not yet offer,” she says. Ng suggests Hong Kong should also adopt a more strategic and coordinated approach to encourage family offices to be based in the city, with a single government department put in charge of the sector. “The Monetary Authority of Singapore offers a one-stop shop to family offices setting up there, in terms of tax, visas and so on. But in Hong Kong, you have to go to the Securities and Futures Commission for the relevant licence(s), the Immigration Department for a working visa and talk to someone else about office space and recruitment. Hong Kong needs to have one dedicated and speciality team where you can go to save time and effort.” He adds that the city should also introduce a simplified licensing regime and make it easier for the sponsoring family and professionals employed by family offices to obtain visas and school places. Lee thinks another important step the government could take would be to make it easier for the family to gain permanent resident status in the city. “It currently takes seven years, and voices from various sectors August 2022 11

in the city are calling for a revisit of the immigration policy, which is a long time by international standards. Hong Kong suspended its Capital Investment Entrant Scheme back in 2015, but it may be time to revisit the programme, or consider a new one.” Changing investment trends In the meantime, family offices already established in Hong Kong are becoming increasingly sophisticated in terms of their investments. Ng recalls the family office setup was already commonly found in Hong Kong when he was a junior accountant at a CPA firm 30 years ago, when clients would employ a small team of lawyers and accountants to manage their assets, such as renting out entire residential buildings, redeveloping land or properties, or investing in a side business such as restaurants. “In recent years, we have seen more full-scale family offices being established, with ultra-high-networth clients and families retaining their own investment professionals to manage their investments without solely relying on the traditional banks and fund houses as they previously did,” he says. Lee has seen a growing interest in environmental, social and governance (ESG) and socially responsible investing, as well as philanthropy, among family offices. “Family offices are increasingly not just about managing wealth but also about building up the family’s reputation in society; they care about howmuch they give away and who they give it to,” he explains. Lee adds that as the younger generation have become more informed in the decision-making, and investments are becoming more diversified and more globalized, often because this generation has spent time overseas. Wong agrees: “UHNWI, including the newly rich, are recognizing the importance of family offices in protecting and passing on their wealth. We note that their interest in green finance, the arts and philanthropy continues to grow.” He adds that Hong Kong is wellplaced to meet this growing demand, with the government committed to strengthening its position as a green finance hub, while it already has one of the largest green bond markets in the world. “Hong Kong also has an extensive network of philanthropic activities, and charitable assets account for about 3.3 percent of Hong Kong’s economy, the highest in Asia. The city is also the regional centre for more than 15,000 charitable organizations,” Wong adds. Phan has observed a trend for family offices to invest in digital assets. “Alongside traditional private equity and securities in the secondary market, more family offices are getting in on the digital assets trend by investing in cryptocurrencies, tokens, and nonfungible tokens,” he says. Family offices WEALTH MANAGEMENT 12 August 2022

APLUS A total of 87,460 people in Asia have amassed a fortune of at least US$30 million each, with this group collectively sitting on wealth worth US$10.2 trillion, according to wealth insight company Wealth-X’s World Ultra Wealth Report 2021. Chan agrees. “For the crypto world, while traditional investors have their eyes mostly on investment opportunities in the real world, the next generation are more open-minded and have started their journey in this area in recent years,” she says. “But, particularly after the adjustment of crypto in the past six months, investments require more solid backing and a decent structure, instead of being purely virtual. It will be very exciting to see how the market will evolve and how the market players will merge real and virtual to make the investment opportunities more viable and risk managed.” Opportunities for accountants The growth in family offices choosing to be based in Hong Kong creates significant opportunities for accountants. Chan says: “New rules and regulations create more opportunities for accounting and tax professionals to offer advice and services to users. Tax planning and implementations are always crucial for investments and businesses. Family offices will be keen to understand the new tax rule and how to capitalize on the benefits in practice.” She adds that accountants in Hong Kong generally have more diverse exposure to and experience of in different industries, markets and jurisdictions. “They are very resourceful for family offices and UHNWI, not only for their investments but their businesses. accountants should be more proactive about bringing their intelligence and knowhow of success factors, best practices and governance to family offices and UHNWI.” Chan suggests that to thrive in the industry, at a corporate level, CPA firms should seek solid partnership and co-organize events with financial institutions and multi-family offices, while at the individual level, they should learn more about financial products, tools and structures to provide more pragmatic solutions to investors. Lee points out that accountants play an important role in family offices. “Accountants are widely perceived by family business owners as being well trained, trustworthy, and sensitive to numbers. Indeed, these attributes are of paramount importance to drive the success and values of family offices. In addition, the network of accountants in Hong Kong is an important asset in the eyes of business owners as we have a huge accounting community here, and many issues can be solved through leveraging this network.” Ng thinks accountants also have an important role to play in helping to educate wealthy clients about the benefits the arrangement can bring the family. “As trusted advisors, accountants can introduce clients to the concept of a family office and the benefits it offers to effectively and efficiently manage their assets. Accountants also understand the current accounting and other regulatory regimes, such as Trust or Company Service Provider Licenses, and all the relevant initiatives proposed by the government where accountants then become the ideal party to advise clients on establishing a family office structure in Hong Kong.” He adds that most accountants have an in-depth understanding of the family business they have been dealing with, but many hesitate to reach out to the family and advise them on how to structure a proper and holistic platform to manage the family assets – not just the operating business but also the financial assets and other investments. Phan points out that accountants can also provide professional accounting and tax services to help UHNWI design, review and implement their investment holding structures, as well as their family trust structure where applicable. “Accountants also play an important role during the investment phase by providing due diligence (financial and tax), deal structuring and post-deal support services,” he says. Wong agrees that the growth in family office business in Hong Kong will not only boost the financial services industry, but also create a ripple effect for related professionals, including accountants, lawyers, compliance officers and risk management personnel. “With the strong support of the government and the continuous growth of private wealth in the Greater China region and Asia, the development of the family office industry in Hong Kong will definitely go up a notch,” he says. “ Family offices are increasingly not just about managing wealth but also about building up the family’s reputation in society.” August 2022 13

PROFILE James Liu FCPA ROOM FOR To elevate an already well-known, global furniture company to new heights, you have to think outside the box, says James Liu FCPA, Finance Director, IKEA at DFI Retail Group Holdings Limited. He tells Jeremy Chan how he helped to identify new avenues for growth since he joined and why some products – especially household furniture – simply sell better in person Hot dogs, ice cream, popcorn and meatballs. What may sound like the kind of food moviegoers line up to buy before a long film is, instead, readily available to eat at a furniture retail store. While most people wouldn’t associate delicious food with furniture shopping, it is the combination of both that perfectly encapsulates the shopping experience at an IKEA store, says James Liu FCPA, Finance Director, IKEA at DFI Retail Group Holdings Limited. By providing customers – who are usually hungry after navigating the labyrinthine aisles, showrooms and house fittings found throughout the store – with the promise of freshly-made food, Liu says this not only boosts sales, but keeps shoppers happy and most importantly, keeps them coming back. “In terms of the whole IKEA concept, our bistros are always set up next to the check-out counter. The food is quite affordable, so whatever spare change customers may have, they can choose to spend it on some food before they leave,” he says. But food wasn’t always on the company’s menu; IKEA began selling food in 1960, 17 years after being founded in 1943 in Sweden. It started by selling coffee and cold dishes by the end of that year, and was able to start selling hot food following the introduction of a microwave oven, which was a novelty item at the time. IKEA is the brainchild of Swedish-born Ingvar Kamprad, who started the company in Småland, Sweden as a mail-order sales business. The company name “IKEA” itself is a combination of the founder’s initials, with the addition of Elmtaryd, the farm on which he grew up, and Agunnaryd, a nearby village. Since opening its first store in 1958 in Almhult, Sweden under the name Möbel-IKÉA, the company has expanded globally and now has 473 stores in 64 markets. It opened its first store in Hong Kong in 1975 in Tsim Sha Tsui – its first branch in a Chinese-speaking territory – and now operates four large stores in the city along with four other smaller outlets in select districts. Jardine Matheson, a Hong Kongbased multinational conglomerate, had the license to operate IKEA stores in Hong Kong since 1988 and sold the rights to DFI Retail Group (formerly Dairy Farm Group), a subsidiary of Jardine Matheson, in 2002. DFI Retail Group currently operates IKEA stores in four markets: Hong Kong, Macau, Taiwan and Indonesia, and it is the second largest franchisee of IKEA. Photography by Leslie Montgomery GROWTH 14 August 2022

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PROFILE James Liu FCPA Creating opportunities Liu’s role at the company is diverse. “I’m in charge of the bookkeeping, management reporting, financial planning and analysis, budgeting, internal audit, risk and compliance, treasury and tax. These are the core functions of my finance role,” he says, adding that he also oversees the company’s non-trade procurement, property, company secretarial, legal and IT-related matters. “It’s a wide range of responsibilities, but that keeps the role exciting.” When Liu joined DFI Retail Group as a financial controller in 2016, he was first in charge of Giant, a hypermarket retail chain in Singapore. He then became the group’s head of finance of IKEA Hong Kong and Macau in 2018, and finance director of IKEANorth Asia in 2019 before taking on his current position in 2020 where he oversees multiple markets in addition to Hong Kong such as Macau, Taiwan and Indonesia. Like most companies in the city, IKEA has been grappling with the challenges of the last three years. “With the social unrest in the second half of 2019, people were either too afraid to leave their homes or weren’t in the mood to shop. Then, since early 2020 until now, we’ve been affected by COVID. So, sales over the last few years haven’t been the best,” says Liu. The economic downturn and ongoing outflow of expatriates in Hong Kong, Liu says, have also led to a drop in mid-year sales. “We’ve seen sales go down, especially at our Causeway Bay store. A lot of expats in Hong Kong are teachers, so during the summer months, we typically see a surge in sales,” he says. “They usually come in and buy furniture for their homes before the start of the school year. But we didn’t see that increase in sales last year, nor did we see it this year.” Recurring lockdowns in Mainland China, along with geopolitical issues earlier this year, inevitably led to supply chain issues, notes Liu. “Due to COVID lockdowns in Shanghai, as well as the Russia-Ukraine war, our stock availability was, at one point, down to 65 percent; in other words, a third of our shelves were empty. There were times we weren’t able to meet demand,” he says. Seeing is believing Liu says the in-store experience is critical to IKEA’s service offerings, noting that the nature of its products As Finance Director, IKEA at DFI Retail Group Holdings Limited, James Liu FCPA is responsible for its bookkeeping, management reporting, financial planning and analysis, budgeting, internal audit, risk and compliance, treasury and tax as well as non-finance duties. 16 August 2022

APLUS necessitates its sizable outlets. “The home furnishing business will always require a physical presence – people still want to touch and feel the material of the furniture before they make a purchase,” he says. Indeed, 71 percent of retail sales is still driven from in-store purchases, according to Inter IKEA Group Financial Summary FY21, the group’s 2021 financial report. The layout of each store is intentionally arranged to “inspire” each and every visitor, Liu highlights. “As soon as they enter one of our larger stores, the first thing they see is the demo rooms. We have five furnished rooms of different sizes to demonstrate how they can decorate their homes with our products,” he says. “We offer home furnishing solutions – that in itself is very important. A lot of the time, our customers may have a desire to improve their home, but they might not know how. So this in-store experience is key and sets us apart from other retail companies.” That, however, isn’t to say their online presence isn’t important at all, notes Liu. In addition to IKEA’s e-commerce website, the company also sells its furniture and accessories through a dedicated smartphone app. Liu and his team suggested that the company open smaller stores in Kowloon, the New Territories, and Hong Kong Island. This would allow the company to tap into new locations and drive revenue in districts located away from its four main outlets and offer customers increased accessibility and flexibility. The smaller establishments would offer an array of furniture, dining room products, accessories, food, as well as a “pick up point” for customers to pick up or return their purchases. “To generate sales, we’ve been focused on building smaller stores in Hong Kong in certain districts, such as our 5,000-square foot store in Tai Po, which we opened last year, followed by the opening of a 3,000-square foot outlet in Discovery Bay,” he says. Its largest store in Kowloon Bay, by comparison, is around 150,000 square feet large. The smaller shops, Liu adds, come with showrooms, and selected products to inspire customers with newways to furnish their homes and encourage them to visit one of their larger establishments. This month, IKEA opened its latest “small” store, a 15,000-square foot outlet in K11 Art Mall in Tsim Sha Tsui. The decision to set up smaller outlets was also driven by unique opportunities that Liu identified during the pandemic. “It was also about deciding whether we should be more conservative or aggressive in terms of our expansion strategy, and whether we should seize opportunities. In the end, we chose the latter,” he says. “Take our Tai Po and Tsim Sha Tsui shops for example. The landlord noted that there were a lot of tenants leaving, so we knew it would allow us to negotiate a good lease.” The smaller outlets have been well received by customers so far, says Liu. “Our customers appreciate the flexibility. They can enter, buy what they want, and leave. Some customers have said that it often takes too long to walk from one end of our parent stores to the other, so these smaller stores have helped with this,” he says. “The sales and profits have actually exceeded our expectations.” The company’s brand name also allowed them to expand in Indonesia, with the company opening a store in central Jakarta this year, with another store in Surabaya on its way. “A lot of tenants had to close their businesses due to COVID. This left a lot of malls empty and a need to bring tenants back, so our presence and brand name were able to drive a lot of footfall back to the mall.” Operating sustainably Sustainability has to be at the heart of the company’s operations, products and even its food and beverage (F&B) offerings, Liu says. Indeed, IKEA plans to ensure that all materials in its products will be renewable or recyclable by 2030 and to also become a climate positive business, or a company that offsets its carbon footprint by saving more greenhouse gas emissions than they are generating, that same year. “IKEA is a vertically integrated company. This starts at the product design stage with the use of raw, recyclable and sustainable materials such as bamboo, which grows relatively quickly, as well as the use of recycled wood,” he says, stressing that all materials go through vigorous testing to make sure they are durable and that the use of raw materials will not compromise the product. Sustainability initiatives are also found throughout the company’s supply chain, Liu points out. “We use electric vehicles for deliveries,” he says. “All our stores in Taiwan have solar panels installed on the rooftop, so we’re also using more solar energy to generate electricity,” he says. Liu says IKEA has also rolled out more sustainable food options over the years, such as plant-based meatballs, ice cream, local delicacies such as plant-based siu mai, and plans to introduce meatless hot dogs soon. “The idea is to consistently reduce our carbon footprint, so through each change, we try to further our sustainability agenda,” he adds. It is important for the company’s food options to meet the evolving demands of customers, he says. Sales from its F&B business, which includes sales from bistros, Swedish food markets and restaurants, make up roughly “A lot of the time, our customers may have a desire to improve their home, but they might not know how. So this in-store experience is key and sets us apart from other retail companies.” August 2022 17

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